CitiMORTGAGE, INC., Plaintiff-Appellee,
v.
QUENTIN B. JOHNSON and TONYA M. WHITAKER, Defendants-Appellants, (The Lindent Estates Homeowners Association, Mortgage Electronic Registration Systems, Inc., Capital One Home Loans, LLC, Unknown Owners, and Nonrecord Claimants, Defendants).

Justices Hutchinson and Birkett concurred in the judgment and opinion.

OPINION

JUSTICE SPENCE delivered the judgment of the court, with opinion.

¶ 1 Plaintiff, CitiMortgage, Inc., sought to foreclose on defendants Quentin B. Johnson and Tanya M. Whitaker’s property, and the circuit court of Kane County granted summary judgment in its favor. Plaintiff proceeded to a sheriff’s sale of the property, and, after the sale but before its confirmation, defendants objected to the confirmation, arguing, in pertinent part, that the sale should be vacated because plaintiff violated section 15-1508(d-5) of the Code of Civil Procedure (Code) (735 ILCS 5/15-1508(d-5) (West 2010)). The trial court denied defendants’ objection and their subsequent motion for reconsideration, and it confirmed the sale of the property. Defendants appeal, arguing that the trial court erred in denying their objection to the confirmation of the sale and in denying their motion for sanctions against plaintiff. For the following reasons, we reverse the trial court’s denial of defendants’ objection to the confirmation of the sale and affirm its denial of defendants’ motion for sanctions.

¶ 2 I. BACKGROUND

¶ 3 Plaintiff filed its complaint on August 20, 2009, seeking to foreclose a mortgage secured by real property at 3358 Moraine Drive in Aurora, Illinois (the Property). Defendants owned the Property. They filed pro se appearances and an answer to the complaint on November 20, 2009. Plaintiff filed its motion for summary judgment on February 4, 2010, and defendants responded on February 25, 2010. Defendants’ pro se response was limited to one page. Defendants raised three contentions: that (1) plaintiff “failed to comply with the FHA rules regarding pre-foreclosure [sic] procedures,” (2) the original mortgage holder engaged in potentially unfair lending practices, and (3) more information was necessary to determine the total amount owed. Plaintiff filed its reply on March 11, 2010, arguing that defendants’ response was unsupported by facts or affidavit. The trial court agreed, entering an order on March 18, 2010, granting plaintiff’s motion for summary judgment. The trial court also entered that day a judgment of foreclosure and sale in favor of plaintiff.

¶ 4 Defendants moved to reconsider the summary judgment ruling on June 11, 2010, arguing that plaintiff had failed to supply the court with the original signed loan documents and that plaintiff was not legally authorized to foreclose on defendants’ mortgage, because only the holder of the note is so authorized. Defendants, still proceeding pro se, also filed an emergency motion to vacate judgment on June 16, 2010, reiterating plaintiff’s lack of legal standing to bring this suit. On July 14, 2010, defendants filed a hardship affidavit seeking a loan modification under the Making Home Affordable Program (MHA) (see 12 U.S.C. § 5219 (Supp. III 2010)) through the Home Affordable Modification Program (HAMP) (Handbook for Servicers of Non-GSE Mortgages (Dec. 13, 2012), available at http://www.makinghomeaffordable.gov/for-partners/understanding-guidelines/ Documents/mhahandbook_41.pdf (last visited June 21, 2013) (hereinafter HAMP Guidelines). On August 2, 2010, plaintiff responded to defendants’ motion to vacate, asserting that its attachment of a copy of the mortgage and the note to its complaint established its standing. In defendants’ reply, they for the first time argued that plaintiff failed to follow homeowner protection guidelines under section 15-1502.5 of the Code (735 ILCS 5/15-1502.5 (West 2010)). The trial court denied defendants’ motion to vacate on September 2, 2010.

¶ 5 The Property was sold at a sheriff’s sale on September 23, 2010. Defendants objected in writing to the confirmation of the sale, reiterating that plaintiff had violated section 15-1502.5 of the Code and attaching their hardship affidavit. On October 4, 2010, the court heard plaintiff’s motion to confirm the sale. Defendants orally objected, and the court denied their oral objection. However, the court did not confirm the sale. Instead, the court directed defendants to file a written motion opposing confirmation under section 15-1508(d-5) of the Code (735 ILCS 5/15-1508 (d-5) (West 2010)), evidencing any application for a loan modification under the MHA/HAMP and specifying any “material violations” of that program’s requirements. Defendants filed their motion on October 15, 2010.

¶ 6 In their motion to deny confirmation of the sheriff’s sale, defendants alleged violations of section 15-1502.5 of the Code (735 ILCS 5/15-1502.5 (West 2010)), including failure to postpone the sheriff’s sale after defendants submitted a HAMP application on July 14, 2010, and lack of communication from plaintiff regarding their application, and attached their HAMP application. Plaintiff responded by pointing out that under section 15-1508(d-5), defendants were required to show that they submitted a HAMP application and that plaintiff materially violated the HAMP’s requirements for proceeding to a judicial sale. However, plaintiff argued, defendants had shown only the submission of the application, not any material violations of the HAMP. Plaintiff had denied defendants’ HAMP application on September 17, 2010, on the basis of a negative net present value (NPV) of a loan modification. Plaintiff attached a letter dated September 22, 2010, from plaintiff to defendants denying their application. Defendants’ reply argued that plaintiff violated federal guidelines under the MHA, including by providing inadequate notice before the sheriff’s sale.

¶ 7 On December 28, 2010, the trial court granted defendants’ motion to deny confirmation of the sale and set aside the sale. However, the court further ordered that the redemption period had passed and the previously entered judgment remained in full force and effect, so plaintiff could proceed to sale with proper issuance of new notice. That is what plaintiff did, issuing new notice for a sheriff’s sale scheduled for July 28, 2011, although later canceling that sale and re-scheduling it for November 17, 2011.

¶ 8 Meanwhile, on July 19, 2011, defendants filed a voluntary petition for chapter 7 bankruptcy (11 U.S.C. § 701 et seq. (2006)) in the Northern District of Illinois.^[1] Defendants also filed a second HAMP application on October 21, 2011, requesting a loan modification. On the second HAMP application, defendants indicated that their bankruptcy had been discharged. Defendants faxed a copy of their application to plaintiff on November 3.

¶ 9 The rescheduled sheriff’s sale, for which plaintiff sent defendants notice via mail on October 24, 2011, took place on November 17, 2011. On November 28, plaintiff moved to confirm the sale and defendants moved to deny confirmation. In their motion, defendants claimed that plaintiff violated section 15-1508(d-5) of the Code (735 ILCS 5/15-1508(d-5) (West 2010)) by materially violating the HAMP guidelines by failing to process the application as required, failing to postpone the sale, and failing to provide proper notice.^[2] Plaintiff filed a response on January 31, 2012, arguing that: (1) it did not violate section 5-1508(d-5), because defendants did not identify a sufficient change in circumstance, as necessary for a successive HAMP application, and (2) it had unrefuted evidence that it served proper notice on defendants. Plaintiff further argued that, even if there had been a sufficient change in circumstance, defendants still had not identified a material violation of the HAMP guidelines. Defendants’ reply did not identify a change in circumstance. The reply mostly restated arguments made in the initial motion and in prior motions in the course of the litigation.

¶ 10 On March 29, 2012, the trial court denied defendants’ motion to deny confirmation of the sale. The order stated that notice for the sale was proper and that no issues regarding violations of the HAMP guidelines precluded confirmation of the sale. The court granted plaintiff’s motion to confirm, approving the sale and distribution of the Property.

¶ 11 On April 17, 2012, defendants, now represented by counsel, filed a motion to reconsider the March 29 order. Defendants argued that plaintiff violated section 15-1508(d-5) of the Code when it let the sheriff’s sale proceed despite defendants’ October 21, 2011, HAMP application, because (1) defendants’ discharge from bankruptcy on October 27, 2011, was a sufficient change in circumstance because the elimination of debt would have changed the outcome of the HAMP application, and (2) because defendants submitted a timely application, it was not yet the province of the court to determine the merits of the HAMP application, but only to stop the November 17 sale. Defendants argued that plaintiff did not assert that it did not timely receive their HAMP application but rather that plaintiff chose to ignore the application. Defendants argued that plaintiff’s reason for denying their application—that the loan had been paid off as of November 21, 2011—was tantamount to telling defendants “too bad,” that plaintiff would not “waste time” considering their application when it had already sold their property. Defendants further argued for sanctions against plaintiff under Illinois Supreme Court Rule 137 (eff. Jan. 4, 2013) because plaintiff knew that it should not have proceeded with the sale or sought confirmation of the sale when in receipt of defendants’ application, yet did so anyway, requiring defendants to hire attorneys and causing them financial hardship. Defendants also filed a motion to stay disposition of the Property.

