Tag Archives: assignment

Massachusetts District Court Dismisses Homeowner-Plaintiff’s Claim of Alleged Inadequacies in Foreclosure and Assignment of His Mortgage

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In Butler v. Deutsche Bank Trust Co. Americas, 2012 WL 3518560 (D Mass 2012), the court dealt with alleged inadequacies in the assignment and foreclosure of a mortgage. The plaintiff and mortgagor, Frank Butler, claimed that the defendant [Deutsche Bank] had wrongfully foreclosed on two separate occasions, slandered the property’s title, and violated G.L. c. 93A. Deutsche Bank moved to dismiss the complaint on the theory that the alleged inadequacies were not based on actionable legal theories that support the plaintiff’s claims. The court granted the bank’s motion to dismiss.

The plaintiff offered a number of theories to support his claim as to the invalidity of one or both of the foreclosure actions. First, he contended that the foreclosure actions were invalid because the bank did not hold the note secured by the mortgage and the mortgage assignments were not made in compliance with the Pooling and Servicing Agreement.

Next, the plaintiff contended that the foreclosure auctions were invalid because the assignments from MERS were invalid and a robo-signer was used. Lastly, he contended that the foreclosure auctions were invalid as the assignment was made without identifying the relevant trust.

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After review of the plaintiff’s contentions, the court found that they all lacked merit. The court relied on case law that dealt directly with all of the plaintiff’s contentions. Because none of the plaintiff’s theories as to the invalidity of either the assignment or the foreclosure was actionable, the court granted the defendant’s motion to dismiss.

Massachusetts District Court Dismisses Homeowner-Plaintiff’s Challenge to Assignment Due to Lack of Standing

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The two actions from Oum v. Wells Fargo Bank, N.A., et al, 1:11-cv-11663, No. 23 (D.Mass. Jan. 4, 2012) reflected nearly identical facts. Both cases arose from an allegedly invalid assignment of a mortgage from defendant Sand Canyon to Wells Fargo.

Plaintiffs argued that because the assignments of their mortgages were invalid, the foreclosures by Wells Fargo as trustee on their homes were invalid as well. After considering the plaintiff’s contentions, the court dismissed the plaintiff’s claims, after holding that the non-party plaintiffs lacked standing to challenge the assignment.

Plaintiffs had asked the court to enjoin Wells Fargo from proceeding with any eviction action [Count 1]; to quiet title by declaring them the “sole owners” of the properties [Count 2]; and to grant appropriate relief for Wells Fargo as trustee’s breach of the duty of good faith and reasonable diligence [Count 3].

Defendants argued that plaintiffs lacked standing to challenge the validity of the assignments Sand Canyon made to Wells Fargo as trustee of their respective mortgages because plaintiffs were neither parties to the contractual assignments, nor were they third-party beneficiaries. Plaintiffs argued that because they had a “claim of rightful legal ownership” to the respective properties, they have standing to contest the “cloud” on their wrongfully divested title. The court sided with the defendants, finding that an assignment is a contract, and the plaintiffs were not parties to the contract.

Massachusetts District Court Limits Massachusetts Supreme Court’s Broad Holding From Ibanez By Limiting Challenges to Assignments

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In Aliberti v. GMAC Mortgage, LLC, 779 F.Supp.2d 242 (D.Mass.2011), the plaintiff homeowner relied on the seemingly broad-reaching holding handed down by the Massachusetts Supreme Court in U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011). On facts similar to Ibanez the plaintiff challenged the assignment from MERS to GMAC, thus challenging GMAC’s ability to foreclose.

The Supreme Court in Ibanez stated “any effort to foreclose by a party lacking jurisdiction and authority to carry out a foreclosure under Massachusetts law is void.“ Then adopted case law stating that attempts to foreclose on a mortgage by a party that “had not yet assigned the mortgage results in a structural defect that goes to the very heart of the defendant’s ability to foreclose and renders foreclosure sale void.”

This holding left the question still open as to whether mortgagors have a legally protected interest in assignments to which they are not a party. The district court read the holding from Ibanez as not providing an independent basis for mortgagors to collaterally contest previously executed mortgage assignments to which they are not a party. Further, the holding granted neither an interest nor rights to the third party.

The court noted that in Ibanez, the land court was specifically tasked with evaluating the sufficiency of the assignment process, and the banks, as foreclosing parties and actual parties to the mortgage assignment, had standing to seek court review of the validity of the assignment process.

