Source: https://fightforeclosure.net/tag/us-bank/
Timestamp: 2019-08-21 08:39:38
Document Index: 132231186

Matched Legal Cases: ['§ 86', '§ 45', '§ 580', '§ 71', '§ 34', '§ 2924', '§ 507', '§ 51', '§ 5']

US Bank | FightForeclosure.net
Why Homeowners Need to Shift the Burden of Proof To Foreclosure Mills
Posted by BNG in Affirmative Defenses, Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights
Bank of America, Borrower, Foreclosure, MERS, Mortgage Electronic Registration System, Ohio, U.S. Bancorp, US Bank
This case brings to mind why homeowner MUST shift the burden of proof to foreclosure mills in order to save their homes or the courts will ‘assume’ that the burden rests on the homeowner. (Which it does not). Borrower has no burden of proof as the burden of proof is squarely shouldered by the illegal entity bringing a judicial or non judicial foreclosure proceeding against the homeowner, in order for them to show that either they owns the Note or had the rights of enforcement on the Note. Even if they “own the Note,” they might not have the “right to enforce it”, even if they are “holder of the note, and does not own it“, they might not have “standing to bring the action“, per UCC. (That is the law of negotiable instruments – and your “Note” is a negotiable instrument just like a “Check”.
SO FOLKS! DO YOUR HOMEWORK AND MAKE THEM PROVE IT! DO NOT LOSE YOUR DREAM HOME BASED ON MERE IGNORANCE!
U.S. BANK NATL. ASSN. v. SPICERNo. 9-11-01
2011 Ohio 3128 U.S. Bank National Association, As Trustee On Behalf of the Home Equity Asset Trust 2007-3 Home Equity Pass-Through Certificates, Series 2007-3, Plaintiff-Appellee,
Gregory M. Spicer, Defendant-Appellant, and
Mortgage Electronic Registration Systems, Inc., et al., Defendants-Appellees.
Court of Appeals of Ohio, Third District, Marion County.
Date of Decision: June 27, 2011.
{¶1} Appellant, Gregory M. Spicer (“Spicer”) appeals the December 9, 2010 judgment of the Marion County Court of Common Pleas overruling his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.”
{¶2} On November 22, 2006, Spicer executed a promissory note with Intervale Mortgage Corporation (“Intervale”) for a mortgage loan in the amount of $212,000.00 to purchase a residence located at 1517 Eagle Links Drive in Marion, Ohio. The loan documents identified Decision One LLC (“Decision One”) as Intervale’s servicing agent and Mortgage Electronic Registration Systems, Inc. (“MERS”) as Intervale’s nominee for matters related to Spicer’s loan. The mortgage was recorded in the Marion County Recorder’s office on December 1, 2006.
{¶3} In February of 2007, Spicer received a letter from Select Portfolio Servicing (“SPS”) notifying him that the servicing of his mortgage loan had been transferred from Decision One to SPS and that, as of March 1, 2007, SPS would be the entity receiving his mortgage payments.
{¶4} On September 22, 2008, Bill Koch, an assistant secretary for MERS, issued a “corporate assignment of mortgage,” which evidenced that MERS, as nominee for Intervale, assigned Spicer’s mortgage to Appellee, U.S. Bank National Association, as trustee, on behalf of the holders of the Home Equity Asset Trust 2007-3 Home Equity Pass-Through Certificates, Series 2007-3 (“U.S. Bank”). This assignment of Spicer’s mortgage was subsequently recorded in the Marion County Recorder’s office.
{¶5} On September 25, 2008, U.S. Bank filed a complaint for foreclosure against Spicer alleging the note to be in default because Spicer failed to make the monthly payments on the note since April 28, 2008, and the default had not been cured. The complaint alleged that a balance of $208,865.11, plus interest remained outstanding on the promissory note. U.S. Bank requested judgment against Spicer for this amount, plus late charges, advances made for the payment of taxes, assessments, insurance premiums, or cost incurred for the protection of the mortgaged premises. U.S. Bank also requested the trial court to order a foreclosure and sale of the property. The record demonstrates that Spicer was properly served with the complaint on October 21, 2008.
{¶6} Spicer failed to appear or otherwise enter into the action and on January 5, 2009, U.S. Bank filed a motion for default judgment which was subsequently granted by the trial court. On January 12, 2009, the trial court entered a decree in foreclosure and ordered the property to be sold. The property was scheduled for a Sheriff’s sale on April 17, 2009.
{¶7} On April 13, 2009, Spicer sent an ex parte letter to the trial court requesting a stay in the sale proceedings. Spicer’s letter was placed in the record with a “received” stamp, but was not “file-stamped” by the clerk of courts. Moreover, there is no evidence that Spicer served this letter on counsel for U.S. Bank or that U.S. Bank was otherwise made aware of the existence of this letter.
{¶8} On April 23, 2009, U.S. Bank filed a “Motion to Vacate Order for Sale and Withdraw Property from Sale” with the trial court. In this motion, U.S. Bank informed the court that “Plaintiff and the borrower have entered into a loss mitigation agreement.” On April 24, 2009, the trial court granted U.S. Bank’s motion to withdraw the property from the scheduled Sheriff’s sale.
{¶9} On June 23, 2009, U.S. Bank filed an “Alias Praecipe for Order for Sale” requesting an order of sale and for the Sheriff to appraise, advertise, and sell the property.
{¶10} On August 10, 2009, a notice of sale was filed. The sale was scheduled to take place on September 18, 2009. U.S. Bank subsequently filed another “Motion to Vacate Order for Sale and Withdraw Property from Sale” stating that the parties “have entered into a forbearance agreement.” The trial court subsequently granted U.S. Bank’s motion to vacate the order of sale.
{¶11} On March 31, 2010, U.S. Bank filed a second “Alias Praecipe for Order for Sale” requesting an order of sale on the property and notice of sale was subsequently filed, scheduling the sale of the property. On June 22, 2010, U.S. Bank then filed a third “Motion to Vacate Order for Sale and Withdraw Property from Sale.” The reason cited for this motion was that the parties “are in the process of negotiating a loss mitigation agreement.”
{¶12} On July 12, 2010, the trial court granted U.S. Bank’s motion to withdraw the property from the Sheriff’s sale; however, the court also noted in its order that “No further withdrawals of sale will be allowed.”
{¶13} On July 15, 2010, U.S. Bank filed a “Pluries Praecipe for Order for Sale without Reappraisal” requesting that another order of sale be issued on the property. Sale of the property was scheduled for November 19, 2010.
{¶14} On October 21, 2010, nineteen months after the trial court issued its decree in foreclosure on the property, Spicer filed a “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.” Notably, this is the first formal appearance entered by Spicer in this action. In this motion, Spicer argued that he was never given the original loan documents evidencing his loan with Intervale, and that his original loan had been “shuffled around and assigned to various parties.” Spicer further alleged that there is no proof U.S. Bank was properly assigned the promissory note and mortgage. Spicer also claimed that he is a victim of “robo-signing”1 by SPS, the servicing agent for his mortgage loan. In support of his motion, Spicer attached several internet articles and blogs, which generally discussed the alleged misconduct of some mortgage companies.
{¶15} In this motion, Spicer also requested that the trial court stay the Sheriff’s sale until it can be proven “who has actual position [sic] and ownership of the original mortgage and standing to foreclose on the mortgage.” However, he failed to specifically claim in this motion that he is entitled to relief pursuant to any of the enumerated grounds listed in Civ.R. 60(B) with respect to his instant case, or otherwise attempt to satisfy any the requirements a movant must prove in order to be entitled to Civ.R. 60(B) relief from judgment.
{¶16} On October 25, 2010, Spicer filed a supplement to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale” and attached several more unauthenticated articles and documents about MERS and Intervale, which were not of direct relevance to his case.
{¶17} On October 28, 2010, Spicer filed another supplement to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale,” attaching an amicus brief written by the Ohio Attorney General, which was filed in relation to a Cuyahoga County case, a separate and distinct case from Spicer’s case. Spicer argued that this other case was of particular relevance to his case because it involved U.S. Bank and its counsel of record in the case sub judice. Spicer urged the trial court to impute to his case any misconduct alleged against U.S. Bank in the Cuyahoga County case. Spicer also filed more internet articles generally examining the causes of the mortgage crisis, specifically the role of “robo-signing” by lenders in foreclosure actions.
{¶18} On November 4, 2010, Spicer filed a third supplement to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale,” now arguing that U.S. Bank had no standing to bring the underlying foreclosure action because the original mortgage lender, Intervale, did not have authority to execute mortgages in Ohio. Spicer further argued that U.S. Bank did not sign the original promissory note and does not have the original “wet ink” promissory note in its possession. Spicer also identified, for the first time, the two individuals who signed affidavits in support of the foreclosure proceedings from MERS and SPS,2 and accused them of being “robo-signers” who “lack personal knowledge of the facts herein.” (Supp. Mot. Nov. 4, 2010 at 2).
{¶19} Notably, in each of his supplements to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale,” Spicer again failed to identify any grounds on which he is entitled to relief pursuant to Civ.R. 60(B).
{¶20} On November 8, 2010, U.S. Bank filed its memorandum in opposition to Spicer’s “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.” U.S. Bank argued that Spicer failed to satisfy the burden required to be shown by a movant that he or she is entitled to relief from judgment under Civ.R. 60(B). Specifically, U.S. Bank asserted that Spicer failed to identify what grounds, if any, exist for vacating the judgment, provide any operative facts or admissible evidence in support of such grounds, failed to identify a meritorious defense to the foreclosure proceedings—i.e. why the loan is not in default for Spicer’s non-payment, and that his Civ.R. 60(B) motion was not timely.
{¶21} U.S. Bank further asserted that it is the real party in interest to bring the foreclosure proceedings and argued that Spicer had waived this issue by failing to raise it until nineteen months after the decree in foreclosure was entered by the trial court.