¶ 12 Plaintiff argued in its response that a second HAMP application in and of itself did not require a delay of the sheriff’s sale and that a discharge from bankruptcy was not a sufficient change in circumstance for a successive application. Furthermore, it argued that whether defendants received certain documents was immaterial because the March 29 order was based on a finding of no material violation of HAMP guidelines, and nonreceipt of documents would not change that analysis. Finally, it denied that sanctions were warranted. Defendants reiterated their original arguments in their reply, arguing that plaintiff’s assertion that there was no sufficient change in circumstance was speculative and that plaintiff failed to follow HAMP guidelines by not properly considering their second HAMP application.

¶ 13 On June 14, 2012, the trial court held a hearing regarding defendants’ motions to reconsider the March 29 order, impose sanctions, and stay disposition of the Property. It denied all motions.

¶ 14 Defendants timely appealed.

¶ 15 II. ANALYSIS

¶ 16 A. Standard of Review

¶ 17 Defendants contend that the proper standard of review is de novo because their motion to reconsider challenged the trial court’s application of law in confirming the sale of the Property. See JP Morgan Chase Bank v. Fankhauser, 383 Ill. App. 3d 254, 259 (2008) (“[W]here a motion to reconsider raises a question of whether the trial court erred in its previous application of existing law, we review de novo the trial court’s determinations of legal issues.”). However, plaintiff disagrees, instead arguing for an abuse-of-discretion standard, citing Household Bank, FSB v. Lewis, 229 Ill. 2d 173, 178 (2008) (“A court’s decision to confirm or reject a judicial sale will not be disturbed absent an abuse of *** discretion.”).

¶ 18 Here, defendants moved to reconsider the trial court’s confirmation of the sale. Defendants argue on appeal that the trial court should not have confirmed the sale and should have vacated the sale. We agree with plaintiff that, under Lewis, the standard of review for whether the trial court correctly confirmed the sale is the abuse-of-discretion standard. However, we note that a trial court abuses its discretion when its ruling rests on an error of law. Peeples v. Village of Johnsburg, 403 Ill. App. 3d 333, 339 (2010)).

¶ 19 As to the denial of Rule 137 sanctions, defendants do not cite a standard of review, but as plaintiff correctly cites, the standard of review is also for an abuse of discretion. Nelson v. Chicago Park District, 408 Ill. App. 3d 53, 67 (2011); Medical Alliances, LLC v. Health Care Service Corp., 371 Ill. App. 3d 755, 756 (2007).

¶ 20 B. Order Approving and Confirming Sale and Distribution of the Property

¶ 21 Defendants’ appeal centers around the trial court’s March 29, 2012, order approving and confirming the sale and distribution of the Property. Defendants advance two primary arguments for why the trial court erred by entering the order and for why the sale should be set aside: (1) the trial court misapprehended the facts regarding defendants’ HAMP application, and (2) the court misapplied the law by confirming the sale despite material violations of Illinois law (735 ILCS 5/15-1508(d-5) (West 2010)) and the HAMP guidelines.

¶ 22 Defendants argue that, had the trial court considered the following facts, the March 29 order would not have been entered. Their bankruptcy and subsequent discharge was a change in circumstances for purposes of the HAMP guidelines. Plaintiff admitted that defendants sought a loan modification under the HAMP on October 21, 2011, and that it even had a homeowner support specialist send defendants a letter offering assistance. Plaintiff corresponded with defendants on November 3, 2011, requesting documents in support of the HAMP application, which defendants faxed plaintiff that same day. By receiving defendants’ timely HAMP application, plaintiff had actual notice of defendants’ application on November 3. Yet, despite receipt of defendants’ application, plaintiff proceeded with the sheriff’s sale and sought confirmation of the sale. The sale should not have proceeded for at least two reasons: improper notice to defendants and a material violation of HAMP guideline 3.3. See HAMP Guidelines, supra, ch. II, § 3.3.

¶ 23 As to notice, defendants argue that notice was improper under section 15-1507 of the Code (735 ILCS 5/15-1507 (West 2010)) because defendants did not receive notice before the sale, the notice proffered by plaintiff did not have a file-stamp, and the notice in the trial court file was not file-stamped until November 28, 2011, which was 11 days after the sale. As to the HAMP violations, HAMP guideline 3.3 requires that “[w]hen a borrower submits a request for HAMP consideration after a foreclosure sale date has been scheduled and the request is received no later than midnight of the seventh business day prior to the foreclosure sale date (Deadline), the servicer must suspend the sale as necessary to evaluate the borrower for HAMP.” HAMP Guidelines, supra, ch. II, §. Here, plaintiff had at least 14 days’ notice of defendants’ HAMP application prior to the date scheduled for the sale but did not stop the sale. The issue, therefore, is plaintiff’s failure to suspend the sale upon receipt of defendants’ HAMP application, not whether defendants’ discharge from bankruptcy was a sufficient change in circumstance (although defendants maintain that it was).

¶ 24 Turning from plaintiff’s conduct to the trial court’s application of law, defendants argue that the court misapplied section 15-1508(d-5) (735 ILCS 5/15-1508(d-5) (West 2010)) and the HAMP guidelines when it confirmed the sheriff’s sale. Section 15-1508(d-5) reads:

“The court that entered the judgment shall set aside a sale held pursuant to Section 15-1507, upon motion of the mortgagor at any time prior to the confirmation of the sale, if the mortgagor proves by a preponderance of the evidence that (i) the mortgagor has applied for assistance under the Making Home Affordable Program established by the United States Department of the Treasury pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009, and (ii) the mortgaged real estate was sold in material violation of the program’s requirements for proceeding to a judicial sale.” (Emphasis added.) 735 ILCS 5/15-1508(d-5) (West 2010).

Defendants argue that plaintiff materially violated HAMP guideline 3.3 because it was aware of defendants’ timely HAMP application yet did not act on it by stalling the sheriff’s sale. Moreover, HAMP guideline 1.2 provides that a loan that was initially rejected for, inter alia, a negative NPV “may be reconsidered for HAMP at a future time if the borrower experiences a change in circumstance.” HAMP Guidelines, supra, ch. II, § 1.2. Defendants contend that their discharge from bankruptcy would have led to a change in their credit scores, thus affecting an NPV analysis—the type of analysis that led to the rejection of their first HAMP application. This was a change in circumstance that should have allowed for HAMP reconsideration, and all that was necessary to halt the sale was the reconsideration, not the outcome of the reconsideration. Therefore, because defendants made a timely application for reconsideration after experiencing a change in circumstance, plaintiff violated HAMP guideline 3.3 by proceeding with the sale despite actual notice of the timely application, and the trial court should have set aside the sale pursuant to section 15-1508(d-5) (735 ILCS 5/15-1508(d-5) (West 2010)).

¶ 25 Plaintiff responds to defendants’ arguments as follows. As a threshold matter, defendants have the burden of developing a sufficient record for review. However, with regard to whether defendants’ second HAMP application represented a change in circumstance such that reconsideration was required under HAMP guideline 1.2, there is little evidence—defendants present only their applications from July 14, 2010, and November 3, 2011, and, of the two applications, only the November 2011 application contained defendants’ financial information. Therefore, defendants’ argument that plaintiff materially violated HAMP guidelines and thus the trial court should have set aside the sale pursuant to section 15-1508(d-5) (735 ILCS 5/15-1508(d-5) (West 2010)) should be deemed forfeited under Illinois Supreme Court Rule 341(h)(7) (eff. Feb. 6, 2013), because there is an insufficient record to support the argument. We find, however, that there is a sufficient record to address the issues presented on appeal, and we therefore address the substance of defendants’ arguments.

¶ 26 Plaintiff next argues that defendants’ arguments fail on their merits. Although plaintiff concedes that defendants’ second HAMP application qualified for reconsideration, qualifying is not synonymous with experiencing a change in circumstance that requires reconsideration. Plaintiff focuses on the lack of evidence—specifically defendants’ failure to demonstrate a change in their financial circumstances—to establish a change in circumstance that would have affected their NPV calculation, which was the basis for denial of their first HAMP application. A postbankruptcy status, standing alone, is not a change in circumstance under the HAMP guidelines. Although successive HAMP applications are possible and anticipated under the guidelines, the mere filing of a successive application does not trigger MHA protections; a change in circumstance is a necessary condition for reconsideration, and the change in circumstance must relate to the reason the original application was denied, here, the negative NPV calculation. Without financial data from both the first and second applications, defendants have not demonstrated a change in their financial circumstances that could have affected their NPV calculation. Moreover, defendants cite no support in the record or authority for the proposition that a bankruptcy discharge constitutes a change in circumstance necessary for reconsideration under the HAMP guidelines.

