Tag Archives: assignment

Bankruptcy Court Rules MERS Has Standing and the Customary Rights of a Mortgagee Under a Mass. Mortgage and May Act Under the Mortgage

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The Massachusetts bankruptcy court hearing In re Sonya D. Huggins f/k/a SONYA D. HICKS, Debtor Chapter 13, Case No. 05-18826-RS overruled the Huggins’ objection to the standing of the nominee to seek relief from the automatic stay and ordered an evidentiary hearing on the motion for stay relief.

After Huggins commenced her Chapter 13 case, the court denied a motion by a nominee mortgagee for relief from stay to foreclose a mortgage on the debtor’s residence but ordered monthly adequate protection payments. The nominee filed a second stay relief motion under 11 U.S.C.S. § 362(d), and the debtor objected.

Huggins maintained that the nominee could not stay relief in bankruptcy because it had no rights to enforce the mortgage outside bankruptcy. The court disagreed, finding that the nominee was acting for a lender that held the note, thus there was no disconnection between the note and the mortgage. The nominee was the record mortgagee under the terms of the mortgage with its powers expressly set forth, and Mass. Gen. Laws Ch. 244, § 14 expressly authorized the exercise of sale powers by a mortgagee or a person authorized to sell, which was precisely the position of the nominee.

The court concluded that the denial of the nominee’s foreclosure right as mortgagee could lead to anomalous and perhaps inequitable results, such as the lender being able to foreclose despite the fact that it was not named as mortgagee or that no one could foreclose. Thus, as the court concluded, the nominee had standing to foreclose on the lender’s behalf. As to relief from stay, the court concluded that there was no irrefutable presumption that the property was necessary for an effective reorganization under 11 U.S.C.S. § 362(d)(2)(b). The debtor was required to proffer evidence on those issues.

U.S. District Court for the Eastern District of Texas Rules in Favor of MERS in Foreclosure Proceeding, Upholding its Power of Sale Over the Plaintiff’s Property

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In Richardson v. Citimortgage, No. 6:10cv119, 2010 WL 4818556, at 1-6 (E.D. Tex. November 22, 2010) the U.S. District Court for the Eastern District of Texas, Tyler Division, granted the Defendants’, Citimortgage and MERS, motion for summary judgment against the Plaintiff, Richardson, in a foreclosure proceeding. The Court reiterated MERS’s power of sale and its role as an “electronic registration system and clearinghouse that tracks beneficial ownerships in mortgage loans.”

Plaintiff purchased his home from Southside Bank with a Note. As the Lender, Southside Bank could transfer the Note and it, or any transferee, could collect payments as the Note Holder. In the agreement, Plaintiff acknowledged that Citimortgage, the loan servicer, could also receive payments. A Deed of Trust secured the Note by a lien payable to the Lender.

Under a provision in the deed, Southside Bank secured repayment of the Loan and Plaintiff irrevocably granted and conveyed the power of sale over the property. The Deed of Trust also explained MERS’s role as its beneficiary, acting as nominee for the Lender and Lender’s and MERS’s successors and assigns. MERS “[held] only legal title to the interests granted by the Borrower but, if necessary to comply with law or custom, [had] the right to exercise any and all of the interests [of the Lender and its successors and assigns], including the right to foreclose and sell the property.”

Plaintiff signed the Deed of Trust but eventually stopped making mortgage payments to CitiMortgage and filed for bankruptcy protection. As a result, “MERS assigned the beneficial interest in the Deed of Trust to Citimortgage.” Citimortgage posted the property for foreclosure after receiving authorization from the United States Bankruptcy Court. Plaintiff brought suit, seeking declaratory and injunctive relief and challenging Citimortgage’s authority to foreclose on the property.

In granting Citimortgage and MERS’s motion for summary judgment, the court explained that Citimortgage could enforce the loan agreements, including the power of foreclosure, after it received the Note from Southside Bank. Furthermore, under the doctrine of judicial estoppel, Plaintiff could not challenge Citimortgage’s right to enforce the Note after he “represented that it was [his] intention to surrender [the] property to Citimortgage,” in bankruptcy court. Citimortgage subsequently acquired a “valid, undisputed lien on the property for the remaining balance of the Note.”