{¶22} On November 15, 2010, Spicer filed a “Reply Brief” to U.S. Bank’s memorandum in opposition to his “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale.” In his response, Spicer urged the trial court to follow a procedural rule adopted by the Cuyahoga Court of Common Pleas requiring plaintiffs to follow certain directives in filing complaints for foreclosure in that court. Spicer also, for the first time, alleged that he is entitled to relief on one of the grounds listed in Civ.R. 60(B), specifically Civ.R. 60(B)(5), which is the “catch-all” provision under the rule, permitting the court to vacate a judgment “for any other reason justifying relief from the judgment.” Civ.R. 60(B)(5). Spicer argued that U.S. Bank “is perpetrating a fraud upon this court” and asserted several unsubstantiated allegations to support his position. Spicer also maintained that his motion is timely because Civ.R. 60(B)(5) does not state a specific timeframe to bring the motion, but rather requires the motion to be filed within a “reasonable time.”
{¶23} U.S. Bank filed a response to Spicer’s “Reply Brief” on November 19, 2010, and attached several documents refuting Spicer’s various allegations, including that it was not the real party in interest under Civ.R. 17(A) to file the foreclosure action.
{¶24} On November 22, 2010, U.S. Bank filed a fourth “Motion to Vacate Order for Sale and Withdraw Property from Sale” requesting the trial court to temporarily refrain from executing the sale in order for U.S. Bank to comply with recent directives issued by the U.S. Treasury Department.
{¶25} On December 9, 2010, the trial court issued its decision overruling Spicer’s “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale.” Specifically, the trial court determined that Spicer failed to timely raise the defense that U.S. Bank was not the real party in interest under Civ. R. 17(A). The trial court also concluded that Spicer failed to satisfy his burden demonstrating he is entitled to relief under Civ.R. 60(B)(5). Furthermore, the trial court found the following with respect to Spicer’s allegations of misconduct by SPS:
As no misconduct has been alleged against [SPS], Defendant Gregory Spicer has not shown sufficient grounds [for] the granting of relief from judgment in this action. This is particularly true since said Defendant did nothing to object to the original judgment being rendered in this action, and did nothing to attempt to obtain relief from judgment until 21 [sic] months after the Judgment was rendered in this action. Said Defendant has made absolutely no showing that he had not failed to make his mortgage payments as agreed under the promissory note.
(JE, Dec. 9, 2010 at 4).
{¶26} Spicer subsequently filed this appeal, asserting the following assignments of error.
ASSIGNMENT OF ERROR NO. I THE TRIAL COURT ERRED IN THAT FORECLOSURE IN THIS ACTION WAS FILED ON JANUARY 12, 2009, AND THAT DEFENDANT GREGORY SPICER DID NOT FILE HIS MOTION FOR RELIEF FROM JUDGMENT UNTIL OCTOBER 21, 2010. THIS 21-MONTH DELAY IS WELL BEYOND THE ONE YEAR TIME LIMIT. ASSIGNMENT OF ERROR NO. II THE TRIAL COURT ERRED IN CONCLUDING THAT NOTHING IN THE RECORD OF THIS ACTION SHOWING THAT THE SERVICER OF THE MORTGAGE QUESTIONED, SELECT PORTFOLIO SERVICING, INC., OR THAT BILL KOCH HAS ENGAGED IN ANY OF THE MISCONDUCT.
{¶27} For ease of discussion, we elect to address Spicer’s assignments of error together.
{¶28} In his first assignment of error, Spicer claims that the trial court erred when it found that he did not file his Civ.R. 60(B) motion for relief from judgment until twenty-one months after the trial court rendered judgment on the foreclosure action.3 Spicer appears to argue that his April 13, 2009 ex parte letter to the trial court served as a functional equivalent for a Civ.R. 60(B) motion for relief from judgment and, therefore, his motion should be considered timely because it was sent to the court only three months after it rendered its foreclosure judgment.
{¶29} First, we observe that in his April 13, 2009 letter, Spicer simply requests the trial court to stay the Sheriff’s sale. In reviewing this letter, we note that Spicer fails to mention Civ.R. 60(B), let alone make any statement that can be construed as a request for relief from judgment under Civ.R. 60(B). In addition, Spicer neglects to cite any legal authority which supports his position that his ex parte letter, which does not contain the contents required by Civ.R. 60(B) in substance or in form, should be construed by the trial court as a timely filed motion for relief from judgment.
{¶30} Moreover, pursuant to App.R. 16(A)(7) we are not required to address arguments that have not been sufficiently presented for review or supported by proper authority. Therefore, it is well within our purview to disregard this assignment of error. See App.R. 12(A)(2). Nevertheless, in reviewing this issue we find no authority supporting Spicer’s contention that the trial court erred when it determined that he failed to file his Civ.R. 60(B) motion until twenty-one months after the foreclosure judgment was entered.
{¶31} Spicer also argues under this assignment of error that the trial court erred in determining that he is not entitled to relief from judgment under Civ.R. 60(B)(5). Initially, we note that in order to prevail on a Civ.R. 60(B) motion, a party must show 1) a meritorious defense or claim to present if relief is granted; 2) the party is entitled to relief under one of the five enumerated grounds stated in Civ.R. 60(B)(1) through (5); and 3) the motion is made within the required timeframe. In re Whitman, 81 Ohio St.3d 239, 242, 690 N.E.2d 535, 1998-Ohio-466; Douglas v. Boykin (1997), 121 Ohio App.3d 140, 145, 699 N.E.2d 123.
{¶32} The elements entitling a movant to Civ.R. 60(B) relief “are independent and in the conjunctive; thus, the test is not fulfilled if any one of the requirements is not met.” Strack v. Pelton, 70 Ohio St.3d. 172, 174, 637 N.E.2d 914, 1994-Ohio-107. “The decision to grant or deny a motion to vacate judgment pursuant to Civ.R. 60(B) lies in the sound discretion of the trial court and will not be disturbed absent an abuse of discretion.” Id. An abuse of discretion means that the trial court was unreasonable, arbitrary, or unconscionable in its ruling. Blakemore v. Blakemore (1983), 5 Ohio St.3d 217, 219, 450 N.E.2d 1140.
{¶33} On appeal, Spicer argues that he is entitled to relief from judgment under Civ.R. 60(B)(5), which is the “catch-all” provision of the rule permitting a court to relieve a party from a final judgment for “any other reason justifying relief from the judgment.” This provision of the rule is not subject to the one-year limitation in filing as motions filed under Civ.R. 60(B)(1), (2), and (3).4 Rather, motions filed on the grounds of Civ.R. 60(B)(5) are required to be filed in a reasonable time.
{¶34} In support of his position, Spicer argues that U.S. Bank is not the real party in interest to bring these foreclosure proceedings and that U.S. Bank and its servicing agent SPS had committed a “fraud upon the court.” The trial court addressed both of these issues in its judgment entry overruling his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.”
{¶35} First, with respect to Spicer’s argument that U.S. Bank is not the real party in interest to bring these foreclosure proceedings, we note that the trial court concluded that Spicer waived this argument because he failed to timely assert it. Civil Rule 17(A) provides, in pertinent part:
Every action shall be prosecuted in the name of the real party in interest. * * * No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest.
{¶36} The Supreme Court of Ohio has stated that “[t]he purpose behind the real party in interest rule is to enable the defendant to avail himself of evidence and defenses that the defendant has against the real party in interest, and to assure him finality of the judgment, and that he will be protected against another suit brought by the real party at interest on the same matter.” Shealy v. Campbell (1985), 20 Ohio St.3d 23, 24, 485 N.E.2d 701.
{¶37} As previously noted by this Court, a majority of appellate courts infer that the defense that a party is not the real party in interest can be raised after an initial responsive pleading, and if it is not raised in a timeframe relative to that initial pleading stage in the proceedings, then the defense is waived. First Union Natl. Bank v. Hufford, 146 Ohio App.3d 673, 677, 2001-Ohio-2271, ¶13, 767 N.E.2d 1206 citing Travelers Indemn. Co. v. R.L. Smith Co. (Apr. 13, 2001), 11th Dist. No. 2000-L-014, Hang-Fu v. Halle Homes, Inc. (Aug. 10, 2000), 8th Dist. No. 76589, Robbins v. Warren (May 6, 1996), 12th Dist. No. CA95-11-200; see also Mid-State Trust IX v. Davis, 2nd Dist. No. 07-CA-31, ¶58 (affirming this principle on similar facts and concluding that the issue of standing for the real party in interest defense is waived if not timely asserted).
{¶38} Here, the record demonstrates that Spicer failed to enter a formal appearance in this action until more than nineteen months after the trial court entered its decree in foreclosure on the property. Spicer provides neither the trial court nor this Court with any explanation why he was unable to make any appearance in the underlying foreclosure proceedings, let alone timely raise this issue during the initial pleading phase. Rather, Spicer simply makes blanket assertions that U.S. Bank is not the real party in interest without submitting any evidence to substantiate his claim. Moreover, Spicer cites no legal authority to support his position. Accordingly, we do not find the trial court’s determination that Spicer failed to timely assert a real-party-in-interest defense to be an abuse of discretion.
{¶39} Spicer’s second basis that he is entitled to relief under Civ.R. 60(B)(5) is his assertion that U.S. Bank and SPS have committed a “fraud on the court.” In making this argument Spicer relies solely on Coulson v. Coulson, (1983), 5 Ohio St.3d 12, 448 N.E.2d 809. In Coulson, an attorney represented to the court that he was counsel for the Plaintiff in a divorce action at the same time he was colluding with the Defendant in the action, by drafting a separation agreement on the behalf of the Plaintiff at the direction and upon the terms dictated by the Defendant. Id. at 13. The domestic relations court relied on the attorney’s representation and approved the separation agreement and incorporated it into its judgment, unaware of the attorney’s prior arrangement with the Defendant. Id. The Supreme Court of Ohio determined that the attorney’s actions in this instance constituted a “fraud upon the court.” Id. at 16-17.
{¶40} As explained by the Supreme Court, fraud upon the court embraces the “`species of fraud which does or attempts to, defile the court itself, or is a fraud perpetrated by the officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases that are presented for adjudication.'” Coulson, 5 Ohio St.3d at 15 quoting MOORE’S FEDERAL PRACTICE (2 Ed.1971) 515, paragraph 60.33.
