Tag Archives: bankruptcy court

Court Decides that Lower Court Was Correct in Granting Summary Judgment in Favor of Bank of America and ReconTrust on FDCPA Claims

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The court in deciding Brown v. Bank of Am., N.A. (In re Brown), 2013 Bankr. (B.A.P. 9th Cir., 2013) affirmed the lower court’s holding.

The plaintiff in this case alleged alleged that BAC and ReconTrust violated the CPA by promulgating, recording, and relying on documents they should have known were false, in particular: the MERS’ assignment, the successor trustee appointment, and the notice of default. Plaintiffs also alleged that ReconTrust’s issuance and use of the notice of default violated the FDCPA and that ReconTrust’s attempts to dispossess the debtor of her property constituted malicious prosecution.

As to the claim for wrongful foreclosure, the plaintiffs alleged that the defendants violated the Washington Deed of Trust Act when they designated MERS as a beneficiary in the trust deed and MERS subsequently executed the MERS Assignment.

The plaintiffs contended that BAC’s authority to execute the successor trustee appointment and ReconTrust’s authority to execute the Notice of Default derived solely from the invalid MERS Assignment, invalidating both documents. They alleged that these transactions constituted a deception and, therefore, invalid transactions under the Trust Deed Act.

ReconTrust, Bank of America, N.A., as successor by merger to BAC, and MERS jointly brought a motion to dismiss the SAC pursuant to Civil Rule 12(b)(6). The defendants argued that the plaintiffs failed to adequately plead the identified claims and, in addition, that the plaintiffs should be collaterally estopped from contending that BofA could not initiate foreclosure proceedings, based on the order entered by the bankruptcy court on the uncontested relief from stay motion.

S.D.N.Y. Denies Mortgagor Under 11 U.S.C.S. § 1109(b)

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The court in deciding In re Residential Capital, LLC, 2013 Bankr. 5316 (Bankr. S.D.N.Y., 2013) denied the mortgagor’s motion for an order declaring that the debtors’ bankruptcy estate owned title to the note, to void a state court title transfer, and enjoin the foreclosure action.

The court decided Phillip Scott’s motion to (1) determine that bankruptcy estate owned title to note, (2) void state court title transfer, and (3) enjoin post petition.

In this case, the mortgagor (Scott) did not have standing under 11 U.S.C.S. § 1109(b) to seek a ruling from the bankruptcy court that the business declared Chapter 11 bankruptcy after it acquired and transferred the mortgage he executed with the note held title to real property that secured the note.

In regards to the order to enjoin the foreclosure action, the court found that the mortgagor was not a creditor in the debtors’ bankruptcy estate, the note and mortgage were not owned or serviced by any of the debtors, and none of the debtors was a party to the foreclosure action.

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.”

Massachusetts Bankruptcy Court Grants Assignee Bank’s Motion For Relief, Denies Debtor’s Assignment Challenges and Home Affordable Modification Program Claim

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Aurora, as an assignee of a Chapter 13 debtor’s mortgage, moved for relief from stay to exercise its rights in property, and debtor objected to assignee’s standing and on the ground that his post petition payment default was the result of an improper refusal to modify his mortgage under the government’s Home Affordable Modification Program (HAMP). After considering arguments, the court decided In re Lopez, 446 B.R. 12, 18–19 (Bkrptcy.D.Mass.2011) by granting Aurora’s motion for relief.

The Debtor raised a plethora of questions regarding Aurora’s standing to prosecute the motion for relief. First, he contended that an assignment of the mortgage, without the note, was void. Next, the Debtor argued that MERS, as nominee, could not assign the mortgage because it was merely a title holding entity. Further, he noted that the assignment could not assign the note because MERS never held it.

The Debtor also found fault with the note, complaining that the endorsements were undated, thus concealed the date of the transactions. He further questioned whether the signatory of two of the endorsements could have been an authorized officer as the final endorsement is in blank, the Debtor asserted that the current holder of the note was unknown, making it unclear who authorized MERS to assign the mortgage.

Further, the Debtor attacked the validity of the assignment on the basis that Aurora had not proven that the signatory was sufficiently authorized to execute the assignment.

With respect to HAMP eligibility, the Debtor argued that the monthly payment used to determine borrower eligibility included a monthly payment of principal regardless of whether the expense was included in the Debtor’s current mortgage payment. Furthermore, he contended that Aurora mischaracterized the interest rate as adjustable rather than fixed. As such, the provisions regarding rate resets relied on by Aurora are inapplicable.

In determining whether a creditor has a colorable claim to property of the estate, the court found that Aurora has established a colorable claim to the Property as Mortgagee.

First, the Debtor asserted that the assignment of the mortgage, without the note, was void, but under Massachusetts law, “where a mortgage and the obligation secured thereby are held by different persons, the mortgage is regarded as an incident to the obligation, and, therefore, held in trust for the benefit of the owner of the obligation.” Accordingly, even though MERS never had possession of the Note, it was legally holding the Mortgage in trust for the Note holder.

