Tag Archives: standing

The Potentially Far Reaching Affects of The Ibanez Holding on Foreclosure Proceedings

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The holding in U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011) potentially may have far reaching affects on foreclosure litigation outcomes across the nation.

Although a state case, Ibanez has national implications for several reasons; the Massachusetts Supreme Court is one of the most respected state supreme courts in the country, a majority of states have laws similar to Massachusetts, and the questions in the case stemming from irregularities in the residential securitized mortgage industry are wide spread.

In Ibanez the Massachusetts Supreme Court was faced with the issue of the validity of foreclosures when the mortgages are part of securitized mortgage lending pools. It is typical practice for mortgages to be bundled and dealt to Wall Street investors. The ownership of mortgage loans are then divided and transferred numerous times with little to no restrictions. However, the mortgage loan transfers’ recordation and documentation often times lag far behind.

The mortgage assignment in the case of Ibanez was executed “in blank” and was not actually recorded until over a year after the foreclosure process had begun. The court’s major problem with the banks was that they did not possess – and could not establish evidence of – a legally effective mortgage assignment showing that they actually held the mortgage. The banks did not posses the mortgage note, thus they lacked standing to sue. Additionally, the banks put the endorsement in blank, without naming the entity to which they were assigning the mortgage. This was a violation of Massachusetts’s law.

Accordingly, the court found that the plaintiff banks – who were not the original mortgagees – failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result their requests for a declaration of clear title were denied.

The court explicitly held that there must be evidence of a valid assignment of the mortgage at the time the foreclosure process commences. However, the court did not specify exactly what type of evidence would suffice to establish what evidence satisfies this requirement.This holding, if applied in its broadest sense, has the potential to ban most securitized mortgages in the country from being foreclosed upon.

Massachusetts Supreme Court Affirms Lower Court’s Judgment in Favor of Plaintiff Who Claimed the Bank Pursuing Foreclosure on His Property, Lacked Legal Standing to Do So

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In U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011), the Massachusetts Supreme Court affirmed a lower court’s ruling in favor of a plaintiff who alleged that the bank pursuing foreclosure on his property had no legal standing to do so.

The Supreme Court held that; the first purchaser failed to show it was the mortgage holder at time of foreclosure, the second purchaser failed to show it was the mortgage holder at time of foreclosure, the holding of note was insufficient to show authority to foreclose, post foreclosure sale assignments were insufficient to show authority, and the ruling did not warrant prospective application.

In reviewing the lower court’s ruling, the Massachusetts Supreme Court found that the lower court judge did not err in concluding that the securitization documents submitted by the plaintiffs failed to demonstrate that they were the holders of the Ibanez and LaRace mortgages, respectively, at the time of the publication of the notices and the sales. The judge, therefore, did not err in rendering judgments against the plaintiffs and in denying the plaintiffs’ motions to vacate the judgments

On appeal, the plaintiff raised three other arguments. First, the plaintiffs initially contended that the assignments in blank, identifying the assignor but not the assignee, not only “evidence and confirm the assignments that occurred by virtue of the securitization agreements,” but “are effective assignments in their own right.” But in their reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages.

The court noted that their concession was appropriate, citing the long-standing principle that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; thus the court did not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment.

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Second, the plaintiffs contended that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. However, the court found that under Massachusetts’s law, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage.

Third, the plaintiffs argued that post-sale assignments were sufficient to establish their authority to foreclose when taken in conjunction with the evidence of a presale assignment. However, the court disagreed, finding that where an assignment is confirmatory of an earlier, valid assignment made prior to the publication of notice and execution of the sale, that confirmatory assignment may be executed and recorded after the foreclosure, and doing so will not make the title defective.

