Tag Archives: foreclosure

CFPB Issues New Rules To Protect Homeowners in Foreclosure

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The CFPB issued new rules today that increase protections for homeowners in foreclosure.  The 2013 Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules.  These rules are a first national standard to replace a hodgepodge of practices that had been in place.  The rules come on the footsteps of the $85 billion settlement last week arising from improper foreclosure practices by the ten banks who are parties to the settlement.  The rules address many of the behaviors that infuriated homeowners over the last few years including

1.  non–transparency as to interest rate adjustments, fees, penalties and other costs;
2.  inability to speak with employees at mortgage servicers;
3.  overly complicated forms and procedures;
4.  glacially slow processing of information; and
5.  capricious review standards.

The CFPB has a fact sheet about the rule.

New York Supreme Court, Appellate Division, Second Department Holds that MERS has Standing to Foreclose

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In Mtge. Elec. Registration Sys., Inc. v Coakley, 41 A.D.3d 674 (2d Dept. 2007), the Supreme Court, Appellate Division, Second Department found that MERS had standing to foreclose on the homeowner. The court held, “[t]he record shows that the promissory note was. . . ultimately transferred and tendered to MERS. Therefore, at the time of the commencement of this action, MERS was the lawful holder of the promissory note and of the mortgage, which passed as an incident to the promissory note. . . . Moreover, further support for MERS’s standing to commence the action may be found on the face of the mortgage instrument itself. Pursuant to the clear and unequivocal terms of the mortgage instrument, Coakley expressly agreed without qualification that MERS had the right to foreclose upon the premises in the event of a default.” Thus, in this case MERS was able to prove that it held both the mortgage and the underlying note, which was enough for the court to determine that MERS had standing to foreclose.

United States Bankruptcy Court Bound by Precedent to Recognize Bank’s Standing in Foreclosure Action, but Opines on MERS’s Flawed Assignment Process and Status as Agent

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In In re Agard, 444 BR 231, 235 (Bankr. E.D.N.Y. 2011) vacated in part sub nom. Agard v. Select Portfolio Servicing, Inc., BR 8-10-77338 REG (E.D.N.Y. 2012), the United States Bankruptcy Court for the Eastern District of New York held that U.S. Bank, the assignee bank in this case, had standing to foreclose because the state court had already determined that the assignment of the mortgage by MERS to U.S. Bank was a valid assignment. The court stated the issue as follows: “[homeowner] argues that the only interest U.S. Bank holds in the underlying mortgage was received by way of an assignment from. . . MERS, as a ‘nominee’ for the original lender. [Homeowner]’s argument raises a fundamental question as to whether MERS had the legal authority to assign a valid and enforceable interest in the subject mortgage.”

In holding for U.S. Bank, the court stated the homeowner’s argument had to be rejected because of the application of the Rooker-Feldman doctrine. The court stated, “[t]he Rooker-Feldman doctrine is derived from two Supreme Court cases, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and D.C. Court of Appeals v. Feldman, 460 U.S. 462 (1983), which together stand for the proposition that lower federal courts lack subject matter jurisdiction to sit in direct appellate review of state court judgments.” Also, the court found that res judicata precludes the homeowner from prevailing here: “The state court already has determined that U.S. Bank is a secured creditor with standing to foreclose and this Court cannot alter that determination in order to deny U.S. Bank standing to seek relief from the automatic stay.”

However, the court in this case found it necessary to expound upon whether it believed that U.S. Bank had standing to foreclose, despite the state court’s binding opinion.  “[T]he Court believes that it is appropriate to set forth its analysis on the issue of whether [U.S. Bank], absent the Judgment of Foreclosure, would have standing to bring the instant motion.” The court began its analysis by stating, “in order to have standing to seek relief from stay, [U.S. Bank]. . . must show that [it] holds both the Mortgage and the Note. . . [U.S. Bank] can prove that [it] is the holder of the Note by providing the Court with proof of a written assignment of the Note, or by demonstrating that [it] has physical possession of the Note endorsed over to it. . . the Assignment of Mortgage is not sufficient to establish an effective assignment of the Note.” Therefore, U.S. Bank would have to show that MERS both assigned the note and that it had authority to assign the note. Regarding MERS’s authority to assign the note, the court held, “[w]hat remains undisputed is that MERS did not have any rights with respect to the Note and other than as described above, MERS played no role in the transfer of the Note… [U.S. Bank]’s failure to show that [it] holds the Note should be fatal to the Movant’s standing.”