¶ 27 Moreover, plaintiff argues, defendants’ arguments lead to an absurd result—that is, if all a defendants has to do to delay proceedings is file a HAMP application without an accompanying change in circumstance, then a defendant could unilaterally delay a sheriff’s sale into perpetuity. Plaintiff argues that the purpose of the HAMP guidelines and the MHA is to provide assistance to homeowners to reduce monthly payments so that they may keep their homes, not to let homeowners recycle denied applications to stave off inevitable sales.

¶ 28 Plaintiff also argues that defendants’ contention that they did not receive proper notice of the sheriff’s sale fails. However, plaintiff offers little in the way of support for this argument, other than asserting that “defendants offer nothing, save a passing reference in their brief, to compel a different conclusion” and that, since defendants “knew to submit” their second HAMP application on November 3, 2011—two weeks before the date set for the sheriff’s sale—they must have been aware of the sale, implying that they had notice.

¶ 29 Defendants reply by arguing that there is no difference between qualifying for consideration and reconsideration of a HAMP application. What is important, they argue, is that they submitted a timely HAMP application following a discharge from bankruptcy, more than seven days before the scheduled sheriff’s sale. Following a developing common theme here—one that we find cuts against both parties, at least at times—defendants contend that plaintiff lacks supporting authority for its positions.

¶ 30 Defendants also cite HAMP guideline 1.2, which says that a borrower who has received a chapter 7 bankruptcy discharge in a case involving a first lien mortgage and who did not reaffirm the mortgage debt under applicable law is eligible for HAMP. HAMP Guidelines, supra, ch. II, § 1.2. Defendants argue that this guideline provides that a bankruptcy discharge is, in fact, a change in circumstance that allowed them to submit a successive HAMP application. Furthermore, the HAMP guidelines do not require a material change in circumstance; materiality, according to defendants, is relevant only to plaintiff’s violation of the HAMP guidelines, i.e., the requirement under section 15-1508(d-5) of the Code (735 ILCS 5/15-1508(d-5) (West 2010)) that the sale proceeded in material violation of the MHA, and thus the HAMP guidelines. Moreover, defendants deny that consideration of their second HAMP application—following a discharge from bankruptcy that would affect their credit score, thereby possibly altering an NPV analysis—would lead to an absurd result of endless, successive filings to delay a sheriff’s sale. Rather, they merely submitted a second application after circumstances changed in such a way that they might qualify under the MHA to modify and pay down their loan.

¶ 31 We begin our analysis by recognizing that any relief here stemming from violations of HAMP guidelines must derive from section 15-1508(d-5).^[3] For the following reasons, we find that the trial court should have granted defendants’ motion to deny confirmation of the sale under section 15-1508(d-5) (735 ILCS 5/15-1508(d-5) (West 2010)).

¶ 32 We agree with defendants that the initial, operative question is whether they qualified for reconsideration and disagree with plaintiff that qualifying for reconsideration is somehow a wholly separate inquiry from experiencing a change in circumstance. Per HAMP guideline 1.2, a mortgage loan may be reconsidered under HAMP if, after meeting basic criteria but being disqualified due to a negative NPV—as was defendants’ first application in July 2010—the borrower experiences a change in circumstance. HAMP Guidelines, supra, ch. II, § 1.2; see also Home Affordable Modification Program—Borrower Outreach and Communication Supplemental Directive 10-02, at 9 (Mar. 24, 2010), available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer /sd1002.pdf (last visited June 21, 2013). However, guideline 1.2 does not end there. It continues, “Servicers must have an internal written policy which defines what the servicer considers a change in circumstance and outlines when a borrower will be reevaluated for HAMP.” HAMP Guidelines, supra, ch. II, § 1.2. Furthermore, although a servicer’s policy may limit the number of reconsiderations, the guidelines require the servicer to allow at least one reconsideration, and this was defendants’ first such request for reconsideration. HAMP Guidelines, supra, ch. II, § 1.2. Conspicuously missing from plaintiff’s brief is any reference to its own internal policy that would define or limit what it considers a change in circumstance. Given that plaintiff has not ruled out a bankruptcy discharge as a change in circumstance per its policy, and given that a borrower’s credit score is a factor input in an NPV calculation (see HAMP Guidelines, supra, ch. II, § § 2.2, 7.6.1, 7.8), it stands to reason that a bankruptcy discharge could be a change in a borrower’s circumstance that would affect the outcome of the very analysis that was the basis for their first application’s denial: a negative NPV.^[4] Whether a discharge from bankruptcy would lead to a positive NPV, or to even a more negative NPV, we do not know. But that is the point. The purpose of HAMP, and the purpose of a reconsideration after a change in circumstance, is to evaluate the status of borrowers to determine if they qualify under the MHA for loan assistance or modification and thus to prevent avoidable foreclosures after the collapse of the housing market in 2008. See Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 554 (7th Cir. 2012). Bankruptcy affects a credit score, which in turn affects an NPV analysis, which in turn affects whether a borrower will receive assistance under HAMP. We find that, absent an internal policy to the contrary, a borrower’s discharge from chapter 7 bankruptcy is a change in circumstance that can trigger continued eligibility for a successive HAMP application under HAMP guideline 1.2. Cf. Santelises v. Bank of America, N.A., No. 12-11164-NMG, 2012 WL 6045986, (D. Mass. Oct. 22, 2012) (defendants failed to allege a change in circumstance, which the court described as an increase in income or other assets).

¶ 33 Finding that the bankruptcy discharge qualified defendants to apply for HAMP reconsideration only gets their proverbial feet in the door. In order to set a sale aside, section 15-1508(d-5) requires that a defendant file a motion before confirmation of the sale and prove, by a preponderance of the evidence, that the defendant applied for assistance under the MHA and that the sale took place in material violation of the MHA’s requirements, i.e., the HAMP guidelines, for proceeding to a judicial sale. 735 ILCS 5/15-1508(d-5) (West 2010). Defendants correctly contend that this is where materiality matters, that is, whether plaintiff materially violated HAMP and not whether the change in circumstance was a material one.

¶ 34 Defendants focus on HAMP guideline 3.3, which says that a servicer must suspend a sale as necessary to evaluate the borrower for HAMP if a timely application is submitted. Here, defendants’ submission two weeks before the sale was timely. They were eligible for reconsideration because of their change in circumstance, and plaintiff did not complete the evaluation of their application until after the sale, indicating that suspension of the sale was necessary to allow for sufficient time to complete the evaluation. Given that the purpose of the HAMP is to assist borrowers in maintaining their properties, proceeding to sale in violation of a guideline that mandates that a servicer “must suspend the sale” is clearly the type of material violation contemplated in section 15-1508(d-5).

¶ 35 There are, however, four circumstances where a servicer such as plaintiff is not required to suspend a foreclosure sale; none applies here. HAMP Guidelines, supra, ch. II, § 3.3. The first is when a HAMP application is untimely, that is, received after the deadline of seven business days prior to the scheduled sale. We have already found that defendants’ application was timely. The second regards the situation where a borrower has received a permanent loan modification, which is inapplicable here because defendants never received any sort of loan modification. The third involves a trial period plan (TPP), which again does not apply because defendants never received a TPP. Finally, a servicer does not have to suspend a sale if it finds a borrower ineligible under HAMP. Although that is essentially what plaintiff argues on appeal—that defendants did not qualify to file a successive HAMP application—it did not deny defendants’ second application on this basis. Instead, it proceeded to sale without resolving the HAMP application one way or another, and, only after the sale, it informed defendants that their application was denied because the loan had been paid off (via, impliedly, the sale). Moreover, we have already found that defendants were eligible for a successive HAMP application due to their change in circumstance, and therefore plaintiff’s argument fails regardless.

¶ 36 Although the trial court had discretion to decide whether to confirm the sale, we review the construction of statutes de novo. See Household Bank, FSB, 229 Ill. 2d at 178. We find that a “material violation” under section 15-1508(d-5) occurred where plaintiff proceeded to sale in violation of HAMP guideline 3.3, which required suspension of the sale upon defendants’ successive HAMP application. Had the trial court construed the law this way, it surely would have sustained defendants’ objection to confirmation of the sale. Therefore, the trial court abused its discretion when it confirmed the sale of the Property. To hold otherwise would be to effectively ignore our legislature’s promulgation of section 15-1508(d-5).

