Tag Archives: mortgage

(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.

Tennessee Court Grants Defendant’s Motion for Summary Judgment as Wells Fargo Had Ownership Interest in the Note & Deed

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The court in deciding McKee v. Am. Brokers Conduit, 2013 U.S. Dist. LEXIS 152657 (W.D. Tenn. 2013) granted Wells Fargo’s motion for summary judgment.

Plaintiffs claimed that (1) Wells Fargo didn’t have lawful ownership or a security interest in the property because the note and deed of trust were unlawfully sold; (2) Leak was not authorized to execute the assignment from MERS to Wells Fargo; (3) Wells Fargo could not show possession or ownership of the original note or deed and therefore had an imperfect security interest; and (4) ABC had no authority to execute the assignment because it was in bankruptcy proceedings at the time of the assignment.

The court found the plaintiff’s line of reasoning factually incorrect. The court noted that the note was made payable to Wells Fargo and the deed was assigned to Wells Fargo. Both the endorsed note and the assignment agreement were recorded. Furthermore, counsel for Wells Fargo had the original note in his possession. Finally, both the note and the deed allowed for such an assignment. Plaintiffs had presented the court with no evidence to rebut these facts. As such, the plaintiffs had not offered enough to challenge Wells Fargo’s enforcement of the note and the court granted summary judgment.

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.