Plaintiff also challenged MERS’s role with “respect to the enforcement of the Note and Deed of Trust.” In response, the court explained that “[u]nder Texas law, where a deed of trust expressly provides for MERS to have the power of sale, as here, MERS has the power of sale,” and that the Plaintiff’s argument lacked merit.

The court described MERS as a “[book entry system] designed to track transfers and avoid recording and other transfer fees that are otherwise associated with,” property sales. It concluded that MERS’s role in the instant foreclosure “was consistent with the Note and the Deed of Trust,” and that Citimortgage had the right to sell the Plaintiff’s property and schedule another foreclosure.

Arkansas Court Rules That MERS Did Not Violate the State’s Statutory Foreclosure Act

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The court in Coley et al v. Accredited Home Lenders Inc et al (E.D. Ark. 2011) dismissed the homeowner-plaintiff’s claims against MERS pursuant to Federal Rules of Civil Procedure 12(b)(6). In granting MERS’ motion to dismiss the court considered, then rejected the plaintiff’s contentions.

First, the plaintiff alleged that the defendants failed to comply with the notice requirements of 12 U.S.C. 1701x(c)(5), a provision of National Housing Act that requires private lenders servicing non-federally insured home loans to advise borrowers of any home ownership counseling that they of the US Department of Housing and Urban Development may offer. The court however, reasoned that regardless of whether the defendants were in compliance with the act or not, the act does not create a private right of action.

Next, the plaintiff alleged that the defendants violated the state Statutory Foreclosure Act concerning non-judicial foreclosures, and they sought to enjoin the defendants from proceeding with the foreclosure sale. They also sought an order declaring the mortgage’s notice of default and intention to sell, the limited power of attorney, and the corporate assignment of mortgage to be fatally defective and invalid. The court however rejected this contention.

Third, the plaintiffs argued that even if the assignment was valid, the subsequent notice of default and intention to sell was invalid because it was prepared and filed by the Law Offices of Shapiro & Kirsch more than two weeks before HSBC executed a limited power of attorney giving Shapiro & Kirsch the power to act on its behalf. The court rejected this argument, as they noted that whether the notice of default was valid was moot because the non-judicial foreclosure described in the notice was cancelled. Thus, Shapiro & Kirsch would be required by law to file a new notice of default and intention to sell before a sale could take place.

Court Holds That MERS Assignment, in Isolation, Could Not Prove Ownership

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The court deciding In Re Wilhelm (Case No. 06-51747) was faced with the issue of when actual notes prove that the note’s chain of ownership is unclear. In reaching their decision the court found that in such a situation, the MERS assignment could not, on its own, prove ownership of the note.

The court in this case stated that the MERS assignment was legitimate when taken as a whole, along with proper transfer of the note. The court further went on to note “in hundreds of stay relief motions, including many post-Sheridan, creditors are providing adequate documentation and explanation to meet the requisite standing requirements.”

Michigan District Court Holds That MERS Cannot Foreclose by Advertisement But Can Assign its Security Interest

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In Knox v. Trott & Trott, No. 10-13175, Dist. Court, (Michigan 2011) the court denied the plaintiff’s motion for reconsideration under Rule 60(b)(3) and (4). Knox maintained that the court erred in rejecting his argument that the defendants lacked standing under Mich. Comp. Laws 600.3204(1)(d) to foreclose on his property.

Plaintiff based his request on a previous Michigan court of appeals case, Info-Hold, Inc. v. Sound Merchandising, Inc. 538 F.3d 448, 455 (6th Circ. 2008). However, the court distinguished that case from the present case, as the former dealt with the narrow issue of whether MERS could foreclose by advertisement or whether it must use judicial foreclosure. In the present case, the court stressed that absent a showing by MERS that it owned “an interest in the indebtedness secured by the mortgage,” it lacked authority under the Michigan statute to foreclose.

