Tag Archives: MERS

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.

Michigan District Court Dismisses Borrower’s Complaint After Failure to Redeem Property within Statutory Period

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In Vollmar v. Federal National Mortgage Association, (12-cv-1119, E.D. Mich. 2012), the U.S. District Court for the Eastern District of Michigan, granted the defendant’s motion to dismiss each of the plaintiff’s complaints that sought to invalidate the foreclosure sale of his property and to quiet title. The judge ruled that the plaintiff lacked standing after failing to redeem the property within the allotted period.

In the case at hand, the plaintiff took out a $128,000 mortgage on his property with Countrywide Home Loans, Inc., with Mortgage Electronic Registration Systems, Inc. (“MERS”) as the mortgagee. MERS assigned its interests to BAC Home Loan Servicing, L.P. (“BACHLS”) in a recorded deed on July 23, 2010. The plaintiff defaulted on his payments and BACHLS instituted foreclosure proceedings in March 2011. The property was purchased in a sheriff sale by Bank of America, N.A. (“BANA”), the successor by merger to BACHLS.

The Court addressed the plaintiff’s claims in conjunction with the defendant’s motion to dismiss.

1. The Court held that the plaintiff lacked standing to challenge the sheriff’s sale due to his failure to redeem the property within Michigan’s 6-month statutory redemption period. At the close of the statutory period, title is vested with the purchaser and the mortgagor loses standing to challenge the sale. Rather than preserving his right to challenge the foreclosure sale by remaining in the home, as the plaintiff argued, the Court held that the ownership interest “terminated at the conclusion of the sheriff’s sale,” and the plaintiff was merely an “illegal holdover.”

2. Defendant claimed that the plaintiff’s amended complaint does not contain allegations of “fraud or irregularity” that are sufficient to annul the foreclosure sale under a breach of contract claim. The plaintiff alleged that the defendants were required to demonstrate by whom the foreclosure proceedings were initiated and failed to produce evidence that BANA acquired BACHLS interest in the mortgage. The Court dismissed the plaintiff’s allegations, noting that the Defendant’s motion papers, foreclosure advertisements, and the initial collection letter to the plaintiff each established that BACHLS both received the mortgage interest from MERS and initiated the foreclosure proceedings. In regards to BANA’s role, the Court referenced Texas Business Organization Codes (Tex. Bus. Orgs. Code §10.008(a)(2)(C)), under which BACHLS and BANA merged on July 1, 2011), which established that after the merger of the two companies, BANA acquired all of BACHLS rights, titles, and interests without the need for “any transfer or assignment.”

3. The Court addressed the plaintiff’s slander of title and quiet title claims even though they were abandoned for failure to address them in the response brief. Because slander of title and quiet title “presuppose that plaintiff possesses the ability to establish title” and the Court has already established that the plaintiff’s rights to the property were extinguished at the end of the statutory period, both claims were dismissed.

4. Since the plaintiff failed to allege that the contract left the manner of performance open to the defendant’s discretion, and that the “manner of performance” of the mortgage rested in the defendants hands, an element required to raise a breach of implied covenant of good faith and fair dealing claim, the Court refused to accept the cause of action, citing Meyer v. CitiMortgage, Inc. 11-13432, 2012 WL 511995 (E.D. Mich. Feb. 16, 2012) which stated that Michigan law does not recognize an independent action for breach of the implied covenant of good faith and fair dealing when the contract cannot be construed to imply such a covenant by having left the manner of performance open to the defendant’s discretion.

5. Finally, the Court addressed the plaintiffs “seemingly abandoned” claim of intentional infliction of emotional distress to reassert that “emotional damages are not available for breach of contract” claims. Citing Kevelighan v. Orlans  Assocs., P.C., 498 F. App’x 469, 472 (6th Cir. 2012) which upheld the dismissal of an emotional distress claim in a breach of mortgage contract suit.

Massachusetts District Court Limits Massachusetts Supreme Court’s Broad Holding From Ibanez By Limiting Challenges to Assignments

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In Aliberti v. GMAC Mortgage, LLC, 779 F.Supp.2d 242 (D.Mass.2011), the plaintiff homeowner relied on the seemingly broad-reaching holding handed down by the Massachusetts Supreme Court in U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011). On facts similar to Ibanez the plaintiff challenged the assignment from MERS to GMAC, thus challenging GMAC’s ability to foreclose.

