Tag Archives: mortgage note

Should The Mortgage Follow The Note?

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The financial crisis and the foreclosure crisis have pushed many scholars to take a fresh look at all sorts of aspects of the housing finance system. John Patrick Hunt has added to this growing body of literature with a posting to SSRN, Should The Mortgage Follow The Note?. It is an interesting and important article, taking a a fresh look at the legal platitude, “the mortgage follows the note” and asking — should it?!? The abstract reads,

The law of mortgage assignment has taken center stage amidst foreclosure crisis, robosigning scandal, and controversy over the Mortgage Electronic Registration System. Yet a concept crucially important to mortgage assignment law, the idea that “the mortgage follows the note,” apparently has never been subjected to a critical analysis in a law review.

This Article makes two claims about that proposition, one positive and one normative. The positive claim is that it has been much less clear than typically assumed that the mortgage follows the note, in the sense that note transfer formalities trump mortgage transfer formalities. “The mortgage follows the note” is often described as a well-established principle of law, when in fact considerable doubt has attended the proposition at least since the middle of the last century.

The normative claim is that it is not clear that the mortgage should follow the note. The Article draws on the theoretical literature of filing and recording to show that there is a case that mortgage assignments should be subject to a filing rule and that “the mortgage follows the note,” to the extent it implies that transferee interests should be protected without filing, should be abandoned.

Whether mortgage recording should in fact be abandoned in favor of the principle “the mortgage follows the note” turns on the resolution of a number of empirical questions. This Article identifies key empirical questions that emerge from its application of principles from the theoretical literature on filing and recording to the specific case of mortgages.

The article does not answer the core question that it asks, but it certainly demonstrates that it is worth answering.

Georgia Court Dismisses RESPA, TILA, and HOEPA Claims

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The court in deciding Mitchell v. Deutsche Bank Nat’l Trust Co., 2013 U.S. Dist. (N.D. Ga., 2013) granted the defendant’s motion to dismiss.

Plaintiffs Reginald and Jamela Mitchell claimed that the defendants Deutsche Bank National Trust Co. and MERS violated the Truth-in-Lending Act (“TILA”), the Real Estate Settlement Procedures Act (“RESPA”), the Home Ownership Equity Protection Act (“HOEPA”) and state law by commencing foreclosure proceedings against Plaintiffs’ home.

After consideration of the plaintiff’s assertions, the court concluded that the complaint failed to state a claim upon which relief could be granted.

Georgia Court Dismisses TILA and RESPA Claims Brought by Plaintiff

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The court in deciding Mitchell v. Deutsche Bank Nat’l Trust Co., 2013 U.S. Dist. (N.D. Ga. Sept. 25, 2013) granted the motion to dismiss proffered by the defendant.

The first enumerated cause of action in Plaintiffs’ complaint was a claim for fraud. Plaintiffs argued that their original mortgage lender, Accredited, engaged in a practice of filing false prospectus supplements with the Securities and Exchange Commission. Plaintiffs’ complaint also included a claim for wrongful foreclosure.

Next, the plaintiffs asserted that Deutsche Bank and MERS had “unclean hands” as they failed to make certain disclosures required by TILA. Plaintiffs also asserted that the defendants or their predecessors in interest violated RESPA in a number of ways. Plaintiffs’ complaint also included a claim for fraud in the inducement. Moreover, the plaintiffs’ complaint raised a claim for quiet title under O.C.G.A. § 23-3-40 and O.C.G.A. § 23-3-60 et seq. Lastly, the plaintiffs’ complaint raised a claim for fraudulent assignment.

Ultimately the court concluded that the plaintiffs’ complaint failed to state a viable claim for relief. Accordingly, this court granted the defendants’ motion to dismiss the plaintiffs’ complaint.

Enforcing The Mortgage Note

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Elizabeth Renuart has posted Uneasy Intersections: The Right to Foreclose and the UCC to SSRN. This is a subject that Brad and I have touched on a bit in the context of the Show Me The Note! defense, but Renuart has done a magisterial fifty state review of how state foreclosure laws interact with the Uniform Commercial Code which has been adopted in all 50 states (NY has an older version it on the books for now). The case law in this area is incredibly confused and confusing.  The article helps to chart a path to navigate the intersection between these two areas of law.

Renuart provides a taxonomy of the caselaw, dividing it into three categories:

1.  The UCC States: “courts in these states explicitly join the right to foreclose on a mortgage that secures the negotiable note with the” UCC. (44)

2.  The Foreclosure-Statute-Definition States: “the courts focus on relevant words in the state’s foreclosure statute, such as ‘mortgagee’ where mortgages are used, ‘beneficiary’ where deeds of trust are used, ‘holder’, or ‘owner.’ Next, they determine if that state’s legislature intended that these designations refer to the note holder or the one with the right to act on behalf of the note holder. These courts may or may not reference the UCC in their decisions but the result generally is consistent with” the UCC. (45)

3.  The UCC- Does-Not-Apply States: “courts in these states reason that the state’s foreclosure scheme is comprehensive, inclusive of the prerequisites to foreclose, or does not define the secured party as the one entitled to repayment on the secured monetary obligation. As a result, the UCC does not apply in any way to identify the party who possesses the right to foreclose. To date, these decisions have arisen exclusively in nonjudicial foreclosure states.” (47)

She concludes that the “methodology utilized in Category 1 and 2 states properly harmonizes the relevant UCC rules with state foreclosure law. Category 3 states dismiss the UCC’s role outright. It is these decisions that muddy the law and create inconsistent outcomes from state to state.” (47-48)

It is no exaggeration to say that the discussions about this topic in the blogosphere are virtually incoherent, so this article may provide guidance for those who are looking for it.