Tag Archives: Downstream Litigation

Massachusetts Superior Court Holds that Assignee of Residential Mortgage Backed Securities has Standing to Seek Statutory Damages

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In Cambridge Place Inv. Mgmt., Inc. v. Morgan Stanley & Co., No. 10-2741-BLS1, 2012 WL 5351233, at *20 (Mass. Super. Ct. Suffolk Co. Sept. 28, 2012), the Superior Court of Massachusetts held that Cambridge Place Investment Management, Inc. (CPIM), as assignee of residential mortgage backed securities, had standing to seek damages under the Massachusetts Uniform Securities Act (MUSA) that resulted from alleged false and/or misleading statements made by the “underwriters, dealers, and depositors of the securities at issue.” In this case, the assignor of the securities was a group of nine hedge funds that had received advice from CPIM to purchase the securities at issue. The securities turned out to produce “substantial losses” for the hedge funds. In order to recoup their losses, CPIM further advised the hedge funds to assign the securities to it, so that it could bring an action in Massachusetts state court.

The underwriters, dealers, and depositors of the securities (Morgan Stanley) argued that CPIM lacked standing for three reasons: “First, [Morgan Stanley] contend[s] that the assignments of claims were done for an “improper purpose”—to collusively destroy federal diversity jurisdiction. . . . Second, [Morgan Stanely] argue[s] that the remedies under MUSA are only available to the direct purchaser of the securities, and, as assignee, CPIM lacks privity with [Morgan Stanely]. . . . Third, [Morgan Stanley] assert[s] that CPIM lacks standing to seek the rescission of the securities because rescission is a personal right that is not assignable.” The court addressed these arguments, rejecting each in turn.

The court held that the first argument must be rejected because “[e]ven if the assignments were made collusively to destroy federal diversity jurisdiction, that, in itself, does not invalidate them. . . . [T]hat the assignments were improperly made to CPIM only affects their validity under federal jurisdictional law, and do not affect their validity under state law.” The court found that for this argument to be accepted, Morgan Stanley needed to show “additional facts to invalidate the assignments under state law.”

The court then rejected Morgan Stanley’s second argument. In doing so, it characterized CPIM as an investment advisor, and applied a functional test “based on the decision-making authority that the investment advisor possessed.” Quoting a Massachusetts district court case, the court stated the test as follows: “as long as the investment advisor has discretion in determining what securities to buy and sell, it qualifies as a purchaser with standing to bring a securities fraud action.” The court then found that CPIM sufficiently alleged that it had discretion in determining what securities to buy and sell.

The court finally rejected Morgan Stanley’s final argument, stating, “The court is unwilling to conclude that CPIM’s claim is ‘personal’ and not subject to assignment. . . . Accordingly, CPIM is entitled to assert all available statutory remedies, including rescission.”

Massachusetts Supreme Court Holds that Bank Lacks Standing to Bring SCRA Claim Against Homeowner

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In HSBC Bank USA, N.A. v. Matt, 464 Mass. 193 (2013), the Supreme Court of Massachusetts found that HSBC Bank USA, N.A. (HSBC) lacked standing to proceed with its claim against the homeowner in a servicemember proceeding. HSBC initially filed a complaint in the Land Court under the Massachusetts Soldiers’ and Sailors’ Civil Relief Act (Massachusetts Act) “to determine if [homeowner] was entitled to foreclosure protections under the Federal Servicemembers Civil Relief Act (Federal SCRA or SCRA).” The homeowner did not contest the fact that she was not entitled to protection under the SCRA. Instead, she disputed HSBC’s standing to bring a foreclosure action generally, arguing, “[HSBC] was not the clear holder of either her note or her mortgage.” Despite the fact that the homeowner “was not entitled to appear or be heard at the servicemember proceeding,” the court considered the standing question sua sponte.

The court held that in determining standing in servicemember proceedings, a bank must present evidence to prove their status as mortgagees, or else as agents of mortgagees. The court reversed the Land Courts decision holding that HSBC had standing because of a purported right to purchase the homeowner’s mortgage. However, the court noted that determinations of standing in servicemember proceedings do not establish (and thus do not eliminate) standing in foreclosure proceedings.

