The California court in deciding Nacif v. White-Sorensen, et al., NO. D056993. (San Diego Ct. Sup. Ct., 2009), determined that MERS held interests in the property and rejected the plaintiff’s argument that MERS had no standing because it was not qualified as a foreign corporation.
The court found that the under California law, MERS’s status as a “nominee” on a deed of trust means that it had the right to initiate foreclosure proceedings as the lender’s agent.
The United States District Court, Northern District California in Benham v. Aurora Loan Services, No. C-09-2059, (N.D.Cal. 2009) dismissed the plaintiff’s claims in the entirety.
The plaintiff brought a litany of claims. Among the plaintiff’s claims, was that MERS and violated the Rosenthal Fair Debt Collection Practices Act (“RFDCPA” or “Rosenthal Act”), Cal. Civ. Code 1788 et seq. FAC ¶¶ 62-65. Plaintiff also alleged negligence and fraud.
After considering the plaintiff’s contentions the court dismissed all of the plaintiff’s claims. The court found, that MERS as the beneficiary under the deed of trust had the authority to assign its beneficial interest under the deed of trust to assignee.
The Rhode Island magistrate judge in Cosajay v. Mortgage Electronic Registration Systems, Inc., C.A. No. 10-442-M (D.R.I. June 23, 2011) issued “Reports and Recommendations,” holding that according to Rhode Island law a mortgagor “lacks standing to challenge the propriety of mortgage assignments and the effect those assignments, if any, could have on the underlying obligation.”
The Plaintiff challenged the validity of the assignments on multiple grounds, including MERS’ authority to execute the assignment. The magistrate however determined that under Rhode Island law, only parties to a contract may seek to have rights declared under a contract.
The Washington court in Bain v. Metropolitan Mortgage Group, Inc., 2010WL891585 (W.D. Wash. Dist. Ct., March2010), rejected the plaintiff’s contentions that an assignment by MERS was executed fraudulently.
The plaintiff based his claims around the execution of a mortgage assignment by a person designated as an officer of MERS, but who was not also a MERS employee.
The court, in rejecting the plaintiff’s arguments that the assignment was executed fraudulently, noted that the non-employee signors did not commit an affirmative misrepresentation of fact, because of the fact that, for purposes of signing the papers, the non-employee signors misrepresented nothing: [the IndyMac signor] and [the MERS signor] did bear the titles that they used. The employees’ use of the titles was expressly authorized by contracts with IndyMac and MERS.
Thus there was nothing deceptive about using an agent to execute a document, and the court also noted that such practice is commonplace in deed of trust actions.
The Ohio court in Turner v. Lerner, Sampson & Rothfuss, 776 F.Supp.2d 498 (2011) granted in part and denied in part the defendant’s motion to dismiss. The plaintiffs alleged that defendant [Lerner] engaged in the widespread practice of filing and prosecuting mortgage foreclosure actions, although many of Lerner’s clients lacked proper standing to sue.
The United States District Court, N.D. Ohio considered the plaintiff’s claims that there were violations of FDCPA and Ohio unfair practices act violations, based on the law firm’s filing of foreclosure lawsuits where its clients allegedly lacked proper standing because the law firm client’s employees executed allegedly fraudulent assignments of mortgages from non-party MERS.
In following recent Ohio case law, the court dismissed the case due to the plaintiff’s lack of standing the validity of the assignments of mortgages. The court noted that it was generally accepted law that a litigant who is not a party to an assignment lacks standing to challenge assignment of that note.
Last week, I discussed a NYLJ article about the “Show Me The Note” argument in New York. The article discussed a recent case, Bank of N.Y. Mellon v. Deane, 2013 Slip Op. 23244 (Sup. Ct. Kings Country July 11, 2013). Brad and I have earlier noted that “many scholars and leaders of the bar are befuddled by courts’ failure to do a comprehensive analysis under the UCC as part of their reasoning in mortgage enforcement cases . . ..” As if to prove us wrong, Judge Battaglia has taken on the UCC in Deane even while acknowledging that “quotation of the Code, or even its citation, has virtually disappeared from the caselaw on this part of negotiable instruments law, at least where addressed in mortgage foreclosure actions.” (5) Judge Battaglia also notes how NY mortgage enforcement caselaw diverges from the contemporary UCC caselaw.
Judge Battaglia framed the issue of standing as follows:
As recently summarized by the Second Department:”In order to commence a foreclosure action, the plaintiff must have a legal or equitable interest in the subject mortgage…A plaintiff has standing where it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note prior to commencement of the action with the filing of the complaint…Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident.” (GRP Loan, LLC v. Taylor, 95 AD3d at 1173 [internal quotation marks and citations omitted] [emphasis added].) (2)
He continued, “the cursory treatment of the standing question in the memorandum of law evidences a misunderstanding of the general law of negotiable instruments in its equation of the status as “holder” to mere possession of the instrument. The core of the law of negotiable instruments is found in Article 3 of the Uniform Commercial Code . . ..” (3) He finds that the plaintiff has not established that it is a holder or a nonholder in possession who has the rights of a holder. He states that
To allow an assignee to sue without possession of the note, therefore, would be inconsistent with Revised Article 3, and put New York out-of-step with the 49 states that have adopted the revision, including, in particular, a conception of “transfer” as “deliver[y] by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument” (see Revised UCC §3-203 [1].) That misstep, however, if such it is, has apparently already been taken. (7)
Doing its best to reconcile the the mortgage enforcement and UCC caselaw, Judge Battaglia concludes that
in the usual case, a plaintiff has “standing” to prosecute a mortgage foreclosure action where, at the time the action is commenced: (1) the plaintiff is the holder of the note (see NYUCC §1-201 [20]); or (2) the plaintiff has possession of the note by delivery (see NYUCC §1-201[14]), from a person entitled to enforce it, for the purpose of giving the plaintiff the right to enforce it; or (3) the plaintiff has been assigned the note, by a person entitled to enforce it, for the purpose of giving the plaintiff the right to collect the debt evidenced by the note, and the plaintiff tenders the note at the time of any judgment. (8)
New York’s law in this area is not satisfying and it looks to me like courts need to make a concerted effort to synthesize UCC law with foreclosure law. Otherwise, mortgage litigants are left to wander like Cain in the land of Nod, east of Eden, not knowing what law governs their disputes.
The United States District Court for the Central District of California in Derakhshan v. MERS, No. SACV08-1185 AG (2009) found that MERS was the beneficiary and therefore entitled to foreclose. This case, like many others before this court, involved the sale of an option adjustable rate mortgage loan.
The court held that MERS was the named beneficiary in the deed of trust. By signing the deed, the plaintiff thus agreed that MERS would be the beneficiary and act as nominee for the lender. Further, the deed explicitly stated that the borrower understood and agreed that MERS held only legal title and had the right: to exercise any or all of those interests, including but not limited to, the right to foreclose and sell the property.
Thus, the plaintiff explicitly authorized MERS to act as beneficiary with the right to foreclose on the property.