{¶41} As the basis for his claim that U.S. Bank and SPS committed a fraud upon the trial court, Spicer alleges that Bill Koch, the individual who effectuated the assignment of Spicer’s mortgage between Intervale and U.S. Bank, is a “robo-signer.” However, Spicer provided the trial court with no evidence to substantiate this claim other than unauthenticated internet articles discussing the alleged misconduct of mortgage lenders in the industry. There is nothing in these articles or Spicer’s unsupported allegations that can be construed as a “fraud upon the court.” Spicer simply failed to provide any relevant evidence to demonstrate misconduct on the part of U.S. Bank or its servicing agent, SPS in this matter.
{¶42} In addition, we note that Civ.R. 60(B)(5) applies only when a more specific provision of the rule does not apply. Strack v. Pelton (1994), 70 Ohio St.3d 172, 174, 637 N.E.2d 914, 1994-Ohio-107. Moreover, Civ.R. 60(B)(5) is not intended to be used as a substitute for any of the other more specific provisions of Civ.R. 60(B). Caruso-Ciresi, Inc. v. Lohman (1983), 5 Ohio St.3d 64, 448 N.E.2d 1365. Here Spicer’s allegations of misconduct against U.S. Bank and SPS are more akin to the traditional legal concept of fraud, which is specifically addressed by Civ.R. 60(B)(3). However, as previously mentioned, a motion filed pursuant to Civ.R. 60(B)(3) must be filed within one year from the entry of the judgment the movant seeks to vacate. Spicer’s “Motion for Rule 60(B) to Vacate Judgment” was filed several months after the expiration of this timeframe. Accordingly, for all these reasons we find that the trial court did not abuse its discretion when it concluded that Spicer is not entitled to relief under Civ.R. 60(B) and overruled his “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale.”
{¶43} Based on the foregoing, Spicer’s first and second assignments of error are overruled and the judgment of the Marion County Court of Common Pleas is affirmed.
ROGERS, P.J. and PRESTON, J., concur.
1. Here, Spicer is referring to media reports covering the alleged widespread misconduct by mortgage servicers and banks during foreclosing procedures. Such alleged misconduct includes employees of these entities signing affidavits purporting to have knowledge of the contents of foreclosure files that the employees never actually reviewed and, therefore, have no personal knowledge of relative to the foreclosure proceedings.2. SPS is also the servicer for U.S. Bank on Spicer’s mortgage.3. As a point of clarification, Spicer filed his “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale” nineteen months after the trial court entered its judgment of foreclosure. However, Spicer’s initial filing of his motion was captioned as a Civ.R. 60(B) motion, but contained none of the required substance of such a motion. It was not until two months later, twenty-one months after the trial court’s foreclosure judgment, that Spicer actually included Civ.R. 60(B) elements in his “Reply Brief.”4. Civil Rule 60(B) specifically provides, “On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order or proceeding for the following reasons: (1) mistake, inadvertence, surprise or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(B); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation or other misconduct of an adverse party; (4) the judgment has been satisfied, released or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (5) any other reason justifying relief from the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2) and (3) not more than one year after the judgment, order or proceeding was entered or taken. A motion under this subdivision (B) does not affect the finality of a judgment or suspend its operation.”
Who Has Standing To Foreclose? – A Review of Massachusettes Case & Other Jurisdictions
Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Legal Research, Litigation Strategies, MERS, Mortgage Laws, Non-Judicial States, Note - Deed of Trust - Mortgage, Pleadings, Pro Se Litigation, Securitization, State Court, Your Legal Rights
Fannie Mae, Foreclosure, Ibanez, Massachusetts, Massachusetts Supreme Judicial Court, U.S. Bancorp, Uniform Commercial Code, US Bank
As a result of the collapse of the housing market in this country in or around 2008, the number of residential foreclosures has increased exponentially, putting unprecedented strains on the system.
Although most foreclosures are uncontested, since there is rarely any doubt that the borrower has defaulted in repayment of the debt, in the past several years a cottage industry has developed challenging the creditor’s “standing” to foreclose, sometimes colloquially known as the “show me the Note” defense.
The Commonwealth of Massachusetts has seen its share of this phenomenon, maybe more than its share.
This post will briefly review the string of Massachusetts judicial decisions over the past several years addressing various aspects of the foreclosure standing question, and will use those cases to “issue-spot” and frame questions that practitioners in every state should consider and perhaps need to answer before moving ahead with foreclosures or to defend past foreclosures in litigation, whether in defense of borrowers’ lawsuits or in eviction proceedings. Other notables decisions will also be surveyed to flesh out the issues and arguments further, without attempting to be exhaustive of the subject or to present the proverbial 50-State survey.
We begin with the Massachusetts foreclosure story. In early 2009, a judge on Massachusetts specialized Land Court called into question a title standard of the State’s Real Estate Bar Association that had been relied upon by the Massachusetts foreclosure Bar. REBA Title Standard No. 58 said that a foreclosure was not defective so long as an assignment of the mortgage was obtained at any time before or after the foreclosure. In other words, the title could be cleared by obtaining an assignment even after the conduct of the foreclosure auction sale. Land Court Judge Keith Long in U.S. Bank, N.A. v. Ibanez, 2009 WL 795201 (Mass. Land Ct. Mar. 26, 2009), held that the title standard did not correctly state Massachusetts law, and that under the Massachusetts foreclosure statute, M.G.L. c. 244, a creditor had to be the mortgagee to foreclose. In 2011, the Massachusetts Supreme Judicial Court in U.S. Bank, N.A. v. Ibanez, 458 Mass. 637 (2011), affirmed, holding that a foreclosing entity, if not the original mortgagee, must hold an assignment of the mortgage at the time it first published the notice of sale.
If the assignment of the mortgage was obtained after publication of the notice, a subsequently-completed foreclosure is unlawful and void.
Because Massachusetts is a non-judicial foreclosure jurisdiction, the foreclosing creditor does not have available ares judicata defense to a post-foreclosure challenge to title or possession.
Thus, the Massachusetts Court has held that a borrower or other defendant in an eviction action can defend by contesting the validity of a purchaser’s title if it stems from an invalid foreclosure, even if the mortgagor had done nothing to contest the foreclosure itself. Bank of New York v. Bailey, 460 Mass. 327 (2011).
The plaintiffs in Ibanez were securitization trustees and while the evidence in the record was incomplete, contributing to the result, the trustees were presumed to have held the notes in the respective loan pools, including the defendants’ notes, for the benefit of the investors. The Ibanez Court required the mortgagee to hold an assignment, and implicitly found that it would not be sufficient to confer standing to foreclose to hold the note without also holding the mortgage or obtaining an assignment, but nothing in the decision presaged a requirement that the mortgagee possess the note.
The argument that the mortgagee must also hold the note to foreclose was pressed to the Massachusetts high court almost immediately in the wake of Ibanez. This issue arises in Massachusetts because, contrary to the majority and longstanding American rule that the mortgage is mere security for the note and follows the note as a matter of law, Carpenter v. Longan, 83 U.S. 271 (1872), Massachusetts is a title-theory state that allows for the note and mortgage to be held separately. Under Article 3 of the Uniform Commercial Code (“UCC”), a note can be transferred by delivery of possession of an endorsed note, but Massachusetts, as a title theory state, requires a signed instrument to convey a mortgage, “which represents legal title to someone’s home.” Ibanez, 458 Mass. at 649. Comparable to the equity of redemption residing in the mortgagor, to reclaim legal title by repaying the debt and redeeming the mortgage, the owner of the note under Massachusetts law holds beneficial ownership of the mortgage and has the right to compel an assignment of the mortgage by the mortgagee, who holds the mortgage in trust for the holder of the note, in what has been described as a resulting trust implied by law. Id. at 652.
In Eaton v. Fannie Mae, 462 Mass. 569 (2012), the Court laid down a new rule that foreclosing mortgagees must either (a) hold the note, or (b) be acting on behalf of the note holder. In other words, the Court held that “one who, although not the note holder himself, acts as the authorized agent of the note holder,” may exercise the power of sale. Id. at 586. Notably, unlike in Ibanez where the Court rejected entreaties for prospective application of its decision, the Eaton court chose to apply its holding prospectively only to foreclosures noticed after the date of the decision out of “concern for litigants and others who have relied on existing precedents,” this being a “new rule.” Id. at 588.
Massachusetts courts, like courts elsewhere, have also considered the standing of Mortgage Electronic Registration Systems, Inc. (“MERS”) to foreclose mortgages and to assign mortgages for foreclosure. MERS, discussed in greater detail below, holds title to mortgages as nominee for MERS Members. The Eaton court discussed MERS in several footnotes, see 462 Mass. 569 nn. 5, 7, 27 & 29, and implicitly accepted MERS’ pre-foreclosure assignment of the mortgage to the mortgage servicer.
In a federal court appeal earlier this year, the First Circuit Court of Appeals in Boston held expressly that MERS has the authority to assign mortgages it holds as nominee. Culhane v. Aurora Loan Services, — F.3d —-, 2013 WL 563374 (1st Cir., Feb. 15, 2013). Indeed, in the District Court decision the Court of Appeals affirmed, District Judge William Young remarked that “the MERS system fits perfectly into the Massachusetts model for the separation of legal and beneficial ownership of mortgages.” Culhane v. Aurora Loan Services, 826 F. Supp. 2d 352, 371 (D. Mass. 2011).
The recent Massachusetts mortgage foreclosure decisions were surprising, bordering on shocking, both to lenders and the Massachusetts real estate and foreclosure bars. In Ibanez, the Court disapproved a title standard of the well-respected statewide real estate bar group that conveyancers and others looked to for guidance, and in Eaton the Massachusetts Court for the first time announced a requirement that a foreclosing mortgagee be able to demonstrate its relationship to the mortgage note notwithstanding that there is no requirement under Massachusetts law to record or file notes or note transfers. 462 Mass. at 586;see also Wells Fargo Bank, N.A. v. McKenna , 2011 WL 6153419, at *2 n.1 (Mass. Land Ct. Dec. 8, 2011) (“There never has been recording of notes at the registries of deeds at any time. Notes are never recorded—not (as they may be in some other states) when the initial mortgage is recorded, nor at any time after that, including at the time, following the auction sale, when the foreclosure deed and
affidavit are put on at the registry.”). Whether the greater numbers of foreclosures and the perceived financial excesses and highly publicized alleged “sloppiness” of the mortgage industry have caused some courts to be more “pro-consumer,” or it is only that some of the legal doctrines underlying foreclosure standing had not been closely examined in a century or more, the rulings were unexpected. In part, they may represent the challenge of adapting historical, and in some cases ancient, property law to modern commerce, or vice versa. But they point out the critical need to understand state law, and to not take for granted that traditional custom and practice will be upheld, or that courts will not struggle applying that law or those established customs and practice to non-traditional modern mortgage ownership structures.
