January 4, 2013
Exceptions for Mortgagee’s Lack of Standing to Challenge Assignments in Texas
In Kramer v. Federal National Mortgage Association, et al., No. A-12-CA-276-SS (W.D. Tex May 15, 2012), the Western District Court in Austin, the home owner sued Fannie Mae, MERS, and Countrywide to quiet title and for a fraudulent foreclosure. Although the case was initially in state court, it was removed to federal court because of the diverse jurisdiction (i.e. the different state residency) of the plaintiff and defendants. The Court listed exceptions to the general rule that mortgagees lack standing to challenge assignments of the deed of trust. However, it ultimately granted the defendant’s motion to dismiss the home owner’s claims.
Kramer alleged that the assignment of the note and deed by trust from MERS was signed by a “notorious robo-signer” who did not have authority to execute the assignment. As a result, no conveyance could have occurred and any subsequent actions should be void. The defendants argued that Kramer lacked standing to challenge the assignments because he was not a party to them. Kramer relied on a California District court case (Johnson v. HSBC Bank USA, National Association), which was distinguished based on Johnson’s reliance on California law and on the facts of the case (the Court distinguished the same case in Bridges v. JP Morgan Chase Bank, N.A., et al.).
However, the Court does list two exceptions to the general standing rule. The first exception is “where an assignee of a claim sues the obligor for performance.” This exception is done to ensure that the obligor does not have to pay the same claim twice. (See Tri-Cities Constr., Inc. v. Am. Nat’l Ins. Co., 523 S.W.2d 426, 430 (Tex. Civ. App. —Houston 1st Dist. 1975, no writ)). A second exception allows a defendant sued on a negotiable instrument to assert defenses and claims held by others if the other person is joined in the action and personally asserts the claim against the person entitled to enforce the instrument. (See Tex. Bus. & Com. Code § 3.305(c)).
In this case, the obligor of the instrument (the owner who signed the deed of trust and note) is not at risk of paying the loan obligation twice and he is the plaintiff, not the defendant. As a result, the exceptions do not apply to him.
Since the exceptions did not apply to Kramer, he did not have standing to challenge the assignments of the note and deed of trust. As a result, his claim was ultimately rejected and the defendant’s motion to dismiss the suit was granted.
January 4, 2013 | Permalink | No Comments
Arizona 9th Circuit Bankruptcy Appellate Proceeding Finds Lack of Standing with Absence of Mortgage Note
In In re Veal, 450 B.R. 897 (B.A.P. 9th Cir. 2011) the court held that a party has standing to prosecute a proof of claim involving a negotiable promissory note secured by real property if, under applicable law, it is a “person entitled to enforce the note” as defined by the Uniform Commercial Code. Here, Wells Fargo Bank lacked standing because the purported assignment from Option One Mortgage Corporation to Wells Fargo did not contain language effecting an assignment of the Note. The reference in the Note served only to identify the Mortgage and once the Note is separated from the Mortgage, the Note becomes unsecured.
January 4, 2013 | Permalink | No Comments
December 31, 2012
Mortgagee Lacks Standing to Challenge Assignments in Texas
Bridges v. JP Morgan Chase Bank, N.A., et al., No. A-12-CA-635-SS (W.D. Tex Sept. 21, 2012), is a recently decided federal district court decision in Texas. The Western District Court in Austin granted the defendant’s motion to dismiss the plaintiff’s suit. The plaintiff, Bridges, is suing a number of financial entities including Chase Bank and MERS.
The plaintiff alleged that the initial transfer of her mortgage to MERS was not a proper transfer because MERS does not hold the note (MERS only held the deed of trust). However, this court relied on cases that held Texas foreclosure law enforces the deed of trust, not the underlying note. Additionally, Texas does not require possession of the original promissory note as a prerequisite to foreclosure.
The defendants also argued that the Bridges lacked standing to challenge the validity of the assignments of the note and deed. A number of Texas Federal District Courts held since the mortgagee was not a party to the assignments, they do not have standing to challenge the validity of the assignments. This Court rejected plaintiff’s reliance on a California Southern District court holding because the holding relied on California state law and was distinguishable because the plaintiff of the California case claimed deficiencies in the assignment that resulted in high payments to the wrong entity.
Bridges also alleged various fraud and misrepresentation claims that were either inapplicable (a statutory fraud claim applying to real estate does not apply to loan transactions), or does not fulfill the required elements (a negligent misrepresentation claim is dismissed because plaintiff did not rely to her detriment). A claim of filing a fraudulent lien was dismissed because the Bridges lacked standing to challenge the assignment (since she was not a party to it).
December 31, 2012 | Permalink | No Comments
December 24, 2012
District Court of Arizona finds homeowners do not have standing to challenge validity of assignments of deed of trust
In Campbell v. California Reconveyance Co., CV-11-00180-PHX-DGC, 2012 WL 5299099 (D. Ariz. Oct. 25, 2012), the court denied plaintiffs/homeowners, David & Marie Campbells’ motion for summary judgment, finding they lacked standing.
