Tag Archives: mortgage

Appellate Court of Illinois Awarded Summary Judgment to Plaintiff Where Defendant Failed to Show That Plaintiff was an Unlicensed Debt Collector Under the Collection Agency Act

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The Illinois court in deciding Kondaur Capital Corp. v. Sreenan, 2013 Ill. App. (Ill. App. Ct. 1st Dist. 2013) affirmed the judgment of the circuit court granting summary judgment for the plaintiff.

In the summary judgment motion, the plaintiff asserted that it was the legal holder and in possession of the note at issue pursuant to the assignment from PNC.

The court held that the circuit court did not err in awarding summary judgment to the plaintiff where the defendant failed to demonstrate that the plaintiff was an unlicensed debt collector under the Collection Agency Act (225 ILCS 425/1 et seq.).

The court also held that there was no abuse of discretion in refusing to strike affidavits in support of the plaintiff’s motion for summary judgment where the affidavits were premised upon documents that qualified as “business records” under Supreme Court Rule 236 (Ill. S. Ct. R. 236).

Lastly, the court held that any error in allowing the plaintiff to respond to the defendant’s affirmative defenses in the context of the plaintiff’s summary judgment motion was harmless.

Appellate Court of Illinois Denies Defendants’ Motion for Presentment and Cause to Vacate Judgment was Misplaced and Had no Legal Significance

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The Appellate Court of Illinois in deciding Deutsche Bank Nat’l Trust Co. v. Cole, 2013 IL App (2d) 130450-U (Ill. App. Ct. 2d Dist. 2013) held that the trial court properly confirmed a judicial sale, as the plaintiff had no obligation to produce the originals of the mortgage and the note. Moreover under the appropriate standard, the court had subject-matter jurisdiction, and defendant failed to cogently explain plaintiff’s alleged lack of standing.

Lorie Cole, one of two property-owner defendants in a foreclosure action, appealed to this court after the confirmation of the judicial sale of the property and the denial of what the trial court treated as a motion to reconsider. This court, after considering the Cole’s appeal found that all of the issues that defendant Cole had raised were without merit, thus this court affirmed the decision of the lower court.

This Note and Mortgage Are Unenforceable

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The Bankruptcy Appellate Panel of the Sixth Circuit issued a thoughtful opinion in In re: Dorsey, File No. 14b0002n.06 (March 7, 2014) but it leaves me dissatisfied. As Elizabeth Renuart and Dale Whitman have each demonstrated, courts have had a hard time parsing how UCC Article 3 relates to the enforceability of mortgage notes. That is not the problem with this opinion — the Court carefully applies UCC Article 3, but still concludes that the possessor of the note could not establish that it was a Person Entitled To Enforce it. As a result, the Court concludes that the possessor of the note cannot enforce the note and as a result, the mortgage is “no longer enforceable under Kentucky law.” (12)

Because of the complexity of the analysis, I refer interested readers directly to the opinion itself, which is as clear as can be expected for such a technical subject. But I will note that the Court’s result means that a party that holds the note itself and has much circumstantial evidence that the note was transferred to it by the original lender under the note can forfeit the entire value of the note and mortgage. I generally believe that lenders should be held to strict standards when seeking to enforce the terms of a mortgage loan. But in this bankruptcy proceeding, the possessor of the note is left with nothing and the borrower is granted a windfall — the entire mortgage debt has been extinguished. This does not seem to be consistent with the principles of equity.

I am curious to know what others think, particularly bankruptcy experts. Perhaps I am missing something.

 

[HT April Charney]

Ohio Court Dismisses Claims Asserting that MERS Could Not Act as Nominee

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The court in deciding Cline v. Mortg. Elec. Registration Sys., 2013-Ohio-5706 (Ohio Ct. App., Franklin County 2013) overruled appellant’s seven assignments of error, thus this court upheld the judgment of the lower court.

The lower court granted MERS’ motion after concluding that, because appellant voluntarily signed the mortgage and agreed to the existing lien, the mortgage could not constitute a cloud on appellant’s title subject to R.C. 5303.01. On appeal, appellant argued the original loan was originated by CBSK, a company no longer in business; therefore, any agreement between CBSK and MERS that MERS would act as nominee for CBSK is void.

In appellant’s view, because the agreement between CBSK and MERS was void, the note and mortgage were no longer in effect and constituted a cloud upon her title. Appellant argued that, unlike Unger, which concerned mortgage assignments, this matter was different as it concerns the underlying mortgage itself.

Upon review, this court found that the appellant’s complaint failed to state a claim upon which relief can be granted, and, thus, the trial court did not err in dismissing appellant’s complaint pursuant to Civ.R. 12(B)(6). Accordingly, all of the appellant’s claims were overruled.

Ohio Court Finds that Bank of America had Standing to Foreclose and MERS had Authority to Assign

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The court in deciding Bank of Am., N.A. v. Harris, 2013-Ohio-5749 (Ohio Ct. App., Cuyahoga County Dec. 26, 2013) found there was no merit to plaintiff’s appeal, and affirmed the lower court’s dismissal.

