Tag Archives: Downstream Litigation

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.

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.

Massachusetts District Court Rejects Homeowner-Plaintiff’s Challenge of the Validity of MERS’s Assignment in a Foreclosure Proceeding

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In Kiah v. Aurora Loan Services, LLC, No. 10-40161-FDA, 2011 WL 841282 (D.Mass. Mar.4, 2011), the plaintiff-homeowner alleged that discrepancies in the assignment process prevented the foreclosing party [Aurora Loan Services, LLC] from having statutory power to initiate such proceedings. The plaintiff, on several grounds, challenged Aurora’s standing to bring such an action.

The plaintiff contended that MERS did not have the power to assign the mortgage to Aurora and that Aurora therefore cannot foreclose on the plaintiff’s property because it is not the mortgagee. The plaintiff did not, however, dispute Aurora’s possession of the note or challenge Aurora’s substantive right to enforce the note.

The question of mortgage ownership arose out of bankruptcy of the loan originator. The plaintiff argued that originator filed for bankruptcy and was dissolved before the mortgage was assigned to Aurora, that MERS could not act on behalf of a non-existent entity, and therefore MERS did not have the legal power to transfer the plaintiff’s mortgage to Aurora. The plaintiff argued that the assignment of the mortgage and the mortgage itself were therefore void as a result.

In deciding whether the mortgage and assignment were void the court focused on the assignment of the note and rejected the plaintiff’s contentions because he did not challenge the validity of the assignment of the note to Aurora. By law in Massachusetts, the transfer of the note automatically transfers an equitable interest in the underlying mortgage, even without a formal assignment. Thus, an equitable right in the mortgage was transferred to Aurora along with the note.

The plaintiff’s claim that the assignment was fraudulent was also without merit. The plaintiff alleged that Aurora cannot be the mortgagee if another entity owns the debt and that the assignment of the mortgage to Aurora is therefore fraudulent. The Court found that Aurora was acting in their capacity as a servicer and as such could act on behalf of Fannie Mae, the owner of the debt. Thus, as Fannie Mae’s agent, Aurora has the right to both collect debt and foreclose on the mortgage.

The plaintiff also alleged that the assignment was invalid as it was backdated and that MERS lacked the authority to have the mortgage assigned. Plaintiff asserted that the “backdating of the document was part of a scheme and conspiracy of fraudulent conveyance.” Plaintiff argued that the assignment was ineffective because MERS’s signing officer lacked the signatory authority at the time of the assignment to Aurora. The court found both of these contentions without merit. First, the signing officer had signatory authority on the date of assignment given to him by MERS’ “Corporate Resolution” that predated the assignment. Second, the Court found that even if the signing officer lacked the authority to assign the mortgage, this would not invalidate the assignment under Massachusetts law.

Plaintiff further contended that an assignment of a mortgage is invalid unless the note is transferred with it. As such Plaintiff alleged that MERS could not have assigned the mortgage because it did not have physical possession of, or a beneficial interest in, the note, and therefore the assignment is void. The Court found that even if MERS was not in possession of or a beneficial interest in the note, this claim fails because MERS was holding the mortgage in trust for Aurora. The assignment of mortgage, therefore, would still be valid.

Rhode Island Superior Court: Homeowners Lack Standing to Challenge MERS Assignment

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In Scarcello v. Mortgage Electronic Registration Systems, Inc., et al, C.A. No. KC 2011-0548 (R.I. Super. June 26, 2012), the court granted defendant MERS’s motion to dismiss plaintiffs’ complaint challenging assignee Aurora’s standing to foreclose and seeking an order to quiet title on the property. Plaintiff homeowners executed a note and mortgage for the property to MERS as nominee for Homecomings Financial Network, Inc., which were later assigned by MERS to Aurora Loan Services, Inc. After plaintiffs defaulted, Aurora foreclosed and subsequently sold the property. Plaintiff homeowners alleged that Aurora, as assignee, lacked standing to foreclose and sell the property. The court found the facts of Scarcello similar to those in Kriegel v. Mortgage Electronic Registration Systems, No. PC 2010-7099, 2011 WL 4947398 (R.I. Super. Oct. 13, 2011) stating “it is well established that ‘homeowners lack standing to challenge the propriety of mortgage assignments and the effect those assignments, if any, could have on the underlying obligation.'” Since plaintiff homeowners are not a party to the assignment, they lack standing to challenge the assignment’s validity. Plaintiffs further alleged that the assignment was unenforceable without a power of attorney for the signing party, but the court held that this was not required as MERS’s power to assign the mortgage stems from its designation as mortgagee and nominee of Homecomings, as clearly stated in the mortgage instrument. Plaintiffs failed to state a plausible claim for relief, and as such, the court dismissed plaintiffs’ complaint.

