Decided on April 29, 2013

 

31648/2009

Plaintiffs Attorney

Fein, Such & Crane, LLP.

28 East Main Street, Suite 1800

Rochester, New York 14614

(585) 232-7400

Defendants Attorney

Kenneth S. Pesinger, Esq.

3601 Hempstead Turnpike, Suite 305

Levittown, New York 11756

Wayne P. Saitta, J.

Plaintiff, WELLS FARGO BANK, N.A., as Trustee for ABFC 2006-OPT3 TRUST, ABFC ASSET-BACKED CERTIFICATES, SERIES 2006-OPT3, (herein “Plaintiff”), moves this Court for an Order for summary judgment pursuant to CPLR 3212.

Upon reading the Notice of Motion by V.S. Vilkhu, Esq., Attorney for Plaintiff, WELLS [*2]FARGO BANK, N.A., as Trustee for ABFC 2006-OPT3 TRUST, ABFC ASSET-BACKED CERTIFICATES, SERIES 2006-OPT3, dated May 11th, 2010, together with the Attorney Affidavit of V.S. Vilkhu, Esq., dated May 11th, 2010, and all exhibits annexed thereto; the Memorandum of Law by V.S. Vilkhu, Esq., undated; the Affirmation in Opposition by Kenneth S. Pelsinger, Esq., Attorney for Defendant ROTIMI EROBOBO, dated November 19th, 2010; the Supplemental Affirmation in Opposition by Kenneth S. Pelsinger, Esq., dated August 3rd, 2011, and all exhibits annexed thereto; the Reply Affirmation of V.S. Vilkhu, Esq., dated January 24th, 2011, and all exhibits annexed thereto; the Memorandum of Law in Opposition to Plaintiff’s Motion for Summary Judgment by Kenneth S. Pelsinger, Esq., dated November 9th, 2011; the Pooling and Servicing Agreement of WELLS FARGO BANK, N.A., as Trustee for ABFC 2006-OPT3 TRUST, ABFC ASSET-BACKED CERTIFICATES, SERIES 2006-OPT3, dated October 1st, 2006; and after argument of counsel and due deliberation thereon, Plaintiff’s motion is denied for the reasons set forth below.

FACTS

Plaintiff brings this action to foreclose on a mortgage, dated July 16, 2006, which secured a loan of $420,000 issued to the Defendant by Alliance Mortgage Banking Corp., (“Alliance”). On July 17, 2006, Alliance assigned the note and mortgage to Option One Mortgage Corporation, (“Option One”). Option One then assigned the note and mortgage to Plaintiff by assignment executed July 15, 2008. Plaintiff is the trustee for a securitized trust entitled ABFC 2006-OPT3 TRUST, ABFC, ASSET BACKED CERTIFICATES, SERIES 2006-OPT3, (“the Trust”).

The Trust was formed as a vehicle for purchasing mortgage backed securities. The Trust is subject to the terms of a Pooling and Servicing Agreement, (“the PSA”). The PSA was signed by the Depositor, Asset Backed Funding Corporation (“ABFC”), by the Servicer, Option One, and by the Trustee, WELLS FARGO BANK, NA, and is dated October 1, 2006.The PSA set forth the manner in which mortgages would be purchased by the trust, as well as the duties of the trustee.

Section 2.01, subsection 1 of the PSA requires that transfer and assignment of mortgages must be effected by hand delivery, for deposit with the Trustee with the original note endorsed in blank.

Section 2.05 of the PSA requires that the Depositor transfer all right, title, interest in the mortgages to the Trustee, on behalf of the trust, as of the Closing Date. The Closing Date as provided in the PSA is November 14, 2006.

Option One assigned Defendant’s mortgage loan to the Plaintiff, as the Trustee, on July 15, 2008, approximately eighteen months after the trust had closed.

Plaintiff commenced this action on December 10, 2009, and alleged that it possessed the Note with an allonge on the date that this foreclosure action was commenced. Defendant, pro se, filed an answer containing a general denial.

Plaintiff filed a motion for summary judgment on May 11, 2010. After Defendant answered, he obtained counsel and opposed Plaintiff’s motion for summary judgment.

