February 5, 2013
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
Florida Court of Appeal held that Loan Servicer Defendant was the Proper Holder of Promissory Note and Mortgage, and Granted Summary Judgment
In Riggs v. Aurora Loan Services, LLC, 36 So. 3d 932 (Fla. Dist. Ct. App. 2010), the District Court of Appeal of Florida, Fourth District, held that Aurora Loan Services, LLC, was the lawful holder of a promissory note and affirmed the Circuit Court’s decision granting Aurora’s motion for summary judgment.
Riggs, the borrower/homeowner, objected to Aurora’s foreclosure action on the grounds that Aurora’s promissory note had a blank indorsement and thus failed to conclusively establish that Aurora was the lawful owner and holder of the note. The Court disagreed.
Aurora possessed the original note which was indorsed in blank and signed as required. The Court noted that because the indorsement was a blank indorsement, the note was payable to bearer and could be negotiated by transfer of possession alone. The Court then held that Aurora was the holder of the note, and was entitled to enforce it, because the note was negotiated by its transfer of possession. The Court also found no authentication issue since Riggs never challenged the authenticity of the signature at issue in his pleadings, and because the promissory note was self-authenticating. Thus, because Aurora offered supporting affidavits and the original note with a blank indorsement, the Court held that Aurora was the proper holder of the note and mortgage.
February 4, 2013 | Permalink | No Comments
February 1, 2013
United States District Court in Florida Denies Plaintiff’s Motion to Remand Case to State Court
In Diversified Mortg., Inc. v. Merscorp, Inc., 809-CV-2497-T-33EAJ, 2010 WL 1793632 (M.D. Fla. May 5, 2010) the United States District Court, in the Middle District of Florida, denied Diversified Mortgage Inc.’s motion to remand its case to state court. MERS originally removed its case to federal court alleging complete diversity of citizenship between the parties and an amount in controversy above $75,000. Diversified filed the motion to remand the case claiming that the amount in controversy “ha[d] not been met.” Diversified argued that it did not request monetary damages but instead sought declaratory and injunctive relief. The Court noted, however, that “for equitable claims such as ones for declaratory or injunctive relief, the amount in controversy is determined by the object of the litigation that will flow to Diversified, not the damages.” Thus, because Diversified sought declaration as to whether it had any ownership in 65-135 mortgage loans, the amount in controversy would be determined from the monetary value of the benefit the Court declared Diversified had in the mortgages at issue.
Diversified responded by claiming that if it had an interest in the mortgages, it is unlikely that Diversified would seek collection from MERS. Instead, Diversified would pursue many individual actions against unidentified mortgage companies, or not pursue any actions at all. But the Court noted that the amount in controversy is determined by the face value of the mortgages and not by the level of ease or difficulty associated with collecting the loan amounts. Consequently, the Court reviewed the mortgage documents, determined that the amount in controversy exceeded $75,000, and denied Diversified’s motion.
February 1, 2013 | Permalink | No Comments
Borden and Reiss on Lawyers and REMICs
Our latest, Dirt Lawyers and Dirty REMICs, is on SSRN and BEPress.
February 1, 2013 | Permalink | No Comments