Michigan District Court Dismisses Homeowner’s Action to Declare Foreclosure Null and Void

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In Olesuk v Fed. Natl. Mort. Assoc., 2:12-cv-11001 (Dist. Ct. Mich. 2012), the court dismissed an action by homeowners against the parties involved in the multiple assignments of their mortgage, including MERS (Defendants). Homeowners brought the action after defaulting on their mortgage, seeking a declaration that the foreclosure action brought by the mortgagee be declared null and void. The homeowners brought the following claims: “(1) Quiet Title; (2) Fraud in the Assignment against JPMorgan and Chase Home (related to the 2009 assignment); (3) Fraud in the Assignment against Chase Home and MERS (related to the 2010 assignment); (4) Fraud in the Signatures (Robosigning); (5) that Defendants are not the real parties in interest and lack standing to foreclose, and; (6) Slander of Title.”

Homeowners’ claims rested on two facts. First, they claimed that the notarized certifications of the 2009 and 2010 assignments were false and therefore the assignments were invalid. Second, homeowners claimed that Fannie Mae executed an unrecorded assignment of the note to a REMIC, that the REMIC was not a party to the subsequent transfers of the mortgage, and thus the assignments were invalid.

The court rejected all of homeowners’ claims. The first and fifth claims were based on an argument “that Defendants may not foreclose on the property because the allegedly fraudulent or forged signatures and the transfer to the REMIC trust rendered the assignments invalid.” The court rejected this argument because “as non-parties to the assignments, [homeowners] lack standing to challenge their validity.”

The court rejected the second, third, and fourth claims because homeowners could not “establish that they relied to their detriment upon the allegedly forged signatures or fraudulent assignments.” The court then rejected the sixth claim because “the assignments, fraudulent or not, do not disparage Plaintiffs’ claim of title.”

 

Massachusetts District Court Holds that MERS, as Mortgagee and Nominee for Lender, has Authority to Assign Mortgage

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The court in Rosa v. Mortg. Elec. Sys., Inc., 821 F. Supp. 2d 423 (D. Mass. 2011) held that the assignee bank had standing to foreclose on the homeowners. The homeowners argued that the bank did not have standing because MERS lacked authority to assign the mortgage. They made several arguments as to why MERS lacked authority, including (1) the original noteholder did not authorize the assignment; (2) MERS could only act as nominee for the original noteholder, who dissolved in 2008; and (3) MERS did not hold the note at the time of assignment, and thus could not assign what it did not hold.

First, the court looked at MERS’s authority to assign the mortgage. The court rejected the homeowner’s argument, stating, “[s]ince Massachusetts law does not require a signatory to prove authority to execute a mortgage assignment, a mortgagee need not prove authorization from the note holder to assign a mortgage.” The court then held that the assignment by MERS to the assignee bank was valid because MERS was a mortgagee under the terms of the mortgage agreement.

Next, the court determined that the original noteholder’s dissolution had no effect on MERS’s authority to assign. The court held, “[the original noteholder’s] dissolution [did not] terminate MERS’ nominee relationship with a successor purchaser or assignee of the Note or affect MERS'[s] status as mortgagee. . . . As mortgagee, MERS continued to hold the Mortgage in trust for whomever happened to own the Note.”

Finally, the court rejected the argument that MERS must hold the note in order to assign the mortgage. They found this argument contrary to case law. The court stated, “In Massachusetts, the mortgage does not automatically follow the note and the mortgage and the note may be held by different parties. . . . An assignor of a mortgage is not required to have possession of or beneficial interest in the note in order to assign the mortgage because it holds the mortgage in trust for the note holder. ” Thus, MERS had authority to assign the mortgage despite not being in possession of the underlying note.

Ohio Court of Appeals Holds that the Note Follows the Mortgage Where Intent of Parties is Clear

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In Bank of New York v. Dobbs, 2009-Ohio-4742, the court found that the Bank of New York (Bank) had standing to bring a foreclosure action against the homeowners. In this case, Countrywide Home Loans (Countrywide) was the original note holder, and Bank claimed that Countrywide assigned the note to MERS, who then assigned to Bank. The homeowners argued that Bank did not have standing to foreclose because there was no evidence that Countrywide assigned the note to MERS and thus the chain of title was incomplete. In determining standing, the court found that “the chain of title between Countrywide, MERS and [Bank was] not broken” because “the obligation follows the mortgage if the record indicates the parties so intended” and in this case there was “clear intent by the parties to keep the note and mortgage together, rather than transferring the mortgage alone.” Thus, the note followed the mortgage upon transfer, and Bank was the lawful holder of the note.