Defendant argues that Plaintiff is not in fact the owner or holder of the note because it obtained the note and mortgage after the trust had closed in violation of the terms of the PSA, and therefore the acquisition of the note and mortgage is void. Defendant also argues that Plaintiff obtained the mortgage and note without an intervening assignment, in violation of the PSA.

Plaintiff argues that Defendant’s claim that Plaintiff does not own the note and mortgage amounts to a standing argument, and because Defendant failed to raise standing in his answer as an affirmative defense or pre answer motion, he cannot do so now.

Defendant contested whether Plaintiff owns the mortgage and note by answering with a general denial of the facts alleged in the complaint, which included Plaintiff’s allegation that it owns the note and mortgage.

Many decisions treat the question of whether the Plaintiff in a foreclosure action owns the note and mortgage as if it were a question of standing and governed by CPLR 3211(e). Citigroup Global Markets Realty Corp. v. Randolph Bowling, 25 Misc 3d 1244(A), 906 N.Y.S.2d 778 (Sup. Ct. Kings Cty 2009); Federal Natl. Mtge. Assn. v. Youkelsone, 303 AD2d 546, 546—547 (2d Dept 2003); Nat’l Mtge. Consultants v. Elizaitis, 23 AD3d 630, 631 (2d Dept 2005); Wells Fargo Bank, N.A. v. Marchione, 2009 NY Slip Op 7624, (2d Dept 2009).

However, Plaintiff’s ownership of the note is not an issue of standing but an element of its cause of action which it must plead and prove.

The term “standing” has been applied to two legally distinct concepts. The first is legal capacity, or authority to sue. The second is whether a party has asserted a sufficient interest in the outcome of a dispute.

Standing and capacity to sue are related, but distinguishable legal concepts. Capacity requires an inquiry into the litigant’s status, i.e., its “power to appear and bring its grievance before the court”, while standing requires an inquiry into whether the litigant has “an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue.” Wells Fargo Bank Minnesota, Nat. Ass’n v Mastropaolo, 42 AD3d 239, 242 (2d Dept 2007) (internal citations omitted). Both concepts can result in dismissal on a pre answer motion by the defendant and are waived if not raised in a timely manner. Id.CPLR 3211(a)(3) provides that an action may be dismissed based on the grounds that the Plaintiff lacks the legal capacity to sue. It governs no other basis for dismissal.CPLR 3211(e) provides that a motion to dismiss pursuant to CPLR 3211(a)(3) is waived if not raised in a pre-answer motion or a responsive pleading.

There is a difference between the capacity to sue which gives the right to come into court, and possession of a cause of action which gives the right to relief. Kittinger v Churchill Evangelistic Assn Inc., 239 AD 253, 267 NYS 719 (4th Dept 1933). Incapacity to [*4]sue is not the same as insufficiency of facts to sue upon. Ward v Petri, 157 NY3d 301 (1898).

In the case of Ohlstein v Hillcrest, a defendant moved to dismiss a complaint in part based on lack of legal capacity to sue where plaintiff had assigned her stock. The Court denied that branch of the motion holding that even if plaintiff had assigned her stock, “the defect to be urged is that the complaint does not estate [sic] a cause of action in favor of the one who is suing, the alleged assignor – not that the plaintiff does not have the legal capacity to sue. Legal incapacity, as properly understood, generally envisages a defect in legal status, not lack of a cause of action in one who is sui juris.” Ohlstein v Hillcrest, 24 Misc 2d 212, 214, 195 NYS2d 920, 922 (Sup Ct NY Co 1959).

The difference was articulated by the Court in the case of Hebrew Home for Orphans v Freund, 208 Misc. 658, 144 N.Y.S.2d 608 (Sup Ct Bx 1955). The plaintiff in that case sought a judgment declaring that an assignment of a mortgage it held was valid. The defendants moved to dismiss the complaint on the grounds that since the assignment was not accompanied by delivery of the bond and mortgage to plaintiff, plaintiff did not own the bond and mortgage and thus had no legal capacity to sue or standing to maintain the action. The Court denied the motion, stating:

The application to dismiss the complaint on the alleged ground that the plaintiff lacks legal capacity to sue rests upon a misapprehension of the meaning of the term. See Gargiulo v. Gargiulo, 207 Misc. 427, 137 N.Y.S.2d 886. Rule 107(2) of the Rules of Civil Practice relates to a plaintiff’s right to come into Court, and not to his possessing a cause of action. Id at 660-661, 610.

