Cosajay v. Mortgage Electronic Registration Systems, Inc. | RIDC - The Court finds that Ms. Cosajay has standing to bring her lawsuit against these Defendants.


Cosajay v. Mortgage Electronic Registration Systems, Inc. | RIDC – The Court finds that Ms. Cosajay has standing to bring her lawsuit against these Defendants.

Cosajay v. Mortgage Electronic Registration Systems, Inc. | RIDC – The Court finds that Ms. Cosajay has standing to bring her lawsuit against these Defendants.

via Dave Krieger






JOHN J. MCCONNELL, JR., United States District Judge.
C. A. No. 1 0-442-M

This matter is before the Court on Plaintiff Eloisa Cosajay’s objection to a Report and
Recommendation (R&R) issued by Magistrate Judge Martin on June 23, 2011, in which he
recommended that her mortgage foreclosure case be dismissed for lack of standing because she
was not a party to the assignment documents that her lawsuit challenged. Since that R&R was
issued, the First Circuit has ruled in two cases, Culhane v. Aurora Loan Services of Nebraska,
708 F.3d 282, 289-90 (1st Cir. 2013) and Woods v. Wells Fargo Bank, NA., No. 12-1942, 2013
WL 5543637, at* 3 (1st Cir. Oct. 9, 2013), that a homeowner’s standing to sue is not foreclosed
by virtue of their lack of privity to the assignment documents. Those decisions dictate that this
Court REJECT the R&R recommending dismissal based on lack of privity. The Court DENIES
Defendants’ Motion to Dismiss (ECF No. 5) and finds that Ms. Cosajay has standing to bring
this lawsuit against Defendants.

On April 24, 2007, Ms. Cosajay obtained a loan from Lime Financial Services, Ltd.
(“Lime”), for $220,000 in exchange for a promissory note. (ECF No. 1-1 at~ 9.) The note was
secured by a mortgage that Ms. Cosajay executed in favor of Lime, as lender, and MERS, as
Lime’s nominee, successor and assign, and as the mortgagee under the mortgage agreement.
(!d.) The mortgage’s security consisted of property owned by Ms. Cosajay located at 220
Sterling Avenue, Providence, Rhode Island (the “Property”). (!d. at ~ 8.) Ms. Cosajay’s
promissory note and mortgage were the subject of three assignments. (!d. at ~ 11.) On March
12,2008, MERS, as nominee for Lime, assigned the mortgage to Deutsche Bank Trust Company
Americas, as Trustee and Custodian for IXIS Real Estate Capital, Inc. (“Deutsche Bank”) (the
“First Assignment”). (!d.) On September 4, 2008, Deutsche Bank assigned the mortgage to
Saxon Mortgage Services, Inc. (the “Second Assignment”). (!d.) On March 5, 2009, Saxon
assigned the mortgage to CM REO Trust (the “Third Assignment”). (!d.) Saxon, on behalf of
CM REO, initiated foreclosure proceedings in October 2010. (!d. at~ 10.)

Ms. Cosajay filed this action to enjoin the foreclosure proceedings by alleging that the
assignments of her mortgage are invalid. (!d. at~~ 8-15.) She challenges the validity of the
assignments on multiple grounds. She alleges that the documents executing the assignments
were “fraudulent and manufactured …. ” (!d. ~ 13.) In support of this allegation, Ms. Cosajay
avers that the persons executing the assignments were not employees, officers, or properly
authorized agents of the entities for whom they purported to act and that the signatures on the
assignments are fraudulent and/or not authentic. (!d.) Ms. Cosajay also alleges that MERS, as
Lime’s nominee, did not have the authority to assign her mortgage on March 12, 2008, the date
of the First Assignment. (See id. ~ 11.) As support for this contention, Ms. Cosajay posits that:

“If this loan was included in a loan pool ultimately transferred to a securitized trust, the mortgage
had already been allegedly sold to a Sponsor/Seller and thus any assignment was invalid.” (!d.)
Ms. Cosajay asserts that “[a]ny assignment which would have been made on or [after] March 12,
2008[,] was outside the time specified by any securitized trust which Saxon refers to as Deutsche
Bank Trust Company Americas as Trustee and Custodian for IXIS Real Estate Capital Inc.”
(!d.) Ms. Cosajay further asserts that the Deutsche Bank trust does not exist but that the last
IXIS Trust, Natixis Real Estate Capital Trust 2007-HE2, closed on April 30, 2007, and that,
therefore, no assignment to the Natixis trust was possible on March 12, 2008. (!d.) As a result,
according to Ms. Cosajay, the First Assignment was to a non-existent entity and any subsequent
assignments were also void. (!d.)

