Tag Archives: foreclosure

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.

The Future of Foreclosure

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Professor Roger Bernhardt  (Golden Gate University School of Law) has posted The Future of Foreclosure to SSRN.  This short article is ostensibly about a few recent California foreclosure decisions but I was more intrigued by its “case for going back to the courthouses”  and its rejection of nonjudicial foreclosure. (2) Bernhardt makes the common argument that for debtors, “judicial foreclosure would give them the opportunity to have their defenses heard before their property is taken away by foreclosure . . ..” (3)  But he also argues that lenders would benefit from a judicial-foreclosure-only regime because it could “effectively eliminate the risks and consequences that a challenged conduct will later be determined to have amounted to a fatal error.” (3)

Bernhardt does note that

National reform movements have always gone in the opposite direction: attempting to improve the nonjudicial foreclosure procedure in ways to eliminate its deficiencies (e.g., the Uniform Land Transactions Act, the Uniform Land Security Interests Act, the Uniform Nonjudicial Foreclosure Act, and now the (draft) Residential Real Estate Mortgage Foreclosure and Protections Act). But those approaches all concede a premise that may no longer be tenable—that the foreclosure process can be safely or efficiently run without contemporaneous judicial supervision. After-the-fact oversight is too time consuming and too late. (3)

I have not heard any lenders advocate for such a solution and would be curious to hear what they would have to say.  My sense is that they would not agree that they would benefit from such a regime, but it would be interesting to know if I am wrong.

Massachusetts Supreme Court Dismisses Try Title Action Due To Lack Of Subject Matter Jurisdiction

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In Bevilacqua v. Rodriguez, 460 Mass. 762 (2011), theMassachusetts Supreme Court handled the issue of whether a plaintiff had standing to maintain a try title action under G.L. c. 240, §§ 1-5, where he was in physical possession of real property but his chain of title rested on a foreclosure sale conducted by someone other than “the mortgagee or his executors, administrators, successors or assigns.”

In this case, the purchaser of property, after foreclosure of a mortgage, brought an action to try title against mortgagor. The purchaser alleged, that because foreclosure sale had been conducted by assignee before the mortgagee had actually assigned mortgage, a cloud existed on purchaser’s title. This action was dismissed, and an appeal ensued. On review, the Massachusetts Supreme Court affirmed the lower court’s holding. However, the court modified the lower court’s holding, finding that the dismissal should have been entered without prejudice.

The court found that the lower court properly raised the issue of whether the plaintiff had record title to the property such that he had standing to bring a try title action. The court found that the plaintiff had not identified a basis on which the court could conclude that the plaintiff had record title to the property such that a try title action could be sustained.

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.

Casting Light on the Shadow Docket

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New York Attorney General Schneiderman’s lawsuit against various HSBC entities, New York v. HSBC Bank USA et al., No. 2013-1660 (May 31, 2013), alleges that HSBC entities have sent hundreds or thousands of NY households into legal limbo because they did not comply with procedural requirements applicable to foreclosure.  The complaint outlines these procedural requirements as follows (warning:  technical details to follow):

13. At lease 90 days prior to filing a foreclosure action, the lender must send a homeowner a notice that (i) states the homeowner is at risk of losing the home, (ii) sets forth the amount owed and (iii) provides a list of approved housing counseling agencies that may provide free or low-cost counseling.  [RPAPL section 1304(1).]  The intent of RPAPL, section 1304(1) is to prevent the necessity of a foreclosure action the first place.

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14. It the matter is not resolved within 90 days, the lender may file a foreclosure action.  [RPAPL section 1304(1).]

15. In order to help homeowners avoid losing their home whenever possible, New York State law, CPLR section 3408(a), provides for the court to schedule a mandatory settlement conference for the homeowner and lender.

16. The express purpose of the settlement conference is “to determin[e] whether the parties can reach a mutually agreeable resolution to help the [homeowner] avoid losing his or her home, and evaluat[e] the potential for a resolution in which payment schedules or amounts may be modified or other workout options may be agreed to, and for whatever other purposes the court deems appropriate.” [CPLR section 3408(a).]

