Tag Archives: MERS

Levitin on the Uncertainty of Mortgage Title

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Adam Levitin has posted The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title to SSRN.  This paper adds to a small (here and here, for instance), but important body of literature that seeks to harmonize the application of foreclosure laws with the Uniform Commercial Code. Levitin’s abstract reads

The mortgage foreclosure crisis raises legal questions as important as its economic impact. Questions that were straightforward and uncontroversial a generation ago today threaten the stability of a $13 trillion mortgage market: Who has standing to foreclose? If a foreclosure was done improperly, what is the effect? And what is the proper legal method for transferring mortgages? These questions implicate the clarity of title for property nationwide and pose a too- big-to-fail problem for the courts.

The legal confusion stems from the existence of competing systems for establishing title to mortgages and transferring those rights. Historically, mortgage title was established and transferred through the “public demonstration” regimes of UCC Article 3 and land recordation systems. This arrangement worked satisfactorily when mortgages were rarely transferred. Mortgage finance, however, shifted to securitization, which involves repeated bulk transfers of mortgages.

To facilitate securitization, deal architects developed alternative “contracting” regimes for mortgage title: UCC Article 9 and MERS, a private mortgage registry. These new regimes reduced the cost of securitization by dispensing with demonstrative formalities, but at the expense of reduced clarity of title, which raised the costs of mortgage enforcement. This trade-off benefitted the securitization industry at the expense of securitization investors because it became apparent only subsequently with the rise in mortgage foreclosures. The harm, however, has not been limited to securitization investors. Clouded mortgage title has significant negative externalities on the economy as a whole.

This Article proposes reconciling the competing title systems through an integrated system of note registration and mortgage recordation, with compliance as a prerequisite to foreclosure. Such a system would resolve questions about standing, remove the potential cloud to real-estate title, and facilitate mortgage financing by clarifying property rights.

I had to agree with one of his conclusions:  “Reduction of transaction costs is ultimately a second-order move for commercial law. The first-order move, so elemental it is easy to forget, is clarification of the property being transferred.” (723-24) The others are pretty compelling too.

Washington Court Denied the Plaintiff’s Motion for Preliminary Injunction

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The court in deciding Cameron v. Acceptance Capital Mortg. Corp., 2013 U.S. Dist. LEXIS 151134 (W.D. Wash. 2013) denied the plaintiff’s motion for preliminary injunction.

Nearly all of plaintiffs’ claims turn on a single question: whether, under Washington law, Flagstar had legal authority to appoint NWTS as successor trustee. Plaintiffs first asserted that Flagstar could not have become a beneficiary with the power to appoint a successor trustee. Plaintiff reasoned that under Washington state law, MERS was an unlawful initial beneficiary and thus lacked the power to assign its interest to Flagstar.

In their reply brief plaintiffs raised an additional claim alleging that even if Flagstar held the note, it had sold it to Fannie Mae before appointing NWTS as successor trustee, thus it shed its authority to make this appointment when it did so. Ultimately, the Court finds both arguments unpersuasive.

First, the court found that this case is distinguishable from the cited Washington state case law, as Flagstar derived its authority to enforce the note from its position as the note holder, not from its position as assigned beneficiary. The court found plaintiffs’ second allegation, were raised improperly only upon reply, was similarly unconvincing as it rests on a misunderstanding of the law.

California Court Dismisses Plaintiff’s Action Alleging Violations of RESPA, HOEPA, UCL & Negligent Misrepresentation

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The court in deciding Monreal v. Deutsche Bank Nat’l Trust Co., 2013 U.S. Dist. LEXIS 151731 (S.D. Cal. Oct. 22, 2013) granted the defendants’ motion to dismiss plaintiff’s claims arising under federal law with prejudice, and declined to exercise supplemental jurisdiction over the plaintiff’s remaining state-law claims. Therefore, the remaining state-law claims are dismissed without prejudice.

Plaintiff alleged four causes of action against Deutsche Bank, GMAC, ETS, and MERS, including: (1) violation of the UCL; (2) negligent misrepresentation; (3) violation of RESPA; and (4) violation of HOEPA. In total plaintiff alleged two claims arising under federal law, RESPA and HOEPA, and two claims arising under state law, negligent misrepresentation and violation of the UCL.

In deciding the matter at hand, the court decided that their subject matter jurisdiction was premised on federal question jurisdiction over the claims arising under federal law, and supplemental jurisdiction over the pendent state-law claims.

Accordingly, because the court found that plaintiff failed to state a viable cause of action under either RESPA or HOEPA, the court dismissed the federal causes of action with prejudice, and declined to exercise supplemental jurisdiction over the remaining state-law claims.

