Tag Archives: mortgage

California Court Dismisses All 12 Claims

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The court in deciding Scott v. Saxon Mortg. Servs., 2013 U.S. Dist. LEXIS 146988 (N.D. Cal. Oct. 10, 2013) granted defendant’s motion to dismiss with leave to amend in part.

Plaintiff’s brought 12 claims against defendants. Plaintiff’s first claim for violation of California Business and Professions Code section 17200 predicated on violation of California Civil Code section 2923.5 and Plaintiff’s ninth claim for violation of California Civil Code section 2923.5. The court dismissed both without leave to amend.

Plaintiff’s second claim for breach of good faith and fair dealing was also dismissed with leave to amend; the third claim for slander of title was likewise dismissed without leave to amend.

Plaintiff’s fourth claim for “alter ago liability” and fifth claim for breach of contract were both dismissed without leave to amend. Unlike the former claims, plaintiff’s sixth claim for unjust enrichment was dismissed with leave to amend. However, plaintiff’s seventh claim for violation of California Business and Professions Code section 17200 was dismissed without leave to amend. Plaintiff’s eighth claim for predatory lending and violation of TILA were dismissed without leave to amend.

Plaintiff’s tenth claim for defamation and eleventh claim for false light were also dismissed without leave to amend. Lastly, plaintiff’s twelfth claim to void or cancel assignment of the deed of trust and the thirteenth claim for cancellation of a voidable contract were dismissed without leave to amend

Michigan Court Dismisses Fraud & RESPA Claims

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The court in deciding Neroni v. Bank of Am., N.A., 2013 U.S. Dist. LEXIS 149190 ( E.D. Mich. 2013) eventually granted the defendant’s motion to dismiss.

Plaintiffs alleged claims against defendant [Bank of America, N.A.] for infringement of the Real Estate Settlement Procedures Act (“RESPA”) (Counts I–IV), common law fraud (Count V), common law silent fraud (Count VI), and common law breach of contract (Count VII).

Defendant responded by asserting that plaintiffs’ RESPA claims should be dismissed because (1) defendant had no legal obligation under RESPA to respond or, alternatively, (2) plaintiffs failed to plead any actual damages related to their RESPA claims. Defendant further asserted that plaintiffs had failed to adequately plead claims for fraud or breach of contract relating to defendant’s legal standing to foreclose on Plaintiffs’ Home.

After considering the merits of both claims, the court ultimately agreed with the defendant and granted the defendant’s motion to dismiss.

Imposing Order on Recording Chaos

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Dale Whitman has posted A Proposal for a National Mortgage Registry: MERS Done Right. This is great timing because he will be touching on some of the issues raised in this article in tomorrow’s webinar. His proposal for a national mortgage registry also shares things in common with elements of Adam Levitin‘s recent proposal.

Whitman’s abstract reads:

In this Article, Professor Whitman analyzes the existing legal regime for transfers of notes and mortgages on the secondary market, and concludes that it is highly inconvenient and dysfunctional, with the result that large numbers of market participants simply did not observe its rules during the huge market run-up of the early and mid-2000s. He also considers Mortgage Electronic Registration System (MERS), which was designed to alleviate the inconveniences of repeatedly recording mortgage assignments, but concludes that it was conceptually flawed and has proven to be an inadequate response to the problem. For these reasons the legal system was ill-prepared for the avalanche of foreclosures that followed the collapse of the mortgage market in 2007, and continues to be beset by litigation and uncertainty. This Article then provides a conceptual outline for an alternative National Mortgage Registry, which would supplant the present legal system and would provide convenience, transparency, and efficiency for all market participants. He concludes with a draft of a statute that could be enacted by Congress to create such a registry.

The article concludes:

A national mortgage loan Registry structured along the lines outlined here would resolve all of the major legal problems that beset the secondary mortgage market today. To be specific, the following problems would be put to rest.

1. The lack of clarity in the distinction between negotiable and nonnegotiable notes that exists today would become irrelevant for purposes of loan transfer. Negotiable and nonnegotiable notes would be treated exactly alike and would be transferred in the same manner.

2. The need to physically deliver original notes in order to transfer the right of enforcement – an extremely burdensome and inconvenient requirement for negotiable notes in today’s market – would be eliminated. Transfers would take place electronically with assurance that they would be recognized by local law in all jurisdictions.

3. The necessity of recording mortgage assignments in local recording offices would be eliminated. MERS was designed to remove the need for such assignments (except at the point when foreclosure was necessary), but the national Registry would accomplish this without the artificiality and con-fusion engendered by MERS’ “nominee” status.

4. Borrowers would be protected against competing claims by purported mortgage holders because the Registry’s records of loan holdings would be conclusive. Whether in cases of loan modification, payoff and discharge, approval of a short sale, or foreclosure, a borrower would know with certainty whether a purported holder’s claim to the loan was authentic, and whether its purported servicer was authorized to act.

5. All foreclosures, both judicial and non-judicial, could be conducted with assurance that the correct party was foreclosing. The Registry’s certificate could be recorded under state law and become a part of the chain of title of property passing through foreclosure, thus permitting future title examiners to verify that the foreclosure was conducted by the person authorized to do so. Concerns of title insurers about the validity of titles coming through foreclosure, currently a major worry, would be largely eliminated.