¶ 37 We also disagree with plaintiff that our holding will lead to an absurd result. Successive applications cannot be made ad infinitum under our holding. In fact, unless a defendant can declare and receive a discharge from bankruptcy multiple times—and all before a scheduled sale—then a defendant cannot use our holding to perpetually suspend a sale. A change in circumstance is necessary to qualify a defendant for a successive application, and the HAMP guidelines require that a servicer allow at least one reconsideration based on a change in circumstance. The proper course is for a servicer such as plaintiff to define in its internal policy what qualifies as a change in circumstance, and, if it receives a successive application that does not qualify due to a lack of change in circumstance, to timely deny the application based on that fact.

¶ 38 As to defendants’ argument of improper notice, the trial court did not abuse its discretion in finding that notice was proper under section 15-1508(b-5). The notice filed with the court, albeit not file-stamped until after the sale, attested to the fact that plaintiff mailed notice of the November 17, 2011, sale on October 24, 2011. Defendants offer nothing more than their own protestations that they did not receive the mail. However, this argument is moot because confirmation of the sale should have been denied based on a violation of section 15-1508(d-5) for a material violation of the HAMP guidelines.

¶ 39 C. Rule 137 Sanctions

¶ 40 Defendants argue that plaintiff’s failure to suspend the sale per HAMP guideline 3.3 is alone reason to sanction plaintiff. Defendants also try to paint a picture of blatant disregard for rules and procedures as plaintiff rushed to complete the sale of the Property. However, defendants provide no legal standard by which we can assess whether the trial court abused its discretion and should have imposed sanctions.

¶ 41 Illinois Supreme Court Rule 137 (eff. Jan. 4, 2013) requires that an attorney certify that a pleading, motion, or other document is “to the best of his knowledge, information, and belief formed after reasonable inquiry” and “is well grounded in fact and is warranted by existing law or a good-faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.” “The purpose of Rule 137 is to prevent abuse of the judicial process by penalizing claimants who bring vexatious and harassing actions.” Sundance Homes, Inc. v. County of Du Page, 195 Ill. 2d 257, 285-86 (2001). Rule 137 sanctions are punitive, so the rule should be strictly construed. Sadler v. Creekmur, 354 Ill. App. 3d 1029, 1045 (2004).

¶ 42 The trial court here denied the motion for sanctions, and we will not reverse absent an abuse of discretion. E.g., Dowd & Dowd, Ltd.v. Gleason, 181 Ill. 2d 460, 487 (1998); Edwards v. City of Henry, 385 Ill. App. 3d 1026, 1034 (2008). There is no contention that plaintiff’s actions were not grounded in fact. Defendants argue that throughout the course of the litigation, plaintiff “treated Defendants egregiously.” They also contend that proceeding to sale, in violation of HAMP guideline 3.3, was an unwarranted, sanctionable action. However, defendants’ characterization of plaintiff’s conduct is overly generalized. The only specific conduct that defendants focus our attention on is plaintiff’s proceeding with the November sale of the Property despite its receipt of defendants’ second HAMP application. Plaintiff’s conduct over the course of the litigation can reasonably be viewed as that of a servicer, acting in its best interests, merely trying to expedite the sale of the Property after receiving a judgment in its favor. Furthermore, the law in this area was unclear; neither party was able to cite authority that a bankruptcy discharge was a change in circumstance that qualified defendants for a successive HAMP application. Absent some allegation that plaintiff proceeded contrary to established authority in this case, we cannot find plaintiff’s actions sanctionable under Rule 137.

¶ 43 III. CONCLUSION

¶ 44 For the reasons stated, we reverse the Kane County circuit court’s order granting confirmation of the sale of the Property, vacate the sale, and remand the cause so that plaintiff can properly consider defendants’ HAMP application. We affirm the Kane County circuit court’s order denying Rule 137 sanctions.

¶ 45 Affirmed in part and reversed in part; cause remanded.

[1] Defendants do not attach a copy of their bankruptcy petition or cite to the record to support their filing. However, plaintiff concedes the filing, and we proceed with this disposition assuming that defendants did file for bankruptcy as related in their brief.

[2] Defendants claim that they never received notice of the sheriff’s sale and found out that the sale had occurred only from a realtor who visited the home on November 22, 2011.

[3] Defendants do not explicitly argue for relief stemming from HAMP violations under another section of Illinois law, although they do argue that notice was improper under section 15-1508(b). We address notice after addressing the alleged HAMP violations.

[4] Defendants argue that HAMP guideline 1.2 supports that a discharge from chapter 7 bankruptcy is a change in circumstance. The portion of the guideline they cite states that “[b]orrowers who have received a Chapter 7 bankruptcy discharge in a case involving a first lien mortgage *** are eligible for HAMP.” HAMP Guidelines, supra, ch. II, § 1.2. However, this provision merely affirms that a borrower discharged from bankruptcy is eligible for HAMP in general but does not speak to continued eligibility for a successive application due to a change in circumstance.

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Palm Beach Post-

The Florida Bar announced Wednesday that the former owner of a Fort Lauderdale-based foreclosure mill was formally disciplined by the state Supreme Court and is serving a 91-day suspension.

Marshall C. Watson, who ran the Law offices of Marshall C. Watson, agreed in December to plead guilty to offenses found during a Florida Bar investigation.

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From the Florida Bar–

Marshall Craig Watson, P.O. Box 460862, Fort Lauderdale, suspended for 91 days, effective 30 days from a May 30 court order. (Admitted to practice: 1983) Watson failed to supervise his employees and he failed to develop and maintain acceptable policies and operating practices for his law firm to ensure that he and his staff were complying with Bar rules. Between 2006 and 2011, Watson’s company handled thousands of foreclosure cases on behalf of banks, lenders and financial institutions. The Bar received numerous complaints against Watson during that time from four members of the judiciary as well as defendants in foreclosure actions. (Case No. SC12-2731)

Law 360-

Freddie Mac on Monday urged a New York bankruptcy court to reject Residential Capital’s recent deal with Financial Guaranty Insurance Co. to slash the bond insurer’s claim against ResCap by nearly $5 billion, arguing the deal was not negotiated in good faith and would unfairly shortchange the mortgage giant.

The government-sponsored enterprise said the settlement would terminate insurance policies that guarantee the payment of principal and interest on mortgage-backed securities it holds that were issued or serviced by ResCap. Freddie Mac refuted the settlement’s finding that…

[LAW 360] subscription

HuffPO-

It’s a real-life disaster movie, one that’s left neighborhoods in ruins all across the country, killed thousands of people, and ruined millions of lives. You might call it a “Banknado.”

Yes, we know the Sharknado craze ended about ten days ago. The sci-fi movie’s premise of tornadoes filled with deadly sharks has probably passed its cultural sell-by date. But we’ll use the metaphor anyway, because it’s just so apt: Wall Street’s a whirlwind filled with predators descending on a hapless population.

And while our leaders stand idly by, the teeth-filled twisters keep falling from the sky. Look out below!

Sharks…

[HUFFINGTON POST]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

HuffPo-

Before Lehman crashed, there was “The Bear.”

Bear Stearns, once the nation’s fifth-largest investment bank, had been a fixture on Wall Street since 1923 and had survived the crash of 1929 without laying off any employees.

But in 2008, its customers and creditors didn’t much care about its storied history. They were worried that the billions of dollars of mortgage-backed securities on its books weren’t worth what the company claimed. En masse, they stopped doing business with Bear.

Within a few days, on Monday, March 17, Bear was gone — subsumed into JPMorgan Chase & Co. with the help of the Federal Reserve for a price that was approximately the value of its shiny new Madison Avenue office tower alone.

[HUFFINGTON POST]

HW-

Nationstar Mortgage Holdings faces a $35 million lawsuit after backing away from plans to sell $150 million in home loans.

Truman Capital Advisors and U.S. Bank filed the suit after the firms’ winning bid for Nationstar assets was superceded by the mortgage servicer’s decision to back away from the sale. The firms are asking for compensation to cover due diligence work, research expenses and other costs incurred when the plaintiffs prepared their bid for Nationstar ($46.43 0.31%)mortgage assets.

It all started when Nationstar offered hundreds of residential mortgages for sale through an online auction hosted by its agent, Auction.com.

[HOUSING WIRE]

This should spread like the MERS virus!

HuffPO-

Usually a community group has to protest in front of a bank, take over a corporate shareholders’ meeting, or get arrested at a politicians office or a slumlord’s home to make the front page of the New York Times.

But on Tuesday, the Home Defenders League – a coalition of community groups who organize homeowners facing foreclosure – made the Times’ front page simply by using two words: “eminent domain.”

Reporter Shaila Dewan’s article,”A City Invokes Seizure Laws to Save Homes,” described the group’s efforts in Richmond, California, where it is working with city officials to help families facing foreclosure and save blighted neighborhoods overrun with foreclosed homes by using its power of eminent domain to purchase mortgages and re-sell them to homeowners at a reduced price.

As the Times’ story noted, Wall Street lobbyists are waging a legal, political, and ideological war to stop Richmond and other upstart cities from taking control of their own destinies.

