Tag Archives: Downstream Litigation

Oregon District Court Finds Claim Preclusion Bars Stop-Foreclosure Action

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In Buckland v. MERS, Or. 11-3053-CL (2011) the court dealt with res judicata and the plaintiff relitigating the same claims that were raised or could have been raised in a previous action. The court found that the same factual transaction was at issue in the plaintiff’s prior litigation and at issue in the present case. Both actions arose out of the same non-judicial foreclosure proceeding associated with the loan on the plaintiff’s property.

The plaintiff had named Aurora Loan Services as sole defendant in his state action and MERS as a nominee for American Mortgage Network as sole defendant in the current action, although he referenced each of the parties in the complaints filed in both actions and challenged foreclosure of his property in both actions. As agents for the lender, the relationship between Aurora and MERS was close enough such that the court found the parties to be in privity. Since claim preclusion applies to a party to an earlier action and to a person who was not a party in the earlier action but who was in privity with the party to the earlier action, the plaintiff’s claim was precluded.

The court concluded that the plaintiff’s claims brought in this action, which arose out of the same factual transaction as the previous litigation, the court found that the claims could have been brought in those proceedings. Accordingly the claims were thus barred by claim preclusion.

Bank of America and MERS Motion for Dismissal Granted Against Homeowner-Plaintiff in Reconsideration of Order Denying Preliminary Injunction in Foreclosure Proceeding

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In Harris v. Americas Wholesale Lender, No. 2011-659-CH (Macomb Cty. Cir. Ct. June 8, 2011) the court granted the defendant’s motion for dismissal of all the homeowner-plaintiff’s claims in foreclosure proceeding.

Defendants Countrywide, Bank of America, and MERS moved for summary disposition against plaintiff-homeowner under MCR 2.116(C)(7) and (C)(8). Plaintiff moved for reconsideration of the lower court’s denial for preliminary injunction and another motion for entry of default judgment.

Plaintiff alleged five counts; [1] fraud, [2] breach of contract, [3] collusion, [4] conversion, and finally [5] unjust enrichment. In assessing these claims the court found that they were all without merit.

In regards to the plaintiff’s alleged fraud claim the court dismissed it as frivolous as plaintiff could not, and had not, produced any evidence to support the allegation. Upon considering the second count, the court likewise dismissed as the plaintiff failed to show any cognizable allegation of a breach of contract.

The claim of collusion was also dismissed as the court found that the plaintiff failed to plead the claim with particularity. Accordingly, the claim of conversion was also dismissed as the plaintiff failed to explain, to the court’s satisfaction, how a claim of conversion could be supported. Finally, the claim of unjust enrichment was found to be without merit, as the court found that the plaintiff failed to show how an unjust enrichment took place.

First Circuit Grants Wells Fargo’s Motion to Dismiss Plaintiff-Homeowner’s Suit to Preclude Foreclosure Sale

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The court in McKenna v Wells Fargo Bank, N.A. Case No. 11-1650 (C.A. 1, Aug. 16, 2012) was faced with questions relating to the district court’s subject matter jurisdiction. Here, Wells Fargo’s primary assertion in its removal papers – “that there was federal question jurisdiction present in the case” – turned out to be mistaken as no federal claim was present. However, diversity jurisdiction was found to be sufficient enough to support the state statutory claims that were asserted in the complaint.

Wells Fargo brought a foreclosure action against the plaintiff [McKenna], the plaintiff responded by asserting a right to rescind the mortgage and then filed suit to preclude the foreclosure sale.

The plaintiff claimed a right to rescind on the grounds that [1] Wells Fargo had provided her with only one Truth in Lending disclosure statement at the time of the loan rather than two copies, and [2] Wells Fargo had understated the finance charge in its Truth in Lending statement by more than $35. The lower court then issued a preliminary injunction restraining Wells Fargo from taking further action to sell the plaintiff’s home.