Mortgage notes, representing the debt for which the mortgages are collateral, will generally qualify as negotiable instruments whose ownership and transfer is governed by the principles of Article 3 of the UCC, adopted largely intact in most American jurisdictions. But despite the efforts of the UCC Commissioners to harmonize the law of security interests, including in some respects in real property, mortgage law and mortgage foreclosure in particular remains predominantly a creature of local state law. Thus, for mortgage foreclosure purposes, where the foreclosing creditor stands, in the legal vernacular, may depend on where the house sits. The discussion below frames some of the key standing inquiries suggested by the Massachusetts experience, and surveys some recent case law from across the country addressing the same or similar questions, and compares and contrasts the judicial precedents.
Although subsidiary questions such as whether the state is a title theory or lien theory jurisdiction, and whether the mortgage is deemed to follow the note as a matter of law, may affect how the questions are answered in any particular state, the core questions remain the same and can generally be framed in the following terms:
1. What relationship must the foreclosing entity have to the mortgage (or to the corresponding deed of trust in jurisdictions that know the security instrument by that terminology), and at what time must it hold or have it?
2. What relationship, if any, must the foreclosing entity have to the promissory note secured by the mortgage (or by the deed of trust), and at what time?
3. Does MERS when it holds the mortgage as nominee (or when it is named as beneficiary under a deed of trust) have standing to foreclose, or the ability to assign the mortgage (or deed of trust) to the lender, trustee or servicer for foreclosure?
4. Who has standing to foreclose in the securitization context, given the legal relationships under the standard Pooling and Servicing Agreement between and among the securitization trustee, the mortgage servicer and, where applicable, MERS as nominee under the mortgage (or deed of trust)?
There is a large body of case law nationwide on all of these questions, with additional decisions being handed down on virtually a daily basis; what follows below is only a representative sampling intended to illustrate the more significant issues and arguments, to inform the analysis of applicable local state law.
1. Relationship Between Foreclosing Entity and Mortgage.
In U.S. Bank, N.A. v. Ibanez, 458 Mass. 637 (2011), as discussed above, the Massachusetts Supreme Judicial Court held that a foreclosing entity must hold an assignment of the mortgage at the time of the publication of the notice of sale. Other states differ on whether they require a foreclosing party to hold the mortgage either at the time of the foreclosure sale itself or when notice is issued.
In considering any question of a party’s status in the foreclosure process, it is first important to note whether jurisdictions are judicial or non-judicial jurisdictions:
– Judicial foreclosure states require the foreclosing party to initiate a court proceeding in order to foreclose. The foreclosure complaint seeks permission from the court to foreclose on the secured property.
– Non-judicial foreclosure jurisdictions do not require court involvement. Instead, the foreclosing entity must follow certain practices as set by state statute, such as mailing notices of acceleration and default, and publishing notice in the local papers. That entity often is the deed of trust trustee, under state law. If the borrower wishes to contest the sale, he or she may seek to enjoin it before the sale occurs.
Twenty-two states are considered judicial foreclosure jurisdictions, whereas 28 are deemed non-judicial.
In New York, where foreclosures are conducted judicially, one court recently stated that “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 at the time the action is commenced.” Wells Fargo Bank, N.A. v Wine, 90 A.D.3d 1216, 1217 (N.Y. App. Div. 3d Dep’t 2011).
To a similar effect, one Florida court has said a party must “present evidence that it owns and holds the note and mortgage in question in order to proceed with a foreclosure action.” Gee v. U.S. Bank N.A., 72 So. 3d 211, 213 (Fla. Dist. Ct. App. 5th Dist. 2011). But a different Florida appellate court has held that an assignment of the mortgage may not be necessary at the time a complaint is filed. Standing to bring a judicial foreclosure requires “either an assignment or an equitable transfer of the mortgage prior to the filing of the complaint.” McLean v. JP Morgan Chase Bank N.A., 79 So. 3d 170, 172 (Fla. Dist. Ct. App. 4th Dist. 2012). Because ownership of a mortgage follows an assignment of the debt under that case, the mortgage does not need to be assigned to the plaintiff before the Complaint is filed if it proves ownership of the note at that time.
New Jersey, also a judicial state, has said that if a foreclosing creditor bases standing to foreclose on assignment of the mortgage, the assignment must precede filing of the foreclosure complaint; however, if the foreclosing creditor held the note at the time of filing the complaint, assignment of the mortgage is unnecessary to establish standing to foreclose. Deutsche Bank Nat’l Trust Co. v. Mitchell, 422 N.J. Super. 214, 222-25 (App. Div. 2011). There, although Deutsche Bank had not proved its standing because the mortgage assignment it relied on was executed a day after it filed its complaint, the Court remanded to allow Deutsche Bank to demonstrate standing by proving that it possessed the note prior to filing the complaint. Contrast state filing rules with the law of a non-judicial state like Michigan, which allows a foreclosing party to be “either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” MCL 600.3204(1)(d)). Thus, under the statute, a loan servicer is expressly authorized to foreclose regardless of whether it holds the note or mortgage. However, by the date of the foreclosure sale, the mortgage must be assigned to the foreclosing party if it is not the original mortgagee. MCL 600.3204(3).
Where an assignment of the mortgage may be required in order to foreclose, there are differences regarding whether the assignment of mortgage is required to be recorded.
– Massachusetts: In U.S. Bank, N.A. v. Ibanez, 458 Mass. 637 (2011), although the Court required the foreclosing entity to hold the mortgage, it notably did not require the assignment of mortgage be recorded – or even be in recordable form.
– California, likewise, does not require that assignments of a deed of trust be recorded prior to foreclosure, despite a statutory pre-foreclosure recording requirement for mortgage assignments (mortgages are uncommon in California). Calvo v. HSBC Bank USA, N.A., 199 Cal. App. 4th 118, 122-2 (Cal. App. 2d Dist. 2011).
– New York, recording is also not required. See, e.g., Bank of NY v. Silverberg, 86 A.D.3d 274, 280 (N.Y. App. Div. 2nd Dep’t 2011) (rejecting contention that absence of recorded assignment allowed inference that plaintiff did not own the note and mortgage; “an assignment of a note and mortgage need not be in writing and can be effectuated by physical delivery”).
But some non-judicial states require that assignments of deeds of trusts or mortgages be recorded before a foreclosure can occur:
– Oregon: Ore. Rev. Stat. § 86.735(1)
– Idaho: Idaho Stat. § 45-1505(1)
– Minnesota: Minn. Stat. § 580.02(3)
– Montana: Mont. Code Ann. § 71-1-313(1)
– Wyoming: Wyo. Stat. § 34-4-103(a)(iii)
Regardless of any requirement, assignees typically record mortgage assignments to put the world on notice of their interest. See MetLife Home Loans v. Hansen, 48 Kan. App. 2d 213 (Kan. Ct. App. 2012) (“The assignment of the Mortgage was merely recorded notice of a formal transfer of the title to the instrument as required by recording statutes, which are primarily designed to protect the mortgagee against other creditors of the mortgagor for lien-priority purposes, not to establish the rights of the mortgagee vis-à-vis the mortgagor.”
Need for Correct Corporate Names
When an assignment of mortgage is required, it must also be assigned to the correct corporate entity. Confusion over corporate names can impede foreclosures.
For example, the servicer of a loan filed a judicial foreclosure action alleging that it was the assignee of the original lender. Bayview Loan Servicing, L.L.C. v. Nelson, 382 Ill. App. 3d 1184 (Ill. App. Ct. 5th Dist. 2008). Reversing the trial court’s judgment in favor of the servicer (Bayview Loan Servicing, L.L.C.), the Court of Appeals held that the servicer was not allowed to foreclose because the mortgage was not assigned to it. Rather, the mortgage had been assigned to an affiliated entity, Bayview Financial Trading Group, L.P. Id. at 1187. Without any evidence that the foreclosing entity held the note or mortgage, the fact that it was servicer was insufficient to allow it to foreclose. Id. at 1188.
But the situation was different in a judicial foreclosure filed in the same state by Standard Bank, which was the successor to the originator of the loan as a result of several mergers and name changes. Std. Bank & Trust Co. v. Madonia, 964 N.E.2d 118 (Ill. App. Ct. 1st Dist. 2011). The mortgagors argued that the plaintiff bank was required to show a mortgage assignment or endorsement of the note to it. Rejecting that argument, the Court held that the plaintiff bank retained all of the interests of the originator, including those under the note and mortgage, as a result of the mergers. Id. at 123.
A court may require proof of a merger. The note and mortgage in this case were assigned to Wells Fargo Home Mortgage, Inc. Wells Fargo Bank, N.A. v. deBree, 2012 ME 34 (Me. 2012). Upon the borrowers’ default, Wells Fargo Bank, N.A. filed a complaint as “Successor by Merger to Wells Fargo Home Mortgage, Inc.” The trial court granted summary judgment for Wells Fargo Bank. On appeal, the Maine Supreme Judicial Court held that Wells Fargo Bank had not proved its ownership of the mortgage note and mortgage because there was no evidence that it, as opposed to Wells Fargo Home Mortgage, Inc., owned the instruments. Id. at ¶ 9. The Court rejected the Bank’s arguments that the borrowers had waived their argument, and it declined to take judicial notice that Wells Fargo Home Mortgage had merged into Wells Fargo Bank. Id.at ¶¶ 9-10. The showing of ownership was necessary for the Bank to prevail on summary judgment, so the foreclosure judgment was vacated. Id. at ¶ 11.
