February 5, 2013
Pennsylvania Bankruptcy Court Holds that Mortgage Servicer Lacks Standing to Make a Motion for Relief from Stay Placed on Mortgaged Property in a Bankruptcy Proceeding
In In re Michelin Alcide, 450 B.R. 526 (Bankr. E.D. Pa. 2011), the United States Bankruptcy Court for the Eastern District of Pennsylvania held that the mortgage loan servicer did not have standing to make a motion for relief from the automatic stay placed on the mortgaged property when debtor commenced a bankruptcy proceeding. In this case, Everhome Mortgage Company, the mortgage loan servicer for the Debtor’s mortgage holder, Everbank, filed a motion for relief from the automatic stay in order to foreclose on the debtor’s property. In response, the Debtor claimed that Everhome (1)”has not established it has the legal authority to enforce the Mortgage and therefore lacks standing” or, in the alternative, that Everhome (2) “is not a ‘party in interest’ or it is not the ‘real party in interest.’” The court agreed with the Debtor on both assertions.
In order for a party to file a motion for relief from the automatic stay, the burden is on the movant to prove that it has (1) some legally protected interest “that either has been adversely affected or that is in actual danger of being adversely affected,” and (2) the movant “must be asserting its own rights and not that of another entity,” meaning a “movant must have authority to enforce the mortgage under nonbankruptcy law.” Under Pennsylvania law, a mortgage loan holder or an assignee of the mortgage has the power to commence a foreclosure action and thus has the right to file a motion for relief from automatic stay. Conversely, a mortgage loan servicer may only file a motion for relief if it shows evidence that it has authority from the mortgage loan holder to initiate such proceeding on behalf of the mortgage loan holder.
Here, while Everbank did have a legally protected interest since it had a financial stake in the mortgage, it did not show it had authority form the mortgage loan holder to initiate a motion for relief from the stay on its behalf. A servicing agreement in which Everhome authorized Everbank to conduct mortgage foreclosure proceedings on its behalf would suffice, but no such servicing agreement was put into evidence. Thus, Everbank did not have standing and the court dismissed the motion without prejudice.
February 5, 2013 | Permalink | No Comments
California Court of Appeal Upheld Beneficiary’s Demurrer to Plaintiff’s First Amended Complaint
In Arnolds Mgmt. Corp. v. Eischen, 158 Cal. App. 3d 575, 205 Cal. Rptr. 15 (Ct. App. 1984), the California Second District Court of Appeal held that before Arnolds Management Corporation (AMC) could set aside a non-judicial foreclosure under a deed of trust because of irregularities in the sale, AMC must first tender the full amount owing on the senior obligation.
Hicks executed a promissory note secured by a first deed in favor of Safeco as trustee and Eischen as beneficiaries. Two years later, Hicks executed a second deed in favor of Reliable Reconveyance Corporation as trustee and all plaintiffs except AMC as beneficiaries. In 1982, Hicks defaulted under the first deed. But Safeco failed to give AMC statutory notice of sale so the sale was postponed. Later, Safeco incorrectly told AMC that the foreclosure sale would be on July 28, 1982, when instead the sale took place on May 27, 1982. As a result, Safeco conducted the foreclosure sale, the Eischens were the highest bidders, and AMC did not attend or participate. AMC, as junior lienors, wanted to set aside the non-judicial foreclosure sale under a senior lien based on the alleged defect in notice of the sale.
AMC claimed that the rule requiring a tender of the full obligation prior to suit is applicable only to trustor litigants and not to junior lienors who are not personally responsible for the senior obligation. The Court disagreed and held: 1) that a junior lienor, such as AMC, must allege tender of the senior obligation as an essential element of any cause of action based upon irregularities in the sale procedure. Otherwise, AMC could state a cause of action without the necessary element of damage to themselves. 2) AMC’s action must fail because their tender of payment was not an unconditional offer to pay all of the sums necessary to cure the default. AMC’s offered Eischens more favorable terms, but the Court held that their offer did not meet the amount due under the senior obligation. And finally, 3) AMC is not a real party in interest because it did not allege that it had an interest in the property or was a prospective bidder at the trustee’s sale prepared to pay the senior obligation. Thus, the Court ultimately held that AMC did not allege any facts which would allow it to maintain its action.
February 5, 2013 | Permalink | No Comments
United States District Court in California Holds that MERS “Assignee” Lacked Standing Because no Evidence Showed MERS held the Note
In Saxon Mortg. Services, Inc. v. Hillery, C-08-4357EMC, 2008 WL 5170180 (N.D. Cal. Dec. 9, 2008), the United States District Court, in the Northern District of California granted Hillery’s motion to dismiss because Saxon Mortgage Services, Inc., lacked standing.
