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.”
Tag Archives: foreclosure
Strategies to Improve the Housing Market
Boston Consulting prepared this Strategies to Improve the Housing Market report on behalf of The Pew Charitable Trusts. The report focuses “on practical solutions that can readily be implemented by industry, agencies, and regulators working within existing mandates, or by nongovernmental organizations.” (6) I highlight three proposals in their report that I find particularly interesting.
1. Promulgate Consistent Set of Loan Servicing Standards
Mortgage servicing is governed by a number of loan servicing standards—including standards under the DOJ settlement, OCC consent orders, FHFA Servicing Alignment Initiative, CFPB, as well as those of individual states—which vary in scope and individual provisions. A consistent set of loan servicing standards across the servicing life cycle can both ensure a basic standard of service for all homeowners and reduce the operational complexity of complying with multiple, varying standards for servicers. (8)
This seems to be key to dealing with the misaligned incentives and anticommons problems that have become so apparent during the Subprime Bust.
2. Streamline The Foreclosure Process in Key States
The long foreclosure process, particularly in judicial states, creates negative impacts on both lenders and communities, particularly when borrowers are “free riding.” While preserving the primacy of states and localities in foreclosure law, experts highlighted the desirability of working with them to develop a “model” foreclosure process based on best practices, to be adopted by states and localities on a voluntary basis. We recommend that an NGO takes the lead on developing such a model, based on best practices across jurisdictions, brings in key states and other relevant stakeholders to build consensus, and advocates for change with state policy makers and legislatures. (9)
This issue is more complicated than the report (and most other commentators) concedes. The claim that borrowers are “free riding” is not exactly true. Lengthy foreclosure periods existed before the mortgages were entered into and were presumably priced into the cost of mortgages. Indeed, the FHFA is trying to reprice mortgages in jurisdictions with the longest periods. There are clearly policy choices at issue in the design of a foreclosure process. For homeowners and lenders alike, the difference between the lengthy judicial process and the relatively rapid non-judicial process is only the most stark example of how process (in this case, length of process) affects substantive rights (that is, post-default occupancy periods).
3. Rationalize First and Subordinate Lienholder Rights
In the context of continuing demand for home equity loans (second or subordinate liens), there is a need to clarify the rights of first and second lienholders to avoid a repeat of current frictions in the future and to restore investor confidence that first lienholders will have enforceable priority in the event of default. Any new framework put forward should achieve two key objectives:
> protecting first-lien priority
> standardizing treatment of seconds in loss mitigation efforts.
Conflicts between first and second lienholders have been a source of controversy and friction since the crisis began. It is unlikely that private investors will want to commit substantial new investment dollars to private securitizations until this issue is resolved. The industry, perhaps through the auspices of one of its trade association, should take the lead on further developing these options, in the first instance, with involvement from the FHFA, Treasury, and FDIC. (11, emphasis deleted)
This is a very important issue. I have been struck since the early days of the crisis how non-lawyers in particular (economists are particular offenders!) assume away the legal rights of seconds in their proposals to address the foreclosure epidemic. Unsurprisingly, the seconds (knowing what happens to those who “ass-u-me”) have successfully asserted their legal rights to protect their financial interests. Any solution to the problem of misaligned incentives between first and seconds must take the legal rights of these profit-maximizing entities into account.
Southern District of Ohio Unable to Determine Lenders’ Standing, Orders Lenders to Submit More Evidence or Have Case Dismissed
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
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.”
Foreclosure = Debt Collection
The Sixth Circuit ruled in Glazer v. Chase Home Finance LLC, __ F.3d ___ (Case No. 10-3416, Jan. 14, 2013) that “that mortgage foreclosure is debt collection under” the Fair Debt Collection Practices Act. (2) As Glazer indicates, courts have been split on this issue, but the trend seems to be in accord with Glazer.
Of particular note to lawyers: “Lawyers who meet the general definition of a “debt collector” must comply with the FDCPA when engaged in mortgage foreclosure. And a lawyer can satisfy that definition if his principal business purpose is mortgage foreclosure or if he “regularly” performs this function.” (16)
Ohio State Court of Appeals Holds that Bank has Standing to Foreclose
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.
New York Supreme Court, Appellate Division Holds that Bank Has Standing to Foreclose
In Countrywide Home Loans, Inc. v Delphonse, 64 A.D.3d 624 (2d Dept. 2009) the Supreme Court, Appellate Division, Second Department found that the lender, Countrywide Home Loans (Countrywide), had standing to foreclose on the Delphonses, the homeowners in the case, because the court found that the Delphonses waived the issue at the pre-trial stage, and furthermore that Countrywide met its burden of proof. The court held, “[the Delphonses] waived the defense of lack of standing (see CPLR 3211[a][3]) by failing to either make a pre-answer motion to dismiss the complaint on that ground or by asserting that defense in their answer. . . . On its motion for summary judgment, [Countrywide] established its prima facie entitlement to judgment as a matter of law by submitting the mortgage, the underlying note, and evidence of a default.”
