Tag Archives: non-judicial foreclosure

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.

Florida Court Dismisses Class Action Against MERS Over Unpaid Recording Fees

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The court in Fuller v. MERS, No. 11cv-1153 (M.D. Fla., June 27, 2012) was “confronted with an old problem: the difficulty of reconciling new technology with old law, thus raising the centuries old separation of powers controversy.” In deciding this case the court found that the Florida statute, which created the recording system, was a creature of statute, as such the remedy the plaintiff sought was to be granted by the legislature and not the courts.

In reaching its decision, the court found that the statute creating Florida’s public recording system did not provide a private right of action, as such Fuller was barred from bringing common law claims based on the statute. Fuller’s claims included civil conspiracy, a Writ of Quo Warranto, unjust enrichment, as well as fraudulent and negligent misrepresentation. Fuller claimed that these claims were independent of the Florida statute, however, he admitted that the statute was the only source of his authority.

The court found that all of Fuller’s claims failed on their merits. Fuller argued that MERS attempted to usurp his function as the recorder of public instruments and sought a Writ of Quo Warranto. However, MES successfully argued that no law required payment of recording fees when a mortgage is assigned but not recorded.

Fuller failed to establish a conspiracy, as MERS did not commit an unlawful act. The court noted that the recording of mortgages is “at the complete discretion of the party wishing to record the document.” Accordingly, MERS was under no legal obligation to record the assignment or pay the recording fees. Fuller’s unjust enrichment claim was also rejected, as MERS had no duty to record, so Fuller could not establish that he had conferred any benefit on MERS. Lastly, Fuller’s fraudulent and negligent misrepresentation claims were based on the assumption that MERS falsely designated itself as the mortgagee on recorded instruments. The court rejected this assumption.

Michigan Supreme Court Rules MERS’s Foreclosure Valid

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The Michigan Court of Appeals considered two cases involving MERS-related foreclosures, Residential Funding Co., LLC v. Saurman and Bank of New York v. Messner, 292 Mich. App. 321 (April 21, 2011) deciding whether MERS is an entity permitted to foreclose by advertisement or if it must go through a judicial foreclosure. The Court of Appeals held that MERS doesn’t meet the statute’s requirements to foreclose by advertisement, however, the Michigan Supreme Court reversed the decision, holding that MERS had standing to foreclose.

In both cases the original lender was Homecoming Financial, LLC, with the mortgages providing rights to foreclose upon default. MERS was named as the mortgagee and nominee for the lender. After default, MERS began foreclosure by advertisement on both properties, purchasing the properties at their respective sales, and quit-claiming title to the plaintiffs, Residential Funding and Bank of NY. Upon eviction, the homeowners questioned MERS’s authority but were denied by the district court. The circuit courts affirmed the district court’s decision, and the Michigan Court of Appeals considered whether MERS, as mortgagee but not note-holder, can foreclose non-judicially by advertisement.

The Court of Appeals discussed implications of the MERS system, which allows entities to transfer loans without having to record the transactions, since the mortgagee, MERS, is never changed despite the change of ownership among other entities. The statute in question, MCL § 600.3204(1)(d), states that a party may foreclose by advertisement if: “the party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” Since MERS is not the servicing agent or the owner of the debt, the Court of Appeals held MERS lacked authority to foreclose by advertisement under the statute. The court further explained “in order for a party to own an interest in the indebtedness, it must have a legal share, title, or right in the note,” and that an interest in the mortgage is not enough, as these are two separate instruments with different rights. The mortgage provides an interest in the property, while the note documents a debt to be repaid. Since the statute requires that the foreclosing party must own an interest in the indebtedness, the court held that MERS cannot act on behalf of Homecoming as agent or nominee to advertise the foreclosure. The decision of the Circuit Court enforcing the eviction was reversed, granting defendant-homeowners’ summary judgment.

disabled veteran loan

Judge Wilder dissented, believing MERS to have an ownership interest in the loan by way of the language in the mortgage giving MERS explicit rights to foreclose upon default. As mortgagee, MERS owned a “contractual interest” in the indebtedness, with the ability to take any action required by it, including its right to foreclose if the debt is not paid. The purpose of the mortgage is to create a security interest “specifically linked to the debt” to ensure payment. Since the mortgage gives MERS the right to “take any action required of it,” MERS has “a greater interest than just an interest in the property as security for the note,” giving MERS the right to act on behalf of Homecomings.

Plaintiffs Residential Funding and Bank of NY appealed the decision and the case was considered by the Michigan Supreme Court in late 2011, ultimately reversing the Court of Appeals order. 807 N.W.2d 412, rev’d 805 N.W.2d 183 (Mich. 2011). The Supreme Court agreed with the dissenting opinion from the Court of Appeals, holding that the foreclosure was valid. MERS has an ownership interest in the indebtedness, and therefore the right to foreclose because MERS’s “contractual obligations as mortgagee were dependent upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage secured.” Though this does not give MERS an ownership interest in the note, the court held that the note and mortgage do not need to be held by the same entity in order to foreclose under Michigan law.