[HUFFINGTON POST]

Related: Mortgage Jobs Sent to India By U.S. Banks

CIOL-

HYDERABAD, INDIA: Lender Processing Services Inc., a leading provider of innovative technology, services, data and analytics to the mortgage and real estate industries today announced the opening of its mortgage technology services facility in India. The company handles about 50 percent of all US mortgages by dollar value.

LPS acquired an office in Hyderabad as part of its acquisition of LendingSpace in 2012. LendingSpace provides residential mortgage origination technology, including a unique correspondent lending platform that enhances collaboration between retail originators and their correspondent lending partners in the United States.

This new, larger Hyderabad location, which boasts 40,000 square feet, with space for further growth, has an advanced technological infrastructure that will accommodate increases in the number of employees and strengthens LPS delivery of Software-as-a-Service (SaaS) solutions.

[CIOL]

Decided on July 29, 2013

18995/2011

Attorney for Plaintiff

Marie Nicholson, Esq.

Leopold & Associates, PLLC

80 Business Park Drive, Suite 110

Armonk, NY 10504

(914) 219-5787

Francois A. Rivera, J.

By notice of motion filed on May 17, 2013, under motion sequence number one, plaintiff HSBC BANK USA, N.A., as Trustee for the Registered Holders of Ace Securities Corp. Home Equity Loan Trust, SERIES 2004-in1, Asset Backed Pass-through Certificates (hereinafter HSBC), has moved for an order (1) appointing a referee to compute the amounts due; (2) amending the caption by striking “John Doe #2” through “John Doe #12”, and (3) striking Claudette Brunson from the caption and replacing her name with Ashanti Douglas and Tanya Douglas, Individually and as Co-Administrator of the Estate of Claudette Brunson.

The motion is unopposed.

BACKGROUND

On August 19, 2011, HSBC commenced the action to foreclose on a mortgage against a piece of real property located at Block 8545, Lot 56, commonly known as 2036 East 54th Street, [*2]Brooklyn, New York 11234 (the subject property) by filing a summons, complaint and notice of pendency with the Kings County Clerk’s office. No defendant has joined issue.

HSBC’s complaint and annexed motion papers allege that defendant Claudette Brunson (hereinafter Brunson), encumbered the subject property with two mortgages. On April 11, 1997, Brunson and an individual non-party executed the first mortgage in the amount of $222,700.00 in favor of Wall Street Mortgage Bankers, LTD doing business as Power Express. On March 25, 2003, Brunson executed the second mortgage in favor of Indymac Bank F.S.B. in the amount of $25,656.96. On March 25, 2003, Brunson combined both mortgages by entering into a Consolidated, Extension and Modification Agreement. HSBC contends that Brunson defaulted on the payment of the consolidated mortgages by not making payments from March 1, 2010 to date. On July 27, 2011, the mortgages were assigned to HSBC by affidavit of lost assignment.

MOTION PAPERS

The motion papers consist of a notice of motion, several affirmations from HSBC’s counsel, an affidavit from an employee of Ocwen Loan Servicing, Inc, the company that services plaintiff’s mortgages; an affirmation pursuant to RPAPL 1304, a proposed order of reference, an affidavit of service by mail, an affirmation pursuant to administrative order 431/2011, and twelve annexed exhibits labeled A through L. Exhibit A is a copy of summons and complaint and notice of pendency. Exhibit B is a copy of the consolidation, extension, and modification agreement combining defendant’s mortgages. Exhibit C contains copies of the notes and both mortgages given by Brunson securing the notes. Exhibit D is a copy of the assignments of the first mortgage. Exhibit E is a copy of the affidavit of lost assignment transferring the consolidated mortgage to HSBC. Exhibit F is a copy of the deed to the subject property. Exhibit G contains a copy of Brunson’s death certificate and a Decree of Administration appointing Ashanti Douglas and Tanya Douglas as the administrators of Claudette Brunson’s estate. Exhibit H contains copies of affidavits of service. Exhibit I is a copy of the affidavit of service of the application for an order of reference. Exhibit J is a copy of the affidavit of mailing of the summons. Exhibit K contains copies of two letters purportedly sent to defendant Brunson. The first is dated September 15, 2009 and the second is dated July 2, 2009. Exhibit L is a copy of an affirmation of HSBC’s counsel pursuant to administrative order 431/2011.

LAW AND APPLICATION

HSBC seeks, among other things, an order appointing a referee to compute the amount that it is due on the consolidated notes based on Brunson’s default in making payments. HSBC also seeks to amend the caption and to strike Brunson and replace her name with her co-administrators. Although HSBC did not state the procedural vehicle for this branch of the relief it seeks, it is apparent that the motion is pursuant to CPLR 1015(a) and 1021.

“It is well settled that the death of a party divests a court of jurisdiction to conduct proceedings in an action until a proper substitution has been made pursuant to CPLR 1015(a) . . . , and any order rendered after the death of a party and before the substitution of a legal representative is void” (see Matter of Sills v Fleet Natl. Bank, 81 AD3d 1422, 1423 [4th Dept 2011] citing Griffin v Manning, 36 AD3d 530, 532 [1st Dept 2007]). Only “under special circumstances,’ such as where there has been active participation in the litigation by the personal representative who would have been substituted for decedent” is the rule waived (id.). It is also well established that the dead cannot be sued (Marte v Graber, 58 AD3d 1 [1st Dept 2008]). [*3]

The substitution provisions of CPLR 1015(a) and 1021 presuppose that an action was commenced against a living person — someone who has the legal capacity to be “a party” — and the action was pending at the time such party died. In Marte v Graver, the putative defendant was already dead at the time the summons and complaint were filed, rendering the action a nullity from the outset as to that defendant (58 AD3d 1 [1st Dept 2008]). Since the decedent was never a party to the action, the substitution provisions of CPLR 1015 and 1021 were unavailable to correct the defect, and dismissal was required (see Rivera v Bruchim, 100 AD3d 700 [2nd Dept 2013]). A “personal representative should have been named as the defendant at the outset” (Vincent C. Alexander Practice Commentaries, McKinney’s Cons. Law of NY, Book 7B, CPLR C1015:3. Substitution Upon Death of a Party).

In the instant matter, HSBC filed the summons and complaint on August 19, 2011. HSBC candidly admits, and buttressed by a death certificate annexed as exhibit G that defendant Brunson died on October 26, 2008, over two years prior to the date the action was commenced. The motion ultimately seeks, among other things, an order pursuant to CPLR 1015 and 1021 amending the caption to strike Claudette Brunson and replace the decedent with Ashanti Douglas and Tanya Douglas, the co-administrators of her estate. However, since Brunson died prior to the commencement of this action, this matter was a nullity from the onset and, thus, cannot be remedied.

For the foregoing reasons, the complaint as against defendant Claudette Brunson is a nullity that cannot be cured. The court has no jurisdiction to entertain the motion (Rivera v Bruchim, 100 AD3d 700 [2nd Dept 2013]). Therefore, plaintiff’s requests are denied and the complaint as against defendant Claudette Brunson is dismissed.

The foregoing constitutes the decision and order of this Court.

Enter:

J.S.C.

Enter Forthwith:________

J.S.C.

The Denver Post-

Colorado’s most prolific foreclosure law firm — led by attorney Larry Castle — is the latest to file a lawsuit and formally ask a Denver judge to protect its records from a state investigation into its billing practices.

The Castle Law Group filed its case late Friday in Denver District Court against Attorney General John Suthers to prevent turning over more than 700 e-mails the firm says are protected by attorney-client privilege.

Castle has asked District Judge Kenneth Laff to review the e-mails and about 52 pages of documents in chambers to determine whether they fall under protection from disclosure.

Suthers’ office issued a subpoena to Castle’s firm — once known best as Castle, Meinhold, Stawiarski, and then as Castle Stawiarski — in April seeking thousands of pages of documents in its investigation of attorneys’ billing practices.

The investigation centers on claims that lawyers representing banks and other lenders pad the expenses they’re entitled to recoup, generating profits that investigators say are paid for by homeowners and taxpayers.

[The Denver Post]

WSJ-

Two major Wall Street firms are in detailed discussions to create and sell the world’s first bond backed by home-rental payments, people familiar with the matter say.

Blackstone Group LP is in negotiations to bundle monthly rental payments on around 1,500 to 1,700 of its homes. The private-equity giant is among the firms that have spent billions buying homes out of foreclosure, an investment strategy that has helped to bolster demand and strengthen the U.S. housing market.

The bond comprised of the Blackstone homes would be structured and marketed to investors by Deutsche Bank AG, the people say.

The creation of a new type of security shows that Wall Street’s financial engineering, blamed for deepening the financial crisis, is revving back up.