Furthermore, the court took issue with MERS’s status as agent of the original mortgagee. The court stated, “the record of this case is insufficient to prove that an agency relationship exists under the laws of the state of New York between MERS and its members. According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents.” The court went even further in its criticism, saying, “Aside from the inappropriate reliance upon the statutory definition of ‘mortgagee,’ MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best. . . . even if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that MERS did not have authority, as ‘nominee’ or agent, to assign the Mortgage absent a showing that it was given specific written directions by its principal. This Court finds that MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not support by the law. The relationship between MERS and its lenders and its distortion of its alleged ‘nominee’ status was appropriately described by the Supreme Court of Kansas as follows: ‘The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant – their description depended on which part they were touching at any given time.’ ”

Absent the state court precedent that the court was bound to follow, the court likely would have emphatically refused to recognize MERS’s authority to assign the note as well as the mortgage, and in turn would have prevented U.S. Bank from proceeding with the foreclosure. Thus, in future cases before the court with similar facts that are not bound by state law precedent, MERS and any assignee bank will not have standing to foreclose.

New York Supreme Court, Appellate Division Holds that Assignee Bank Lacks Standing to Foreclose for Failure to Provide Evidence of Valid Note Assignment

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In Bank of New York v Silverberg, 86 A.D.3d 274 (2d Dept. 2011), the court stated, “[t]he principal issue ripe for determination by this Court . . . is whether MERS, as nominee and mortgagee for purposes of recording, can assign the right to foreclose upon a mortgage to a [bank] in a foreclosure action absent MERS’s right to, or possession of, the actual underlying promissory note.” In making this determination, the court outlined the following rules regarding standing in foreclosure proceedings: “[i]n a mortgage foreclosure action, a [bank] has standing where it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note at the time the action is commenced. . . . [A]n assignment of a note and mortgage need not be in writing and can be effectuated by physical delivery.”

The court found that in this case, “as ‘nominee,’ MERS’s authority was limited to only those powers which were specifically conferred to it and authorized by the [original mortgagee].  Hence, although . . . MERS [had] the right to assign the mortgages themselves, it did not specifically [have] the right to assign the underlying notes, and the assignment of the notes was thus beyond MERS’s authority.” Based on these findings, the court concluded, “MERS was never the lawful holder or assignee of the notes described and identified in the consolidation agreement, the corrected assignment of mortgage is a nullity, and MERS was without authority to assign the power to foreclose to the [bank]. Consequently, the [bank] failed to show that it had standing to foreclose.”

New York Times Criticizes $8.5b Foreclosure Settlement

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The New York Times published a story announcing an $8.5 billion settlement with 10 major banks to settle about four million foreclosure actions. The money will be split in two, with $3.3 billion going directly to 3.8 million homeowners, and the rest going towards lowering interest payments and loan amounts. The settlement is controversial, however, because in addition to the payout the settlement will also end the federal government’s review of those foreclosures, and the money is going to be split evenly amongst consumers regardless of whether harm was actually determined. Some believe that the settlement is the result of a flawed and incompetent review process, which became so costly and slow that the government decided to give up on the review. Others think that the rough justice achieved by the settlement is the closest that regulators can come to making victims of unlawful foreclosures whole again. Former FDIC chairwoman Sheila Bair was quoted in the article stating that the government is “mak[ing] the best out of a very bad situation.”