2. Relationship Between Foreclosing Entity and Note
In Eaton v. Fannie Mae, 462 Mass. 569 (2012), discussed above, the Massachusetts Supreme Judicial Court announced a new rule, applicable to foreclosures noticed after June 22, 2012 (the date of the decision), requiring that foreclosing mortgagees must either (a) hold the note; or (b) be acting on behalf of the noteholder, at the time of foreclosure. In other words, the Court held that “one who, although not the note holder himself, acts as the authorized agent of the note holder” may exercise the power of sale.
Various courts in other states are split as to whether a foreclosing entity must hold the note.
California, for example, allows by statute non-judicial foreclosure by the “trustee, mortgagee, or beneficiary, or any of their authorized agents.” Debrunner v. Deutsche Bank National Trust Co., 204 Cal. App. 4th 433, 440 (Cal. App. 6th Dist. 2012) (quoting Cal. Civ. Code § 2924(a)(1)). The party foreclosing need not have possession of or a beneficial interest in the note because no such prerequisite appears in comprehensive statutory framework. Id. at 440-42.
In Idaho, a non-judicial foreclosure state, the state supreme court expressly rejected the idea that a party must have ownership of the note and mortgage. Trotter v. Bank of N.Y. Mellon, 152 Idaho 842, 861-62 (2012). Rather, “the plain language of the [deed of trust foreclosure] statute makes it clear that the trustee may foreclose on a deed of trust if it complies with the requirements contained within the Act.” Id. at 862.
Despite these states’ rejections of any requirement to hold the note, some courts in other jurisdictions do seem to require the foreclosing party to also be the noteholder, for example, or perhaps at least an agent or authorized person:
– New York: According to this intermediate appellate division, judicial foreclosure plaintiff must both hold the note and the mortgage at the time the action is commenced. Wells Fargo Bank, N.A. v Wine, 90 A.D.3d 1216, 1217 (N.Y. App. Div. 3d Dep’t 2011).
– Florida: In Florida, the holder of a note, or its representative, may foreclose. Gee v. U.S. Bank N.A., 72 So. 3d 211, 213 (Fla. Dist. Ct. App. 5th Dist. 2011). If the plaintiff is not the payee of the note, it must be endorsed to the plaintiff or in blank. Id.
– Maryland: The transferee of an unendorsed promissory note has the burden of establishing its rights under the note by proving the note’s prior transfer history, especially where the mortgagor requests an injunction to stop foreclosure. Anderson v. Burson, 424 Md. 232, 245 (2011). Thus, the Court held that although the agent of the substitute trustee under the mortgage had physical possession of the note, it was not a holder of the note because there was no valid endorsement; it could nevertheless still enforce the note based on concessions from the mortgagors. Id. at 251-52.
– Oklahoma: “To commence a foreclosure action in Oklahoma, a plaintiff must demonstrate it has a right to enforce the note and, absent a showing of ownership, the plaintiff lacks standing.” Wells Fargo Bank, N.A. v. Heath, 2012 OK 54, ¶ 9 (Okla. 2012).
– Washington: Under Washington’s non-judicial foreclosure statute, the trustee is required to “have proof that the beneficiary is the owner of any promissory note or other obligation secured by the deed of trust.” RCW61.24.030(7)(a). Note, however, that borrowers cannot bring a judicial action based on a beneficiary or trustee’s failure to prove to the borrower that the beneficiary owns the note. Frazer v. Deutsche Bank Nat. Trust Co., 2012 WL 1821386, at *2 (W.D. Wash. May 18, 2012) (“[T]he Washington Deed of Trust Act requires that a foreclosing lender demonstrate its ownership of the underlying note to the trustee, not the borrower.”).
Some jurisdictions more clearly take an either/or approach to foreclosing. In Michigan, for example, the foreclosing entity must be “either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” Residential Funding Co., LLC v. Saurman, 490 Mich. 909 (2011) (quoting MCL 600.3204(1)(d)). The question in Saurman was whether foreclosures by MERS, as a mortgagee that did not hold the note, were proper. The Michigan Supreme Court upheld the foreclosures because the mortgagee’s interest in the note—even though not an ownership interest—was a sufficient interest in the indebtedness to allow it to foreclose.
There are other state courts that follow the either/or approach as well, for example:
– Ohio: In CitiMortgage, Inc. v. Patterson, 2012 Ohio 5894 (Ohio Ct. App., Cuyahoga County Dec. 13, 2012), the Ohio Court of Appeals held that a party has standing if “at the time it files its complaint of foreclosure, it either (1) has had a mortgage assigned or (2) is the holder of the note.” Id. at ¶ 21. Thus, the plaintiff in Patterson had standing because it possessed the note when it filed its complaint, even though the mortgagewas not assigned until later. Id. at ¶ 22.
– Alabama: In Sturdivant v. BAC Home Loans Servicing, LP, — So.3d —-, 2011 Ala. Civ. App. LEXIS 361 (Ala. Civ. App. Dec. 16, 2011), the Alabama Court of Civil Appeals ruled that a party lacked standing to foreclose because it was not yet the assignee of a mortgage when it initiated foreclosure. In Perry v. Fannie Mae, 100 So. 3d 1090 (Ala. Civ. App. 2012), the Court explained that the mortgage need not be assigned to a foreclosing party at the time it initiates foreclosure if it is a holder of the note. Because the evidence showed that the foreclosing party held the note at the time it initiated foreclosure proceedings, the foreclosure was proper. Id. at 1094-96.
– New Jersey: As noted in the preceding section, New Jersey recognizes standing to file a complaint to foreclose based on either assignment of the mortgage or possession of the note. Deutsche Bank Nat’l Trust Co. v. Mitchell, 422 N.J. Super. 214, 222 (App. Div. 2011).
MERS is a system for electronically tracking interests in mortgages that are traded on the secondary market. MERS members (approximately 6,000) agree that MERS serves as mortgagee or beneficiary, and when loan ownership or servicing rights are sold from one MERS member to another, MERS remains the titleholder to the security.
3. Standing of MERS
MERS is a system for electronically tracking interests in mortgages that are traded on the secondary market. MERS members (approximately 6,000) agree that MERS serves as mortgagee or beneficiary, and when loan ownership or servicing rights are sold from one MERS member to another, MERS remains the titleholder to the security instrument as nominee on behalf of whomever owns the loan. MERS is modeled on the “book entry system” used to track ownership in stock exchanges.
The use of nominees predates MERS: “The use of a nominee in real estate transactions, and as mortgagee in a recorded mortgage, has long been sanctioned as a legitimate practice.” In re Cushman Bakery, 526 F. 2d 23, 30 (1st Cir. 1975) (collecting cases). However, the concept of a nominee serving as agent for one member of a group of possible principals—where the principal may change in a way not reflected in the public record—has fostered arange of reactions, from commendation to criticism to confusion, but ultimately MERS (and its members) have repeatedly prevailed in foreclosure challenge litigation.
Authority of MERS to Foreclose
Most courts to consider the issue have ruled that MERS may serve as mortgagee or beneficiary and foreclose, for example:
– Texas: Athey v. MERS, 314 S.W. 3d 161, 166 (Tex. App. 2010) (MERS could foreclose, though it never held the note).
– Utah: Burnett v. MERS, 2009 WL 3582294 (D. Utah Oct. 27, 2009) (“MERS had authority under the Deed of Trust to initiate foreclosure proceedings”).
– Nevada: Croce v. Trinity Mortg. Assurance Corp. 2009 WL 3172119, at 3 (D. Nev. Sept. 28, 2009) (collecting cases from Georgia, California, Florida, and Colorado rejecting argument “that MERS does not have standing as a beneficiary under the Note and Deed of Trust, and therefore, is not authorized to participate in the foreclosure proceedings.”); see also Edelstein v. Bank of N.Y. Mellon,286 P.3d 249, 254 (Nev. 2012) (“The deed of trust also expressly designated MERS as the beneficiary… it is an express part of the contract that we are not at liberty to disregard, and it is not repugnant to the remainder of the contract.”).
– Michigan: Residential Funding Corp. v. Saurman, 805 N.W. 2d 183 (Mich. 2011) held that MERS had a sufficient interest to foreclose because it owned “legal title to a security lien whose existence is wholly contingent on the satisfaction of the indebtedness.”
In addition, at least two states—Minnesota (Minn. Stat. § 507.413) and Texas (Tex. Prop. Code § 51.0001)—have enacted statutes recognizing that MERS can foreclose.
Some state courts, nevertheless, have raised various questions about MERS’s role as it relates to foreclosures.
– Oregon: In Niday v. GMAC Mortg., 284 P. 3d 1157 (Or. App. 2012), the Oregon Court of Appeals ruled that MERS did not meet Oregon’s statutory definition of “beneficiary,” disagreeing with the majority of trial court rulings that had ruled MERS could serve as beneficiary.
Niday is on appeal to the Supreme Court of Oregon; oral argument was heard January 8, 2013.
– Maine: The Maine Supreme Court has ruled that MERS cannot meet its definition of “mortgagee,” and thus had no standing to foreclose judicially. MERS v. Saunders, 2 A. 3d 289 (Me. 2010) (“MERS is not in fact a ‘mortgagee’ within the meaning of our foreclosure statute”).
– Washington: Bain v. Metro. Mortg. Group, Inc., 285 P.3d 34, 46 (Wash. 2012) ruled that MERS did not meet the statutory definition of deed of trust beneficiary, though Bain did not explain whether this impaired foreclosure proceedings.
Nearly two years ago, MERS changed its rules of membership to provide that the noteholder must arrange for an assignment to be executed from MERS to the foreclosing entity prior to commencement of any foreclosure proceeding, judicial or non-judicial. So, this issue may be a legacy question after all.
Authority of MERS to Assign Mortgage
Even before the change in the membership rules, MERS often assigned mortgages to the foreclosing entity so that entity could foreclose. Some borrowers have argued that, as nominee, MERS does not have the power to assign the mortgage. These challenges have been almost universally rejected, as the security instruments expressly authorize MERS, as nominee, to take any action required of its principal and refer to the mortgagee or beneficiary as MERS and its “successors and assigns.” Indeed the First Circuit recently rejected this very argument. See Culhane v. Aurora Loan Services, — F.3d —-, 2013 WL 563374 (1st Cir., Feb. 15, 2013).
