Tag Archives: foreclosure

Oregon District Court Dismisses Borrower’s Suit to Invalidate Foreclosure in Favor of BOA and MERS, Stating Lack of Merit

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In Moreno v. Bank of America., N.A., 3:11-CV-1265-HZ, (D. Or. Apr. 27, 2012) the U.S. District Court of Oregon, granted the defendant’s motion to dismiss for failure to state a claim. Plaintiff had alleged violations under several federal and state Acts, each of which the Judge rejected based on lack of merit.

The plaintiff brought action to invalidate a foreclosure sale, which, although dated earlier than the filed complaint, had not yet occurred. On March 29th, 2007, Moreno borrowed $220,000 from Aegis Wholesale Corporation. A promissory note in favor of Aegis was secured by a Deed of Trust (DOT) against the plaintiff’s real property and identified Fidelity National Title Insurance Company of Oregon (Fidelity) as trustee, and Mortgage Electronic Registration Systems, Inc. (MERS) as the “beneficiary under this Security Instrument.” MERS later assigned the DOT to BAC Home Loans Servicing (BACHLS) in June of 2010. On the same day, BACHLS appointed ReconTrust Co. as successor trustee to Fidelity. Fidelity filed a Notice of Default and Election to Sell (NODES), initiating foreclosure proceedings against Moreno, who had been in default since July, 2009.

The Court dismissed each of the plaintiff’s complaints in turn, starting with his first two claims of relief based on violations of the Oregon Trust Deed Act (OTDA). The plaintiff claimed that under the DOT, MERS lacked authority to assign beneficial interests to BACHLS, who in turn, lacked power to appoint ReconTrust as successor trustee. The Judge, Marco A. Hernandez, stated that he had previously held that “naming MERS as a beneficiary in a DOT does not violate the OTDA,” and while other judges in the district have found otherwise, he would continue to uphold this ruling. The plaintiff alleged that a 3-year gap between the execution of the DOT and MERS’s assignment to BACHLS  showed there “must have” been unrecorded assignments (in violation of ORS 86.735(1)). The Court found that allegation was both speculative and based on an erroneous assertion of fact (the Complaint mistakenly names Bank of America as the original lender, whereas the DOT names Aegis, and subsequent documents state Bank of America was assigned interest only in 2010). The second OTDA based claim was that the defective notice was invalid for failure to include a correct statement of the amount in default. The Court dismissed it because the plaintiff had not “plead his ability to cure the default, that his damages resulted from the lost opportunity to cure the default, and that he requested information from the trustee under O.R.S. § 86.757 and O.R.S. § 86.759.”

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Next, the Court dismissed the plaintiff’s claim brought under the Truth in Lending Act (TILA) for both the failure to meet the 1-year statute of limitations and for having incorrectly brought the action against Bank of America rather than Aegis, the original lender. Under TILA a claim may only be brought against the Creditor, who is the person who “regularly extends… consumer credit” and “to whom the debt arising from the consumer credit transaction is initially payable.” 15 U.S.C. Sect. 1602(g). The plaintiff further argued that he is Hispanic and “as a result” did not understand the nature of the loan documents. He therefore requested equitable tolling, which suspends the “limitation period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosure that form the basis of the TILA action,” which he stated was in 2011 after having spoken to a translator who explained his loan audit. The Court found this unconvincing on several accounts. First, since the complaint brought no allegations in support of equitable tolling, it failed to state a TILA violation. Second, the plaintiff never alleged he did not speak English. Third, equitable tolling is applied when the 1-year period would be “unjust” or “frustrate the purpose” of the TILA. Fourth,  the plaintiff must bring allegations “that the defendant had fraudulently concealed information that would have allowed plaintiff to discover his claim,” engaged in action to prevent plaintiff from discovering a claim, or encountered “some other extraordinary circumstance would have made it reasonable for Plaintiff not to discover his claim within the limitations period.” Garcia v Wachovia Mortg. Corp. 676 F. Supp.2d 895, 905 (C.D. Cal. 2009).

The Court dismissed the plaintiff’s claim under the Real Estate Settlement Procedures Act (RESPA) for failure to meet the statute of limitations since his claim arose out of the origination of the loan in 2007, and his arguments for equitable tolling “are unavailing.”  Plaintiff also failed to allege that a RESPA violation resulted in actual damage, a requirement of a RESPA claim.

