Tag Archives: mortgage

Court Holds That Mortgagor Lacks Standing to Challenge the Propriety of Mortgage Assignments Under Rhode Island Law

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The Rhode Island magistrate judge in Cosajay v. Mortgage Electronic Registration Systems, Inc., C.A. No. 10-442-M (D.R.I. June 23, 2011) issued “Reports and Recommendations,” holding that according to Rhode Island law a mortgagor “lacks standing to challenge the propriety of mortgage assignments and the effect those assignments, if any, could have on the underlying obligation.”

The Plaintiff challenged the validity of the assignments on multiple grounds, including MERS’ authority to execute the assignment. The magistrate however determined that under Rhode Island law, only parties to a contract may seek to have rights declared under a contract.

Deane Finds Us East of Eden

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Last week, I discussed a NYLJ article about the “Show Me The Note” argument in New York. The article discussed a recent case, Bank of N.Y. Mellon v. Deane, 2013 Slip Op. 23244 (Sup. Ct. Kings Country July 11, 2013). Brad and I have earlier noted that “many scholars and leaders of the bar are befuddled by courts’ failure to do a comprehensive analysis under the UCC as part of their reasoning in mortgage enforcement cases . . ..”  As if to prove us wrong, Judge Battaglia has taken on the UCC in Deane even while acknowledging that “quotation of the Code, or even its citation, has virtually disappeared from the caselaw on this part of negotiable instruments law, at least where addressed in mortgage foreclosure actions.” (5) Judge Battaglia also notes how NY mortgage enforcement caselaw diverges from the contemporary UCC caselaw.

Judge Battaglia framed the issue of standing as follows:

As recently summarized by the Second Department:”In order to commence a foreclosure action, the plaintiff must have a legal or equitable interest in the subject mortgage…A plaintiff has standing where it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note prior to commencement of the action with the filing of the complaint…Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident.” (GRP Loan, LLC v. Taylor, 95 AD3d at 1173 [internal quotation marks and citations omitted] [emphasis added].) (2)

He continued, “the cursory treatment of the standing question in the memorandum of law evidences a misunderstanding of the general law of negotiable instruments in its equation of the status as “holder” to mere possession of the instrument. The core of the law of negotiable instruments is found in Article 3 of the Uniform Commercial Code . . ..” (3) He finds that the plaintiff has not established that it is a holder or a nonholder in possession who has the rights of a holder. He states that

To allow an assignee to sue without possession of the note, therefore, would be inconsistent with Revised Article 3, and put New York out-of-step with the 49 states that have adopted the revision, including, in particular, a conception of “transfer” as “deliver[y] by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument” (see Revised UCC §3-203 [1].) That misstep, however, if such it is, has apparently already been taken. (7)

Doing its best to reconcile the the mortgage enforcement and UCC caselaw, Judge Battaglia concludes that

in the usual case, a plaintiff has “standing” to prosecute a mortgage foreclosure action where, at the time the action is commenced: (1) the plaintiff is the holder of the note (see NYUCC §1-201 [20]); or (2) the plaintiff has possession of the note by delivery (see NYUCC §1-201[14]), from a person entitled to enforce it, for the purpose of giving the plaintiff the right to enforce it; or (3) the plaintiff has been assigned the note, by a person entitled to enforce it, for the purpose of giving the plaintiff the right to collect the debt evidenced by the note, and the plaintiff tenders the note at the time of any judgment. (8)

New York’s law in this area is not satisfying and it looks to me like courts need to make a concerted effort to synthesize UCC law with foreclosure law.  Otherwise, mortgage litigants are left to wander like Cain in the land of Nod, east of Eden, not knowing what law governs their disputes.

Court Rules That MERS, as the Beneficiary on the Deed of Trust, Had the Authority to Make a Substitution of Trustee

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The United States District Court of the Northern District of California in deciding Lomboy v. SCME Mortgage Bankers, Inc. et al, No. C-09-1160 SC (N.D. Cal. 2009) held that under California law, MERS was not required to register to do business in California. The court also ruled that MERS is able to foreclose.

As her first cause of action, Plaintiff sought declaratory relief against SCME, MERS, Quality, and Aurora. Plaintiff asserted that she was the true equitable owner of the house, that the defendants were not holders of the promissory note, which should accompany the deed of trust, and that MERS has no right to foreclose on the house.

