Tag Archives: mortgage

California Court Affirms MERS’ Authority to Assign its Interest Under a Deed of Trust

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The court in Hollins v. ReconTrust et al., Civil No. 2:11-cv-00945-PSG –PLA (C.D. Cal. May 6, 2011) affirmed MERS’ authority to assign its interest under a deed of trust and granted MERS’ motion to dismiss. The plaintiffs claimed that the foreclosure proceedings initiated by the U.S. Bank as well as ReconTrust were not valid. Moreover, the plaintiff claimed that MERS lacked the authority to assign the deed of trust.

The court considered the plaintiff’s contentions, but rejected the argument. In rejecting the palintiff’s argument, the court found that “federal and state courts in California have repeatedly rejected similar challenges to MERS in cases where the plaintiff expressly authorized MERS to act as a beneficiary.” Regarding the plaintiffs’ allegation that U.S. Bank was not authorized to foreclose due to lack of “documentation evidencing the proper status of U.S. Bank as a party in interest,” the court found the allegation “negated by a judicially noticeable record of assignment from MERS to U.S. Bank.” Last but not least, the plaintiffs’ failure to tender was fatal to their claims.

Oregon Court Holds That Oregon’s Non-Judicial Foreclosure Statute Does Not Require Presentment of the Note

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The court in Buckland v. Aurora Loan Services, Josephine County No. 10 CV 1023 (March 18, 2011) granted the defendant’s motion to dismiss the plaintiff’s complaint for wrongful foreclosure with prejudice.

MERS, although not being a party to the case, the plaintiff’s complaint contained claims that MERS lacked the power to appoint a trustee as it was not the beneficiary of the plaintiff’s deed of trust. The plaintiff’s complaint also alleged that Aurora was required to prove it was the note holder before directing the trustee to non-judicially foreclose. The court considered the plaintiff’s contentions, but ultimately dismissed the plaintiffs’ claims.

The court relied on the cases cited in Aurora’s motion to dismiss, including Stewart v. Mortgage Electronic Registration Systems, Inc. (holding that presentment of note not required and MERS is a valid deed of trust beneficiary). The court ultimately held that Oregon’s non-judicial foreclosure statute does not require presentment of the note.

Massachusetts Trial Court Limits Ibanez Holding by Rejecting Plaintiff’s Proposition That Foreclosing Party Needs to Hold The Mortgage in Order to Bring a Service Member’s Action

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This action commenced in this court on August 12, 2009. The plaintiff in Randle v. GMAC, No. 09 MISC 408202 GHP, Allison Randle, sought to prevent a foreclosure sale by defendant GMAC Mortgage, LLC [GMAC], and asked the court for judgment declaring that GMAC did not hold any claim secured by a certain mortgage recorded with the county registry of deeds. Therefore GMAC lacked standing to bring such an action against plaintiff Randle pursuant to the Servicemembers Civil Relief Act, and under legislation enacted in Massachusetts under and pursuant to that federal law.

Partially relying on the holding from U.S. Bank Nat’l Assoc. v. Ibanez, 17 LCR 202 (2009), the plaintiff claimed that she had a right to challenge the standing of GMAC to have filed the Servicemembers Case as a vehicle to vindicating this right, she had filed the Miscellaneous Case.

In relying on Ibanez the court found that the plaintiff confused or conflated the issue in Ibanez with the issues in her case. In Ibanez two foreclosures were determined to be invalid because the foreclosing parties failed to comply with the provisions of G.L. c. 244, § 14. These provisions required that requisite notice be given which “identifies the holder of the mortgage.” See Ibanez, 17 LCR at 204 [failure to identify holder of mortgage renders sale void as matter of law]; Ibanez, 17 LCR at 206-07 [foreclosure invalid where foreclosing party named in notice had not been assigned mortgage either on or off record].

In reaching this decision in Ibanez, the Land Court determined that a bank did not “hold” a mortgage, within the meaning of G.L. c. 244, §14, before a valid assignment had been executed and delivered. However, it was also noted that nothing from the Ibanez decision stood for the proposition that a foreclosing party needs to “hold” the mortgage to file a complaint under the Servicemembers Civil Relief Act for a determination that the mortgagor or owner is not entitled to the benefits of the federal Act, and the plaintiff’s complaint pointed to neither an authority in support of such a contention nor precedent in support of her contention.

Accordingly, the court in the current case decided there was no need to consider the question of whether GMAC Mortgage had standing to commence the Servicemembers Case, deciding that the answer to such a question could not and did not affect the outcome in such a case.