Hillery obtained a loan from New Century Mortgage. A deed of trust for Hillery’s home secured repayment of the loan to New Century. Pursuant to the deed of trust, MERS was named as nominee for New Century, its successors, and was designated the beneficiary of the deed. Three days after obtaining the loan from New Century, Hillery tried to rescind the loan pursuant to the Truth in Lending Act (TILA). About a year later, Saxon, acting as the servicer for the loan, stated that it had received Hillery’s request to rescind. A year later, MERS, acting as nominee for New Century, assigned the deed of trust and promissory note to Consumer.
Saxon and Consumer brought suit against Hillery and Spielbauer Law Firm, asserting claims for declaratory relief pursuant to TILA. Hillery then filed a motion to dismiss claiming 1) insufficient service of process, 2) lack of subject matter jurisdiction, 3) lack of standing, 4) failure to state a claim for relief, and 5) failure to join an indispensable party.
Saxon provided proof of service, signed by a process server under penalty of perjury, supporting his assertion that substitute service was affected on Hillery. The Court acknowledged Hillery and her grandson’s declarations to the contrary, but held that those declarations were not enough to overcome the prima facie case established by Saxon. Additionally, the Court held that Saxon properly served the Spielbauer Law Firm because service was accomplished within 120 days of Saxon filing their complaint.
Hillery argued that a federal claim that is insubstantial cannot serve as the basis for federal question jurisdiction. Consumer claimed, however, that were Hillery to have filed suit first, her claims would have included allegations of TILA violations. Ultimately, the Court held that Hillery failed to demonstrate how Consumer’s TILA rescission claim would be insubstantial, since Hillerly threatened to bring a TILA rescission claim.
For Saxon to have standing, Consumer would also need to have standing. Thus on the issue of Consumer’s standing, the Court stated that there was evidence showing that the deed of trust was transferred to Consumer. New Century designated MERS as the beneficiary of the deed and gave MERS broad authority to act with respect to the property. Thus, the Court assumed that MERS had the power to assign the deed to Consumer and eventually did around June 20, 2008. But for there to be a valid assignment of the deed and the promissory note must be assigned. Here, there was no evidence establishing that MERS held the promissory note or was given authority by New Century to assign it. Thus, the Court held that Consumer did not have standing, and granted Hillery’s motion to dismiss without prejudice.
February 5, 2013 | Permalink | No Comments
Court in Rhode Island Rejects the Disconnection Theory
In Payette v. Mortgage Electronic Registration Systems, No. PC-2009-5875, 2011 WL 3794701 (R.I. Sup. August 22, 2011), the plaintiffs do not challenge the allegation they defaulted on the note, however they challenged both the foreclosure sale and the title acquired by the buyer from the sale.
The court first determined whether a conversion of the motion for judgment on the pleadings was proper. Conversion of the motion for a judgment on the pleadings into a motion for summary judgment without expressly notifying the parties is permissible in Rhode Island. However, this requires notice that a conversion may occur. The court found that inviting a conversion qualifies as notice. In addition, the court found that the current case, which lasted two years, is longer than the ten month period that was found sufficient to justify converting a motion without previously notifying the parties.
The court stated that exhibits were attached to the motion for judgment on the pleadings. Evidence outside of the pleadings are not relevant to the judgment. As a result, if the “matters outside the pleadings are presented to and not excluded by the court, the motion “shall be treated as one for summary judgment.” Super. R. Civ. P. 12(c).
The plaintiff challenged previous assignments of the mortgage under the mortgage agreement and under Rhode Island’s statutes, allegedly resulting in the illegal foreclosure sale. However, the court adopted the reasoning in both Porter, which was recently decided, and Bucci. As a result, the court found that the assignments were proper under both the mortgage agreement (due to clear language granting the authority to MERS) and the statute (rejecting the plaintiff’s narrow statutory interpretation).
The court notes that in this case, MERS assigned its nominee status and mortgage interest to another party, which is different from the two cases. However, the court found the language to mortgage, grant, and convey [the property] to MERS … and to the successors and assigns of MERS’” clearly indicates that the MERS had the ability to assign the rights. In addition, the plaintiff gave MERS the authority to assign the rights in another provision of the agreement granting the “right to exercise any and all of [the lender’s] interests, including… [the right] to take any action required of Lender including, but not limited to, releasing this Security Instrument.”
A third argument by plaintiff is based on agency law, alleging a bankruptcy terminated the relationship between MERS and the original Lender. However, the court relied on Porter to reject the claim that the bankruptcy can negate the contractual agreement. The court found that MERS’ right to act as nominee for the Lender and for the Lender’s “successors and assigns” clearly maintains the relationship regardless of the state of the Lender.
