Tag Archives: Devon Avallone

Rhode Island Superior Court Deems PennyMac Foreclosure Proper

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In Rutter v. MERS, et al., C.A. No. PC 10-4756 (R.I. Super. March 12, 2012) the Rhode Island Superior Court held that PennyMac’s foreclosure sale was proper, as the court upheld Rhode Island case law supporting the validity of MERS’s assignments and subsequent foreclosures.

In July 2007, the Rutters procured a loan with First National Bank of Arizona (FNBA) as lender. MERS was designated the mortgagee acting as nominee for the lender, FNBA. The loan was ultimately assigned by MERS to PennyMac.

The Rutters defaulted in November 2008, and received proper notice of both the intent to foreclose and the foreclosure sale, scheduled for February 2010. Although the Rutters attempted to submit a qualified written request under RESPA, PennyMac found their request insufficient and proceeded with the foreclosure sale. After the sale, the Rutters filed the within action to quiet title and sought damages for alleged RESPA violations by MERS and PennyMac, who counterclaimed for slander. Here, the court considers MERS and PennyMac’s motion for summary judgment, arguing that notice of foreclosure and the foreclosure sale were proper and that the assignment to PennyMac was valid. The motion further argues that even if the assignment were invalid, the Rutters lack standing to challenge it.

The court first considers the role MERS plays in current mortgage transactions, giving a brief history of MERS’s origination and its operational aspects. MERS was designed to promote efficiency and accuracy in transactions and recordkeeping, though the system is not without fault. Although some courts differ on how to manage MERS-affected foreclosures, the “clear majority” holds the MERS foreclosures are valid. The court criticizes the Rutters’ argument as lacking substance and failing to distinguish recent case law. The Rutters’ argument merely claimed that those decisions enforcing the MERS foreclosures were “flawed.”  Rhode Island courts have continuously held that “foreclosure sales conducted by MERS or one of MERS’s assignees [a]re valid.” Kriegel, 2011 WL 4947398, slip op. at 5. Here, the clear and unambiguous language in the Rutters’ mortgage is identical to the language of mortgage documents in precedent MERS cases, giving MERS statutory power with the right to foreclose as mortgagee and nominee of the lender.

The Rutters raised the show me the note argument claiming that the note and mortgage must be held by the same entity under Rhode Island law, citing case law only from other states, such as Eaton v. Fed. Nat‟l Mortg. Ass‟n, No. 11-1382 (Mass. Super. Jun. 17, 2011). The court cites Bucci, which held that requiring an entity to possess both the note and mortgage would prevent loan servicing, which is a major part of the mortgage industry. 2009 R.I. Super. LEXIS 110. The court did not, however, have to do decide whether the contradicting Eaton decision was binding in Rhode Island because PennyMac held both the note and mortgage at the time of the foreclosure sale.

As to the assignment from MERS to PennyMac, the court found the assignment valid under Rhode Island law. Even if the assignment were found to be invalid, the Rutters, as a non-party to the assignment lack standing to challenge its validity. Regarding allegations of “robosigning,” the court cited Payette, stating that the “contention that MERS’s assignments were executed by an unauthorized signatory is a mere conclusion or legal opinion that is insufficient to create a genuine issue of material fact to defeat [a] Motion for Summary Judgment.” 2011 WL 3794700, slip op. at 19. Furthermore, MERS and PennyMac set forth the full chain of the note’s indorsements, which are presumed authentic.

The court found that PennyMac responded properly in rejecting the Rutters’ QWR attempt under RESPA, as RESPA no longer applied and the Rutters failed to prove that they suffered any actual damages. The fact that the Rutters submitted their QWR just days before the scheduled sale is emphasized heavily, as they had over 2 years to submit the QWR to PennyMac after their default. The Rutters also failed to act on a deed-in-lieu of foreclosure agreement which would have extended their occupancy in the property by 60 days.

The court granted MERS and PennyMac’s motion for summary judgment, holding that plaintiff homeowners failed to prove any existence of material factual disputes.

Fieldstone Mortgage Company’s Bankruptcy Won’t Impact HSBC’s Right to Foreclose in Massachusetts

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In Marron v. HSBC Bank USA, N.A., Bankruptcy Appeal No. 11-40191-NMG (D. Mass. September 26, 2012), the District Court denied homeowners’ request for certification regarding MERS’s authority to assign their mortgage, and dismissed homeowners’ bankruptcy appeal holding that the Bankruptcy Court properly lifted the automatic stay allowing HSBC to foreclose.

The homeowners procured a loan from Fieldstone Mortgage Company, with MERS designated as nominee and mortgagee. MERS assigned the mortgage to HSBC, which began foreclosure proceedings in 2007 after the homeowners defaulted. In November of 2007, Fieldstone filed for bankruptcy.  The homeowners filed for bankruptcy in 2010, automatically staying foreclosure proceedings. In response, HSBC filed a petition for relief from the automatic stay, which was granted by the Bankruptcy Court.