6. The current confusion and litigation about separation of notes from their mortgages, and about what proof is needed to foreclose a mortgage, would be brought to an end. The Registry’s certificate would provide all of the documentary evidence necessary to foreclose.

7. The holder in due course doctrine, with its potential for unfair harm to borrowers, would probably disappear in the context of mortgage loans as secondary market participants abandoned the practice of physical delivery of mortgage notes.

The system for transferring mortgage loans with which we are saddled today is a shambles. The result has been enormous uncertainty and likely huge financial loss for investors, servicers, and title insurers. It is time for Congress to act to create a sensible, simple, and efficient alternative. (68-69)

Many (including Brad Borden and I) have argued that the current recording system is horribly flawed. It is unclear whether there is sufficient political will to engage in a structural reform at this time. If there is not, expect to see another foreclosure mess once the current one has played itself out.

Ohio Court Finds That Plaintiffs Were Not Bona Fide Purchasers

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The Court of Appeals of Ohio, Fifth Appellate District, in deciding Bank of N.Y. Mellon v. Casey, 2013-Ohio-4686 (Ohio Ct. App., Fairfield County Oct. 21, 2013) affirmed the lower court’s judgment and held that the plaintiffs were not bona fide purchasers and the defendants had standing.

The court found that under the doctrine of lis pendens plaintiffs were not bona fide purchasers of a property encumbered by the mortgage because they took title during the pendency of a declaratory judgment action to which they were a party. Consequently, they did not take the property free from unrecorded liens. The claim that the mortgage was invalid was barred by res judicata as the validity of the mortgage was fully litigated in the declaratory judgment action.

Lastly, the court found that the defendant had standing to seek the foreclosure, as it was the current holder of the note and mortgage, and that it had physical possession of the note and mortgage documents.

(Non-)Enforcement of Securitized Mortgage Loans

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Professors Neil Cohen and Dale Whitman, two important scholars who know their way around the UCC and mortgage law, will take on a highly contested topic in an upcoming ABA Professors’ Corner webinar: “Ownership, Transfer, and Enforcement of Securitized Mortgage Loans.” I blogged a bit about this topic a couple of days ago, in relation to Adam Levitin’s new article. There is a lot of misinformation floating around the blogosphere relating to this topic, so I encourage readers to register.

The full information on this program is as follows:

Professors’ Corner is a FREE monthly webinar, sponsored by the ABA Real Property, Trust and Estate Law Section’s Legal Education and Uniform Law Group.  On the second Wednesday of each month, a panel of law professors discusses recent cases or issues of interest to real estate practitioners and scholars.

December 2013 Professors’ Corner
“Ownership, Transfer, and Enforcement of Securitized Mortgage Loans”
Profs. Neil Cohen and Dale Whitman
Wednesday, December 11, 2013
12:30pm Eastern/11:30am Cental/9:30am Pacific
Register for this FREE program at https://ambar.org/ProfessorsCorner

Our nation’s courts have been swamped with litigation involving the foreclosure of securitized mortgage loans.  Much of this litigation involves the appropriate interaction of the Uniform Commercial Code and state foreclosure law. Because few foreclosure lawyers and judges are UCC experts, the outcomes of the reported cases have reflected a significant degree of uncertainty or confusion.

In addition, much litigation has been triggered by poor practices in the securitization of mortgage loans, such as robo-signing and the failure to transfer loans into a securitized trust within the time period required by the IRS REMIC rules.  This litigation has likewise produced conflicting case outcomes.  In particular, recent decisions have reflected some disagreement regarding whether a mortgagor — who is not a party to the Pooling and Servicing Agreement that governs the securitized trust that holds the mortgage — can successfully defend a foreclosure by challenging the validity of the assignment of the mortgage to a securitized trust.

Our speakers for the December program will bring some much-needed clarity to these issues.  Our speakers are Prof. Neil B. Cohen, the Jeffrey D. Forchelli Professor of Law at Brooklyn Law School, and Prof. Dale A. Whitman, the James E Campbell Missouri Endowed Professor Emeritus of Law at the University of Missouri School of Law.  Prof. Cohen is the Research Director of the Permanent Editorial Board for the Uniform Commercial Code, and a principal contributor to the November 2011 PEB Report, “Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes.” Prof. Whitman is the co-Reporter for the Restatement (Third) of Property — Mortgages, and the co-author of the pre-eminent treatise on Real Estate Finance Law.

Please join us for this program.  You may register at https://ambar.org/ProfessorsCorner.

Michigan Court Finds All Six of Plaintiff’s Claims Without Merit

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The court in deciding McGlade v. Bank of Am., N.A., 2013 U.S. Dist. LEXIS 152610 (E.D. Mich. Oct. 24, 2013) granted defendant Bank of America, N.A.’s motion to dismiss.

Plaintiff, McGlade brought six causes of action: Count I-Fraudulent Misrepresentation; Count II-Estoppel; Count III-Negligence; Count IV-Violation of the state Regulation of Collection Practices Act; Count V-Violation of the Fair Debt Collection Practices Act; and Count VI-violation of the Michigan Consumer Protection Act.

The court in granting defendant summary judgment noted that the plaintiff’s factual basis for the fraudulent misrepresentation claim that defendant “knew or should have known that she would not qualify for a loan modification when she inquired about one” was insufficient.

Ultimately, the court found that the misconduct alleged by McGlade did not relate to the foreclosure procedure itself, and therefore she had failed to state a claim for which relief can be granted.

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.