REMIC Armageddon on the Horizon?

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Brad Borden and I have warned that an unanticipated tax consequence of the sloppy mortgage origination practices that characterized the boom is that MBS pools may fail to qualify as REMICs.  This would have massively negative tax consequences for MBS investors and should trigger lawsuits against the professionals who structured these transactions. Courts deciding upstream and downstream cases have not focused on this issue because it is typically not relevant to the dispute between the parties.

Seems that is changing. Bankruptcy Judge Isgur (S.D. Tex.) issued an opinion in In re: Saldivar, Case No. 11-1-0689 (June 5, 2013)) which found, for the purposes of a motion to dismiss, that “under New York law, assignment of the Saldivars’ Note after the start up day [of the REMIC] is void ab initio.  As such, none of the Saldivars’ claims” challenging the validity of the assignment of their mortgage to the REMIC trust  “will be dismissed for lack of standing.” (8)

If this case holds up on appeal, it will have a massive impact on many purported REMICs which had sloppy practices for transferring mortgages to the trusts. That is a big “if,” as the case relies upon Erobobo for its take on the relevant NY law. Erobobo, a NY trial court opinion, itself reached a controversial result and is hardly the last word on NY trust law. The Court also acknowledges that additional evidence may be proffered relating to a subsequent ratification of the conveyance of the mortgage, but for the purposes of a motion to dismiss, the homeowners have met their burden.

For those few REMIC geeks out there, it is worth quoting from the opinion at length (everyone else can stop reading now):

The Notice of Default indicates that the original creditor is Deutsche Bank, as Trustee for Long Beach Mortgage Loan Trust 2004-6. The Trust is a New York common law trust created through a Pooling and Servicing Agreement (the “PSA”). Under the PSA, loans were purportedly pooled into a trust and converted into mortgage-backed securities. The PSA provides a closing date for the Trust of October 25, 2004. As set forth below, this was the  date on which all assets were required to be deposited into the Trust. The PSA provides that New York law governs the acquisition of mortgage assets for the Trust.

The Trust was formed as a REMIC trust. Under the REMIC provisions of the Internal Revenue Code (“IRC”) the closing date of the Trust is also the startup day for the Trust. The closing date/startup day is significant because all assets of the Trust were to be transferred to the Trust on or before the closing date to ensure that the Trust received its REMIC status. The IRC provides in pertinent part that:

“Except as provided in section 860G(d)(2), ‘if any  amount is contributed to a REMIC after the startup day, there is hereby imposed a tax for the taxable year of the REMIC in which the contribution is received equal to 100 percent of the amount of such contribution.”

26 U.S.C. § 860G(d)(1).

A trust’s ability to transact is restricted to the  actions authorized by its trust documents. The Saldivars allege that here, the Trust documents permit only one specific method of transfer to the Trust, set forth in § 2.01 of the PSA. Section 2.01 requires the Depositor to provide the Trustee with the original Mortgage Note, endorsed in blank or endorsed with the following: “Pay to the order of Deutsche Bank, as Trustee under the applicable agreement, without recourse.” All prior and intervening endorsements must show a complete chain of endorsement from the originator to the Trustee.

Under New York Estates Powers and Trusts Law § 7-2.1(c), property must be registered in the name of the trustee for a particular trust in order for transfer to the trustee to be effective. Trust property cannot be held with incomplete endorsements and assignments that do not indicate that the property is held in trust  by a trustee for a specific beneficiary trust.

The Saldivars allege that the Note was not transferred to the Trust until 2011, resulting in an invalid assignment of the Note to the Trust. The Saldivars allege that this defect means that Deutsche Bank and Chase are not valid Note Holders.

(2-4, footnotes and citations omitted) The Court agreed, at least while “accepting all well-pleaded facts as true.” (5)

(HT April Charney)

Massachusetts’s District Court Finds That Non-Party Mortgagors Lack Standing to Challenge Assignment Between Third Parties

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In Aliberti v. GMAC Mortgage, LLC, 779 F.Supp.2d 242 (D.Mass.2011), the court granted the defendant’s motion to dismiss the plaintiff’s claims. The plaintiff sought to stay GMAC’s foreclosure proceeding by challenging the assignment of the mortgage from MERS to GMAC. Plaintiff filed a three-count compliant that alleged, fraud, violations of Massachusetts’s foreclosure procedural law, and challenged the validity of the assignment.