As a result, the Court did not address the merits of the plaintiffs’ state-law causes of action.

Texas Court Finds Plaintiff’s “Split-the-Note” Theory Without Merit

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The court in deciding Morlock, L.L.C. v. JPMorgan Chase Bank, N.A., 2013 U.S. Dist. LEXIS 153386 (S.D. Tex. Oct. 25, 2013) ultimately dismissed plaintiff’s bifurcation theory based complaint.

Plaintiff alleged that the deed of trust had been “executed and delivered . . . to secure MERS” and that it “was allegedly assigned to defendant Chase by MERS.” Plaintiff further alleged, the deed of trust and assignment, although appearing valid on its face, was invalid and of no force or effect because, MERS was not the holder of the original note that was secured by the deed of trust.

Accordingly, the plaintiff argued, the assignment by MERS was not valid and defendant Chase was not the owner and holder of the note. Therefore, Chase had no right or authority to post the property for a trustee’s Sale.

Chase alleged that the plaintiff’s argument against the validity of the assignment came from the theory that the ‘bifurcation’ of the note and deed of trust renders the deed of trust invalid. Chase argued that Texas courts have rejected the “bifurcation theory” and that plaintiff had therefore failed to state a claim.

The court ultimately granted Chase’s Rule 12(b)(6) motion to dismiss and dismissed the action with prejudice.

California Court Denies Petition for Preliminary Injunction on Foreclosure Proceeding

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The court in deciding Vazquez v. Select Portfolio Servicing, 2013 U.S. Dist. LEXIS 152454 (N.D. Cal. Oct. 23, 2013) denied the plaintiff’s petition for a preliminary injunction prohibiting defendants from proceeding with the foreclosure sale of his home.

Plaintiff alleged that MERS claimed to have a legal and effective lien on the property, and that it owned the note and mortgage without providing the plaintiff proof of those claims. Plaintiff asserted that he had the right to inspect the original note and deed of trust, pursuant to the Truth in Lending Act, 15 U.S.C. §§ 1601–1667f, and U.C.C. § 3-501.

The plaintiff further alleged that he had proof that the foreclosing entities did not have standing to foreclose. Id. Plaintiff asserted that defendants did not hold any instrument, note, or deed that would entitle them to foreclose.

The court denied the plaintiff’s verified petition for injunction, concluding that plaintiff failed to establish a likelihood of success on the merits of any of his potential claims.

California Court Dismisses Plaintiff’s Claims of Federal and State Law Violation

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The court in deciding Brashears v. Bank of Am. Home Loans, 2013 U.S. Dist. LEXIS 152478 (C.D. Cal. Oct. 22, 2013) dismissed the plaintiff’s complaint, which alleged violations of federal and state law in connection with the issuance of a mortgage loan.

Plaintiff filed a complaint against defendants Bank of America, Countrywide Home Loans, The Bank of New York Mellon, ReconTrust Company, CWALT, Inc., and MERS alleging violations of federal and state law in connection with the issuance of a mortgage loan and the subsequent foreclosure of plaintiff’s property.

Plaintiff’s complaint alleged: (1) slander of title; (2) violation of California Penal Code § 470(b), (d); (3) violation of the California Civil Code §§ 2923.55, 2924.12 and 2924.17;  (4) intentional and negligent misrepresentation; (5) fraud, deceit and concealment; (6) violation of California Civil Code § 1572; (7) violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692g; (10) quiet title; (11) violation of California Business and Professions Code § 17200; (12) violation of the Unruh Civil Rights Act, California Civil Code § 51; and (13) declaratory relief.

After considering the arguments alleged by the plaintiff, the court ultimately granted the defendants’ motion to dismiss.

Dirty REMICs: A Debate

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Brad, Joshua Stein and I have posted Dirt Lawyers and Dirty REMICs: A Debate to SSRN (also on BePress). Brad and I had posted our side of the debate at various points, but the entire back and forth is contained in this one handy download. The abstract reads:

In mid-2013, Professors Bradley T. Borden and David J. Reiss published an article in the American Bar Association’s PROBATE & PROPERTY journal (May/June 2013, at 13), about the disconnect between the securitization process and the mechanics of mortgage assignments. The Borden/Reiss article discussed potential legal and tax issues caused by sloppiness in mortgage assignments.

Joshua Stein responded to the Borden/Reiss article, arguing that the technicalities of mortgage assignments serve no real purpose and should be eliminated. That article appeared in the November/December 2013 issue of the same publication, at 6.

Stein’s response was accompanied by a commentary from Professors Borden and Reiss, which also appeared in the November/December 2013 issue, at 8.