The Court then quotes Kittinger v Churchill for the principle that,

“The provision for dismissal of the complaint where the plaintiff has not the capacity to sue (Rules of Civil Practice, rules 106, 107) has reference to some legal disability, such as infancy, or lunacy, or want of title in the plaintiff to the character in which he sues. There is a difference between capacity to sue, which gives the right to come into court, and possession of a cause of action, which gives the right to relief in court. Ward v. Petrie, 157 NY 301, 51 N.E. 1002; Bank of Havana v. Magee, 20 NY 355; Ullman v. Cameron, 186 NY 339, 78 N.E. 1074. The plaintiff is an individual suing as such. He is under no disability, and sues in no representative capacity. He is entitled to bring his suits before the court, and to cause a summons to be issued, the service of which upon the defendants brings the defendants into court. There is no lack of capacity to sue.’

Similarly here. By not receiving delivery of the bond and mortgage it may be urged that the plaintiff did not get title to them under the assignment—but that does not mean that it can be asserted that the plaintiff is not sui juris and therefore has no capacity to sue.” Id at 661, 610-611.

The defense that Plaintiff herein does not own the note and mortgage is not one of standing based on lack of legal capacity pursuant to CPLR 3211(a)(3). [*5]

The other meaning of standing involves whether the party bringing the suit has a sufficient interest in the dispute. Some cases have held that in this context, standing is jurisdictional, reasoning that where there is no aggrieved party, there is no genuine controversy, and where there is no genuine controversy, there is no subject matter jurisdiction. Stark v Goldberg, 297 AD2d 203, 204(1st Dept 2002); Axelrod v New York State Teachers’ Retirement Sys., 154 AD2d 827, 828 (3rd Dept 1989).

However, the Second Department has held that the jurisdiction of the court to hear the controversy is not affected by whether the party pursuing the action is, in fact, a proper party. They have held that if not raised in the answer or pre-answer motion to dismiss, the defense that the a party lacks standing is waived. Wells Fargo Bank Minnesota, Nat. Ass’n v. Perez, 70 AD3d 817, 818, 894 N.Y.S.2d 509, 510 (2nd Dept 2010), Countrywide Home Loans, Inc. v. Delphonse, 64 AD3d 624, 625, 883 N.Y.S.2d 135 (2nd Dept 2009), HSBC Bank, USA v. Dammond, 59 AD3d 679, 680, 875 N.Y.S.2d 490 (2nd Dept 2009).

The issue of whether a Plaintiff owns the mortgage and note is a different question from whether it has an interest in the dispute. Whether a party has a sufficient interest in the dispute is determined by the facts alleged in the complaint, not whether Plaintiff can prove the allegations. Wall St. Associates v. Brodsky, 257 AD2d 526, 684 N.Y.S.2d 244 (1st Dept 1999), Kempf v. Magida, 37 AD3d 763, 764, 832 N.Y.S.2d 47, 49 (2nd Dept 2007). For the purpose of determining whether a party has sufficient interest in the case the allegations are assumed to be true.

This issue is not analogous to the issue of whether citizens have standing to seek judicial intervention in response to what they believe to be governmental actions which would impair the rights of members of society, or a particular group of citizens, (e.g. Schulz v. State, 81 NY2d 336, 343, 615 N.E.2d 953, 954 (1993), or whether registered voters have standing to challenge the denial of the right to vote in a referendum pursuant to Section 11 of Article VII of the State Constitution, or whether commercial fishermen have standing to complain of the pollution of the waters from which they derive their living, see also Leo v. Gen. Elec. Co., 145 AD2d 291, 294, 538 N.Y.S.2d 844, 847 (2nd Dept 1989). The issue of standing in these types of cases turn on whether the claimants have an interest sufficiently distinct from society in general.

Foreclosure actions implicate a concrete interest specific to a plaintiff, and the determination must be made as to whether it has been aggrieved and is therefore entitled to receive monetary damages for the alleged breach of the law.