New York Supreme Court Holds that Assignee Bank Lacks Standing to Foreclose for Failure to Validate MERS’s Authority to Assign and Condemns Frivolous Conduct Relating to “Robosigning”

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In HSBC Bank v Taher, 32 Misc. 3d 1208(A) (Sup. Ct. 2011), the New York Supreme Court of Kings County held that an assignee bank conducting a foreclosure action must submit proof of the assignor’s authority to assign the mortgage, including the underlying note, on behalf of the original mortgagee in order for the assignee to lawfully conduct a foreclosure.

In this case, the court found that the assignee bank, HSBC, did not have standing to foreclose on Taher, the homeowner. The court stated, “the instant action must be dismissed because plaintiff HSBC lacks standing to bring this action. MERS lacked the authority to assign the subject Taher mortgage to HSBC and there is no evidence that MERS physically possessed the Taher notes.”

The court went on to explain that MERS must have authority to assign both the mortgage and the underlying note in order for an assignee to lawfully conduct a foreclosure. The court stated, “even if MERS had authority to transfer the mortgage to HSBC… MERS [was not] the note holder. . . . MERS cannot transfer something it never proved it possessed. . . . [Thus,] MERS was never the lawful holder or assignee of the notes described and identified in the consolidation agreement, the . . . assignment of mortgage is a nullity, and MERS was without authority to assign the power to foreclose to [HSBC]. Consequently, [HSBC] failed to show that it had standing to foreclose.”

In addition to finding that the assignee bank lacked standing, the court also took the opportunity in this case to highlight its intention to prevent the degradation of the foreclosure process, particularly concerning the practice of “robosigning.” Citing the need to “protect the integrity of the foreclosure process and prevent wrongful foreclosures,” the court announced its institution of a new filing requirement in any foreclosure action. This requirement is that assignees must “file an affirmation certifying that counsel has taken reasonable steps—including inquiry to banks and lenders and careful review of the papers filed in the case—to verify the accuracy of documents filed in support of residential foreclosures.” The court scrutinized HSBC’s foreclosure filing practices, which included instances where the court believed robosigning occurred, and reprimanded the bank and its counsel for its conduct. The court concluded that the conduct bordered on frivolous, and determined that further inquiry, by way of a hearing, was necessary.

New York Supreme Court Holds that Assignee Banks Must Produce Evidence of MERS’s Authority to Assign in Order to Have Standing to Foreclose

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The New York Supreme Court of Kings County in Bank of New York v. Alderazi, 28 Misc. 3d 376 (Sup. Ct. 2010) held that a foreclosing bank, as assignee, does not have standing to bring a foreclosure action if it cannot submit proof of MERS’s authority to assign the mortgage. In this case, “MERS was referred to in the mortgage as nominee of the mortgagee . . . for the purpose of recording the mortgage.” The court then stated that “MERS, as nominee, is an agent of the principal, for limited purposes, and has only those powers which are conferred to it and authorized by its principal.” Based on this rule, the court held that an assignee moving to foreclose must submit evidence to the court that such authority was granted to MERS by the original mortgagee. Here, “[the assignee] submits no evidence that [the mortgagee] authorized MERS to make the assignment. MERS submits only its own statement that it is the nominee for [the mortgagee], and that it has authority to effect an assignment on [the mortgagee’s] behalf.” Thus, the court found that the assignee in this case could not lawfully conduct a foreclosure proceeding.

The court went on to explain that “even accepting MERS'[s] position that the [mortgagee] acknowledges MERS'[s] authority to exercise any or all of the [mortgagee’s] rights under the mortgage, the mortgage does not convey the specific right to assign the mortgage. The only specific right enumerated in the mortgage is the right to foreclose and sell the property. The general language ‘to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument’ is not sufficient to give [MERS] authority to alienate or assign a mortgage without getting the mortgagee’s explicit authority for the particular assignment.” Hence, under the terms of its own agreement, MERS would have had to solicit an explicit grant of the authority to assign the mortgage from the original mortgagee in order to effectuate a valid assignment. Since the assignee could not prove that such a grant of authority occurred in this case, the court found that the assignment was still invalid under MERS’s and the assignee’s argument.