The plaintiff’s claim under Oregon’s Unfair Trade Practices Act (UTPA) was dismissed because at the time of the loan, in 2007, UTPA had not yet been amended to include “loans and extensions of credit,” O.R.S. 646.605(6) (2010), therefore plaintiff’s loan was not covered by the Act. Additionally, UTPA claims must be brought within a year from the discovery of the “unlawful method, act or practice,” but the plaintiff failed to assert that the discovery of a UTPA violation could not have been made at the time of the loan

Mass. Trial Court Upholds MERS Foreclosure

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Judge Cutler granted MERS and Countrywide’s motion to dismiss plaintiff Lyons challenge to the validity of a foreclosure deed arising from a foreclosure sale conducted by MERS in Lyons v. MERS et al. Misc. 09 416377 (Jan. 4, 2011). The court held that “the Plaintiffs expressly granted the Mortgage to MERS (as nominee for the Lender), with the power of sale. As a result of this grant, MERS needed no assignment” from Countrywide.” (3) The court found that “such an arrangement is entirely consistent with the express terms of the Mortgage, as well as with Massachusetts law.” (3) The court found it intolerable to reach a result where “the logic of a denial of MERS’s foreclosure right as mortgagee would lead to anomalous and perhaps inequitable results, to wit, if MERS cannot foreclose though named as mortgagee, then either [the lender] can foreclose though not named as mortgagee or no one can foreclose, outcomes not reasonably or demonstrably intended by the parties.” (3) Not sure that those are the only possibilities (for instance, MERS could assign the mortgage to its beneficial owner), but there you have it.

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.

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.

Reiss on the Ethics of Subprime Lending

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Fordham Law School is sponsoring an event on The Mortgage Crisis – Five Years Later on June 3rd.  I will be speaking about the ethics of subprime lending on the second panel.  The speakers are

 

Panel 1: The Mortgage Crisis: It Ain’t Over ‘Til It’s Over (1 CLE Credit)

Elizabeth M. Lynch, MFY Legal Services

Adam Cohen, NY State Attorney General’s Office

Edward Kramer, Wolters Kluwers

Harvey Levine, Served on OCC/FRB Independent Foreclosure Review

Jessica Yang, Policy Director, NYU Furman Center

Panel 2: The Ethics of Sub-Prime Lending (1 CLE Ethics Credit)

Bruce Green, Louis Stein Professor, Director (Stein Center), Fordham Law School

Aditi Bagchi, Associate Professor of Law, Fordham Law School

Josh Zinner, Co-Director, NEDAP

David Reiss, Brooklyn Law School

 

Interview with 2013 Friend of the Consumer Honoree

Gretchen Morgenson, Assistant Business and Financial Editor and Columnist, NY Times

 

 

 

Careful When Putting Shoe on Other Foot

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Nestor Davidson has posted a very useful article to SSRN, New Formalism in the Aftermath of the Housing Crisis.  The article notes that as “borrower advocates have responded to [the] surge in mortgage distress, they have found success raising a series of largely procedural defenses to foreclosure and mortgage-related claims asserted in bankruptcy.” (391)

Davidson points out that this “renewed formalization in the mortgage distress system is a curious turn in the jurisprudence” because from “the earliest history of mortgage law, lenders have had a tendency to invoke the hard edges of law’s formal clarity, while borrowers have often resorted to equity to obtain a measure of substantive fairness in the face of such strictures.” (392)

What I particularly like about this article is that it takes the broad view on downstream (homeowner foreclosure and bankruptcy) litigation.  Instead of painting a pointillistic portrait of all of this “mortgage distress” litigation (a standing case here, a chain-of-assignment case there), Davidson identifies a pattern of formalistic defenses being raised by homeowners and puts it into historical context.

Davidson warns of the potential unintended consequences of this development: “The borrower push to emphasize formalism in mortgage practice, however understandable, may thus give primacy to the set of judicial tools least amenable to claims of individual substantive justice.” (430)

I don’t think that I agree that this new formalism will bite homeowners in the end.  As Davidson himself acknowledges, “formalism need not be equivalent on both sides  . . ..” (430) But I do agree with his conclusion:

For those concerned about the long-term structural balance between procedural regularity and substantive fairness embodied in the traditional realms of law and equity, the brittleness that the new formalism may be ushering in is worth considering and, perhaps, cause for redoubling efforts to find structural solutions to a crisis that even now continues. (440)