The Plaintiff herein pled that it owns the note and mortgage and asserts the right to foreclose on the mortgage which it asserts is in default. If it is successful in proving its claims, then it is entitled to receive the proceeds of the sale of the mortgaged property.The objection that the Plaintiff in fact does not own the note and mortgage is not a defense based on a lack of standing.Here Defendant does not say insufficient facts were alleged. Defendant’s argument is that the facts alleged are not true. It is not a question of whether the Plaintiff has alleged a sufficient interest in the dispute, but of whether Plaintiff can prove its prima facie case. [*6]

Unlike standing, denial of a Plaintiff’s claim that it owns the note and mortgage is not an affirmative defense because it is a denial of an allegation in the complaint that is an element of Plaintiff’s cause of action.

In a foreclosure case, the Plaintiff must plead and prove as part of its prima facie case that it owns the note and mortgage and has the right to foreclose. Wells Fargo Bank, N.A., 80 AD3d 753, 915 N.Y.S.2d 569 (2d Dept 2011); Argent Mtge. Co., LLC v. Mentesana, 79 AD3d 1079, 915 N.Y.S.2d 591 (2d Dept 2010); Campaign v Barba, 23 AD3d 327, 805 NYS2d 86 (2nd Dept 2005).Defendant herein filed a pro se answer containing a general denial, which is a denial of all of Plaintiff’s allegations, including the allegation in paragraph 11 that it owns the note.

CPLR 3018(b) provides that an affirmative defense is any matter “which if not pleaded would be likely to take the adverse party by surprise” or “would raise issues of fact not appearing on the face of a prior pleading”.

CPLR 3018(b) also lists some common affirmative defenses, although the list is not exhaustive. The list of affirmative defenses in CPLR 3018(b) are those which raise issues such as res judicata or statute of limitations which are based on facts not previously alleged in the pleadings.

Affirmative defenses are those which posit that the adverse party is not entitled to relief, by reason of excuse or exception, even assuming the truth of the allegations made in the complaint.

“The defendant has the burden of proof of affirmative defenses, which in effect assume the truth of the allegations of the complaint and present new matter in avoidance thereof.” 57 NY Jur. 2d Evidence and Witnesses 165.

Defendant’s general denial asserts that Plaintiff is not entitled to relief because the facts alleged in the complaint are not true.

In Hoffstaedter v. Lichtenstein, 203 App.Div. 494, 496, 196 N.Y.S. 577 (1st Dept 1922), the First Department held that the general denial put the allegations in the plaintiff’s complaint in issue. In that case, the defendant executed a note in favor of the plaintiff as a promise to pay for certain goods. When plaintiff brought an action to recover on the note, the defendant answered with a general denial. It went on to state that “[i]t is elementary that under a general denial a defendant may disprove any fact which the plaintiff is required to prove to establish a prima facie cause of action.” Id., at 578.

The Court of Appeals cited Hoffstaedter v. Lichtenstein in holding that a general denial puts in issue those matters already pled. Munson v. New York Seed Imp. Co-op., Inc., 64 NY2d 985, 987, 478 N.E.2d 180, 181 (1985).The general denials contained in the answer enable defendant to controvert the facts upon which the plaintiff bases her right to recover. Strook Plush Company v. Talcott, 129 AD 14, 113 NYS 214 (2nd Dept 1908). A general denial is sufficient to challenge all of the allegations in a complaint. Bodine v. White, 98 NYS 232, 233 (App. Term 1906).The Second Department in Gulati v. Gulati, 60 AD3d 810, 811-12, 876 N.Y.S.2d 430, 432-33 (2nd Dept 2009), held it was that where a claim would not take the plaintiff by surprise and “does not raise issues of fact not [*7]appearing on the face of the complaint”, a denial of the allegations in the plaintiff’s complaint was sufficient. It held that where the plaintiff alleged as an element of her prima facie case that the defendant abandoned the marital residence without cause or provocation, and the defendant denied these allegations in his answer, defendant did not need to further allege abandonment as an affirmative defense.