Some investors and analysts have said they are wary of a bond backed by rental payments, citing the dearth of long-term data on how often tenants living in previously foreclosed homes pay their rent on time.

[WALL STREET JOURNAL]

Mess Up at One Job, Get a Better One

WSJ-

If you saw the movie “The Social Network,” you saw a portrayal of the Winklevoss twins complaining to Harvard President Larry Summers that some twerp named Mark Zuckerberg stole their idea for Facebook.

Mr. Summers shooed them away, not recognizing the value of the website, which turned out to be worth billions, or their claim against Mr. Zuckerberg, which became worth a couple hundred million.

In 2006, Mr. Summers resigned as Harvard’s president following a faculty no-confidence vote. He’d sparked one controversy after the next, the least of which was suggesting that women didn’t have the aptitude for math and science.

He also supported a Harvard professor who bought Russian stocks while designing Russia’s privatization plans—a scandal that led to Harvard paying $26.5 million to settle a False Claims Act lawsuit. Then he lost Harvard about $1 billion by investing its money in derivatives—instruments he wanted to keep deregulated during his days in the Clinton administration.

[WALL STREET JOURNAL]

image: downwithtyranny.blogspot.com

New Republic-

The unstated purpose of reality television is for viewers to feel superior to the poor saps on screen. And this week it is also apparently the purpose of the Department of Justice, which indicted two of the stars of “The Real Housewives of New Jersey” on Monday. In a case involving the Federal Deposit Insurance Corporation (FDIC) Inspector General, the IRS, the U.S. Bankruptcy Trustee and the U.S. Attorney’s office in New Jersey, Teresa Guidice and her husband Joe stand accused of cheating on their taxes, hiding assets from a bankruptcy court and, in what is described as a “mail and wire fraud conspiracy,” fraudulently obtaining several home mortgages with false applications from 2001 to 2008.

“The Giudices falsely represented on loan applications and supporting documents that they were employed and/or receiving substantial salaries when, in fact, they were either not employed or not receiving such salaries,” reads the indictment.

[NEW REPUBLIC]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

IN THE CIRCUIT COURT
OF THE TWENTIETH JUDICIAL CIRCUIT
ST. CLAIR COUNTY, ILLINOIS

ST. CLAIR COUNTY, ILLINOIS,
BY AND THROUGH ITS STATE’S ATTORNEY,
BRENDAN KELLY, AND ITS RECORDER OF
DEEDS, MIKE COSTELLO,
Plaintiff,

vs.

MORTGAGE ELECTRONIC REGISTRATION
SYSTEMS, INC.; MERSCORP, INC.;
BANK OF AMERICA, N.A.; CCO MORTGAGE
CORPORATION; CITIMORTGAGE, INC.;
CORINTHIAN MORTGAGE CORPORATION;
EVERHOME MORTGAGE COMPANY; GMAC
RESIDENTIAL FUNDING CORPORATION;
GUARANTY BANK; HSBC FINANCE
CORPORATION; SUNTRUST MORTGAGE,
INC.; WELLS FARGO BANK, N.A.; WMC
MORTGAGE CORPORATION; BANK OF O’FALLON;
COMPASS MORTGAGE, INC.; FIRST COLLINSVILLE
BANK; FIRSTCO MORTGAGE CORPORATION;
FIRST COUNTY BANK; MID AMERICA MORTGAGE
SERVICES OF ILINOIS, INC.; MORTGAGE
SERVICES III, LLC; MIDLAND STATES BANK
PEOPLES NATIONAL BANK N.A.,
COMMERCE BANK, REGIONS BANK, AND
UMB BANK N.A.,
Defendants.

[ipaper docId=120691229 access_key=key-11my3bb6zwx1oaelz93m height=600 width=600 /]

“If a note is pursued by a party that is not entitled to possess and to enforce it, the mortgage is meaningless. The question, therefore, is not whether the Mortgage is unperfected, but is it enforceable.” … The result is essentially the same as assertion of the Trustee’s strong arm powers against an unperfected mortgage. If Vanderbilt cannot enforce the Note, it is as if the Mortgage does not exist. The Mortgage would not secure repayment of anything if there is no enforceable promise to pay.

Pepper Hamilton LLP-

A chapter 7 trustee sought to use his “strong arm” powers as a hypothetical judgment lien creditor, arguing that a mortgage could be avoided because the mortgagee (which was an assignee of the original mortgagee) was not entitled to enforce the note secured by the mortgage. Although the bankruptcy court did not avoid the mortgage lien, it did conclude that the trustee could sell the mortgaged property free of any claim by the mortgagee assignee.

The debtors (the Dorseys) executed a note in favor of Popular Financial Services, LLC (PFS) that was secured by a mortgage given to Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for PFS. The debtors executed an Affidavit of Conversion of Real Estate so that the mobile home encumbered by the mortgage was treated as real estate, and the mortgage properly perfected the lien on the mobile home.

A couple of years later Vanderbilt Mortgage & Finance, Inc. (Vanderbilt) acquired certain installment loan agreements pursuant to a purchase agreement with the parent and an affiliate of PFS to purchase. The schedule of contracts attached to the purchase agreement included a contract with one of the Dorseys, and the Dorsey note was identified as one of the notes that was transferred.

Vanderbilt obtained possession of the Dorsey note, and MERS’ assignment of the Dorsey mortgage to Vanderbilt was recorded. However, unfortunately for Vanderbilt, there was no indorsement of the note from PFS to Vanderbilt, and PFS was not a party to the purchase agreement.

The court began with an analysis of the trustee’s ability to assert the rights of a hypothetical judicial lien creditor under Section 544(a)(1) of the Bankruptcy Code. Typically a trustee’s strong arm power is asserted to establish rights in collateral that are superior to liens that are unperfected as of the commencement of the bankruptcy, so that the unperfected liens can be avoided. (See, for example, Bankruptcy “Strong Arm” Powers: Bye Bye Mortgage.)

[PEPPER HAMILTON LLP]

STATE OF OHIO
COUNTY OF SUMMIT

IN THE COURT OF APPEALS
NINTH JUDICIAL DISTRICT

BAC HOME LOANS SERVICING, LP fka
COUNTRYWIDE HOME LOANS
SERVICING, LP
Appellee

v.

GARRICK P. MCFERREN, aka
GARRICK MCFERREN, et al.
Appellant

DECISION AND JOURNAL ENTRY
Dated: July 24, 2013

BELFANCE, Presiding Judge.

{¶1} Garrick McFerren appeals the decision of the Summit County Court of
Common Pleas awarding summary judgment to Bank of America, N.A. For the reasons
set forth below, we reverse.

I.

{¶2} On February 19, 2008, Mr. McFerren signed a promissory note (“the
Note”) for $211,500.00 with Quicken Loans, Inc. That same day, he also signed a
mortgage (“the Mortgage”) purporting to secure the Note, which named Mortgage
Electronic Registration Systems, Inc. (“MERS”) as “the mortgagee under this Security
Instrument.” Quicken Loans later transferred the Note to Countrywide Bank, FSB, which
subsequently endorsed the Note in blank, thus leaving the space for “payable to” empty.
On March 16, 2011, MERS assigned the mortgage to BAC Home Loan Servicing, LP,
and the assignment was recorded on April 19, 2011. BAC initiated foreclosure
proceedings on June 30, 2011.

{¶3} On July 1, 2011, BAC merged with Bank of America, N.A., and Bank of
America was substituted as party plaintiff on August 30, 2011. Bank of America moved
for summary judgment, and Mr. McFerren filed a motion in opposition, albeit untimely.
The trial court never ruled on Mr. McFerren’s motion for leave to file his motion in
opposition, and it awarded summary judgment to Bank of America on March 12, 2012, in
a judgment entry prepared by Bank of America.

{¶4} Mr. McFerren has appealed, raising a single assignment of error for our
review.

II.
ASSIGNMENT OF ERROR
REVIEWING THE APPELLEE’S MOTION FOR SUMMARY
JUDGMENT DE NOVO, THE RECORD IS CLEAR AND
CONVINCING THAT THE TRIAL COURT ERRED TO THE
PREJUDICE OF APPELLANT BY GRANTING APPELLEE’S
MOTION FOR SUMMARY JUDGMENT IN FAVOR OF APPELLEE
ON THE FORECLOSURE COMPLAINT AND AGAINST
APPELLANT ON THE QUIET TITLE COUNTERCLAIMS AND
THIRD PARTY COMPLAINT.

{¶5} Mr. McFerren argues that the trial court erred in awarding summary
judgment to Bank of America because BAC lacked standing to initiate the action. We
agree that, given the record before us, we cannot conclude that BAC had standing to
initiate the action.