Second, the Debtor contended that MERS, due to its status as a nominee, could not assign the Mortgage to Aurora. The court rejected this argument as it misapprehended the meaning of “nominee.” Though MERS never held the Note, it could, by virtue of its nominee status, transfer the Mortgage on behalf of the Note holder.

The remainder of the Debtor’s arguments involved challenges to the assignment authorization. Specifically, whether the signatory was authorized to execute the assignment; whether MERS was authorized to assign the mortgage; whether the officers endorsing the note had authorization to do so; whether, given the absence of transaction dates, the endorsements were placed on the note only recently; and the fact that the final endorsement on the note is blank, rendering it a bearer instrument negotiable by transfer of possession alone.

The Court found that the Debtor did not affirmatively state that there were any defects in Aurora’s chain of title; rather he merely suggested that an evidentiary hearing is necessary to be sure. This, the court noted, was not the standard.

Having determined that Aurora is a party in interest, the court considered whether relief from stay was warranted. The court found that the Debtor had not articulated any theory through which he could have asserted standing to obtain the relief he sought.

United States Bankruptcy Court Bound by Precedent to Recognize Bank’s Standing in Foreclosure Action, but Opines on MERS’s Flawed Assignment Process and Status as Agent

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In In re Agard, 444 BR 231, 235 (Bankr. E.D.N.Y. 2011) vacated in part sub nom. Agard v. Select Portfolio Servicing, Inc., BR 8-10-77338 REG (E.D.N.Y. 2012), the United States Bankruptcy Court for the Eastern District of New York held that U.S. Bank, the assignee bank in this case, had standing to foreclose because the state court had already determined that the assignment of the mortgage by MERS to U.S. Bank was a valid assignment. The court stated the issue as follows: “[homeowner] argues that the only interest U.S. Bank holds in the underlying mortgage was received by way of an assignment from. . . MERS, as a ‘nominee’ for the original lender. [Homeowner]’s argument raises a fundamental question as to whether MERS had the legal authority to assign a valid and enforceable interest in the subject mortgage.”

In holding for U.S. Bank, the court stated the homeowner’s argument had to be rejected because of the application of the Rooker-Feldman doctrine. The court stated, “[t]he Rooker-Feldman doctrine is derived from two Supreme Court cases, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and D.C. Court of Appeals v. Feldman, 460 U.S. 462 (1983), which together stand for the proposition that lower federal courts lack subject matter jurisdiction to sit in direct appellate review of state court judgments.” Also, the court found that res judicata precludes the homeowner from prevailing here: “The state court already has determined that U.S. Bank is a secured creditor with standing to foreclose and this Court cannot alter that determination in order to deny U.S. Bank standing to seek relief from the automatic stay.”

However, the court in this case found it necessary to expound upon whether it believed that U.S. Bank had standing to foreclose, despite the state court’s binding opinion.  “[T]he Court believes that it is appropriate to set forth its analysis on the issue of whether [U.S. Bank], absent the Judgment of Foreclosure, would have standing to bring the instant motion.” The court began its analysis by stating, “in order to have standing to seek relief from stay, [U.S. Bank]. . . must show that [it] holds both the Mortgage and the Note. . . [U.S. Bank] can prove that [it] is the holder of the Note by providing the Court with proof of a written assignment of the Note, or by demonstrating that [it] has physical possession of the Note endorsed over to it. . . the Assignment of Mortgage is not sufficient to establish an effective assignment of the Note.” Therefore, U.S. Bank would have to show that MERS both assigned the note and that it had authority to assign the note. Regarding MERS’s authority to assign the note, the court held, “[w]hat remains undisputed is that MERS did not have any rights with respect to the Note and other than as described above, MERS played no role in the transfer of the Note… [U.S. Bank]’s failure to show that [it] holds the Note should be fatal to the Movant’s standing.”

Furthermore, the court took issue with MERS’s status as agent of the original mortgagee. The court stated, “the record of this case is insufficient to prove that an agency relationship exists under the laws of the state of New York between MERS and its members. According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents.” The court went even further in its criticism, saying, “Aside from the inappropriate reliance upon the statutory definition of ‘mortgagee,’ MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best. . . . even if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that MERS did not have authority, as ‘nominee’ or agent, to assign the Mortgage absent a showing that it was given specific written directions by its principal. This Court finds that MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not support by the law. The relationship between MERS and its lenders and its distortion of its alleged ‘nominee’ status was appropriately described by the Supreme Court of Kansas as follows: ‘The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant – their description depended on which part they were touching at any given time.’ ”

Absent the state court precedent that the court was bound to follow, the court likely would have emphatically refused to recognize MERS’s authority to assign the note as well as the mortgage, and in turn would have prevented U.S. Bank from proceeding with the foreclosure. Thus, in future cases before the court with similar facts that are not bound by state law precedent, MERS and any assignee bank will not have standing to foreclose.