The Fourth Department in Stevens v. N. Lights Associates, 229 AD2d 1001, 645 N.Y.S.2d 193, 194 (4th Dept 1996), found that a denial by defendant that it was in control of the premises where plaintiff fell did not need to be separately pled as a defense, as the denial of control did not raise any issue of fact which had not already been pled in the complaint. See also Scully v. Wolff, 56 Misc. 468, 107 N.Y.S. 181 (App. Term 1907), Bodine v. White, 98 N.Y.S. 232 (App. Term 1906).

In this case, Defendant’s contesting Plaintiff’s claim in the complaint that it owns the note and mortgage could not take the Plaintiff by surprise as a general denial contests Plaintiff’s factual allegations in the complaint itself, and does not rely upon extrinsic facts.Since ownership of the note was pled in the complaint and is an element of the Plaintiff’s cause of action, Defendant did not waive the defense that Plaintiff did not own the note, because he made a general denial to the factual allegations contained in the complaint.

In fact, the identity of the owner of the note and mortgage is information that is often in the exclusive possession of the party seeking to foreclose. Mortgages are routinely transferred through MERS, without being recorded. The notes underlying the mortgages, as negotiable instruments, are negotiated by mere delivery without a recorded assignment or notice to the borrower. A defendant has no method to reliably ascertain who in fact owns the note, within the narrow time frame allotted to file an answer. In light of these facts and the fact that Defendant contested the factual allegations asserted in Plaintiff’s pleading, Defendant’s general denial is sufficient to contest whether Plaintiff owns the note and mortgage.

In response to Plaintiff’s motion, Defendant contends that Plaintiff is not entitled to summary judgment as it does not own the note and mortgage, because the purported transfer to Plaintiff was void as it violated the terms of the PSA which governs acquisitions by the Trust.

The Plaintiff in this case is Trustee of an asset backed certificate trust. The trust acquires mortgages, pools them and then issues securities secured or backed by the mortgages it holds. The investors receive interest or principle, or both, from the mortgages assigned to those specific securities or obligations.

The manner in which the trust acquires the mortgages, issues the securities and pays the income from the mortgages to investors, is governed by the trust’s pooling and servicing agreement (PSA).

The Plaintiff trust is organized as a Real Estate Mortgage Investment Conduit (REMIC). As a REMIC, the trust’s investors receive significant tax benefits, but to receive those benefits, the trust must comply with the US Treasury regulations governing REMICS. [*8]26 USCA §860-D-1. The terms of the PSA require that the trust does not operate or take any action that would jeopardize its REMIC status. Section 9.01(f) of the PSA.

Article 9 of the PSA, section 9.01(b) provides that the closing date is designated as the “start up day” of each REMIC, and lists the closing date as November 14, 2006. Pursuant to 26 USCA §860-G-(b)(9), the “start up day” of a REMIC is the day upon which the REMIC issues all of its regular and residual interests.

The PSA specifically requires the Depositor to have transferred all of the interest in the mortgage notes to the Trustee on behalf of the trust as of the closing date. PSA Article II, Section 2.05 (iii).

Plaintiff asserts that the transfer of the note herein is void because the note was acquired after the closing date in violation of the terms of the PSA.

Mere recital of assignment, holding or receipt of an asset is insufficient to transfer an asset to a trust. The grantor must actually transfer the asset. EPTL §7-1.18.

The assignment of the note and the mortgage which affected the transfer was dated July 16, 2008, however, pursuant to the terms of the PSA the trust closed on November 14, 2006.

Section 9.02 of the PSA specifically prohibits the acquisition of any asset for a REMIC part of the fund after the closing date unless the party permitting the acquisition and the NIMS (net interest margin securities) Insurer have received an Opinion letter from counsel, at the party’s expense, that the acceptance of the asset will not affect the REMIC’s status. No such letter has been provided to show compliance with the requirements of the PSA.Plaintiff has provided no evidence that the trustee had authority to acquire the note and mortgage herein after the trust had closed.

Since the trustee acquired the subject note and mortgage after the closing date, the trustee’s act in acquiring them exceeded its authority and violated the terms of the trust.The acquisition of a mortgage after 90 days is not a mere technicality but a material violation of the trust’s terms, which jeopardizes the trust’s REMIC status.

Section 9.01(f) of the PSA provides that neither the Trustee, the Servicer or Holder of the Certificates shall cause any REMIC formed under the PSA, by action or omission, to endanger the status of the REMIC or cause any imposition of tax upon the REMIC.