Mass. Appeals Court Applies Eaton Retroactively

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The intermediate appeals court of Massachusetts applied Eaton retroactively in Lyons v. MERS et al., 11-P-560 (June 5, 2013) notwithstanding the Mass. Supreme Court’s holding that Eaton would only apply prospectively. Eaton held that “a mortgagee may foreclose under a power of sale only if it either holds the note or is acting under the direction or as the agent of the note holder.” (1)

The intermediate appeals court found that it would be inequitable to do otherwise:  “Not only was the present case on appeal when Eaton was decided, the Lyonses actually brought their action before Eaton had even been decided in the trial court. Because the Lyonses are in an identical situation to the plaintiffs in Eaton, not a ‘somewhat similar[]’ position,” the court held “that the rule of Eaton is applicable to the Lyonses’ case, and reverse[d] the judgment” of the trial court. (1, citations omitted)

Massachusetts District Court Rejects Homeowner-Plaintiff’s Challenge of the Validity of MERS’s Assignment in a Foreclosure Proceeding

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In Kiah v. Aurora Loan Services, LLC, No. 10-40161-FDA, 2011 WL 841282 (D.Mass. Mar.4, 2011), the plaintiff-homeowner alleged that discrepancies in the assignment process prevented the foreclosing party [Aurora Loan Services, LLC] from having statutory power to initiate such proceedings. The plaintiff, on several grounds, challenged Aurora’s standing to bring such an action.

The plaintiff contended that MERS did not have the power to assign the mortgage to Aurora and that Aurora therefore cannot foreclose on the plaintiff’s property because it is not the mortgagee. The plaintiff did not, however, dispute Aurora’s possession of the note or challenge Aurora’s substantive right to enforce the note.

The question of mortgage ownership arose out of bankruptcy of the loan originator. The plaintiff argued that originator filed for bankruptcy and was dissolved before the mortgage was assigned to Aurora, that MERS could not act on behalf of a non-existent entity, and therefore MERS did not have the legal power to transfer the plaintiff’s mortgage to Aurora. The plaintiff argued that the assignment of the mortgage and the mortgage itself were therefore void as a result.

In deciding whether the mortgage and assignment were void the court focused on the assignment of the note and rejected the plaintiff’s contentions because he did not challenge the validity of the assignment of the note to Aurora. By law in Massachusetts, the transfer of the note automatically transfers an equitable interest in the underlying mortgage, even without a formal assignment. Thus, an equitable right in the mortgage was transferred to Aurora along with the note.

The plaintiff’s claim that the assignment was fraudulent was also without merit. The plaintiff alleged that Aurora cannot be the mortgagee if another entity owns the debt and that the assignment of the mortgage to Aurora is therefore fraudulent. The Court found that Aurora was acting in their capacity as a servicer and as such could act on behalf of Fannie Mae, the owner of the debt. Thus, as Fannie Mae’s agent, Aurora has the right to both collect debt and foreclose on the mortgage.

The plaintiff also alleged that the assignment was invalid as it was backdated and that MERS lacked the authority to have the mortgage assigned. Plaintiff asserted that the “backdating of the document was part of a scheme and conspiracy of fraudulent conveyance.” Plaintiff argued that the assignment was ineffective because MERS’s signing officer lacked the signatory authority at the time of the assignment to Aurora. The court found both of these contentions without merit. First, the signing officer had signatory authority on the date of assignment given to him by MERS’ “Corporate Resolution” that predated the assignment. Second, the Court found that even if the signing officer lacked the authority to assign the mortgage, this would not invalidate the assignment under Massachusetts law.

Plaintiff further contended that an assignment of a mortgage is invalid unless the note is transferred with it. As such Plaintiff alleged that MERS could not have assigned the mortgage because it did not have physical possession of, or a beneficial interest in, the note, and therefore the assignment is void. The Court found that even if MERS was not in possession of or a beneficial interest in the note, this claim fails because MERS was holding the mortgage in trust for Aurora. The assignment of mortgage, therefore, would still be valid.