Ms. Cosajay seeks a declaration that the mortgage assignment was invalid, that
Defendants did not hold her mortgage and promissory note, and that Defendants lacked standing
to foreclose on the mortgage or enforce the note. Defendants moved to dismiss the complaint,
alleging that Ms. Cosajay lacked standing to challenge any of the above. After review of the
memorandum and hearing argument, Magistrate Judge Martin recommended that the case be
dismissed on that ground, finding that Ms. Cosajay lacked standing because she was not a party
to the assignments that she challenges in her suit. Ms. Cosajay appeals that R&R to this Court
and Defendants object, contending that the Court should accept the R&R.1 In considering this
appeal, the Court reviewed the record, heard argument, received additional briefing, heard
supplemental arguments (see Misc. No. 11-88-M, ECF No. 2224 at 49-76), and had the benefit
of recent precedent from the First Circuit Court of Appeals, post-dating the Magistrate Judge’s


The Court must conduct a de novo review of a magistrate judge’s decision on a
dispositive motion. See Fed. R. Civ. Pro. 72(b). During this review, the Court “may accept,
reject, or modify the recommended disposition; receive further evidence’ or recommit the matter
to the magistrate judge with instructions.” !d.

The question before the Court in this case is a singular one – does Ms. Cosajay have
standing to bring her complaint against these Defendants? The Magistrate Judge answered this
question in the negative, finding that because Ms. Cosajay was not a party to the assignment
agreement, she “does not have standing to assert legal rights based on [those] documents.” (ECF
No. 21 at 25 (citing Brough v. Foley, 525 A.2d 919, 921-22 (R.I. 1987)).) Essentially, the
Magistrate Judge found that Ms. Cosajay lacked privity to the assignment, where privity to a
contract was deemed indispensable to a standing determination. The Court reviews this aspect of
his decision in this appeal.


A standing “inquiry involves both constitutional limitations on federal-court jurisdiction
and prudential limitations on its exercise. In both dimensions it is founded in concern about the
proper-and properly limited-role of the courts in a democratic society.” Warth v. Seldin, 422
U.S. 490, 498 (1975) (internal citations omitted.); see Osediacz v. Cranston, 414 F.3d 136, 139
(1st Cir. 2005) (“[S]tanding to sue is an indispensable component of federal court jurisdiction.”).
“The constitutional core of standing requires that a plaintiff make a tripartite showing: she must
demonstrate that she has suffered an injury in fact, that her injury is fairly traceable to the
disputed conduct, and that the relief sought promises to redress the injury sustained.” Osediacz,
414 F.3d at 139 (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). In
addition, prudential standing “ordinarily require[ s] a plaintiff to show that his claim is premised
on his own legal rights (as opposed to those of a third party)[.]” Pagan v. Calderon, 448 F.3d
16, 27 (1st Cir. 2006).

In the context of mortgage foreclosure cases, there are two recent cases that focus on the
legality and effect of MERS and a homeowner’s standing to challenge a foreclosure. In February
2013, as a matter of first impression, the First Circuit decided Culhane v. Aurora Loan Services
of Nebraska and, even more recently and as a complimentary follow-up decision, Woods v. Wells
Fargo Bank, NA. Both of these cases considered the constitutional and prudential dimensions of
standing in a mortgage foreclosure case, are binding precedent on this Court, and support its
decision to reject the recommendation of dismissal based purely on lack of privity.