The Supreme Court in Ibanez stated “any effort to foreclose by a party lacking jurisdiction and authority to carry out a foreclosure under Massachusetts law is void.“ Then adopted case law stating that attempts to foreclose on a mortgage by a party that “had not yet assigned the mortgage results in a structural defect that goes to the very heart of the defendant’s ability to foreclose and renders foreclosure sale void.”

This holding left the question still open as to whether mortgagors have a legally protected interest in assignments to which they are not a party. The district court read the holding from Ibanez as not providing an independent basis for mortgagors to collaterally contest previously executed mortgage assignments to which they are not a party. Further, the holding granted neither an interest nor rights to the third party.

The court noted that in Ibanez, the land court was specifically tasked with evaluating the sufficiency of the assignment process, and the banks, as foreclosing parties and actual parties to the mortgage assignment, had standing to seek court review of the validity of the assignment process.

Ohio Bankruptcy Court Rules in Favor of Wells Fargo: Failure to Properly Record Mortgage Assignment Does Not Invalidate Mortgage

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In In re Williams, 395 B.R. 33 (Bankr. S.D. Ohio 2008), the Ohio Bankruptcy Court granted the defendant, Wells Fargo Bank, N.A.’s motion to dismiss the Plaintiff’s complaint, holding that mortgage assignments must be recorded under Ohio law, but that failure to do so does not terminate the underlying mortgage. Additionally, the Trustee could not be a bona fide purchaser and avoid the mortgage since he possessed constructive knowledge of this mortgage.

On May 2, 2005, Earl and Belinda Williams (the Debtors) executed a promissory note in the amount of $137,730 to United Wholesale Mortgage (UWM), secured by Debtors real property, and named MERS as a “nominee for UWM, its successors and assigns.” In November 2007, the Debtors filed a petition for relief under Chapter 7 of Title 11, under the US Bankruptcy Code. Plaintiff Thomas Nolan was appointed Chapter 7 Trustee. In February 2008, Mortgage Electronic Registration Systems, Inc. (MERS) filed a motion for relief from the automatic stay on the Property, and subsequently the Trustee initiated an adversarial proceeding to avoid the mortgage lien filed in the name of  MERS and alleged that under Ohio law, the assignment of the mortgage must be recorded on behalf of the holder of the note.

The plaintiff brought suit on two accounts. First, under the Trustee’s strong arm powers granted by the Bankruptcy Code § 544,  he alleged that “as a bona fide purchaser for value, he may avoid the mortgage held by Wells Fargo on account of the failure to record an assignment of the Mortgage.” The court elucidates that the Bankruptcy Code gives the Trustee power of a bona fide purchase for value if a hypothetical purchaser could have obtained that bona fide status. Under Ohio law, the assignment of a mortgage must be “recorded to protect those lien interests from avoidance by a bona fide purchaser of real property.” The parties disagree whether mortgages must be recorded under the terms of the Bankruptcy Code, and the Court ultimately determined that the Bankruptcy Code did include mortgages under the requirement to record “instruments of writing properly executed for the conveyance or unencumbrance of lands. . . . ” but that the failure to record the assignment of the mortgage did not terminate “the underlying mortgage and the lien of the underlying mortgage.” Since the Trustee had constructive knowledge of the mortgage, he could not then avoid and acquire bona fide purchaser status due to Wells Fargo’s failure to record its assignment. The Court then dismissed the first cause of action.

Second, the Trustee argued for the Disallowance of Wells Fargo’s claim on based his ability to avoid the mortgage (as argued above). The Trustee’s claim falls under § 502(b) of the Bankruptcy Code, which establishes “grounds upon which a claim that has been objected to by a party in interest may be disallowed.” The Court relied upon subsection 1 which permits disallowance of a claim that is “unenforceable against the debtor or property of the debtor.” The claim was then dismissed “without prejudice to the Trustee’s ability to object under Code § 502 and the Bankruptcy Rules of Procedure to any proof of claim filed by Wells Fargo or any other party claiming to be a creditor of the Debtors in connection with the Note on grounds not determined through this adversary proceeding.”