On March 10, 2010, Wells Fargo removed the case to the federal district court in Massachusetts. Wells Fargo asserted that federal question jurisdiction existed. The bank then moved to dismiss for failure to state a claim, and the district court granted the motion. On review, the court found that diversity jurisdiction existed as Wells Fargo was a bank and a citizen of the state where it is “located.” The bank’s location being North Dakota, and the plaintiff being a citizen of Massachusetts, allowed for diversity jurisdiction.

On review the court determined that the plaintiff’s complaint alleged that Wells Fargo made certain misrepresentations. However, the court found that the plaintiff failed to specify the time or place of these misrepresentations or their real content and, as the district court held, these assertions were “too vague to meet the particularity requirement of Rule 9.” The First Circuit affirmed the lower court’s ruling. Further, the suit was not timely under the federal Truth in Lending Act, 15 U.S.C. 1635(a), and the complaint failed to state claims under the equivalent state law.

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.

Kansas Supreme Court Holds That a Non-Lender to a Mortgage is Not a Necessary Party in Foreclosure Action

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In Landmark Nat. Bank v. Kesler, 216 P.3d 158 (KS 2009), the court dealt with the issue of what exactly constitutes a necessary party to a foreclosure action. MERS and Sovereign Bank sought review of a lower court judgment, which held that a non-lender is not a contingently necessary party in a mortgage foreclosure action and that due process does not require that a non-lender be allowed to intervene in a mortgage foreclosure action.

At the heart of this appeal was whether the lower court abused its discretion in refusing to set aside the default judgment and refusing to join MERS as a contingently necessary party. The Supreme Court of Kansas found no such abuse and denied the motion to set aside the motion, a finding in line with the lower court.

The Supreme Court of Kansas held, as a matter of first impression, that the lower court did not abuse its discretion in denying the company’s motion to set aside default judgment or its motion to intervene as a contingently necessary party.

MERS contended further, that due process rights were violated as foreclosure action was consummated without MERS receiving notice of the proceeding and without MERS having the opportunity to intervene in the action. However, the court found that MERS failed to demonstrate that it possessed any tangible interest in the mortgage beyond a nominal designation as the mortgagor. Accordingly, the court held that the lower court’s refusal to allow the company to intervene did not violate its due process rights.

Massachusetts Trial Court Grants Defendant Bank’s Motion For Summary Judgment in Service Member Civil Relief Act Case

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The Plaintiff in Randle v. GMAC, No. 09 MISC 408202 GHP filed a complaint seeking, among other things, a declaration that defendant GMAC Mortgage did not hold any claim secured by a mortgage recorded with the County Registry, and lacked standing to bring an action against the plaintiff pursuant to the Service Members Civil Relief Act.

Summary judgment was sought by the defendant and granted. It was undisputed that GMAC was the current holder of the mortgage, and therefore there were only two issues and one sub-issue left in contention.

The first issue was whether the plaintiff’s claimed right to challenge the standing of GMAC to have filed the Service Members Case required a judgment in the previous case, declaring the foreclosure invalid; and whether the plaintiff was entitled to the ninety-day right to cure set out in state law.

In deciding the judgment from the Service Member case, the court considered the plaintiff’s argument that due to the chronology of the assignments of the mortgage, and the recording with the registry, relative to the filing and prosecution of the Service Member’s case by GMAC, and also due to evident discrepancy in the date the judgment in the Service Member case was entered on the docket, the foreclosure sale by GMAC cannot be valid and cannot be effective to pass a title.

The court rejected this line of argument and found that such an argument ignored the long established limited scope of Service Members proceedings in Massachusetts. The court noted that a foreclosure is not invalid because title passed on a date prior to the issuance of the judgment in a Service Members case, which has a limited scope and purpose does not permit litigation of broader issues involving the relationship between the borrower and the lender.