The plaintiff in Culhane, much like Ms. Cosajay, focused her lawsuit on the validity of
the assignment of her mortgage. When the First Circuit considered the “tripartite” showing of
constitutional standing in that fact pattern, it handily found that “the foreclosure of the plaintiffs
house is unquestionably a concrete and particularized injury to her[,]” “there is a direct causal
connection between the challenged action [the assignment] and the identified harm[,]” and “a
determination that [defendant] lacked the authority to foreclose would set the stage for redressing
plaintiffs claimed injury.” Culhane, 708 F.3d at 289-90. The same can be said for

Ms. Cosajay’s case- Defendants initiated foreclosure proceedings on her home (ECF No. 1-1 at
~~ 12, F), there is the same connection between the assignment she challenges in her lawsuit and
the foreclosure (id. at ~~ 11, 17), and if the Court determines that Defendants did not have the
authority to foreclose, Ms. Cosajay’s injuries can be redressed through the equitable relief and
compensatory damages she seeks. (ECF No. 1-1 at~ Q.) Therefore, the Court finds that she has
met the constitutional dimension of standing.

However, in the R&R currently before the Court, the Magistrate Judge focused mainly on
the prudential aspect of standing, “which overlays its constitutional dimensions.” Culhane, 708
F.3d at 290. In considering whether a plaintiff premises her claims on her own legal rights
justifying her standing to sue, Culhane considered whether she had to be a party or a third party
beneficiary of the assignment as the Magistrate Judge in Ms. Cosajay’s case opined. The First
Circuit rejected that concept, holding that “a nonparty mortgagor … has standing to raise certain
challenges to the assignment of her mortgage.” Id. at 289. While noting that its holding was
“narrow,” the First Circuit decided that privity of contract is not required in order to have
standing to bring a lawsuit on a mortgage assignment action. Id. at 291.

Just this month, the First Circuit had another opportunity to consider standing in Woods v.
Wells Fargo Bank, NA., a mortgage foreclosure case where the district court below found that
the plaintiff did not have standing based on a lack of privity. Discussing its previous holding in
Culhane, the First Circuit rejected the district court’s reasoning and reiterated that “standing may
be appropriate even where a mortgagor is not party to, nor beneficiary of, the challenged
assignments.” Id., No. 12-1942,2013 WL 5543637, at* 3 (citing Culhane, 708 F.3d at 289).
Defendants rely on Brough v. Foley to argue that a party does not have standing to assert
rights under a contract to which it is not a party. 525 A.2d at 922 (“The plaintiffs were, in
substance, strangers to those transactions and were given no rights under the contract to
challenge the transactions.”) The First Circuit in Culhane recognized that “a nonparty who does
not benefit from a contract generally lacks standing to assert rights under that contract.”
Culhane, 708 F .3d at 290 (citing Almond v. Capital Props., Inc., 212 F .3d 20, 24 & n. 4 (1st Cir.
2000)). Yet, ultimately, the First Circuit stepped away from the generality in mortgage
foreclosure cases because of the “unusual position” in which a mortgagor finds him or herself.
Culhane, 708 F.3d at 290. The basis for diverging from the general legal concept that a nonparty
lacks standing to assert rights under a contract was twofold – under Massachusetts law, a
“mortgagor has a legally cognizable right under state law to ensure that any attempted
foreclosure on her home is conducted lawfully” and “where (as here) a mortgage contains a
power of sale, Massachusetts law permits foreclosure without prior judicial authorization.” !d.

Now, this narrow holding was made under Massachusetts law, not the Rhode Island
statutory and common law that governs the Court’s decision here.2 While Culhane and Woods
did not specifically address a plaintiffs standing under Rhode Island law,3 the Court finds that
Rhode Island law provides that same dual basis for deviating from the general contract rule.

First, the First Circuit cited to Mass. Gen. Laws ch. 183, § 21, which is the “Statutory Power of
Sale in Mortgage” section. That section is of the same vein 4 as Rhode Island Gen. Laws § 34-
11-22, also called “Statutory power of sale in mortgage,” which provides a Rhode Island
mortgagor with the right to ensure that any foreclosure is done appropriately. Bucci v. Lehman
Bros. Bank, FSB, 68 A.3d 1069, 1085 (R.I. 2013) (finding that§ 34-11-22 “was enacted for the
purpose of establishing a uniform power of sale provision that could be referred to with ease, if
the parties so desired”). In line with the second basis the Culhane court lists, Rhode Island law
also allows foreclosures to take place without prior judicial authorization where a power of sale
clause exists in a mortgage. Id. Therefore, the Court finds that Rhode Island law provides that
same protection to mortgagors in the same situations in which the First Circuit found the
Culhane and Woods plaintiffs under Massachusetts law.5