{¶6} Bank of America argues that we should not reach the question of standing
because Mr. McFerren failed to properly raise it in the trial court; however, it is wellestablished
that “the issue of standing, inasmuch as it is jurisdictional in nature, may be
raised at any time during the pendency of the proceedings.” New Boston Coke Corp. v.
Tyler, 32 Ohio St.3d 216 (1987), paragraph two of the syllabus. See also Fed. Home
Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, ¶ 22 (citing
Tyler with approval).

{¶7} In Schwartzwald, the Ohio Supreme Court determined that a plaintiff in a
foreclosure action must have standing at the time it files the complaint in order to invoke
the jurisdiction of the court. Schwartzwald at ¶ 41-42. “It is an elementary concept of
law that a party lacks standing to invoke the jurisdiction of the court unless he has, in an
individual or representative capacity, some real interest in the subject matter of the
action.” (Internal quotations and citations omitted.) Id. at ¶ 22. Standing to sue is
jurisdictional in nature as it concerns a party’s capacity to invoke the jurisdiction of the
court, and, therefore, whether a party has standing is evaluated at the time of the filing of
the complaint. Id. at ¶ 24. Moreover, the lack of standing cannot be cured by a
subsequent assignment of the note and mortgage subsequent to filing the complaint. Id.
at ¶38 (“Standing is required to invoke the jurisdiction of the common pleas court.
Pursuant to Civ.R. 82, the Rules of Civil Procedure do not extend the jurisdiction of the
courts of this state, and a common pleas court cannot substitute a real party in interest for
another party if no party with standing has invoked its jurisdiction in the first instance.”).

In Schwartzwald, the record did not establish that the plaintiff/bank was the holder of the
note or mortgage when it filed the complaint. As such, it “concede[d] that there [wa]s no
evidence that it had suffered any injury at the time it commenced th[e] foreclosure
action.” Id. at ¶ 28. “Thus, because it failed to establish an interest in the note or
mortgage at the time it filed suit, it had no standing to invoke the jurisdiction of the
common pleas court.” Id.

{¶8} Prior to Schwartzwald, this Court also held that in order to have a real
interest in a foreclosure action, a party must be the owner and holder of the note and the
mortgage at the time it commences the action. See U.S. Bank, N.A. v. Richards, 189
Ohio App.3d 276, 2010-Ohio-3981, ¶ 13 (9th Dist.), quoting Everhome Mtge. Co. v.
Rowland, 10 Dist. Franklin No. 07AP-615, 2008-Ohio-1282, ¶ 12 (“‘In foreclosure
actions, the real party in interest is the current holder of the note and mortgage.’”). BAC
filed the complaint at issue in this case. Bank of America was substituted as the plaintiff
and then moved for summary judgment. Relative to the mortgage, Bank of America
submitted copies of the Mortgage naming MERS as mortgagee and the assignment of the
Mortgage from MERS to BAC.1 With respect to the Note, Bank of America attached a
copy of the Note payable to Quicken Loans. The note contained an endorsement from
Quicken Loans to Countrywide Bank, FSB, which at some point Countrywide Bank
endorsed in blank. Bank of America also submitted the affidavit of Linda Geidel. In her
affidavit, Ms. Geidel averred that she is an officer of Bank of America, that Bank of
America was successor by merger to BAC, and the Bank of America had possession of
the Note. However, Ms. Geidel did not aver that BAC had possession of the Note at the
time that it filed the complaint.2

{¶9} Accordingly, none of the evidence in the record demonstrates that BAC
had possession of the Note at the time that it filed the complaint. The copy of the Note
attached to the complaint does not show anything beyond the fact that BAC had access to
a copy of the Note. The Note itself is payable to bearer by virtue of Countrywide Bank’s
blank endorsement, meaning that nothing on the Note itself indicates when, or if, BAC
became its owner through possession of the note. Further, the fact that Bank of America
had possession of the Note at the time it moved for summary judgment does not
demonstrate that BAC had obtained possession of the Note when it filed the complaint.
See Rowland at ¶ 15 (“[Bank of America] does not specify how or when [it] became the
holder of the note and mortgage. Without evidence demonstrating the circumstances
under which it received an interest in the note and mortgage, [it] cannot establish itself as
the holder.”). Nor is there evidence that Countrywide Bank, FSB, ever delivered the
endorsed Note to BAC or its predecessors.

{¶10} Nevertheless, Bank of America maintains that the record establishes that
BAC had standing because the mortgage assignment was dated and recorded prior to the
complaint being filed. It reasons that the assignment of the mortgage alone conferred
standing. Specifically, it refers to that portion of Schwartzwald where the Supreme Court
stated that Federal Home Loans did not have standing because “it failed to establish an
interest in the note or mortgage at the time it filed suit,” Schwartzwald, 134 Ohio St.3d
13, 2012-Ohio-5017, at ¶ 28, and points to Citimortgage, Inc. v. Patterson, 8th Dist.
Cuyahoga No. 98360, 2012-Ohio-5894, to support its interpretation. In Patterson, the
court noted that Schwartzwald had held “that Federal Home Loans did not have standing
because * * * ‘it failed to establish an interest in the note or mortgage at the time it filed
suit.’” (Emphasis sic.) Id. at ¶ 21, quoting Schwartzwald at ¶ 28. The Patterson court
concluded that the use of “or” marked a departure from its previous holdings that a party
needed “‘the note and mortgage when the complaint was filed[]’” in order to have
standing. (Emphasis sic.) Patterson at ¶ 21, quoting Wells Fargo Bank, N.A. v. Jordan,
8th Dist. Cuyahoga No. 91675, 2009-Ohio-1092, ¶ 23. Thus, the court held that, in light
of Schwartzwald, a party may establish its standing by showing that it is the assignee of
the mortgage or is the holder of the note. Patterson at ¶ 21.

{¶11} We do not find the Eighth District’s rationale persuasive. It is apparent
that the Ohio Supreme Court did not consider this precise issue in Schwartzwald given
that the bank had conceded that it was not the holder of the note or mortgage. See, e.g.,
Schwartzwald at ¶ 28 (noting that Federal Home Loans conceded there was no evidence
that it had either). Thus, the language must be read in the context of the entire opinion.
Like the Eighth District, this Court has previously held that a party must have the note
and the mortgage in order to demonstrate standing. See, e.g., Richards, 189 Ohio App.3d
276, 2010-Ohio-3981, at ¶ 13. Other districts have made similar holdings. See, e.g.,
Losantiville Holdings L.L.C. v. Kashanian, 1st Dist. Hamilton No. C-110865, 2012-Ohio-
3435, ¶ 17; Arch Bay Holdings, L.L.C. v. Brown, 2d Dist. Montgomery No. 25073, 2012-
Ohio-4966, ¶ 16; U.S. Bank Natl. Assn. v. Marcino, 181 Ohio App.3d 328, 2009-Ohio-
1178, ¶ 32 (7th Dist.); Rowland, 2008-Ohio-1282, at ¶ 12. It is unlikely that the Supreme
Court intended to overturn the holdings of all of the appellate courts on the issue,
especially since the issue was not directly before it.

{¶12} Moreover, as explained in Schwartzwald, the fundamental requirement of
standing is that the party bringing the action is actually the party who has suffered the
injury. See Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, at ¶ 23, 28. A party who
only has the mortgage but no note has not suffered any injury given that bare possession
of the mortgage does not endow its possessor with any enforceable right absent
possession of the note. See Restatement of the Law 3d, Property, Mortgages, Section
5.4(e), at 385 (1996) (“[I]n general a mortgage is unenforceable if it is held by one who
has no right to enforce the secured obligation.”). In other words, possession of the
mortgage is of no import unless there is possession of the note. While it is possible to
assign a mortgage and retain possession of the note, “[t]he practical effect of such a
transaction is to make it impossible to foreclose the mortgage, unless the transferee is
also made an agent or trustee of the transferor * * *.” Restatement, Section 5.4(c), at
384. See also id. (noting that UCC 3-203 likely requires courts to disregard a mortgage
assignment when the negotiable note is not also delivered); Christopher L. Peterson, Two
Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory,
53 Wm. & Mary L.Rev. 111, 119 (2011), fn. 34 (compiling cases from many jurisdictions
finding that the note and the mortgage are inseparable and that the assignment of a
mortgage alone is a nullity). This would further support the conclusion that the Supreme
Court did not intend to imply that simply possessing the mortgage is sufficient to
establish standing given that a party who simply holds the mortgage suffers no injury.
See Schwartzwald, at ¶ 28.

{¶13} Thus, we conclude that Schwartzwald did not overturn long-standing
property and foreclosure principles and, therefore, BAC had to be holder of the Note and
the Mortgage at the time it initiated this action order to have standing. Id. It follows that,
if BAC did not have standing at the time it filed the complaint, then Bank of America
likewise did not have standing upon merging with BAC.