Why We Need The CFPB

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Judge Illston (N.D. CA.) has preliminarily approved a settlement of a class action in Jordan et al. v. Paul Financial LLC et al., No. 3:07-cv-04496 (June 14, 2013). The class action arises from lender practices during the Subprime Boom of the early 2000s.  The class is composed of

All individuals who within the four-year period preceding the filing of Plaintiffs’ original complaint through the date that notice is mailed to the Class (the “Class Period”), obtained an Option ARM loan from Paul Financial, LLC that either (a) was secured by real property located in the State of California, or (b) was secured by real property located outside the State of California where the loan was approved in or disseminated from California, which loan had the following characteristics: (i) the yearly numerical interest rate listed on page one of the Note is 3.0% or less; (ii) in the section entitled “Interest,” the Promissory Note states that this rate “may” instead of “will” or “shall” change, (e.g., “The interest rate I will pay may change”); (iii) the yearly numerical interest rate listed on page one of the Note was only effective through the due date for the first monthly payment and then adjusted to a rate which is the sum of an “index” and “margin;” and (iv) the Note does not contain any statement that paying the amount listed as the “initial monthly payment(s),” will definitely result in negative amortization or deferred interest. (2)

Of the problems alleged by the lead plaintiffs and given credibility by the judge’s order, the most disturbing is that the lender described a rate that was fixed for only one month as a “yearly” one. It is hard to see how consumers can parse the language of a mortgage note on their own, especially in California where borrowers typically are not represented by counsel in a residential real estate transaction.

Many commentators claim that more disclosure and financial education are all that are necessary to ensure that consumers have access to credit on reasonable terms.  But residential finance transactions are too complex under the best of circumstances. And they  become just plain abusive when lenders describe an interest rate that adjusts after one month as “fixed.”  And they become too predatory when an interest rate that adjusts monthly is described as a “yearly” one.

This case, arising from lender behavior during the Boom, reminds us why we now have the Consumer Financial Protection Bureau, post-Bust.  When pundits inevitably claim that even reasonable consumer protection regulation initiatives are too paternalistic and too restrictive of credit, let’s remind them of this case and the many others like it.

Michigan District Court Dismisses Borrower’s Complaint After Failure to Redeem Property within Statutory Period

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In Vollmar v. Federal National Mortgage Association, (12-cv-1119, E.D. Mich. 2012), the U.S. District Court for the Eastern District of Michigan, granted the defendant’s motion to dismiss each of the plaintiff’s complaints that sought to invalidate the foreclosure sale of his property and to quiet title. The judge ruled that the plaintiff lacked standing after failing to redeem the property within the allotted period.

In the case at hand, the plaintiff took out a $128,000 mortgage on his property with Countrywide Home Loans, Inc., with Mortgage Electronic Registration Systems, Inc. (“MERS”) as the mortgagee. MERS assigned its interests to BAC Home Loan Servicing, L.P. (“BACHLS”) in a recorded deed on July 23, 2010. The plaintiff defaulted on his payments and BACHLS instituted foreclosure proceedings in March 2011. The property was purchased in a sheriff sale by Bank of America, N.A. (“BANA”), the successor by merger to BACHLS.

The Court addressed the plaintiff’s claims in conjunction with the defendant’s motion to dismiss.

1. The Court held that the plaintiff lacked standing to challenge the sheriff’s sale due to his failure to redeem the property within Michigan’s 6-month statutory redemption period. At the close of the statutory period, title is vested with the purchaser and the mortgagor loses standing to challenge the sale. Rather than preserving his right to challenge the foreclosure sale by remaining in the home, as the plaintiff argued, the Court held that the ownership interest “terminated at the conclusion of the sheriff’s sale,” and the plaintiff was merely an “illegal holdover.”

2. Defendant claimed that the plaintiff’s amended complaint does not contain allegations of “fraud or irregularity” that are sufficient to annul the foreclosure sale under a breach of contract claim. The plaintiff alleged that the defendants were required to demonstrate by whom the foreclosure proceedings were initiated and failed to produce evidence that BANA acquired BACHLS interest in the mortgage. The Court dismissed the plaintiff’s allegations, noting that the Defendant’s motion papers, foreclosure advertisements, and the initial collection letter to the plaintiff each established that BACHLS both received the mortgage interest from MERS and initiated the foreclosure proceedings. In regards to BANA’s role, the Court referenced Texas Business Organization Codes (Tex. Bus. Orgs. Code §10.008(a)(2)(C)), under which BACHLS and BANA merged on July 1, 2011), which established that after the merger of the two companies, BANA acquired all of BACHLS rights, titles, and interests without the need for “any transfer or assignment.”

