Tag Archives: lawful assignment

Massachusetts’s District Court Finds That Non-Party Mortgagors Lack Standing to Challenge Assignment Between Third Parties

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In Aliberti v. GMAC Mortgage, LLC, 779 F.Supp.2d 242 (D.Mass.2011), the court granted the defendant’s motion to dismiss the plaintiff’s claims. The plaintiff sought to stay GMAC’s foreclosure proceeding by challenging the assignment of the mortgage from MERS to GMAC. Plaintiff filed a three-count compliant that alleged, fraud, violations of Massachusetts’s foreclosure procedural law, and challenged the validity of the assignment.

Plaintiff alleged that the GMAC’s signatory who authorized the assignment was a “well known robo signer” and therefore the plaintiff had reason to believe that the signature on the assignment of the Mortgage was not genuine. The court rejected this argument, noting that an assignment is presumptively valid and the plaintiff failed to plead facts sufficient to challenge its presumptive validity. Further since the assignment satisfied the requirements of Massachusetts law they are deemed valid.

Next the plaintiff alleged that the assignment was invalid because MERS was never actually the mortgagee. Although, the mortgage stated that MERS was the mortgagee it also stated that “MERS is a separate corporation acting solely as a nominee for the lender and lender’s successors and assigns,” plaintiff alleged that MERS could not be both the agent as the nominee and the principal as the mortgagee to the same property right. Plaintiffs further claim GMAC could not demonstrate valid assignment of the promissory note, and that, because it could not establish valid assignment of both the mortgage and the promissory note, it had no right to foreclose on the property.

In addressing whether the assignment was valid, the court sided with the GMAC’s argument that the plaintiffs, as mortgagors, had no standing to challenge the validity of a mortgage assignment between the mortgagee and a third party. The court relied on the holding in Livonia Property Holdings, LLC. V. 12840-12978 Farmington Road Holdings, LLC., 717 F.Supp 2d 727, 735 (E.D. Mich. 2010). On similar facts, the court in Livonia, held that a borrower, as a non-party to the assignment documents it was challenging, lacked standing to challenge them.

Lastly, plaintiffs contented that GMAC’s refusal to negotiate loan modification was in violation of Massachusetts’s law. The court also rejected the contention that GMAC’s failure to negotiate constituted a violation. Under Massachusetts’s case law, absent an explicit provision in the mortgage contract, there is no duty to negotiate for loan modification once a mortgagor defaults.

Massachusetts District Court Holds that MERS, as Mortgagee and Nominee for Lender, has Authority to Assign Mortgage

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The court in Rosa v. Mortg. Elec. Sys., Inc., 821 F. Supp. 2d 423 (D. Mass. 2011) held that the assignee bank had standing to foreclose on the homeowners. The homeowners argued that the bank did not have standing because MERS lacked authority to assign the mortgage. They made several arguments as to why MERS lacked authority, including (1) the original noteholder did not authorize the assignment; (2) MERS could only act as nominee for the original noteholder, who dissolved in 2008; and (3) MERS did not hold the note at the time of assignment, and thus could not assign what it did not hold.

First, the court looked at MERS’s authority to assign the mortgage. The court rejected the homeowner’s argument, stating, “[s]ince Massachusetts law does not require a signatory to prove authority to execute a mortgage assignment, a mortgagee need not prove authorization from the note holder to assign a mortgage.” The court then held that the assignment by MERS to the assignee bank was valid because MERS was a mortgagee under the terms of the mortgage agreement.

Next, the court determined that the original noteholder’s dissolution had no effect on MERS’s authority to assign. The court held, “[the original noteholder’s] dissolution [did not] terminate MERS’ nominee relationship with a successor purchaser or assignee of the Note or affect MERS'[s] status as mortgagee. . . . As mortgagee, MERS continued to hold the Mortgage in trust for whomever happened to own the Note.”

Finally, the court rejected the argument that MERS must hold the note in order to assign the mortgage. They found this argument contrary to case law. The court stated, “In Massachusetts, the mortgage does not automatically follow the note and the mortgage and the note may be held by different parties. . . . An assignor of a mortgage is not required to have possession of or beneficial interest in the note in order to assign the mortgage because it holds the mortgage in trust for the note holder. ” Thus, MERS had authority to assign the mortgage despite not being in possession of the underlying note.

Ohio Court of Appeals Holds that the Note Follows the Mortgage Where Intent of Parties is Clear

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In Bank of New York v. Dobbs, 2009-Ohio-4742, the court found that the Bank of New York (Bank) had standing to bring a foreclosure action against the homeowners. In this case, Countrywide Home Loans (Countrywide) was the original note holder, and Bank claimed that Countrywide assigned the note to MERS, who then assigned to Bank. The homeowners argued that Bank did not have standing to foreclose because there was no evidence that Countrywide assigned the note to MERS and thus the chain of title was incomplete. In determining standing, the court found that “the chain of title between Countrywide, MERS and [Bank was] not broken” because “the obligation follows the mortgage if the record indicates the parties so intended” and in this case there was “clear intent by the parties to keep the note and mortgage together, rather than transferring the mortgage alone.” Thus, the note followed the mortgage upon transfer, and Bank was the lawful holder of the note.

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.”

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.

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.