Defendant, Frederick Harris, appealed from the trial court’s decision granting summary judgment to plaintiff, Bank of America. Plaintiff argued that the trial court erred as a matter of law by granting summary judgment in favor of the plaintiff-appellee.

Plaintiff argued that Bank of America lacked standing to pursue the foreclosure because the bank was a party solely by virtue of a purported assignment from MERS. It argued that MERS had no authority to assign the mortgage to Bank of America, and thus, Bank of America had no standing to bring the suit.

The court rejected the plaintiff’s contentions, finding that the bank had standing to bring a foreclosure action because it was the real party in interest at the time that a foreclosure complaint was filed. The court also found that the bank had possession of the note, which was payable to bearer. Therefore, it was the current holder of the note and entitled to enforce it under R.C. 1303.31 and that after the merger, the bank stepped into the shoes of the absorbed company and had the ability to enforce. As such no further action was necessary to become a real party in interest.

United States District Court for the District of Columbia Dismisses Case Due to Lack of Jurisdiction

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The court in deciding Glaviano v. JP Morgan Chase Bank, N.A., 2013 U.S. Dist. 180582 (D.D.C. Dec. 27, 2013) dismissed the plaintiff’s claim due to lack of jurisdiction.

Plaintiffs alleged that the defendants did not have “possession of the note” or a “documented property interest in the note and mortgage or deed of trust.” Plaintiff also alleged that the “deed of trust was void and ineffective due to fraud,” and that the trustee’s foreclosure sale was “void because the alleged beneficiary . . . never had standing to substitute the trustee.” They further claimed that the sale of their property at a foreclosure sale violated their due process rights under the U.S. Constitution. Based on these allegations, plaintiff sought an injunction against the foreclosure sale.

The court considered the plaintiff’s argument and found that the court lacked jurisdiction, as such the case must be dismissed. Because the plaintiff sought the equivalent of appellate review of state court rulings, the district court dismissed the suit for lack of jurisdiction under Rooker-Feldman. The court found that plaintiffs in this case also asked the federal district court to review state court rulings.

Accordingly, the complaint was dismissed for lack of jurisdiction and the motion for injunction was denied as moot due to dismissal of the case.

Federalizing Monoline Mortgage Insurance

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The Federal Insurance Office of the Department of Treasury issued a report required pursuant to Dodd-Frank, How To Modernize And Improve The System Of Insurance Regulation In The United States, which addresses among other things the state of the monoline mortgage insurance industry:

Recommendation: Federal standards and oversight for mortgage insurers should be developed and implemented.

Like financial guarantors, private mortgage insurers are monoline companies that experienced devastating losses during the financial crisis. A business predominantly focused on providing credit enhancement to mortgages guaranteed by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, mortgage insurers migrated from the core business of insuring conventional, well-underwritten mortgage loans to providing insurance on pools of Alt-A and subprime mortgages in the years leading up to the financial crisis. The dramatic decline in housing prices and the impact of the change in underwriting practices required mortgage insurers to draw down capital and reserves to pay claims resulting in the failure of three out of the eight mortgage insurers in the United States. Historically high levels of claim denials, including policy rescissions, helped put taxpayers at risk.

Regulatory oversight of mortgage insurance varies state by state. Though mortgage insurance coverage is provided nationally, only 16 states impose specific requirements on private mortgage insurers. Of these requirements, two govern the solvency regime and, therefore, are of particular significance: (1) a limit on total liability, net of reinsurance, for all policies of 25 times the sum of capital, surplus, and contingency reserves, (known as a 25:1 risk-to-capital ratio); and (2) a requirement of annual contributions to a contingency reserve equal to 50 percent of the mortgage insurer’s earned premium. In addition to the states, the GSEs (and through conservatorship, the Federal Housing Finance Agency) establish uniform standards and eligibility requirements that in some cases are more stringent than those required by state regulators. As the financial crisis unfolded, mortgage insurers no longer met state or contractual capital requirements. State regulators granted waivers in order to allow mortgage insurers to continue to write new business while the GSEs loosened other standards that were applicable to mortgage insurers.

The private mortgage insurance sector is interconnected with other aspects of the federal housing finance system and, therefore, is an issue of significant national interest. As the United States continues to recover from the financial crisis and works to reform aspects of the housing finance system, private mortgage insurance may be an important component of any reform package as an alternative way to place private capital in front of any government or taxpayer risk. Robust national solvency and business practice standards, with uniform implementation, for mortgage insurers would help foster greater confidence in the solvency and performance of housing finance. To achieve this objective, it is necessary to establish federal oversight of federally developed standards applicable to mortgage insurance. (31-32)

This critique of the monoline insurance industry seems accurate to me. The industry has a tendency to fail when it is needed most — during major financial crises. Having multiple states regulate monoline insurers allows this nationally (and globally) significant industry to engage in regulatory arbitrage — that is, finding the most pliable regulatory environment in which to operate. National regulation would solve that problem. As always, a single federal regulator is more prone to capture by the industry it regulates than a bunch of state regulators. We have, however, tried the alternative and it has not worked so well. I think a federal approach is worth a try.