Plaintiff Imelda Lomboy also brought an action alleging various improprieties surrounding the then-imminent foreclosure of property that was used as security for a loan. Plaintiff alleges that the defendants “fraudulently obtained the deed of trust.”

The court in rejecting the plaintiff’s contentions note that MERS, as the beneficiary on the deed of trust, had the authority to make a substitution of trustee. The court further noted, that the substitute trustee appointed by MERS was able to carry out the foreclosure.

California Court Finds That Under State Civil Code Section 2924(a), MERS Had the Right to Foreclose

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The United States District Court for the Northern District of California Oakland Division in deciding Earl A. Dancy v. Aurora Loan Services, LLC, No: C10-2602 SBA (2010) found that the plaintiff’s contentions lacked merit.

The court found that the plaintiff’s assertion that neither the loan servicer nor MERS were the true beneficiaries of the subject deed of trust and therefore had no authority to institute foreclosure proceedings, lacked merit. The court held that the deed of trust expressly designated that MERS was acting solely as nominee for the lender and the lender’s successors and assigns.

Further, the court held that regardless of whether or not MERS owned the note or was entitled to any payments as a result, the fact remained that the deed of trust designated MERS as a beneficiary. Thus, under section 2924(a) of the California Civil Code, MERS had the right to foreclose.

Borden and Reiss on High-Stakes MBS Litigation

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Brad and I posted Goliath Versus Goliath in High-Stakes MBS Litigation on SSRN (and BePress).  The abstract reads,

The loan-origination and mortgage-securitization practices between 2000 and 2007 created the housing and mortgage-backed securities bubble that precipitated the 2008 economic crisis and ensuing recession. The mess that the loan-origination and mortgage-securitization practices caused is now playing out in courts around the world. MBS investors are suing banks, MBS sponsors and underwriters for misrepresenting the quality of loans purportedly held in MBS pools and failing to properly transfer loan documents and mortgages to the pools, as required by the MBS pooling and servicing agreements. State and federal prosecutors have also filed claims against banks, underwriters and sponsors for the roles they played in creating defective MBS and for misrepresenting the quality of the assets purportedly held in MBS pools. This commentary focuses on the state of this upstream litigation. It reviews claims of several complaints and discusses some decisions on motions for summary judgment in several of the cases. The commentary is not a comprehensive review of all the activity in this area, but it does provide an overview of the issues at stake in this litigation. The litigation in this area is still relatively new, but with hundreds of billions of dollars at stake, it will likely last for years to come and should reshape the MBS landscape.

The United States District Court for the District of Arizona Finds That the Borrower Gave MERS the Ability to Take Any Action, Which the Lender Would be Able to Take

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The United States District Court for the District of Arizona, in Blau v. America’s Servicing Company, et al, No. CV-08-773 (D. Ariz., 2009), acknowledged that MERS, acting as a beneficiary, was the proper party to execute an assignment of the deed of trust.

The borrower gave MERS the ability to take any action, which the lender would be able to take. Thus, this included the ability to assign, foreclose, and even substitute the trustee. The court also found that MERS had no liability under The Truth in Lending Act (TILA) since it had not been involved in making the loan to the plaintiff.

U.S. District Court for the District of Arizona Found the Mere Use of MERS Nid Not Constitute Common Law Fraud

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The U.S. District Court for the District of Arizona, in Cervantes v. Countrywide Home Loans, Inc., et al., No. 09-cv-00517 (D.Ariz. 2009), dismissed all state and federal claims brought by all three of the borrowers. The borrowers filed a complaint against MERS as well as a group of other defendants

After considering the borrowers’ arguments, the court found the mere use of MERS did not constitute common law fraud on the borrowers. The court found that the plaintiffs had failed to allege what effect, if any, listing the MERS system as a ‘sham’ beneficiary on the deed of trust had upon their obligations as borrowers.

Subsequently, the United States Court of Appeals for the Ninth Circuit affirmed the trial court’s judgment in favor of MERS. Accordingly, the Court held that a borrower lacked the basis to challenge the standing of an entity such as MERS. Further, the court, however, drew attention to a legal reference that such a borrower still had legal recourse by bringing an action to have the trustee’s sale set aside.