{¶14} Mr. McFerren has set forth arguments concerning the legal effect of
splitting the Note and Mortgage from the inception of the transaction.3 Bank of America
argues that Mr. McFerren has no standing to assert defenses which relate to the legal
effect of the prior assignments of the note or mortgage.4 However, we need not address
those arguments, as the record before us does not allow us to conclude that BAC was the
owner of the Note when it initiated the action.
{¶15} Mr. McFerren’s assignment of error is sustained.

III.

{¶16} In light of the foregoing, the judgment of the Summit County Court of
Common Pleas is reversed, and the matter is remanded for further proceedings consistent
with this opinion.

Judgment reversed,
and cause remanded.

There were reasonable grounds for this appeal.

We order that a special mandate issue out of this Court, directing the Court of
Common Pleas, County of Summit, State of Ohio, to carry this judgment into execution.
A certified copy of this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal
entry of judgment, and it shall be file stamped by the Clerk of the Court of Appeals at
which time the period for review shall begin to run. App.R. 22(C). The Clerk of the
Court of Appeals is instructed to mail a notice of entry of this judgment to the parties and
to make a notation of the mailing in the docket, pursuant to App.R. 30.

Costs taxed to Appellee.

EVE V. BELFANCE
FOR THE COURT
HENSAL, J.
CONCURS.

CARR, J.

DISSENTING.

{¶17} I agree with the majority’s conclusion that “none of the evidence in the
record demonstrates that BAC had possession of the Note at the time that it filed the
complaint,” but I would not remand this matter for further proceedings. Instead, I would
hold that BAC’s failure to demonstrate standing at the commencement of this foreclosure
action requires dismissal of the complaint pursuant to the Supreme Court of Ohio’s
decision in Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-
Ohio-5017, ¶ 40; see also Wells Fargo Bank NA v . Horn, 9th Dist. No. 12CA010230,
2013-Ohio-2374.

APPEARANCES:

DAVID N. PATTERSON, Attorney at Law, for Appellant.
STACY L. HART and CARSON A. ROTHFUSS, Attorneys at Law, for Appellee.
_____________________

footnotes:
1 Attached to the complaint was a certificate from the Texas Secretary of State
that indicated that BAC had formerly been known as Countrywide Home Loan Services,
Inc.

2 To illustrate the path both the Note and the Mortgage have taken, we have
created the chart that is attached as Appendix A at the end of this opinion.

3 As noted above, at the inception of the transaction, the Mortgage named MERS
as the mortgagee and contains language that indicates that MERS is the nominee of
Quicken Loans. This Court has not squarely addressed the legal effect of splitting a note
and mortgage at its inception. See generally Peterson, 53 Wm. & Mary L.Rev. 111
(discussing analysis of various jurisdictions relating to legal effect of splitting note and
the mortgage and the significant departure by MERS from the traditional land registration
system and the public policies undermined by the corporation’s methods). See, e.g.,
Peterson, 53 Wm. & Mary L.Rev. 144 (noting the problematic manner in which MERS
transfers its mortgages because “MERS has a web page in which mortgage servicers and
law firms can enter names of their own employees to automatically produce a boilerplate
corporate resolution that purports to designate the servicers’ and law firms’ employees as
certifying officers of MERS with the job title of assistant secretary, vice president, or
both.”). In Deutsche Bank Natl. Trust Co. v. Traxler, 9th Dist. Lorain No. 09CA009739,
2010-Ohio-3940, this Court discussed in dicta the limited argument that MERS lacked
authority as nominee to assign a mortgage to the foreclosing bank. Id. at ¶ 19. The
argument was premised upon the contention in its status as “nominee” MERS was only
permitted to enforce the mortgage, but not to assign it. Id. As such, it was argued that
the right to assign the mortgage was retained by the original lender who possessed the
note. Id. However, Traxler did not ultimately answer this question but did refer to cases
suggesting that MERS had authority to assign a mortgage when designated as both a
nominee and mortgagee. Id. at ¶ 19-21. However, the cases cited in Traxler concerning
that issue were decided without evidence in the record as to the method by which MERS
operated. See id. at ¶ 19 (compiling cases from other districts that “recognized MERS’
authority to assign a mortgage when designated as both a nominee and mortgagee”).

4 We note that it is unclear why a foreclosure defendant would lack “standing” to
raise issues concerning the legal effect of prior assignments or other transactions in
defending the foreclosure action. In that context, the defendant may raise legally relevant
defenses as such would relate to the character of the obligation (i.e. secured or not
secured) and to whom the obligation is actually owed (in cases of multiple assignments,
to avoid the risk that multiple parties claim the right to collect). Bank of America relies
upon Livonia Props. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings, LLC, 399
Fed.Appx. 97 (6th Cir.2010), and Bridge v. Aames Capital Corp., N.D.Ohio No. 1:09 CV
2947, 2010 WL 3834059 (Sept. 29, 2010), in support. However, the procedural posture
and substantive issues addressed in those cases are distinct from the instant matter and
those cases do not stand for the blanket proposition that in all contexts an obligor may not
raise defenses concerning the assignment of the obligation. Bridge is readily
distinguishable because the mortgagor was a plaintiff seeking a declaratory judgment and
the court addressed standing in the context of Ohio’s declaratory judgment statute.
Livonia addressed the question of the meaning of “record chain of title” under
Michigan’s foreclosure by advertisement statute. See id. at 99.

Reuters-

U.S. bank regulators, wary of upsetting the fragile housing market, are moving cautiously in fashioning dozens of new rules to prevent reckless underwriting and other mortgage market abuses.

In implementing the 2010 Dodd-Frank financial reform law, the regulators have said they are sensitive to arguments from a rare alliance of both lenders and consumer groups that too-tough rules could hamper credit availability.

Last week, citing sources familiar with the matter, Reuters reported that officials from six agencies that oversee housing might ease a proposal requiring lenders to keep a portion of securitized mortgages on their books. Consumer groups and lenders alike had pushed such a change.

The Federal Reserve and other agencies had already decided against requiring banks to raise more capital to fund their residential mortgage lending.

[REUTERS]

Bloomberg-

The federal conservator for Fannie Mae and Freddie Mac has decided that it’s fine for taxpayers to know how much UBS AG is paying to resolve claims that it ripped off the two government-backed housing financiers.

Unfortunately the same government agency still thinks the public has no business knowing anything about its settlements with General Electric Co. and Citigroup Inc. over the same sorts of allegations.

The Federal Housing Finance Agency late yesterday said it reached an $885 million settlement with Zurich-based UBS, one of 17 financial institutions it sued in 2011. The suit sought to recoup losses on $4.5 billion of securities that Fannie and Freddie bought from 2004 to 2007. Under the agreement, UBS will pay about $415 million to Fannie Mae and $470 million to Freddie Mac.

[BLOOMBERG]

OREGON LIVE-

A jury Friday awarded an Oregon woman $18.6 million after she spent two years unsuccessfully trying to get Equifax Information Services to fix major mistakes on her credit report.

The judgement, likely to be appealed, appears to be one of the largest awarded to a consumer in a case against one of the nation’s major credit bureaus.

Julie Miller of Marion County, who was awarded $18.4 million in punitive and $180,000 in compensatory damages, contacted Equifax eight times between 2009 and 2011 in an effort to correct inaccuracies, including erroneous accounts and collection attempts, as well as a wrong Social Security number and birthday. Yet over and over, the lawsuit alleged, the Atlanta-based company failed to correct its mistakes.

[OREGON LIVE]

CBS NEWS-

Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.

Survey data exclusive to The Associated Press points to an increasingly globalized U.S. economy, the widening gap between rich and poor, and the loss of good-paying manufacturing jobs as reasons for the trend.

The findings come as President Barack Obama tries to renew his administration’s emphasis on the economy, saying in recent speeches that his highest priority is to “rebuild ladders of opportunity” and reverse income inequality.

[CBS NEWS]

Palm Beach Post-

A Boca Raton homeowner whose waterfront mansion has been in foreclosure since 2008 had her case voluntarily dismissed by her lender Thursday in Palm Beach County court after a legal misstep during trial.

Because the case is so old, homeowner attorney Roy Oppenheim said the bank may run into trouble trying to refile it. There is a 5-year statute of limitations on foreclosures.

Homeowner Valerie Kaan bought the 13,000-square-foot home in 2003 for $8.4 million. Her loan was for $6.8 million from Washington Mutual Bank, which was later purchased by JP Morgan Chase. The outstanding balance as of Thursday was up to about $10 million with late fees, taxes and insurance, Oppenheim said.

[PALM BEACH POST]