3. The Court addressed the plaintiff’s slander of title and quiet title claims even though they were abandoned for failure to address them in the response brief. Because slander of title and quiet title “presuppose that plaintiff possesses the ability to establish title” and the Court has already established that the plaintiff’s rights to the property were extinguished at the end of the statutory period, both claims were dismissed.

4. Since the plaintiff failed to allege that the contract left the manner of performance open to the defendant’s discretion, and that the “manner of performance” of the mortgage rested in the defendants hands, an element required to raise a breach of implied covenant of good faith and fair dealing claim, the Court refused to accept the cause of action, citing Meyer v. CitiMortgage, Inc. 11-13432, 2012 WL 511995 (E.D. Mich. Feb. 16, 2012) which stated that Michigan law does not recognize an independent action for breach of the implied covenant of good faith and fair dealing when the contract cannot be construed to imply such a covenant by having left the manner of performance open to the defendant’s discretion.

5. Finally, the Court addressed the plaintiffs “seemingly abandoned” claim of intentional infliction of emotional distress to reassert that “emotional damages are not available for breach of contract” claims. Citing Kevelighan v. Orlans  Assocs., P.C., 498 F. App’x 469, 472 (6th Cir. 2012) which upheld the dismissal of an emotional distress claim in a breach of mortgage contract suit.

Shaky South Carolina Opinion Finds That Bank Owned Note in Foreclosure Action

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The South Carolina Court of Appeals held in Bank of America v. Draper et al., no. 5140 (June 5, 2013) that Bank of America had standing in a foreclosure action and had proved that it owned the mortgage note.  The Court stated that under South Carolina law, a mortgagee who has the note and the mortgage can elect to bring an action on either. The Court also stated that under South Carolina law, the servicer has standing to bring an action on behalf of the beneficial owner. Because Draper admitted that Bank of America was the servicer, the Court held that Bank of America had standing in this foreclosure action.

Draper also argued that Bank of America failed to prove that it was the owner or holder of the mortgage note. Relying on South Carolina UCC section 301, the Court found that the bank was a “person entitled to enforce.” (8) The Court reached this result because Draper did not contest the Bank’s evidence that it owned the note through a series of “transfer and mergers.” (8) The bank considered as relevant evidence of the Bank’s ownership a “ledger of payments” that showed “all transactions on the account.” (8)

One does not have a sense that this case was well briefed because the Court seems to take a lot of shortcuts.  For instance, the Court apparently assumed that the mortgage note was negotiable and thus subject to Article 3 of the UCC. There is a fair amount of controversy relating to this assumption, something that I will blog about soon.

 

(HT April Charney)

Don’t Show Me The Note in Georgia!

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The Georgia Supreme Court recently decided You v. JP Morgan Chase, No. S13Q0040 (May 20, 2013) which held that the “law does not require a party seeking to exercise a power of sale in a deed to secured a debt [a deed of trust] to hold, in addition to to the deed, the promissory note evidencing the underlying debt.” (1) The Georgia Supreme Court thus joins the Arizona Supreme Court which reached the same result in Hogan v. Wash. Mut. Bank, 277 P.3d 781 (Ariz. 2012). I discuss Hogan and cases reaching the opposite result in Show Me The Note!

The Georgia Supreme Court reached this result after reviewing the history of non-judicial foreclosure in Georgia.  It found nothing in recent statutory enactments that was inconsistent with the longstanding practice of allowing foreclosure on the mortgage alone.  The Court dismissed a number of arguments, including the contention that the UCC “prohibits a party who does not hold the note from exercising the power of sale in the deed securing the note.” (12) The Court notes that Chase is just seeking to enforce the deed of trust, not the note. The Court also acknowledges that it might be more sensible not to split the note from the mortgage, but it also notes that the Georgia legislature did not take that approach.

The court concludes the opinion with something of a cri de coeur, the type of statement one sees from a court that feels that its conscience is being constrained by binding authority:

As members of this State’s judicial branch, it is our duty to interpret the laws as they are written. See Allen v. Wright, 282 Ga. 9(1), 644 S.E.2d 814 (2007). This Court is not blind to the plight of distressed borrowers, many of whom have suffered devastating losses brought on by the burst of the housing bubble and ensuing recession. While we respect our legislature’s effort to assist distressed homeowners by amending the non-judicial foreclosure statute in 2008, the continued ease with which foreclosures may proceed in this State gives us pause, in light of the grave consequences foreclosures pose for individuals, families, neighborhoods, and society in general. Our concerns in this regard, however, do not entitle us to overstep our judicial role, and thus we leave to the members of our legislature, if they are so inclined, the task of undertaking additional reform.

 

 

 

 

(HT William Hart)