Likewise, the fact that an assignment of the security instrument may occur after the transfer of the note is not problematic, and makes sense under the MERS model: “[MERS] members often wait until a default or bankruptcy case is filed to have a mortgage or deed of trust assigned to them so that they can take steps necessary to seek stay relief and/or to foreclose…. [T]he reason they wait is that, if a note is paid off eventually, as most presumably are, MERS is authorized to release the [deed of trust] without going to the expense of ever recording any assignments.”Edelstein, 286 P.3d at 254.
Borrowers have also claimed that MERS lacks authority to assign the note. Since MERS typically does not hold notes, language in MERS assignments referencing the note in addition to the mortgage likely reflects a lack of precision. Insofar as MERS did not hold a note the issue is immaterial.
Splitting” the Note and Mortgage
Some borrowers have alleged that the naming of MERS as holder of title to the mortgage, while the lender holds title to the note, separates the note from the security instrument thereby rendering assignments void and the security instrument unenforceable. As one court has colorfully described it, the debt is the cow, and the mortgage the cow’s tail—while the debt can survive without the security instrument, the instrument has no independent vitality without the debt. See Commonwealth Prop. Advocates, LLC v. MERS, 263 p.3d 397, 403 (Utah App. 2011).
As noted, in Massachusetts, those arguments have been squarely rejected as Massachusetts permits the note and mortgage to be held separately. Indeed the District of Massachusetts remarked that the “MERS system fits perfectly into the Massachusetts model for the separation of legal and beneficial ownership of mortgages.” Culhane v. Aurora Loan Services, 826 F. Supp. 2d 352, 371 (D. Mass. 2011), aff’d — F.3d —-, 2013 WL 563374 (1st Cir. Feb. 15, 2013).
This theory has typically been rejected elsewhere as well, as, if successful, it would “confer[] an unwarranted windfall on the mortgagor.” Id. (citing Restatement (Third) of Prop.: Mortgages § 5.4 cmt. a). In Edelstein, 286 P.3d 249, 255 (Nev. 2012), for example, the court held that in Nevada, “to have standing to foreclose, the current beneficiary of the deed of trust and the current holder of the promissory note must be the same.” However, under the MERS system, the parties agree that MERS holds the security instrument while the note is transferred among its members—as long as the two instruments are united in the foreclosing entity prior to foreclosure, the Nevada court held, the foreclosing entity has standing to foreclose in that state.
Along similar lines, some borrowers allege that operation of MERS makes it impossible to identify who the proper noteholder is, because only the security instrument (not the note) was assigned by MERS. “A ‘show me the note’ plaintiff typically alleges a foreclosure is invalid unless the foreclosing entity produces the original note.” Stein v. Chase Home Fin., LLC, 662 F. 3d 976, 978 (8th Cir. 2011). Of course, when the foreclosing entity is able to produce the note, the claim is typically defeated on summary judgment, id., and many courts considering “show me the note” arguments in the MERS context have dismissed them as a matter of law without any inquiry into note ownership. E.g., Diessner v. MERS, 618 F. Supp. 2d 1184, 1187 (D. Ariz. 2009) (“district courts have routinely held that Plaintiff’s ‘show me the note’ argument lacks merit”) (collecting cases from California, Nevada, and Arizona) (internal quotations omitted).
Unrecorded Assignment Theories
Some states (including Massachusetts after November 1, 2012)statutorily require that, in order to bring a non-judicial foreclosure, all assignments of thesecurity instrument must be recorded. E.g., ORS 86.735(1) (Oregon) (trustee sale may proceed only if “any assignments of the trust deed by the trustee or the beneficiary … are recorded”). In Oregon, a few borrowers have successfully argued that, because the security follows the debt as a matter of law, transfers of the debt while MERS remains lienholder of record result in assignments that go unrecorded, precluding non-judicial foreclosure. See Niday, 284 P. 3d at 1169 (“any assignments” language in ORS 86.735(1) includes “assignment by transfer of the note, ” and that all such assignments from the initial lender to subsequent lenders must be recorded prior to commencement of a non-judicial foreclosure proceeding). Niday is under review by the Supreme Court of Oregon, which heard oral argument on January 8, 2013.
Other courts considering the same argument have rejected it. For instance, Minnesota, Idaho, and Arizona have the same statutory requirement that assignments must be recorded, but have not found note transfers to trigger an obligation to create and record an assignment of the corresponding security instrument. E.g., Jackson v. MERS, 770 N.W.2d 487 (Minn. 2009) (answering “no” to certified question: “Where an entity, such as defendant MERS, serves as mortgagee of record as nominee for a lender and that lender’s successors and assigns and there has been no assignment of the mortgage itself, is an assignment of the ownership of the underlying indebtedness for which the mortgage serves as security an assignment that must be recorded prior to the commencement of a mortgage foreclosure by advertisement under Minn. Stat. ch. 580?”); Homeyer v. Bank of America, N.A.,2012 WL 4105132, at *4 (D. Idaho Aug. 27, 2012) (“Idaho law does not require recording each assignment of a trust deed based upon transfer of the underlying note.”); Ciardi v. Lending Co., Inc., 2010 WL 2079735, at *3 (D. Ariz. May 24, 2010) (“Plaintiffs have failed to cite any Arizona statute that requires the recording of a promissory note or even the assignment of a promissory note.”). These cases ruled that a transfer of a promissory note does not create an “assignment” for purposes of those statutes.
4. Securitization Standing
Securitization is the packaging of debt into instruments broadly referred to as “mortgage-backed securities”; one court has described it with analogies: “One could analogize this process to taking raw ingredients and combining them to make bread then selling the slices individually, or putting different kinds of meat into a sausage grinder then selling the individual sausages. What is born from this process are new debt instruments, sold on the open market, that have pooled-and-sliced home loans as their ingredients. Different debt instruments work in different ways, but the basic concept is that home loan debt gets repackaged and sold to other investors rather than being held by the bank that originated the loan.” Bisson v. Bank of America, N.A., — F.Supp.2d —-, 2013 WL 325262, at *1 (W.D. Wash. Jan. 15, 2013). The securitization market emerged to facilitate the inflow of capital to fund home loans, and it “allows banks to spread mortgage risk across the financial system rather than hold it all themselves.” Id.
Although securitization has fallen well off its peak of approximately $1 trillion in originations in 2006, it is projected to rise from $4 billion in 2012 to $25-30 billion in 2013.
There are several parties to a securitization agreement, but the borrower is not one of them. A typical securitization arrangement involves the following parties:
· Originator: The originator is the party identified as “lender” on note and mortgage (or deed of trust).
· Depositor: The depositor is either the originator or someone that buys loans from originators and pools them into securities pursuant to a Pooling and Servicing Agreement (“PSA”) to which the depositor, trustee, and master servicer are parties.
· Trust: Entity into which loans are pooled (e.g., “Structured Asset Securities Corp. Mortgage Pass-Through Certificates, Series 2006-Z”). Sometimes referred to as a “Special Purpose Vehicle,” “Real Estate Mortgage Investment Conduit” or “REMIC,” orsimply a “Mortgage-Backed Security.”
· Trustee/Custodian: The trustee of the securitization trust (not to be confused with the trustee of a deed of trust, which conducts non-judicial foreclosure sales in deed of trust states) holds loans on behalf of the individual security holders, receiving the borrower’s payments from the loan servicer.
· Individual Investors: Shares of mortgage-backed securities are purchased by investors who, when loans are paid on schedule, ultimately benefit from borrowers’ mortgage payments.
· Master Servicer: The master servicer under the PSA services the individual loans in the pool, interfacing with borrowers, collecting loan payments and transferring them to the trust, and often handling foreclosures and post-foreclosure property management.
The Effect of Securitization on Foreclosure
Securitization adds complexity to chain of title to the mortgage, and chain of ownership of the note. See, e.g., In re Almeida, 417 B.R. 140, 142-45 (Bankr. D. Mass. 2009) (describing chain of title to a mortgage securing a securitized note); In re Samuels, 415 B.R. 8, 16-22 (considering challenge to direct assignment of mortgage from originator to trustee, not including an intervening assignment to the trust).
Some borrowers have claimed that insurance contracts or credit default swap agreements preclude default—i.e., the trust was insured against loss, collected the insurance when the borrower defaulted, and should not be allowed to foreclose as well because such foreclosure would grant a “double recovery.” Larota-Florez v. Goldman Sachs Mortg. Co., 719 F. Supp. 2d 636, 642 (E.D. Va. 2010). These arguments have not gained traction. Horvath v. Bank of N.Y., N.A., 641 F.3d 617, 626 n.2 (4th Cir. 2011) (rejecting argument that trustee of securitization trust “should not have been able to foreclose on his property because they did not suffer any losses from his default,” because “that defense does not allow individuals in default on a mortgage to offset their outstanding obligations by pointing to the mortgagee’s unrelated investment income”); Commonwealth, 2011 UT App 232 ¶¶ 3, 10 (rejecting argument “that defendants, having been paid off in the sale of the loan, could not seek a second payoff by foreclosure of the Trust Deed” as a “mere conclusory allegation” that could not sustain a viable claim).
Other borrowers have commissioned “securitization audits,” which purportedly trace the history of the loan in an attempt to cast doubt upon whether the foreclosing entity has standing. These arguments have also generally failed. E.g., Norwood v. Bank of America, 2010 WL 4642447 (Bankr. N.D. Ga. Oct. 25, 2010); Dye v. BAC Home Loans Servicing, LP, 2012 WL 1340220 (D. Or. Apr. 17, 2012) (granting motion to dismiss despite findings of “Mortgage Securitization Audit”). Still other borrowers have challenged the foreclosing entity’s compliance with the PSA. As noted above, borrowers are not parties to these agreements; as such, courts have generally found that borrowers do not have standing to challenge the foreclosing entity’s compliance or lack thereof with it. See, e.g., In re Correia, 452 B.R. 319, 324 (1st Cir. B.A.P. 2011) (stating that debtors, who were not parties to the PSA or third-party beneficiaries thereof, lacked standing to challenge defendants’ compliance with PSA); Sami v. Wells Fargo Bank, 2012 WL 967051, at *5-6 (N.D. Cal. Mar. 21, 2012) (rejecting claim “that Wells Fargo failed to transfer or assign the note or Deed of Trust to the Securitized Trust by the ‘closing date,’ and that therefore, ‘under the PSA, any alleged assignment beyond the specified closing date’ is void”).
