Tag Archives: non-judicial foreclosure

California Court Finds Plaintiff Lacked Standing to Bring Action

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The court in deciding Mottale v. Kimball Tirey & St. John, LLP, 2013 U.S. Dist. 146293 (S.D. Cal. Oct. 9, 2013) ultimately granted the defendants’ motion to dismiss.

Plaintiff alleged unnamed investors brought an unlawful detainer action in state court foreclosed his home. Plaintiff also alleged his loans were securitized from a pool of funds provided by unknown investors who misrepresented the identities of the actual lenders. Plaintiff alleged that the assignment was invalid and fraudulent because the assignment documents were forged and defective. Plaintiff further alleged the notice of default (“NOD”) was void because BAC had “no prior recorded interest” in the Property when Recontrust recorded the NOD. Lastly, the plaintiff alleged that the NTS 2 was also fraudulent because Reconstrust had no legal right to record a substitution of trustee.

Defendants moved to dismiss plaintiff’s complaint on several grounds. First, defendants argued that the plaintiff failed to show he tendered the amount owed under default, and thus plaintiff lacked standing to challenge the foreclosure.

Second, defendants argue several courts in California have rejected plaintiff’s securitization theory. Defendants further contend that possession of the promissory note was not a pre-requisite to commence a non-judicial foreclosure proceeding. Defendants also pointed to a number of deficiencies in the complaint, including failure to joint an indispensible party and defective and insufficient claims under other statutes.

After considering both arguments, the court granted defendants’ motion to dismiss.

Oregon Court Dismisses Plaintiff’s Oregon Revised Statute § 86.745(1) Claim

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The court in Woods v. United States Bank N.A., 2013 U.S. Dist. LEXIS 146485 (D. Or. 2013) ultimately granted the defendants’ motion to dismiss, and dismissed with prejudice.

Plaintiffs sought a declaratory judgment voiding and setting aside the foreclosure of their property on the ground that the May 25, 2011, notice of default and election to sell listed only MERS as the beneficiary and did not identify USB as beneficiary, and, therefore, the Notice of Default did not comply with the requirements of Oregon Revised Statute §86.745(1).

Defendants asserted that plaintiffs’ claim was barred by Oregon Revised Statute § 86.770 because plaintiffs did not and could not allege they did not receive the notice required under Oregon Revised Statute §86.740, the foreclosure sale was completed, and the property was sold to a bona fide purchaser.

The court noted that this court, other courts in this district, and Oregon state courts have held §86.770 bars rescission of a foreclosure sale when a borrower has received the notice required under §86.740 and the property is sold to a bona fide purchaser.

Here, Plaintiffs admitted they received notice of the foreclosure sale within the time required under the OTDA, that the property was sold to a bona fide purchaser, and that the sale of the property was recorded.

The court thus concluded that plaintiff’s claim was barred under §86.770(1) and, therefore, granted defendants’ motion to dismiss.

California Appeals Court Affirms Lower Court’s Decision to Sustain Defendant’s Demurrer

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The court in deciding Nehme v. Bac Home Loans Servicing, 2013 Cal. App. Unpub. LEXIS 7366 (Cal. App. 2d Dist. Oct. 15, 2013) affirmed the lower court decision.

Plaintiff (William Nehme) brought this action for fraud, rescission, and other claims after he lost his home through foreclosure. This case was an appeal of a lower court judgment entered in favor of defendants Bank of America, N.A. as successor by merger to BAC Home Loans Servicing, LP; Recon Trust Company, N.A.; Landsafe Title of California, Inc. erroneously named as Landsafe Title Corporation; Mortgage Electronic Registration Systems, Inc.; and MERSCORP, Inc., after the trial court sustained defendants’ demurrer without leave to amend. After considering the appeal, the court affirmed the lower court’s decision.

On appeal Nehme challenged only the trial court’s rulings on the first cause of action for fraud by bait and switch, second cause of action for rescission, and sixth cause of action for unfair business practices. Nehme argued that Countrywide committed fraud by substituting a deed of trust with a power of sale for the mortgage Nehme had requested, and that he signed the deed of trust by mistake.

After considering the plaintiff’s second round of arguments, the court concluded that, even after three attempts, Nehme failed to allege facts sufficient to state claims for fraud, rescission, and unfair competition, and therefore the court affirm the lower court’s judgment.

Michigan Court Dismisses MCPA & HOEPA Claims

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The court in deciding Huff v. Fannie Mae, 2013 U.S. Dist. LEXIS 148053 (E.D. Mich. Oct. 2013) granted Bank of America’s motion to dismiss.

Plaintiff advanced a claim against defendants for quiet title (Count I) and alleged that defendants violated the Michigan Consumer Protection Act (“MCPA”) (Count II). In response plaintiff filed a motion to dismiss for failure to state a claim.

Defendants asserted that all of the plaintiff’s claims should be barred either by res judicata or by the expiration of the applicable statute of limitations. Additionally, defendants argued that plaintiff’s quiet title claim; claims under the MCPA, and HOEPA lacked the factual allegations required for the court to find in plaintiff’s favor.

Plaintiff asserted that his complaint adequately plead claims against defendants for quiet title and violations of state and federal law. The court ultimately found that plaintiff failed to state a claim upon which relief may be granted.

Washington Court Dismisses Plaintiff’s State Consumer Protection Act Claim

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The court in deciding Massey v. BAC Home Loans Servicing LP, 2013 U.S. Dist. LEXIS 148402 (W.D. Wash. 2013) granted the defendant’s motion for summary judgment pursuant to Federal Rule of Civil Procedure 56.

Plaintiff Cindy T. Massey claimed that Northwest Trustee’s conduct in connection with the nonjudicial foreclosure proceedings on her property violated the Washington Consumer Protection Act (“CPA”). Ms. Massey had not filed an opposition to Northwest Trustee’s motion for summary judgment. The court considered Northwest Trustee’s motion, all submissions filed in support, the applicable law, and the balance of the record. After considering the arguments, the court eventually granted Northwest Trustee’s motion.

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.

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.