The First Circuit in Culhane “further circumscribed” its holding, finding standing when a
plaintiffs challenge was limited to only “invalid, ineffective, or void” assignments, such as
situations where “the assignor had nothing to assign or had no authority to make an assignment
to a particular assignee.” Culhane, 708 F.3d at 291. Conversely, the First Circuit held that “a
mortgagor does not have standing to challenge shortcomings in an assignment that render it
merely voidable at the election of one party but otherwise effective to pass legal title.” !d. The
First Circuit in Woods provided further examples of this “void” versus “voidable” distinction:

[C]laims that merely assert procedural infirmities in the assignment of a
mortgage, such as a failure to abide by the terms of a governing trust agreement,
are barred for lack of standing. In contrast, standing exists for challenges that
contend that the assigning party never possessed legal title and, as a result, no
valid transferable interest ever exchanged hands. In this latter case, the challenge
is to the “foreclosing entity’s status qua mortgagee.”
Woods, No. 12-1942,2013 WL 5543637, at *3 (internal citations omitted).

Now that the constitutional standing issue has been resolved and the prudential standing
parameters have been laid out, the Court must consider those parameters in the light of the facts
Ms. Cosajay has pled, and thus turns to the factual allegations in her complaint to determine
whether her claims are based on a “void” assignment or on a “voidable” assignment.

Ms. Cosajay contends in her complaint that MERS as nominee for Lime could not have
made the First Assignment to Deutsche Bank as Trustee on March 12, 2008 because MERS no
longer held the mortgage at that time. (ECF No. 1-1 at~ 11.) Because Ms. Cosajay challenges
her foreclosure on the ground that it was void due to an invalid assignment to a non-existent
entity, and the First Circuit in Culhane concluded that homeowners have a “legally cognizable
right” to protection against illegal foreclosures, the Court finds that she has demonstrated “a
concrete and particularized injury in fact, a causal connection that permits tracing the claimed
injury to the defendant’s actions, and a likelihood that prevailing in the action will afford some
redress for the injury.” Antilles Cement Corp. v. Fortuna, 670 F.3d 310, 317 (1st Cir. 2012)
(quoting Weaver’s Cove Energy, LLC v. R.I Coastal Res. Mgmt. Council, 589 F.3d 458,467 (1st
Cir. 2009)). Ms. Cosajay has standing to pursue her claims.6

This Court’s decision finding standing is buttressed by Defendants’ extreme and
incongruous argument that would allow Ms. Cosajay no relief because she is not a party to the
assignment. The First Circuit rejected Defendants’ argument, finding that a bar on standing
based solely on whether plaintiff is a party to the assignment “paint[s] with too broad a brush.”
Culhane, 708 F.3d at 290. Those very broad brushstrokes were evident at oral argument where,
when asked whether a plaintiff would have standing to challenge a foreclosure exacted by a
“fraudulent holder of a fraudulent note,” Defendants’ counsel said that a plaintiff would not have
standing. (Misc. No. 11-88-M, ECF No. 2224 at 51-52.) That position cannot be squared with
the fact that the First Circuit recognized that a mortgagor has a “legally cognizable right” to
ensure that a threatened foreclosure is legally conducted. Culhane, 708 F.3d at 290.
Furthermore, when Defendants argued this absurd position again in Woods, the Circuit shed a
brighter spotlight on the absurd effect of Defendants’ position:

Culhane reasoned that barring standing in all cases would unduly insulate
assignments; mortgagors could not challenge the validity of assignments either as
the defendant in a suit for judicial authorization or as the petitioner in a suit like
the present one.

Woods, No. 12-1942, 2013 WL 5543637, at *3. The First Circuit has determined that, due to the
particularities of mortgage foreclosure cases, requiring privity to an assignment “unduly
insulate[s]” those assignments to the detriment of mortgagors asserting their legal rights. “There
is no principled basis for employing standing doctrine as a sword to deprive mortgagors of legal
protection conferred upon them under state law.” Culhane, 708 F .3d at 291.