17. The lender or its counsel must appear a the mandatory settlement conference. If counsel appears, the lawyer must have authority to dispose of the case. CPLR section 3408(c) (emphasis added). The parties are required to negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, that will enable the homeowner to stay in his or her home on more affordable terms.

18. Recognizing that the success of a settlement conference will be enhanced if it is heldf as soon as possible before the arrears, interest, fees and penalties owed by the homeowner mount, CPLR section 3408(a) mandates that the court must hold a settlement conference within sixty days after the date that the lender files proof of service.

19.  However, proof of service is filed with the County Clerk and not the Uniform Court System, which is responsible for scheduling the mandatory settlement conference.  Because the Unified Court System is not aware that a foreclosure action has been commenced until a Request for Judicial Intervention (“RJI”) has been filed, New York Court rules regarding residential foreclosures and mandatory settlement conferences, 22 NYCR section 202.12-a(b)(1), expressly require that the lender file an RJI with the proof of service.

20. Filing the RJI with the proof of service furthers the New York State policy of preventing the loss of homes to foreclosures in two important respects.

21. First, without filing the RJI with the proof of service, the Unified Court System cannot comply with its legal obligation to hold the mandatory settlement conference within sixty days after the date when proof of service is filed.

22. Second, the court sends the RJI, or the homeowner’s name, address and telephone number to an approved housing agency “for the purpose of that agency making the homeowner aware of housing counseling and foreclosure prevention services and options available to them . . .” CPLR section 3408(d). The obvious intent of this requirement is to provide homeowners with the tools and resources that can help them avoid losing their homes. (3-5)

These cases are what is now known as the “shadow docket” because they are in a litigation limbo. it seems that HSBC will have a hard time arguing with the AG’s identification of hundreds of such cases in the four of NY’s 62 counties that it investigated. But it is unclear whether courts will be willing to impose the penalties requested by the AG, including “waiving all accrued interest charges, fees and penalties that accrued, or will accrue, beginning 60 days after the filing of proof of service on the homeowner.” (11) While the failure to hold the settlement conference most certainly has harmed some homeowners, it has also most certainly not harmed others who were not in the position to pay anything at all on a mortgage after losing a job or facing some other serious crisis. There may be a disconnect between the wrong exposed and the remedy requested.

Massachusetts District Court Interprets Ibanez Narrowly in Deciding That Plaintiff-Homeowner Lacked Standing to Challenge Bank’s Standing to Foreclose

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This action arose out of an attempted foreclosure by defendant Aurora Loan Services on plaintiff David Kiah’s property. Based on the recent holding from U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011), Kiah sought a declaratory judgment to make the “mortgage on record legally null and void.” The Massachusetts District Court in deciding Kiah v. Aurora Loan Services, LLC, No. 10-40161-FDA, 2011 WL 841282 (D.Mass. Mar.4, 2011) considered the Massachusetts Supreme Court’s holding from Ibanez, along with the plaintiff-homeowners’ arguments, and concluded that granting the defendant’s dismissal was proper.

The court found that the plaintiff’s claims were merit-less, as he challenged neither the note nor the note’s assignment to Aurora. As expressed in Ibanez “By law, the transfer of the note automatically transfers an equitable interest in the underlying mortgage, even without a formal assignment.” An equitable right to the mortgage was thus transferred to Aurora along with the note.

The court noted that the Ibanez holding did not require a reconsideration of the lower court’s judgment. In Ibanez the Massachusetts Supreme Court held that a foreclosure sale made by a party who holds the note but not the mortgage is void as a matter of law. In that case, the note holder provided no evidence of assignment prior to foreclosure. However here, there was a facially valid assignment of the mortgage from MERS to Aurora prior to the foreclosure sale. To the extent the assignment was defective, the court interpreted Ibanez required, at most, that a confirmatory assignment be executed and recorded.

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.