January 7, 2013
District Court of Arizona Dismisses Homeowners’ 72-Member Complaint, Finding MERS’ Securitization System Consistent with Theories of Real Property Law
In In re MERS Litigation, the District Court of Arizona dismissed all seventy-two member cases of a multi-district litigation “Consolidated Amended Complaint” (CAC) brought on behalf of numerous homeowners. Plaintiffs alleged defendants, including MERS, had violated various state statutes including ARS Sec. 33-420, NRS Sec. 107.080, and ORS Sec. 86.735, and committed the tort of wrongful foreclosure, amongst other violations. Eleven defendants filed motions to dismiss, with several additional defendants filing joinders to MERS’ motion.
The crux of plaintiffs’ claims turned on the position that “naming MERS as a beneficiary on the deeds of trusts, and the subsequent operation of the MERS system, splits the MERS deeds of trust from their promissory notes and renders these notes unsecured and unenforceable.” Plaintiffs premised this argument on three basic theories of real property law.
First, to foreclose you need to be a beneficiary.
MERS is not and has never been.
Second, to foreclose the deed of trust must be a valid enforceable security instrument.
The MERS Deeds of Trust are not and never were because they never named a valid beneficiary and were split from the note they were supposed to secure at the time of their creation.
Third, if MERS was actually in possession of some right as an agent under the Deed of Trust, its attempted assignment was ineffective because only the true beneficiary (i.e. principal) can make such an assignment.
The court rejected plaintiffs’ theories and in turn the CAC in its entirety. First, the court rejected the notion that naming MERS as a beneficiary completely destroys the security and bars all attempts at non-judicial foreclosure. Citing the 9th Circuit, the court stated “even granting that MERS is a sham beneficiary and the note is split from the deed [the] conclusion that …no party has the power to foreclose does not hold.” (emphasis added, internal citations omitted). Second, the court rejected the notion that MERS’ assignments were invalid because they never possessed the promissory notes. Referring to the language in plaintiffs’ Deeds of Trust – the court relied on the provisions granting MERS legal title to the secured interests and the power to assign those interests as dispositive. In turn, the court dismissed all twelve of plaintiffs’ claims for relief. Additionally, though plaintiffs did not explicitly request leave to file an amended complaint, the court found that there would be some level of prejudice to defendants, and that “futility – weighs heavily against granting leave to amend” as “plaintiffs [have already had] several bites at the apple.” Accordingly, the court dismissed with prejudice.
While the court noted the argument was moot for purposes of this decision, it did grant one small victory to plaintiffs in agreeing that the Housing and Economic Recovery Act of 2008 (“HERA”) does not preclude courts from enjoining foreclosures. Defendant Federal Housing Finance Agency (“FHFA”) as Conservator of Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) had intervened in nine separate cases pending in this litigation. In their motion to dismiss, FHFA relied on the language of U.S.C. Sec. 4617(f) that restricts judicial action that would “restrain or affect” the powers of FHFA to argue courts lacked the power to issue injunctions in non-judicial foreclosures. The court disagreed, stating there was no “authority standing for the proposition that the FHFA, or a similarly situated entity, may never be enjoined from bringing a non-judicial foreclosure. If plaintiffs overarching MERS argument was correct, and [Fannie Mae and Freddie Mac had] no enforceable interests in the properties at issue, then FHFA would also lack any enforceable interest.”
January 7, 2013 | Permalink | No Comments
January 5, 2013
Alabama Civil Court of Appeals finds that MERS Assignee has Standing to Initiate Foreclosure Proceedings
In Crum v. LaSalle Bank, 55 So.3d 266, (Ala. Civ. App. 2009), the court held that the assignee of the mortgage, LaSalle Bank had standing to initiate foreclosure proceedings. The court reasoned that MERS and the assignee were not delivered a mortgage instrument by a mortgagee solely for effecting a foreclosure and MERS was expressly acknowledged by the borrower in the mortgage instrument itself as not only having “any or all of [the lender’s] interests” in the mortgaged property, but also as having the power “to take any action required of” the lender. The mortgage instrument also expressly provided that the note and the mortgage could be sold without prior notice to the borrower, and the assignment by MERS to the assignee of the mortgage, the note, and “all moneys” due was undertaken for consideration that included a $10 payment to MERS. Therefore, MERS was authorized to perform any act on the lender’s behalf as to the property, including selling the note and the mortgage to a third party and MERS fully exercised that power in favor of the assignee for valuable consideration.
January 5, 2013 | Permalink | No Comments
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