Here, Trustee appeals from the Bankruptcy Court’s order lifting the stay and seeks to certify the following questions: 1) whether the assignment by MERS is valid under Massachusetts law without proof of authorization from the note holder, and 2) if the recorded assignment alone can establish the truth of its contents. The District Court upheld the decision of the Bankruptcy Court, holding that certification is not warranted, as Massachusetts law is reasonably clear regarding assignment validity.

There is no Massachusetts statute preventing MERS from assigning its mortgages, and the court notes that the Massachusetts Land Court acknowledged the validity of MERS’s assignments in several cases.  Randle  v. GMAC Mortgage, LLC, No. 09 MISC 408202 GHP (Mass. Land Ct. Oct. 12, 2010); Amtrust Bank v. T.D. Banknorth, N.A., No. 07 MISC. 350750 KCL (Mass. Land Ct. 2010).  The court also notes that it has, on numerous occasions, held that MERS has authority to assign mortgages, citing Kiah, in which the court held that even if MERS doesn’t hold the beneficial interest in the property, MERS has authority to transfer the mortgage on behalf of the beneficial owner. CIV.A. No. 10-40161-FDS (D. Mass. Mar. 4, 2011).

As to the bankruptcy of the lender, the court held that “a lender’s bankruptcy does not affect the ability of MERS to assign a mortgage,” citing Kiah. The clear language of the mortgage grants MERS authority as the nominee for the “lender and its assigns” to transfer the mortgage, unaffected by the lender’s bankruptcy status. The court notes that similar reasoning was used in Rosa, holding “the dissolution of the original lender does not affect MERS’s authority to assign a mortgage.” 821 F. Supp. 2d at 431.

The court further found the assignment valid pursuant to M.G.L. Ch. 183 § 54B. MERS’s assignment complies with the statute’s requirements and is therefore presumed valid. The court cites Culhane for this explanation of validity, finding no way in which MERS’s method for assigning mortgages contradicts the statute. 826 F. Supp. 2d at 373.

The court dismissed appellant’s argument that the foreclosure was improper, as HSBC didn’t hold the note. In Eaton , the court held that the term “mortgagee” refers to “the person or entity then holding the mortgage and also either holding the mortgage note or acting on behalf of the note holder.” Eaton v. Fed. Nat. Mortg. Ass’n, 462 Mass. 569 (2012). To avoid overuse of this broad interpretation, the court held that the ruling in Eaton would not impact foreclosures commenced before the Eaton decision. Since HSBC’s foreclosure occurred pre-Eaton, HSBC was entitled to foreclose. As a result, appellant’s argument that an evidentiary hearing should have been held to determine ownership of the note was also dismissed by the court as immaterial. The appeal was denied, and the foreclosure sale upheld.

Bank of New York Deemed Indispensable Party to Homeowner’s Foreclosure Challenge in Rhode Island

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In Rosano v. Mortgage Electronic Registration Systems, Inc., et al., C.A. No. PC 2010-0310 (R.I. Super. June 19, 2012), the court held that defendant MERS had authority to assign plaintiff homeowner’s mortgage and deemed the foreclosure sale by assignee Bank of New York proper, dismissing plaintiff’s complaint to quiet title. The court further held that plaintiff’s failure to name Bank of New York as a defendant to the action rendered the complaint defective.

Plaintiff’s complaint failed to state a cause for relief beyond a speculative level, as plaintiff’s allegations were merely conclusory assertions. The court noted that plaintiff overlooked precedent confirming the validity of MERS’s assignments where mortgagee’s statutory power is clearly stated in the mortgage instrument. MERS, as mortgagee and nominee of the original lender, takes the place of the original lender and may assign its statutory power to another entity, who will then take the place of MERS with the same statutory right to foreclose. Plaintiff later alleged that the assignments were unauthorized, but the court held that no power of attorney was required since MERS was designated as mortgagee and nominee. Furthermore, plaintiff lacked standing to challenge the validity of the assignments, as plaintiff homeowner is not a party to any assignment. The court held that even if plaintiff had standing to challenge whether the assignments were authorized, plaintiff failed to plead such allegations in his complaint and cannot assert them in argument now.

However, the major flaw in plaintiff’s complaint was his failure to include Bank of New York as a party defendant; the court found Bank of New York to be an indispensable party to the action as the current record owner of the property. MERS assigned the mortgage to Sutton, who then assigned it to Bank of New York, who commenced foreclosure proceedings and sale upon plaintiff’s default. Bank of New York was the highest bidder at the foreclosure sale, and thereafter timely recorded its ownership interest in the property. Although there is no formal criteria for determining whether a party is indispensable to an action, the court used the Supreme Court’s formula from Doreck v. Roderiques, 120 R.I. 175, 180, 385 A.2d 1062, 1065 (1978), holding that proceeding without Bank of New York as a party would severely prejudice and impact Bank of New York as current owner of the property, rendering plaintiff’s complaint fatally defective.