Which Securitization Parties May Foreclose?
As discussed above, there are several parties to a securitization. The parties most likely to be involved in a foreclosure are the trustee and servicer. On occasion, foreclosures have been conducted in the name of MERS.
As the party interfacing with the borrowers on a day-to-day basis, the servicer is often in best practical position to handle foreclosure proceedings, but may be required, under some states’ laws, to demonstrate its entitlement to foreclose on behalf of the securitization trustee. So, for example, in Maine, a judicial foreclosure state, the servicer must show its authority to enforce the note. See Bank of America, N.A. v. Cloutier, 2013 WL 453976, at *3 (Me. Feb. 7, 2013) (foreclosure plaintiff must “identify the owner or economic beneficiary of the note and, if the plaintiff is not the owner, to indicate the basis for the plaintiff’s authority to enforce the note pursuant to Article 3-A of the UCC”).
Most non-judicial states do not apply special requirements to loan servicers; the only significant inquiry is whether the trustee of the deed of trust was properly appointed by the beneficiary of record. In Utah, for example, “the statute governing non-judicial foreclosure in Utah does not contain any requirement that the trustee demonstrate his or her authority in order to foreclose. The court declines to create a requirement where the legislature chose not to include one. Therefore, the court holds that, under the terms of the relevant documents and the current statute, [a trustee] is not required to demonstrate its authority to foreclose before initiating a foreclosure proceeding.” Hoverman v. CitiMortgage, Inc., 2011 U.S. Dist. LEXIS 86968, at *16-17 (D. Utah Aug. 4, 2011); see also Trotter, 275 P.3d at 861 (Idaho 2012) (“A trustee is not required to prove it has standing before foreclosing on a deed of trust” as long as “the Appointment of Successor Trustee, Notice of Default, and Notice of Trustee’s Sale complied with the statutoryrequirements and were recorded as specified in the statute”).
The situation can change, however, if the loan becomes involved in a judicial proceeding, such as a bankruptcy. To move for relief from stay in bankruptcy—even in a deed of trust state—a servicer must somehow show authority to enforce the note, though assignment of the security instrument may not be necessary. E.g., In re Tucker, 441 B.R. 638, 645 (Bankr. W.D. Mo. 2010) (“even if, as here, the deed of trust is recorded in the name of the original lender…, the holder of the note, whoever it is, would be entitled to foreclose, even if the deed of trust had not been assigned to it.”). And, conversely, failure to show authority to enforce the note can lead to denial of motions for relief from stay. E.g., In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009) (denying relief from stay to group of movants that included both servicers and securitization trustees because they presented insufficient proof that they owned the notes in question); In re Mims, 438 B.R. 52, 57 (Bankr. S.D.N.Y. 2010) (servicer that held title to themortgage but did not show it had been assigned the note was not a “real party in interest” in proceeding to lift stay).
In addition to the servicer, the trustee is often the foreclosing party. As the party holding title to the loan on behalf of the loan investors, the trustee is certainly a proper party to foreclose—if it has the right to do so under state law, which may require that it have been formally assigned the mortgage.
In Massachusetts, for instance—and as discussed more above—the trustee must also hold an assignment of the mortgage. In Ibanez, the trustee commenced foreclosures before they had been assigned the mortgages, and did not record assignments until after the foreclosure was completed. The trustee argued it had already received the note when the loan had been securitized years earlier, and that gave it all it needed to foreclose. The court rejected that argument—Massachusetts, as a “title theory” state, requires assignment of mortgage to foreclose. Securitization may have showed intent to assign mortgages, but was not an actual assignment.
Lien-theory states often take a different position, and do not require a trustee to also hold the mortgage, which is nothing more than the right to enforce a lien. See, e.g., Edelstein v. Bank of N.Y. Mellon, 286 P.3d 249, 254 (Nev. 2012);KCB Equities, Inc. v. HSBC Bank USA, N.A. , 2012 Tex. App. LEXIS 4418, at *4-5 (Tex. App.—Dallas).
The recent Massachusetts foreclosure case law is likely some what atypical, driven as it has been by some relatively unusual aspects of Massachusetts law.
But the questions the Massachusetts Supreme Judicial Court has been called upon to answer, concerning the necessary relationship between the lien of the security interest, the debt and the foreclosing creditor, are universal and have been the subject of considerable litigation across the country during the recent “foreclosure crisis.” And the questions are controlled for the most part by state law, and state property and foreclosure law are much less uniform than the law governing the notes themselves as negotiable instruments. This paper has identified the principal issues and arguments so practitioners can ask the right questions and try to determine the law in their particular jurisdiction before proceeding.
For More Information How You Can Use Solid Augments To Effective Challenge and Save Your Home Visit: http://www.fightforeclosure.net
How Backdated Mortgage Assignment Came Back To Haunt Foreclosure Lender
Posted by BNG in Appeal, Case Laws, Case Study, Foreclosure Defense, Judicial States, Legal Research, MERS, Non-Judicial States
Foreclosure, Ibanez, Juarez, Loan, Massachusetts, Mortgage loan, U.S. Bancorp, US Bank
(1st Cir. Feb. 12, 2013)
U.S. First Circuit Court of Appeals Reinstates Borrower’s Wrongful Foreclosure Claim. (What Makes This Case Appealing is the Ibanez Ruling As Earlier Published on this Blog).
In a rare victory for a wrongful foreclosure claimant at the U.S. Court of Appeals for the First Circuit in Boston, the court reversed a dismissal of the borrower’s claims, ruling that a back-­‐dated mortgage assignment rendered a foreclosure void.
The case is Juarez v. Select Portfolio Servicing, Inc. (11-­‐2431)
Backdated Mortgage Assignment Proves Fatal
Melissa Juárez purchased a home in Dorchester, Massachusetts on August 5, 2005, financing it with reputed sub-­‐prime lender New Century Mortgage.
The mortgage was packaged and bundled into a real estate mortgage investment conduit (“REMIC”), a special type of trust that receives favorable tax treatment, ultimately being held by U.S. Bank, as trustee.
Juárez could not afford the payments on the mortgage and defaulted.
Foreclosure proceedings began in the summer of 2008, culminating in the sale of her home at an auction in October 22,2008.
She claims, however, that lender did not hold the note and the mortgage at the time they began the foreclosure proceedings against her, and that the foreclosure was therefore illegal under Massachusetts mortgage law.
The problem in the case centered around the mortgage assignment into U.S. Bank, as trustee — the same problem the same bank faced in the landmark U.S. Bank v. Ibanez case.
The “Corporate Assignment of Mortgage,” appears to have been back-­‐dated. It was dated October 16, 2008 and recorded in the corresponding registry of deeds on October 29, 2008, after the foreclosure had been completed. However, at the top of the document, it stated: “Date of Assignment: June 13, 2007,” in an obvious attempt to date it back prior to the foreclosure.
After federal judge Denise Casper dismissed Juarez’s claims entirely on a motion to dismiss, the First Circuit reinstated the majority of Juarez’s claims.
U.S. Bank claimed that the back–‐dated mortgage assignment was merely a confirmatory assignment in compliance with the Ibanez ruling, but the appeals Court concluded otherwise:
Lacking a valid mortgage assignment in place as of the foreclosure, U.S. Bank lacked the authority to foreclose, the court ruled, following the Ibanez decision. Ms. Juarez will now get the opportunity to litigate her claims in the lower court.
Will Lenders Learn Their Lesson?
The take–‐away from this case is that courts are finally beginning to scrutinize the problematic mortgage assignments in wrongful foreclosure cases.
This ruling may also affect how title examiners and title insurance companies analyze the risk of back titles with potential back–‐dated mortgage assignments.
If a lender records a true confirmatory assignment, it must do much better than simply state an effective date.
To learn how you can use similar invalid assignment arguments to effectively challenge and reverse your wrongful foreclosure, visit http://www.fightforeclosure.net
The Effects of “US Bank v. Ibanez” in Mortgage Securitization Cases
Posted by BNG in Appeal, Case Laws, Case Study, Foreclosure Defense, Fraud, Legal Research, Litigation Strategies, Non-Judicial States, Notary, Note - Deed of Trust - Mortgage, Pleadings, Pro Se Litigation, Securitization, Trial Strategies
Bank of America, Foreclosure, Ibanez, Massachusetts, Massachusetts Supreme Judicial Court, U.S. Bancorp, US Bank, Wells Fargo
THIS DECISION WAS A GREAT WIN TO HOMEOWNERS!
For those new to the case, the problem the Court dealt with in this case is the validity of foreclosures when the mortgages are part of securitized mortgage lending pools. When mortgages were bundled and packaged to Wall Street investors, the ownership of mortgage loans were divided and freely transferred numerous times on the lenders’ books. But the mortgage loan documentation actually on file at the Registry of Deeds often lagged far behind.
The Case in Review:
On Jan. 7, 2011, the Massachusetts Supreme Judicial Court
ruled against U.S. Bancorp and Wells Fargo & Co. in their appeal of a Massachusetts Land Court decision in March 2009 invalidating their foreclosure sales because both banks had failed to make the requisite showing that they were the mortgage holders at the time of the foreclosures. The case made headlines across the country, but turned on the prosaic notion that only the mortgage holder can foreclose on a mortgage.
Documentation provided by the banks in their efforts to prove that they were the present assignees of the mortgages at the time of the notice of foreclosure and subsequent foreclosure sale failed to convince the court that the proper party had initiated the foreclosure.
Because Massachusetts does not require a mortgage holder to obtain judicial authorization to foreclose on Massachusetts property, the decision in U.S. Bank National Association v. Ibanez serves as a forewarning to banks that foreclosures will only be upheld as valid by a showing of strict compliance with the statutory power of sale requirements, that is, that they were the mortgage holder at the time of notice of foreclosure and execution of the foreclosure sale.
Copycat litigation has followed in Massachusetts and elsewhere, but the ramifications of Ibanez could be broader than just an increase in courtroom activity. Legislatures will wrestle with the possibility of increased regulations, and prosecutors will likely scour the files for possible illegal activity concerning the dates of mortgage transfers.