The court next addressed a claim that the initial assignment of the Mortgage to MERS “disconnected” the note and mortgage, leaving both obligations invalid at their inception. This is very similar to the split note theory. However, the court relies on the “voluminous and well-reasoned authority” of other jurisdictions that rejected this theory to do the same. Additionally, the court notes that the analysis in Porter and Bucci presupposed that an assignment of the mortgage to MERS was valid. The court also found the mortgage and note were “clearly reunited” when both documents were transferred to the foreclosing party.
Finally the court addressed a challenge to MERS based on alleged misconduct of handling the plaintiff’s mortgage. However, the court found the plaintiffs lacked standing to challenge mortgage assignments and their effects. The court again relied on the reasoning of other jurisdictions that the court found persuasive. The court found the plaintiff’s allegations of misconduct by MERS (namely alleging their mortgage was robosigned) were not supported by evidence.
Ultimately, the court granted summary judgment for the defendants.
February 5, 2013 | Permalink | No Comments
Ohio Court of Appeals Holds that MERS, as Mortgagee, has Standing to Foreclose Despite Lacking a Beneficial Interest in the Note
In Mtge. Electronic Registration Sys., Inc., v. Mosley, 2010-Ohio-2886, the Court of Appeals of Ohio held that MERS had standing to foreclose on the homeowners. The court found that language in the mortgage naming MERS as nominee, as well as a provision explicitly giving MERS the right to foreclose on the property, was sufficient to give MERS standing to foreclose. The court was not persuaded by the argument that MERS lacked standing because MERS did not have a beneficial interest in the underlying note. In response to this argument, the court stated, “The fact that MERS, the mortgagee, lacked a beneficial interest in the note that was secured by the mortgage does not deprive MERS of standing to enforce the note and foreclose the mortgage. . . . MERS has always been the mortgagee and [thus] has had a contractual right to foreclose on the Mortgage.”
February 5, 2013 | Permalink | No Comments
February 4, 2013
More on CFPB Ability-To-Pay Rule
Attorney Robert Barnett asks whether the CFPB’s new Ability-To-Pay Rule is too rigid. He says that ‘the insistence on a solid 43 percent debt-to-income ratio will exclude many very solid applications from qualification as a Qualified Mortgage . . ..” (1) He also argues that LTV and credit scores are more reliable predictors of default and that there is no reason to trump them with a firm debt-to-income limitation. Barnett cites a study from the Housing Policy Council that indicates that loan volume would drop more than 18 percent when DTIs were reduced from a range of 44 to 46 percent to a range of 40 to 42 percent. This drop in loan volume was accompanied by a relatively modest drop in the default rate from 1.59 percent to 1.43 percent.
I can’t speak to the merits on this, but it does raise an important question: what mechanisms are in place at the CFPB to go back and test such rules to ensure that they are appropriately balancing consumer protection with consumer opportunity.
February 4, 2013 | Permalink | No Comments
Florida Court of Appeals Held that Bank Defendant had Standing to Bring Foreclosure Claim and Plaintiff’s Due Process Rights were Not Violated
In Harvey v. Deutsche Bank Nat. Trust Co., 69 So. 3d 300 (Fla. Dist. Ct. App. 2011), the District Court of Appeal of Florida, Fourth District, held that Deutsche Bank had standing to bring a foreclosure action as holder of the promissory note, and Harvey’s (borrower/homeowner’s) due process rights were not violated when the Circuit Court denied his motion for reconsideration without a hearing.
On September 17, 2009, Deutsche filed a motion for summary judgment, along with an affidavit of indebtedness. However, on September 30, 2009, Deutsche filed an affidavit of lost note. At that point, the trial judge told Harvey that nothing would be done until the lost note affidavit was in the court’s file. On October 29, 2009, Deutsche filed a copy of the assignment of mortgage from MERS to Deutsche, with an effective date of March 31, 2009.
Harvey argued that the assignment was fraudulent because it was not filed until twenty days after Deutsche filed the foreclosure. But the trial judge claimed that there was no record evidence supporting Harvey’s position. Harvey then filed a motion for reconsideration which was denied by the Circuit Court. Harvey appealed claiming 1) summary judgment should not have been granted because a genuine issue of material fact existed as to Deutsche’s standing to foreclose and 2) the Circuit Court erred and violated Harvey’s due process rights by denying his motion for reconsideration without holding a hearing. Here, the Court held 1) because the note at issue was payable to AHMAI, indorsed in blank, and Deutsche possessed the original note and filed it with the Circuit Court, Deutsche’s standing could be established from its status as the note holder regardless of any recorded assignments. 2) Harvey failed to present evidence supporting her argument that the mortgage assignment had questionable signatures. And 3) due process does not require a trial court to hold a hearing before it denies a motion for a new trial. Thus, since the Circuit Court properly found that Deutsche had standing to enforce the note — based on uncontroverted record evidence—Harvey’s motion for reconsideration was properly denied without a hearing and summary judgment was properly granted.
February 4, 2013 | Permalink | No Comments
