November 20, 2012
Federal District Court in Texas Rules That Third-Party Lacks Standing in Recording-Fee Case
It appears that although courts may be receptive to claims about lost recording fees because of MERS, they won’t hear cases brought by third parties (at least, not in federal court). The citizens of a Texas county brought the claim seeking lost recording fees from MERS as a defense while they were in foreclosure. In Huml v. Mortgage Electronic Registration System, Judge David Guaderrama of the U.S. District Court in El Paso, Texas, rejected the plaintiffs’ theory of MERS gaining unjust enrichment. The plaintiffs alleged that the county lost recording fees that would have been acquired had MERS not taken “undue advantage of real property recording systems.”
The Judge found that the plaintiffs lacked standing to bring the claim. Since the plaintiffs alleged that counties were harmed by MERS, Judge Guaderrama found the argument of standing “piggy-backs on the direct injury, if any, to the counties.” Since the plaintiffs couldn’t assert direct injury from lost recording fees, and because plaintiffs cannot sue to enforce a third party’s rights in federal court (unless the suit falls under a particular exception, which didn’t happen in this case), the Judge dismissed the claim.
November 20, 2012 | Permalink | No Comments
Nevada Supreme Court Unanimously Rejects Irreparable Split Theory and Grants Bank Standing
In Edelstein v. Bank of New York, the Nevada Supreme Court unanimously rejected the irreparable split theory. The theory was brought up to challenge the Bank’s standing to foreclose on the plaintiff’s property. The irreparable split theory provides that a promissory note and a deed of trust that is separated prevents a nonjudicial foreclosure from occurring. This is because a note is a promise to repay the loan, while the deed of trust establishes the property as security for the loan.
The Court rejected the “traditional rule” that prevents the transfer of notes or deeds of trust separately, particularly because it would conflict with a previous holding recognizing the ability to transfer notes and deeds of trust separately. Instead, the Court adopted the Restatement approach, which permits separate transfers if the parties agree to it.
The Court held that identifying MERS as the nominee for the original lender and its assignees in the note is sufficient to hold “an agency relationship with [the original Lender] and its successors and assigns with regard to the note.” The Court found that the recorded beneficiary is considered “the actual beneficiary and not just a shell for the ‘true’ beneficiary.” As a result, naming MERS as the beneficiary of the deed of trust effectively split the note and deed of trust, but they were unified prior to foreclosure proceedings.
However, the Court found that no law requires them to be unified at inception, only in order to foreclose. The Nevada Supreme Court ultimately held that if the “split is cured when the promissory note and deed of trust are reunified.” As a result, the Court found that the bank, which held both the mortgage and the note at the time of foreclosure, had standing to continue the foreclosure mediation process.
November 20, 2012 | Permalink | No Comments
November 19, 2012
FHA 2012 Annual Report on MMIF Shows Great Stress on Agency
The report‘s findings show that the academic critics (here and here) of the FHA’s risk analysis were on to something over the last couple of years.
November 19, 2012 | Permalink | No Comments
Further Thoughts on Prosecutorial Abdication
I was discussing Prosecutorial Abdication with a friend who used to work in a prosecutorial office. While she agreed with what Brad and I had written, she also highlighted the technical and training challenges that prosecutors face in putting together an effective investigation.
Where an insider trading or corporate fraud case might be very difficult and involve tens of thousands of emails, it usually only involves a few key people. As a result, it is easier to get a handle on the case. In contrast, she noted, a securities fraud case based on even a single mortgage-backed security involves thousands of mortgages originated by many different lenders. Numerous different hands touch those files at origination as well as during the securitization process. On top of that, many of the key documents are missing or at least their chain of custody is uncertain.
The net result, according to her, is that building such a case can be exponentially harder than building an insider trading case. This is particularly true because many prosecutor offices will not have the sophisticated software (Excel is not enough!) to track all of the relevant data nor the training (forensic accounting skills would be nice) to do an effective job. Let’s see what the Financial Fraud Enforcement Task Force can do with the resources made available to it . . ..
November 19, 2012 | Permalink | No Comments
More on Hockett’s Eminent Domain Solution for Underwater Mortgage Debt
By David Reiss
Bob Hockett has posted this update to his plan by which localities would use their power of eminent domain to take underwater mortgages and reduce the principal amount owed so that the debt would be sustainable for homeowners. The discussion on pages 19-20 of how the solution can benefit everyone from homeowners to junior lien-holders is particularly interesting. It appears as if this proposal has been gaining traction since the summer with the FHFA taking note as well as the bar and the securitization industry.
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November 19, 2012 | Permalink | No Comments