Rhode Island Superior Court Deems PennyMac Foreclosure Proper

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In Rutter v. MERS, et al., C.A. No. PC 10-4756 (R.I. Super. March 12, 2012) the Rhode Island Superior Court held that PennyMac’s foreclosure sale was proper, as the court upheld Rhode Island case law supporting the validity of MERS’s assignments and subsequent foreclosures.

In July 2007, the Rutters procured a loan with First National Bank of Arizona (FNBA) as lender. MERS was designated the mortgagee acting as nominee for the lender, FNBA. The loan was ultimately assigned by MERS to PennyMac.

The Rutters defaulted in November 2008, and received proper notice of both the intent to foreclose and the foreclosure sale, scheduled for February 2010. Although the Rutters attempted to submit a qualified written request under RESPA, PennyMac found their request insufficient and proceeded with the foreclosure sale. After the sale, the Rutters filed the within action to quiet title and sought damages for alleged RESPA violations by MERS and PennyMac, who counterclaimed for slander. Here, the court considers MERS and PennyMac’s motion for summary judgment, arguing that notice of foreclosure and the foreclosure sale were proper and that the assignment to PennyMac was valid. The motion further argues that even if the assignment were invalid, the Rutters lack standing to challenge it.

The court first considers the role MERS plays in current mortgage transactions, giving a brief history of MERS’s origination and its operational aspects. MERS was designed to promote efficiency and accuracy in transactions and recordkeeping, though the system is not without fault. Although some courts differ on how to manage MERS-affected foreclosures, the “clear majority” holds the MERS foreclosures are valid. The court criticizes the Rutters’ argument as lacking substance and failing to distinguish recent case law. The Rutters’ argument merely claimed that those decisions enforcing the MERS foreclosures were “flawed.”  Rhode Island courts have continuously held that “foreclosure sales conducted by MERS or one of MERS’s assignees [a]re valid.” Kriegel, 2011 WL 4947398, slip op. at 5. Here, the clear and unambiguous language in the Rutters’ mortgage is identical to the language of mortgage documents in precedent MERS cases, giving MERS statutory power with the right to foreclose as mortgagee and nominee of the lender.

The Rutters raised the show me the note argument claiming that the note and mortgage must be held by the same entity under Rhode Island law, citing case law only from other states, such as Eaton v. Fed. Nat‟l Mortg. Ass‟n, No. 11-1382 (Mass. Super. Jun. 17, 2011). The court cites Bucci, which held that requiring an entity to possess both the note and mortgage would prevent loan servicing, which is a major part of the mortgage industry. 2009 R.I. Super. LEXIS 110. The court did not, however, have to do decide whether the contradicting Eaton decision was binding in Rhode Island because PennyMac held both the note and mortgage at the time of the foreclosure sale.

As to the assignment from MERS to PennyMac, the court found the assignment valid under Rhode Island law. Even if the assignment were found to be invalid, the Rutters, as a non-party to the assignment lack standing to challenge its validity. Regarding allegations of “robosigning,” the court cited Payette, stating that the “contention that MERS’s assignments were executed by an unauthorized signatory is a mere conclusion or legal opinion that is insufficient to create a genuine issue of material fact to defeat [a] Motion for Summary Judgment.” 2011 WL 3794700, slip op. at 19. Furthermore, MERS and PennyMac set forth the full chain of the note’s indorsements, which are presumed authentic.

The court found that PennyMac responded properly in rejecting the Rutters’ QWR attempt under RESPA, as RESPA no longer applied and the Rutters failed to prove that they suffered any actual damages. The fact that the Rutters submitted their QWR just days before the scheduled sale is emphasized heavily, as they had over 2 years to submit the QWR to PennyMac after their default. The Rutters also failed to act on a deed-in-lieu of foreclosure agreement which would have extended their occupancy in the property by 60 days.

The court granted MERS and PennyMac’s motion for summary judgment, holding that plaintiff homeowners failed to prove any existence of material factual disputes.

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)

Show Me The Note!

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KeAupuni Akina, Brad Borden and I have posted Show Me The Note! to  SSRN and BePress.  The abstract reads

News outlets and foreclosure defense blogs have focused attention on the defense commonly referred to as “show me the note.” This defense seeks to forestall or prevent foreclosure by requiring the foreclosing party to produce the mortgage and the associated promissory note as proof of its right to initiate foreclosure.

The defense arose in two recent state supreme-court cases and is also being raised in lower courts throughout the country. It is not only important to individuals facing foreclosure but also for the mortgage industry and investors in mortgage-backed securities. In the aggregate, the body of law that develops as a result of the foreclosure epidemic will probably shape mortgage law for a long time to come. Courts across the country seemingly interpret the validity of the “show me the note” defense incongruously. Indeed, states appear to be divided on its application. However, an analysis of the situations in which this defense is raised provides a framework that can help consumers and the mortgage industry to better predict how individual states will rule on this issue and can help courts as they continue to grapple with this matter.