Next, the court considered the standing of the mortgagee. The plaintiff claimed a right to challenge the standing of GMAC to have filed the Service Members case. GMAC argued that the standing of a mortgagee to commence a Service Member action was not a live issue in determining the validity of a foreclosure when the mortgage was the record holder of the subject mortgage at the time of the foreclosure. The court agreed with GMAC’s argument.

Lastly, the plaintiff argued that GMAC was unable to foreclose because it did not provide the plaintiff with a 90-day the notice and opportunity to cure a default, as mandated by state law. However, upon review of the designated state law, the court found that the plaintiff was not entitled to such notice, because the specified state law did not apply “to such mortgages whose statutory condition had been voided prior to May 1, 2008.”

Michigan Supreme Court Rules MERS’s Foreclosure Valid

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The Michigan Court of Appeals considered two cases involving MERS-related foreclosures, Residential Funding Co., LLC v. Saurman and Bank of New York v. Messner, 292 Mich. App. 321 (April 21, 2011) deciding whether MERS is an entity permitted to foreclose by advertisement or if it must go through a judicial foreclosure. The Court of Appeals held that MERS doesn’t meet the statute’s requirements to foreclose by advertisement, however, the Michigan Supreme Court reversed the decision, holding that MERS had standing to foreclose.

In both cases the original lender was Homecoming Financial, LLC, with the mortgages providing rights to foreclose upon default. MERS was named as the mortgagee and nominee for the lender. After default, MERS began foreclosure by advertisement on both properties, purchasing the properties at their respective sales, and quit-claiming title to the plaintiffs, Residential Funding and Bank of NY. Upon eviction, the homeowners questioned MERS’s authority but were denied by the district court. The circuit courts affirmed the district court’s decision, and the Michigan Court of Appeals considered whether MERS, as mortgagee but not note-holder, can foreclose non-judicially by advertisement.

The Court of Appeals discussed implications of the MERS system, which allows entities to transfer loans without having to record the transactions, since the mortgagee, MERS, is never changed despite the change of ownership among other entities. The statute in question, MCL § 600.3204(1)(d), states that a party may foreclose by advertisement if: “the party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” Since MERS is not the servicing agent or the owner of the debt, the Court of Appeals held MERS lacked authority to foreclose by advertisement under the statute. The court further explained “in order for a party to own an interest in the indebtedness, it must have a legal share, title, or right in the note,” and that an interest in the mortgage is not enough, as these are two separate instruments with different rights. The mortgage provides an interest in the property, while the note documents a debt to be repaid. Since the statute requires that the foreclosing party must own an interest in the indebtedness, the court held that MERS cannot act on behalf of Homecoming as agent or nominee to advertise the foreclosure. The decision of the Circuit Court enforcing the eviction was reversed, granting defendant-homeowners’ summary judgment.

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Judge Wilder dissented, believing MERS to have an ownership interest in the loan by way of the language in the mortgage giving MERS explicit rights to foreclose upon default. As mortgagee, MERS owned a “contractual interest” in the indebtedness, with the ability to take any action required by it, including its right to foreclose if the debt is not paid. The purpose of the mortgage is to create a security interest “specifically linked to the debt” to ensure payment. Since the mortgage gives MERS the right to “take any action required of it,” MERS has “a greater interest than just an interest in the property as security for the note,” giving MERS the right to act on behalf of Homecomings.

Plaintiffs Residential Funding and Bank of NY appealed the decision and the case was considered by the Michigan Supreme Court in late 2011, ultimately reversing the Court of Appeals order. 807 N.W.2d 412, rev’d 805 N.W.2d 183 (Mich. 2011). The Supreme Court agreed with the dissenting opinion from the Court of Appeals, holding that the foreclosure was valid. MERS has an ownership interest in the indebtedness, and therefore the right to foreclose because MERS’s “contractual obligations as mortgagee were dependent upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage secured.” Though this does not give MERS an ownership interest in the note, the court held that the note and mortgage do not need to be held by the same entity in order to foreclose under Michigan law.