Because the Magistrate Judge in his R&R held that a lack of privity alone barred
Ms. Cosajay’s standing to bring her suit and that conclusion is now in contravention to the First
Circuit’s holdings in both Culhane and Woods, which based its decision not on the privity or
status of the parties, but on status of the challenged assignment and whether it was invalid or
void versus voidable, the R&R cannot stand and is rejected in its entirety. The Court finds that
Ms. Cosajay has standing to bring her lawsuit against these Defendants.


The Court REJECTS the Magistrate Judge’s Report and Recommendation (ECF No. 21)
in its entirety and DENIES Defendants’ Motion to Dismiss (ECF No. 5) based on a lack of

John 1. McConnell, Jr.
United States District Judge
November 5, 2013

1 The Magistrate Judge issued R&Rs rejecting standing in two cases- Ms. Cosajay’s case as well
as in Mr. and Mrs. Fryzel’s case. See Fryzel v. Mort. Elec. Reg. Sys., Inc. C.A. No. 10-352.
Ms. Cosajay and the Fryzels appealed those R&Rs to this Court, who stayed all of the mortgage
foreclosure cases on its docket and imposed a mediation program under the direction of a Special
Master. Certain Defendants appealed to the First Circuit and in the context of its decision
reviewing that interlocutory appeal of this Court’s “stay in the nature of a preliminary
injunction” and mediation program in Fryzel, the First Circuit directed this Court to act on the
R&R. Fryzel v. Mort. Elec. Reg. Sys., Inc., 719 F.3d 40, 46 (1st Cir. 2013). This Memorandum
and Order addresses Ms. Cosajay’s appeal because the Fryzel case was ultimately dismissed for
reasons unrelated to the First Circuit decision.

2 Because the Court sits in diversity on this case, Rhode Island substantive law applies. See
Barton v. Clancy, 632 F.3d 9, 17 (1st Cir. 2011). When asked at the hearing on this appeal to
name a relevant difference between Massachusetts and Rhode Island mortgage foreclosure laws,
Defendants were not able to identify any. (Mise No. 11-88-M, ECF No. 2224 at 54-55.)

3 Defendants argued that the existence and applicability of the Rhode Island power of sale
statute, the very type of statute the First Circuit interpreted in Culhane as providing a legal right
to a lawfully conducted foreclosure, should not change the Court’s analysis, arguing instead for
the absolute applicability of Rhode Island common law, which stands for the basic principle that
one must be a party to a contract in order to challenge any of its terms. Brough, 525 A.2d 919.
Defendants conceded that the First Circuit relied on Massachusetts’ statutory scheme in
considering a plaintiffs standing, but suggested that the reason the First Circuit did not analyze
Massachusetts Supreme Judicial Court case law was because “it doesn’t exist[.]” (Misc. No. 11-
88-M, ECF No. 2224 at 57.) The more likely situation is that the First Circuit recognized that
these twenty-first century mortgage foreclosure cases are not round pegs that fit into the round
holes of basic contract law. The First Circuit noted the “unusual position” a mortgagor finds
herself in partially because of the statutory power of sale statute and went on to find, however
narrowly, that certain mortgagors do have standing to bring their claims.

4 Defendants conceded at oral argument that Rhode Island’s power of sale statute was “similar”
to that of Massachusetts. (Misc. No. 11-88-M, ECF No. 2224 at 55.)

5 The Rhode Island Supreme Court’s decision in Bucci v. Lehman Brothers Bank, did however
analyze the First Circuit’s Culhane decision holding that the MERS structure was appropriate
under Massachusetts mortgage law and found that that holding “reside[ d] comfortably within the
law of our state as well.” Id., 68 A.3d 1069, 1088 (R.I. 2013). While not an exact fit, the Court
is comfortable with the Rhode Island Supreme Court’s acceptance ofthe Culhane decision vis-avis
MERS, along with its own comparison of Massachusetts and Rhode Island power of sale
statutes, to determine that the Culhane analysis and outcome would be the same under Rhode
Island law.

6 The Court will not parse Ms. Cosajay’s complaint at this time to determine which claims relate
to “void” as opposed to “voidable” conditions of the assignment. These arguments can be
addressed at the summary judgment stage or trial.

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