Michigan Federal District Court Finds that Holder of Unsigned Note Can Enforce

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The District Court for the Eastern District of Michigan affirmed the Bankruptcy Court in Mentag v. GMAC Mortgage LLC, No. 12-13350 (Feb. 8, 2013), finding that the holder of the note was entitled to enforce it and has standing to challenge the automatic stay.  The court said that the “real issue is whether GMAC Mortgage LLC [the holder] was a holder of the note on the date it filed its motion to lift the stay.” (8)

Under Michigan law, a holder is either “in possession of an unsigned note that is made out to it” or is “in possession of a signed note.” (8) Based on the evidence, the Court found that GMAC Mortgage LLC was “the holder of the note when it challenged the stay.” (8) The court also noted that “a holder of the note may enforce it, notwithstanding that the holder may have sold the note and failed to transfer it to the purchaser.” (8-9)

6th Circuit Upholds Foreclosure by Lender Under Michigan Law

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The 6th Circuit upheld a foreclosure under Michigan law in Conlin v. MERS et al., (Case No. 12-2021, April 10, 2013).  Plaintiff Conlin sought to have the foreclosure sale of his property “set aside based on alleged defects in the assignment of the mortgage on the property from Defendant Mortgage Electronic Registration Systems to Defendant U.S. Bank.” (2) The Court noted that “Michigan courts have held that once the statutory redemption period lapses [as had occurred in this case], they can only entertain the setting aside of a foreclosure sale where the mortgagor has made ‘a clear showing of fraud, or irregularity.'” (5, citation omitted) Furthermore, the fraud “‘must relate to the foreclosure procedure itself.'” (6, citation omitted)

Conlin claimed that the assignment from MERS to U.S. Bank “was forged or ‘robo-signed.'” (7)  He also claimed that “MERS had no capacity to assign the Mortgage to U.S. Bank.” (7) The Court noted that third parties typically do not have standing to challenge an assignment unless the challenge would render “the assignment absolutely invalid or ineffective, or void.'” (7, citation omitted) The Court determined that the Michigan Supreme Court held that ‘”defects or irregularities in a foreclosure proceeding result in a foreclosure that is voidable, not void ab initio‘” and that borrowers must be prejudiced by lender’s failure to comply with the foreclosure statute’s requirements. (8, citation omitted)

The court concluded:

Even were the assignment from MERS to U.S. Bank invalid, thereby creating a defect in the foreclosure process under § 600.3204(1)(d), Plaintiff has not shown that he was prejudiced. He has not shown that he will be subject to liability from anyone other than U.S. Bank; he has not shown that he would have been in any better position to keep the property absent the defect; and he has not shown that he has been prejudiced in any other way. Additionally, he has also failed to make the clear showing of fraud in the foreclosure process required to challenge the foreclosure after the expiration of the six-month redemption period. (9)

Can’t Stand It, Just Show Me The Note

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The federal District Court for Massachusetts issued a Memorandum and Order in Ross v. Deutsche Bank National Trust Company that has two interesting aspects. First, it follows the 1st Circuit’s recently decided Culhane. Second, it reaffirms that “show me the note!” is alive and well in Massachusetts. The Rosses alleged that Deutsche Bank violated Massachusetts statutory foreclosure scheme.  These alleged violations included: 1. lack of standing and 2. Deutsche Bank did not have “valid title to either the Note or the Mortgage and thus lacks the legal authority to conduct a foreclosure sale of the subject property.” (7-8)

The bottom line on standing:  the Massachusetts Supreme Court (in Eaton v. Fannie Mae), along with the federal District Court of Massachusetts and the First Circuit have been requiring “strict compliance with the regulations governing who has legal standing to foreclose . . ..” (8)

The bottom line on “show me the note:” this court was willing to carefully parse the chain of title to a note and mortgage.  In this case, they had been owned by New Century which was dissolved by a bankruptcy court.  The court found that “the Rosses have stated a plausible claim that the [] assignment from New Century to Deutsche Bank was invalid.” (13) So, while some courts are not so strict about establishing the legal chain of title to a note and mortgage,we now know that this court is.