Ohio Court of Appeals Holds that MERS, as Mortgagee, has Standing to Foreclose Despite Lacking a Beneficial Interest in the Note

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In Mtge. Electronic Registration Sys., Inc., v. Mosley, 2010-Ohio-2886, the Court of Appeals of Ohio held that MERS had standing to foreclose on the homeowners. The court found that language in the mortgage naming MERS as nominee, as well as a provision explicitly giving MERS the right to foreclose on the property, was sufficient to give MERS standing to foreclose. The court was not persuaded by the argument that MERS lacked standing because MERS did not have a beneficial interest in the underlying note. In response to this argument, the court stated, “The fact that MERS, the mortgagee, lacked a beneficial interest in the note that was secured by the mortgage does not deprive MERS of standing to enforce the note and foreclose the mortgage. . . . MERS has always been the mortgagee and [thus] has had a contractual right to foreclose on the Mortgage.”

Northern District of Ohio Holds that Mortgage Conveys Beneficial Interest to MERS as Nominee, Mortgagee

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In Meehan v. Mortgage Elec. Registration Sys., Inc., 1:11CV363, 2011 WL 3360193 (N.D. Ohio Aug. 3, 2011), the United States District Court for the Northern District of Ohio held that MERS had a beneficial interest in the property based on the language of the mortgage agreement. In this case, the homeowners filed an action to quiet title, claiming, “MERS has no beneficial interest in the mortgage. . . [further,] MERS’s interest is adverse and constitutes a cloud on the title to [the] property.” MERS claimed it had a beneficial interest in the property because the mortgage named MERS as nominee for the lender as well as the mortgagee. The court found that the contract language was clear and an action to quiet title, which is an equitable remedy, was not available to the homeowners in this case. Thus, the court held that the homeowners claim was without merit and granted MERS’s motion to dismiss.

Southern District of Ohio Unable to Determine Lenders’ Standing, Orders Lenders to Submit More Evidence or Have Case Dismissed

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In In re Foreclosure Cases, 521 F. Supp. 2d 650 (S.D. Ohio 2007), the United States District Court for the Southern District of Ohio reviewed 27 private foreclosure actions based on federal diversity jurisdiction. In this case, the court was concerned with the issues of standing and subject matter jurisdiction, and was dissatisfied with the evidence submitted by the lenders. The court concluded by ordering the lenders to “submit evidence [within 30 days] showing that they had standing in the above-captioned cases when the complaint was filed and that this Court had diversity jurisdiction when the complaint was filed. Failure to do so will result in dismissal without prejudice to refiling if and when the plaintiff acquires standing and the diversity jurisdiction requirements are met.”

Ohio Appellate Court Holds that Lender, as the Real Party in Interest, has Standing to Foreclose

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In Countrywide Home Loans Servicing, L.P. v. Shifflet, 2010-Ohio-1266, the Court of Appeals of Ohio, Third District held that the lender had standing to bring a foreclosure action against the homeowners. The homeowners argued that “MERS, rather than [lender], was the holder of the mortgage, rendering [MERS] the real party in interest.” The court rejected this argument, and based their determination on the evidence submitted by the lender. The evidence submitted was (1) an affidavit from the lender’s assistant vice president stating that the lender is the holder of the mortgage deed and note, and (2) an assignment executed by MERS that assigned all of its right, title, and interest in the subject mortgage deed and note to the lender. The court found this evidence dispositive, stating, “[g]iven the affidavit of [the lender’s assistant vice president] and, more importantly, the documentary evidence of the assignment of the mortgage and note to [the lender], the trial court did not err in granting summary judgment to the lender.”

Ohio State Court of Appeals Holds that Bank has Standing to Foreclose

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In Deutsche Bank Natl. Trust Co. v. Traxler, 2010-Ohio-3940, the Court of Appeals, Ninth District of the State of Ohio held that the bank had standing to commence a foreclosure action against the homeowners. The homeowners argued that the bank lacked standing because the bank did not possess the mortgage and note at the time it commenced its action. The court rejected this argument, holding, “a bank need not possess a valid assignment at the time of filing suit so long as the bank procures the assignment in sufficient time to apprise the litigants and the court that the bank is the real party in interest.” The court looked at the assignments of the mortgage and note, and found that both were valid. Specifically, the court rejected the homeowner’s argument that MERS lacked authority to assign the mortgage. The court found that where MERS is designated as both the nominee and mortgagee of the mortgage, it has authority to assign the mortgage. However, the court went even further and stated, “assuming that MERS did not have the authority to assign the mortgage, however, we. . . conclude that the proper transfer of the promissory note, which the mortgage secured, amounted to an equitable assignment of the mortgage.” Thus, the court concluded that the homeowner’s arguments be rejected and the bank had standing to foreclose.