In July 2007, U.S. Bank NA and Wells Fargo Bank NA, as trustees of two securitization trusts, foreclosed on the mortgages of the respective properties and purchased the properties at the foreclosure sale. In September and October 2008, U.S. Bank and Wells Fargo brought actions separately in the Massachusetts Land Court seeking among other things, a declaration that title to the two properties was vested in them.
The Land Court heard the two actions together and ruled that the foreclosure sales were invalid because the banks acquired the mortgages by assignment only after the foreclosure sales and therefore had no interest in the mortgages being foreclosed at the time of the publication of the notices of sale or the foreclosure sales.
At issue was whether the banks had shown sufficient documentation that they were in fact the mortgage holders at the time of the sales pursuant to a valid chain of assignments. In U.S. Bank’s case, the original lender was Rose Mortgage Inc., which assigned the mortgage in blank. At some point the blank space was stamped with Option One Mortgage Corp. as assignee, and was recorded on June 7, 2006.
On Jan. 23, 2006, before recording, Option One executed an assignment in blank. U.S. Bank claimed that Option One assigned the mortgage to Lehman Brothers Bank FSB, which assigned it to Lehman Brothers Holdings Inc., which assigned it to the Structured Asset Securities Corp., which then assigned the mortgage, pooled with over 1,000 other loans, to U.S. Bank, as trustee, on or around Dec. 1, 2006.
U.S. Bank filed for foreclosure on April 17, 2007, and purchased the property at the foreclosure sale on July 5, 2007. On Sept. 2, 2008, American Home Mortgage Servicing Inc., as successor in interest to Option One, the record holder of the mortgage, executed a written assignment of the mortgage to U.S.Bank, as trustee, which was then recorded on Sept. 11, 2008.
In the Land Court proceeding, however, U.S. Bank failed to put in the record the trust agreement, which it claimed constituted the assignment of the mortgage. U.S. Bank did offer the private placement memorandum, an unsigned offer of mortgage-backed securities to potential investors, which included the representation that mortgages “will be” assigned to the trust. The memorandum also stated that each mortgage would be identified in a schedule attached to the trust agreement. U.S. Bank also did not provide any such schedule identifying the particular loan as among the mortgages assigned to the trust.
In Wells Fargo’s case, the original lender was Option One, which executed an assignment of the mortgage in blank on May 25, 2005. Option One later assigned the mortgage to Bank of America Corp. in a flow sale and servicing agreement, which then assigned it to Asset Backed Funding Corp., which assigned it, pooled with others, to Wells Fargo, as trustee, pursuant to a pooling and servicing agreement.
On July 5, 2007, the day Wells Fargo purchased the property, Option One, the record mortgage holder, executed an assignment of the mortgage to Wells Fargo as trustee, which was recorded on May 12, 2008, but had an effective date of April 18, 2007.
In the Land Court proceeding, Wells Fargo did not provide the flow sale and servicing agreement reflecting the assignment by Option One to Bank of America. Wells Fargo did produce an unexecuted copy of the mortgage loan purchase agreement, which made reference to a schedule listing the assigned mortgages, but failed to provide a schedule showing that the mortgage was among those assigned to Asset Backed Funding Corporation.
Wells Fargo also provided a copy of the pooling and servicing agreement, but this copy was only downloaded from the U.S.Securities and Exchange Commission website, was unsigned and did not contain the loan schedules referenced in the agreement. Wells Fargo produced a schedule that it represented identified the mortgage by the property’s ZIP code and city because the payment history and loan amount matched the loan at issue.
In Massachusetts, a mortgagee must strictly comply with the statutory power of sale by proving its authority to foreclose and complying with the notice requirement. Only a present holder of the mortgage is authorized to foreclose on the mortgaged property. As highlighted by the SJC in this case, the statutory power is also limited to those who are holders of mortgages pursuant to valid, verifiable assignments at the time of the notice of sale and the subsequent foreclosure sale. U.S. Bank and Wells Fargo failed to prove that they were.
The court rendered U.S. Bank’s foreclosure invalid for several reasons: 1) It failed to produce the document,the trust agreement, which it claimed assigned the mortgage to it; 2) the private placement memorandum described the trust agreement as having only an intent to assign mortgages to U.S. Bank in the future, not as an actual assignment; 3) U.S. Bank did not produce the schedule of loans mortgages that was supposedly attached to the agreement, so it failed to show that the mortgage at issue was among those assigned by that agreement; and 4) U.S. Bank failed to produce any evidence that the assigning party, Structured Asset Securities Corp., ever held the mortgage to be assigned. The court determined that Option One, not U.S. Bank, was the mortgage holder at the time of the foreclosure.
Similarly, the court rendered Wells Fargo’s foreclosure invalid because: 1) While the pooling and servicing agreement reflected a present assignment, the mortgage loan schedule provided by Wells Fargo failed to identify with specificity the mortgage at issue as one of the mortgages assigned; and 2) Wells Fargo did not provide any documentation showing that Asset Backed Funding Corporation held the mortgage that it was purportedly assigning under the pooling and servicing agreement. Because Wells Fargo failed to submit anything demonstrating that the mortgage was ever assigned by Option One to another entity before the notice and sale, the court found that Option One was the mortgage holder.
Ibanez in Practice
The SJC provided insight into the documentation it believes is required to support a valid foreclosure in the case of assignments and securitization trusts. Whether pending and future legislation or regulations change how the court views these matters remains to be seen.
* An assignment does not have to be in recordable form at the time of the notice of sale or the foreclosure sale, though it may be the better practice. An executed agreement that assigns a pool of mortgages along with the schedule that “clearly and specifically” identifies the mortgage at issue may suffice to establish the trustee as mortgage holder.
* A bank must provide proof that the assignment was made by a party that validly held the mortgage. This can be accomplished by providing a chain of assignment linking the bank to the record holder or a single assignment from the record holder of the mortgage.
* An assignment in blank does not constitute a lawful assignment of a mortgage.
* An assignment of a note without an assignment of the underlying mortgage does carry with it an assignment of the mortgage, and therefore does not give the holder of the note sufficient financial interest in the mortgage to permit it to foreclose.
* A mortgage holder may not be permitted to rely on Title Standard No. 58 issued by the Real Estate Bar Association for Massachusetts for the proposition that an entity that does not hold a mortgage may foreclose on a property and later cure the cloud on title by a later assignment of a mortgage. However, an assignment that is confirmatory of an earlier, valid assignment made prior to publication of notice and execution of sale may be executed and recorded after the foreclosure without defecting title. A confirmatory assignment cannot confirm an assignment that was not validly made earlier, or backdate an assignment being made for the first time.
* A post foreclosure assignment may not be treated as a pre-foreclosure assignment by declaring an “effective date” that precedes the notice of sale and foreclosure.
Retroactive Implications of Ibanez
Because the court found that it was not creating new law, but rather applying tried and true standards, it made its decision retroactive. In his decision, Judge Gants stated, “The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.” Thus it is likely that homeowners will seek recovery for homes that were wrongfully foreclosed upon.
But beyond that, questions arise. For example, Massachusetts is not a state that requires judicial approval of foreclosures, whereas about 23 states already require some sort of judicial authorization or judicial intervention in the foreclosure process. Would the facts in Ibanez have allowed a foreclosure to progress as far as it did in a state that required judicial foreclosure? Should there be more regulations around the foreclosure process? The Ibanez court didn’t seem to think so, as it found the existing rules to be relatively straightforward and capable of controlling the situation.
Even so, lawmakers in Massachusetts wasted little time in introducing legislation that appeared to be reactionary to the Ibanez decision. Massachusetts Attorney General Martha Coakley drafted legislation that would reportedly establish standards to ensure that creditors undertake “commercially reasonable efforts to avoid unnecessary foreclosures” and would also codify Ibanez by requiring a creditor to show it is the current mortgage holder before foreclosing and require creditors to record their assignments before commencing foreclosure proceedings.
A violation of this legislation as introduced would constitute a violation of the Massachusetts Consumer Protection Act as well. There have been at least 10 other bills introduced in the Massachusetts House and Senate that address various aspects of the foreclosure process, including legislation that would require foreclosure mediations and judicial review of foreclosures.
The great danger may be for an overeager bank official who realizes that the bank’s paperwork suffers from the defects outlined in Ibanez. The temptation to back-date documents and to “fill in the blanks” may be too great for some to resist. Prosecutors and regulators will likely be looking for just such situations as they attempt to make cases.
What the court in Ibanez really ruled is that the banks need to strictly comply with the laws already on the books in proceeding with foreclosures, and in light of the court’s candid opinion, and harsh concurrence by Justice Robert J. Cordy, banks would do well to ensure that they have their ducks in line. Banks would also be wise to educate their staff on Ibanez and how not to react to it.
But when all is said and done, however, what Ibanez may ultimately have done is provided the impetus for legislators, regulators, and prosecutors to change the way foreclosures proceed in Massachusetts, and possibly all over the country, in creating new requirements for banks, and courts, far beyond those at play in Ibanez.
My Analysis of the Case
Winners: Distressed homeowners facing foreclosure
Losers: Foreclosing lenders, people who purchased foreclosed homes with this type of title defect, foreclosure attorneys, and title insurance companies.
If you purchased a foreclosure property and you have an owner’s title insurance policy, contact the title company right away.
The decision opens the door for foreclosing lenders to prove ownership with proper securitized documents. There will be further litigation on this. Furthermore, since the Land Court’s decision in 2009, many lenders have already re-done foreclosures and title insurance companies have taken other steps to cure the title defects.
We don’t know how other state court’s will react to this ruling. The SJC is one of the most well respected state supreme courts in the country. This decision was well-reasoned and I believe correct given that the lenders couldn’t even produce any admissible evidence they held the mortgages. The ruling will certainly be followed in states (such as California) operating under a non-judicial foreclosure system such as Massachusetts.
The banking sector has already dropped some 5% today (1.7.11), showing that this ruling has sufficiently spooked investors.
For more info on how you can use the Valid imperfected Securitization arguements such as the ones used in this case to effectively and successfully challenge and win your Foreclosure Defense, please visit http://www.fightforeclosure.net