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

Fieldstone Mortgage Company’s Bankruptcy Won’t Impact HSBC’s Right to Foreclose in Massachusetts

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In Marron v. HSBC Bank USA, N.A., Bankruptcy Appeal No. 11-40191-NMG (D. Mass. September 26, 2012), the District Court denied homeowners’ request for certification regarding MERS’s authority to assign their mortgage, and dismissed homeowners’ bankruptcy appeal holding that the Bankruptcy Court properly lifted the automatic stay allowing HSBC to foreclose.

The homeowners procured a loan from Fieldstone Mortgage Company, with MERS designated as nominee and mortgagee. MERS assigned the mortgage to HSBC, which began foreclosure proceedings in 2007 after the homeowners defaulted. In November of 2007, Fieldstone filed for bankruptcy.  The homeowners filed for bankruptcy in 2010, automatically staying foreclosure proceedings. In response, HSBC filed a petition for relief from the automatic stay, which was granted by the Bankruptcy Court.

Here, Trustee appeals from the Bankruptcy Court’s order lifting the stay and seeks to certify the following questions: 1) whether the assignment by MERS is valid under Massachusetts law without proof of authorization from the note holder, and 2) if the recorded assignment alone can establish the truth of its contents. The District Court upheld the decision of the Bankruptcy Court, holding that certification is not warranted, as Massachusetts law is reasonably clear regarding assignment validity.

There is no Massachusetts statute preventing MERS from assigning its mortgages, and the court notes that the Massachusetts Land Court acknowledged the validity of MERS’s assignments in several cases.  Randle  v. GMAC Mortgage, LLC, No. 09 MISC 408202 GHP (Mass. Land Ct. Oct. 12, 2010); Amtrust Bank v. T.D. Banknorth, N.A., No. 07 MISC. 350750 KCL (Mass. Land Ct. 2010).  The court also notes that it has, on numerous occasions, held that MERS has authority to assign mortgages, citing Kiah, in which the court held that even if MERS doesn’t hold the beneficial interest in the property, MERS has authority to transfer the mortgage on behalf of the beneficial owner. CIV.A. No. 10-40161-FDS (D. Mass. Mar. 4, 2011).

As to the bankruptcy of the lender, the court held that “a lender’s bankruptcy does not affect the ability of MERS to assign a mortgage,” citing Kiah. The clear language of the mortgage grants MERS authority as the nominee for the “lender and its assigns” to transfer the mortgage, unaffected by the lender’s bankruptcy status. The court notes that similar reasoning was used in Rosa, holding “the dissolution of the original lender does not affect MERS’s authority to assign a mortgage.” 821 F. Supp. 2d at 431.

The court further found the assignment valid pursuant to M.G.L. Ch. 183 § 54B. MERS’s assignment complies with the statute’s requirements and is therefore presumed valid. The court cites Culhane for this explanation of validity, finding no way in which MERS’s method for assigning mortgages contradicts the statute. 826 F. Supp. 2d at 373.

The court dismissed appellant’s argument that the foreclosure was improper, as HSBC didn’t hold the note. In Eaton , the court held that the term “mortgagee” refers to “the person or entity then holding the mortgage and also either holding the mortgage note or acting on behalf of the note holder.” Eaton v. Fed. Nat. Mortg. Ass’n, 462 Mass. 569 (2012). To avoid overuse of this broad interpretation, the court held that the ruling in Eaton would not impact foreclosures commenced before the Eaton decision. Since HSBC’s foreclosure occurred pre-Eaton, HSBC was entitled to foreclose. As a result, appellant’s argument that an evidentiary hearing should have been held to determine ownership of the note was also dismissed by the court as immaterial. The appeal was denied, and the foreclosure sale upheld.

Mass. Appeals Court Applies Eaton Retroactively

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The intermediate appeals court of Massachusetts applied Eaton retroactively in Lyons v. MERS et al., 11-P-560 (June 5, 2013) notwithstanding the Mass. Supreme Court’s holding that Eaton would only apply prospectively. Eaton held that “a mortgagee may foreclose under a power of sale only if it either holds the note or is acting under the direction or as the agent of the note holder.” (1)

The intermediate appeals court found that it would be inequitable to do otherwise:  “Not only was the present case on appeal when Eaton was decided, the Lyonses actually brought their action before Eaton had even been decided in the trial court. Because the Lyonses are in an identical situation to the plaintiffs in Eaton, not a ‘somewhat similar[]’ position,” the court held “that the rule of Eaton is applicable to the Lyonses’ case, and reverse[d] the judgment” of the trial court. (1, citations omitted)