In the present case, however the court found that MERS was not the foreclosing entity. As such, its status as defendant in the litigation fell outside the parameters of the issue resolved in Residential Funding.

U.S. District Court for Hawaii Rules in Favor of MERS in Non-Judicial Foreclosure Proceeding, Validating its Right to Transfer, Foreclose, and Sell Property as the Lender’s Nominee

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In Pascual v. Aurora Loan Services, No. 10–00759 JMS–KSC, 2012 WL 2355531, at 1-18 (D. Haw. June 18, 2012), the court explained the role of MERS in mortgage transfers and granted Defendant Aurora Loan Services’s motion to dismiss the Plaintiff Pascual’s claim that the non-judicial foreclosure executed by Defendant was void as a result of MERS’s invalid assignment of the mortgage.

Under the language of the mortgage, MERS held the power of sale of the subject property and “the right to foreclose and sell the property and to take action required of the Lender.” The mortgage also notified the Plaintiffs that the “Note [could] be sold without prior notice.” MERS, acting as a nominee for the lender, Lehman Brothers, assigned the mortgage to the Defendant after Lehman Brothers filed for voluntary Chapter 11 bankruptcy. Shortly after the assignment, the Plaintiffs defaulted on their loan. Defendants subsequently filed a Notice of Mortgagee’s Intention to Foreclosure Under Power of Sale. It held a public auction, and as the highest bidder, recorded a Mortgagee’s Affidavit of Foreclosure Sale under Power of Sale.

Under HRS §677-5, the “mortgagee, mortgagee’s successor in interest, or any person authorized by the power to act,” can foreclose under power of sale upon breach of a condition in the mortgage. Plaintiffs argued that because MERS did not match the description of one these parties, it did not have authority to assign the mortgage to the Defendant, thereby making the transfer invalid. In response, the Court denied the Plaintiff’s assertions and explained the role of MERS, citing Cervantes v. Countrywide Home Loans, 656 F. 3d 1034 (9th Cir. 2011). It described MERS as a “private electronic database that tracks the transfer of the beneficial interest in home loans as well as any changes in loan servicers.” It further stated that “at the origination of the loan, MERS is designated in the deed of trust as a nominee for the lender and the lender’s ‘successor’s and assigns,’ and as the deed’s ‘beneficiary’ which holds legal title to the security interest conveyed.” The court elaborated that under Cervantes, “claims attacking the MERS recording system as fraud fail, given that mortgages generally disclose MERS’[s] role as acting ‘solely as nominee for Lender and Lender’s successors and assigns,’” and that “MERS has the right to foreclose and sell the property.”

Applying the holding to the present case, the court concluded that the mortgage expressly notified the Plaintiffs of MERS’s role as the “nominee for the ‘Lender and Lender’s successors and assigns,’” which had the power of sale of the subject property without giving notice to the Borrower. For these reasons, the court concluded that the transfer from MERS to the Defendant was valid. As a result, it dismissed the Plaintiff’s claim for a violation of HRS § 667-5.

The Court also dismissed Plaintiff’s motion to amend their claim. Contrary to Plaintiff’s assertions, it concluded that there was not a statutory requirement for the Defendants to provide affirmative evidence that its assignment of the subject property was valid. It also denied Plaintiff’s claim that Lehman Brothers’ entrance into Chapter 11 bankruptcy proceedings precluded it from validly transferring the mortgage to the Defendant.

Washington Court Holds That the Language of the Security Instrument Gave MERS Both the Authority to Foreclose and Assign the Deed of Trust

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The court Salmon v. Bank of America, MERS et al., No. 10-446 (D. Wash. May 25, 2011) dismissed claims against Bank of America and MERS. The plaintiffs argued that MERS was a “ghost-beneficiary” and as such could not be the beneficiary of a deed of trust under Washington law, as it did not have an interest in the note. The court rejected this argument, and noted that the beneficiary of a deed of trust is not required to be the note holder

The court, in their holding, noted that MERS had both the authority to foreclose and the authority to assign the deed of trust, based on the language of the security instrument.