Plaintiff alleged that the GMAC’s signatory who authorized the assignment was a “well known robo signer” and therefore the plaintiff had reason to believe that the signature on the assignment of the Mortgage was not genuine. The court rejected this argument, noting that an assignment is presumptively valid and the plaintiff failed to plead facts sufficient to challenge its presumptive validity. Further since the assignment satisfied the requirements of Massachusetts law they are deemed valid.

Next the plaintiff alleged that the assignment was invalid because MERS was never actually the mortgagee. Although, the mortgage stated that MERS was the mortgagee it also stated that “MERS is a separate corporation acting solely as a nominee for the lender and lender’s successors and assigns,” plaintiff alleged that MERS could not be both the agent as the nominee and the principal as the mortgagee to the same property right. Plaintiffs further claim GMAC could not demonstrate valid assignment of the promissory note, and that, because it could not establish valid assignment of both the mortgage and the promissory note, it had no right to foreclose on the property.

In addressing whether the assignment was valid, the court sided with the GMAC’s argument that the plaintiffs, as mortgagors, had no standing to challenge the validity of a mortgage assignment between the mortgagee and a third party. The court relied on the holding in Livonia Property Holdings, LLC. V. 12840-12978 Farmington Road Holdings, LLC., 717 F.Supp 2d 727, 735 (E.D. Mich. 2010). On similar facts, the court in Livonia, held that a borrower, as a non-party to the assignment documents it was challenging, lacked standing to challenge them.

Lastly, plaintiffs contented that GMAC’s refusal to negotiate loan modification was in violation of Massachusetts’s law. The court also rejected the contention that GMAC’s failure to negotiate constituted a violation. Under Massachusetts’s case law, absent an explicit provision in the mortgage contract, there is no duty to negotiate for loan modification once a mortgagor defaults.

No Scarlet Letter for Robo-Signing

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An “admitted robo-signer” and her bank were let off the hook in Grullon v. Bank of America et al.  (Mar. 28, 2013, No. 10-5427 (KSH) (PS)) (D.N.J.). (19)  Grullon, a homeowner, alleged that he, and others similarly situated, was entitled to relief under New Jersey’s Consumer Fraud Act because of BoA’s “bad practices, including: robo-signing, foreclosure documents, concealing the true owner of loans from the borrowers, and initiating foreclosure proceedings before it had the right too, resulted in unreliable and unfair foreclosure proceedings and ascertainable losses.” (1)

Grullon alleged a variety of fraudulent robo-signing practices, including for affidavits and assignments.  The Court found that in “light of the lack of- or de minimis nature of- the errors found on the documents said to have been “robo-signed,” and Grullon’s lack of standing to challenge the Assignment, the Court is not satisfied that Grullon has proffered sufficient evidence to support his NJCFA claim on this basis.” (21) The Court was also not satisfied that Grullon “has adequately shown that he suffered any ascertainable loss as a result of the 2009 NOI [Notice of Intention to Foreclosure] or the ‘robo-signed’ documents.” (24)  The Court also appears to find that the “robo-signing” of assignments presents no problem as the signer is not attesting to the truth of such a document. (20-21)

Bottom line:  one needs to demonstrate that there was a wrong and that harm resulted from it. Scatter shot allegations of robo-signing don’t work.

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1st Circuit Holds that MA Borrowers Can Challenge Mortgage Assignments

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A First Circuit panel (including Justice Souter) ruled that under Massachusetts law, “a mortgagor has standing to challenge a mortgage assignment as invalid, ineffective, or void (if, say, the assignor had nothing to assign or had no authority to make an assignment to a particular assignee).”  (14)  The court concisely sets forth what is at issue in the case:

The fact pattern here is emblematic: the mortgagor’s note was delivered to one party (the lender) and then transferred; the mortgage itself was granted to a different entity, Mortgage Electronic Registration Systems, Inc., and later assigned to the foreclosing entity. We are asked, as a matter of first impression for this court, to pass upon not only the legality and
effect of this arrangement but also the mortgagor’s right to challenge it. The substantive law of Massachusetts controls our inquiry.  (2-3, footnotes omitted)

There are some important dicta in the case.  The court states that “there is no reason to doubt the legitimacy of the common arrangement whereby MERS holds bare legal title as mortgagee of record and the noteholder alone enjoys the beneficial interest in the loan.” (16)