In July, 2006, plaintiffs received a loan from First Magnus Financial Corp, and signed a promissory note for $417,000 and a deed of trust. The deed of trust was then assigned by MERS to U.S. Bank in 2009. At trial, plaintiffs disputed the legitimacy of this assignment, claiming it was held on behalf of Chase rather than U.S. Bank (who were both defendants to this suit). Plaintiffs did not dispute that defendants’ counsel held the original note at trial.
In 2009, plaintiffs were accepted into a modification plan with Washington Mutual; however, after seven payments the modification was rescinded because their income was too high. Plaintiffs continued to make payments under the terms of the modified plan until August 2010, when Chase (who had since acquired Washington Mutual) returned the payment. In October 2010, California Reconveyance Company (“CRC”) filed a Notice of Trustee’s Sale, which had been postponed pending the outcome of this litigation.
First, plaintiffs sought a declatory judgment vacating the substitution of the trustee, the assignment of the deed of trust, and notice of the trustee’s sale based on alleged fraud or violations of the terms of the trust. Defendants argued plaintiffs lacked standing, citing multiple federal decisions for the proposition that “borrowers do not have standing to challenge assignments of deeds of trust related to their loans” (emphasis added).
The court agreed with defendants, finding plaintiffs were challenging assignments “to which they [were] not parties and in which they did not participate… [they] do not argue that the transactions somehow altered their legal rights or changed their obligations under the note and deed of trust.” The court went on to note that plaintiffs’ concrete and particularized injury claim, namely, that they would be vulnerable to future legal action by the true owner of the note, was insufficient based on both Arizona’s anti-deficiency law, Sec. 33-279(a), and the facts of the particular case. Since plaintiffs did not identify any entity other than the defendants who may have had an interest in the note and deed of trust, the principles of judicial estoppel would preclude defendants from changing their position at a later date. The court concluded that plaintiffs’ argument that the true owner may exist “somewhere” was “nothing more than conjecture” and thus plaintiffs lacked standing to challenge the assignments.
Additionally, the court dismissed plaintiffs’ claim for quiet title as Arizona law prohibits this relief until the mortgage is paid in full. The court also rejected plaintiffs’ claim that Chase breached its duty of good faith and fair dealing related to the renegotiation of the loan, as Chase never entered into a contract with plaintiffs. Similarly, plaintiffs’ request for an accounting on information related to the loan was denied, as plaintiffs did not allege any agency or trust relationship with Chase. Finally, injunctive relief was denied as summary judgment had been granted to defendants on all other claims.
December 24, 2012 | Permalink | No Comments
December 20, 2012
9th Circuit Affirms Dismissal of Homeowner’s Challenges to Non-judicial Foreclosure in Arizona
In Buchna v. Bank of Am., NA, 478 F. App’x 425 (9th Cir. 2012), the court affirmed the District Court of Arizona’s dismissal of plaintiffs/homeowners Mariusz and Julita Buchna’s action against Bank of America, MERS, and Bank of New York Melon Corp. Amongst other allegations challenging the propriety of the foreclosure proceedings, the court found the Buchnas had failed to state a claim on four different grounds.
First, the Buchnas claimed that splitting the note and deed of trust rendered the non-judicial foreclosure provisions in the deed unenforceable. The court found this argument failed to state a claim and noted it was “conclusory speculation” that the parties exercising power under a deed of trust were not the note holders or agents of the holder. Particularly as the plaintiffs did not dispute the default nor the trustee’s right to foreclose.
Second, the court rejected the Buchnas claim that the beneficiary was required to prove ownership of the note before commencing a non-judicial foreclosure for the same reasons.
Third, and most interestingly, the Buchna’s argued defendants were not permitted to enforce the power of sale provision in the deed because they were not “persons entitled to enforce a negotiable instrument” under Sec. 47-3301 of Arizona’s UCC. The court again found this argument failed to state a claim as Arizona law does not require compliance with the UCC before a trustee commences a non-judicial foreclosure.
Fourth, the court found the Buchna’s argument that MERS was not a valid beneficiary also failed to state a claim.
Finally, the court affirmed the district court on all other grounds, and affirmed the implicit denial for the Buchnas to amend their complaint, as “amendment would have been futile.”
December 20, 2012 | Permalink | No Comments
December 17, 2012
NCUA Sues JP Morgan over MBS Representations
The National Credit Union Administration has sued J.P. Morgan Securities and Bear, Stearns & Co. for alleged securities laws violations relating to the sale of mortgage-backed securities to 4 credit unions that are now in NCUA conservatorship. According to the complaint, Bear Stearns (now owned by JPMorgan) made misrepresentations to the purchasing credit unions as part of its underwriting and sales of the MBS. The press release notes that NCUA has initiated eight similar suits against a variety of financial institutions.
One of the representations at issue states that “a mortgage loan will be considered to be originated in accordance with a given set of underwriting standards if, based on an overall qualitative evaluation, the loan is in substantial compliance with those underwriting standards.” (Complaint paragraph 408, page 170)
Given what we know about a lot of the securities that were issued, it is hard to imagine that reps like this were not violated for many of them.
December 17, 2012 | Permalink | No Comments
