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.
Tag Archives: MERS
Bank of New York Deemed Indispensable Party to Homeowner’s Foreclosure Challenge in Rhode Island
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’s District Court Finds That Non-Party Mortgagors Lack Standing to Challenge Assignment Between Third Parties
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 Rejects Homeowner-Plaintiff’s Challenge of the Validity of MERS’s Assignment in a Foreclosure Proceeding
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
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.
Lender Agrees to Permanent Injunction of Non-Judicial Foreclosure in Colorado
A pro se plaintiff has won at least a procedural victory against her lender in Brumfiel v. U.S. Bank et al. (May 14, 2013) (12-cv-02716-WJM-MEH). US Bank filed a Notice of Withdrawal of the foreclosure action and then a Motion to Vacate in which it consented “to a permanent injunction preventing it from” proceeding with a non-judicial foreclosure. (3) (quoting Motion to Vacate, emphasis in the original)
Under Colorado law, a party “may foreclose on a property by providing a document by his or her attorney that either ‘certifies’ or simply ‘states’ that ‘holder claims to be a qualified holder’ for the purposes of foreclosure.” (Order granting Plaintiff’s Request for Interim Preliminary Injunction, May 6, 2013, at 2) The court holds a Rule 120 hearing to confirm the existence of the default. Brumfiel challenges the constitutionality of this hearing on due process grounds.
In its May 6th order, the Court held that the questions that Brumfiel “raised regarding the serious, substantial, difficult issues apparent in this case” were a sufficient basis for an interim preliminary injunction. These difficult issues included whether the Colorado process
(1) [] lowers the standard of proof that a creditor must meet in order to proceed to foreclosure from original documentary evidence to an unsworn statement; and
(2) [] creates an additional burden upon a debtor to establish evidence of the creditor’s identity which the creditor, itself, is not required to locate.
Whether these issues create due process concerns within the limited scope of a Rule 120 hearing creates serious constitutional questions. (13-14)
This is only a tactical victory for the homeowner. By consenting to the permanent injunction, the lender should still be able to proceed with a judicial foreclosure. But the constitutionality of Colorado’s non-judicial foreclosure process will have to wait to be tested until another day,
Careful When Putting Shoe on Other Foot
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)