Since the trust was organized as a REMIC, the investors received certain tax benefits on the income that passed through the trust to them. Section 26 U.S.C.A. § 860D(a)(4) defines a REMIC as an entity that

as of the close of the 3rd month beginning after the startup day and at all times thereafter, substantially all of the assets of which consist of qualified mortgages and permitted investments.

Section 26 U.S.C.A. § 860G (a)(3)(i,ii) defines a qualified mortgage as [*9]

(A) any obligation (including any participation or certificate of beneficial ownership therein) which is principally secured by an interest in real property and which (I) is transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC,

(ii) is purchased by the REMIC within the 3-month period beginning on the startup day if, except as provided in regulations, such purchase is pursuant to a fixed-price contract in effect on the startup day.

Thus to qualify for the REMIC tax benefits, the mortgages upon which the securities are based must be acquired by the Trust within three months of its start up date.

While section 26 U.S.C.A. § 860D(a)(4) permits a REMIC to contain some portion of non qualified mortgages, it is unclear how many unqualified mortgages are permitted without losing tax status. It is clear, however, that the late acquisition violates the terms of the PSA.

Under New York Trust Law, every sale, conveyance or other act of the trustee in contravention of the trust is void. EPTL §7-2.4. Therefore, the acceptance of the note and mortgage by the trustee after the date the trust closed, would be void.

Conveyance from the Depositor to the Trust

Defendant also argues that the Trustee violated the terms of the trust by acquiring the note directly from the sponsor’s successor in interest rather than from the Depositor, ABFC, as required by the PSA.

In Article II, section 2.01 Conveyance of Mortgage Loans, the PSA requires that the Depositor deliver and deposit with the Trustee the original note, the original mortgage and an original assignment . The Trustee is then obligated to provide to the Depositor an acknowledgment of receipt of the assets before the closing date. PSA Article II, Section 2.01.

The rationale behind this requirement is to provide at least two intermediate levels of transfer to ensure the assets are protected from the possible bankruptcy by the originator which permits the security to be provided with the rating required for the securitization to be saleable. Deconstructing the Black Magic of Securitized Trusts, Roy D. Oppenheim Jacquelyn K. Trask-Rahn 41 Stetson L. Rev. 745 Stetson Law Review (Spring 2012).

Here the note and mortgage were purportedly assigned from Option One to the Plaintiff, without having been transferred to, and then from, the Depositor.

The assignment of the note and mortgage from Option One rather than from the Depositor ABFC violates section 2.01of the PSA which requires that the Depositor deliver to and deposit the original note, mortgage and assignments to the Trustee.

The assignment of the Defendant’s note and mortgage, having not been assigned from the Depositor to the Trust, is therefore void as in being in contravention of the PSA.The evidence submitted by Defendant that the note was acquired after the closing date and that assignment was not made by the Depositor, is sufficient to raise questions [*10]of fact as to whether the Plaintiff owns the note and mortgage, and precludes granting Plaintiff summary judgment.

WHEREFORE, Plaintiff’s motion for summary judgment is denied. This shall constitute the decision and Order of this Court.

E N T E R ,

__________________________

J S C

© 2010-13 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
www.StopForeclosureFraud.com

This is one video you MUST NOT MISS!

Courtesy of ULAWTV

This presentation will discuss the state of the foreclosure crisis and analyze the legal issues and concerns behind the banks efforts to foreclose.

“MERS IS NOT THE MORTGAGEE”

 

© 2010-13 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
www.StopForeclosureFraud.com

KAPTUR/WARREN 2016!

This is the Bill everyone should be pushing very hard to get enacted. Enough with taxpayers getting plummeted for the fraudulent acts behind this machine and Wall Street! Enough with the fraudulent bailouts the government continues to provide these cartels. Enough is Enough!

Marcy Kaptur has never once gave up on this bill and neither should you. Make this Bill go viral…make it happen.

 

© 2010-13 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
www.StopForeclosureFraud.com

H/T Nye Lavalle

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

ELIZABETH H. COURSEN,
Plaintiff,

v.

JP MORGAN CHASE & CO., et al.,
Defendants.

EXCERPT:

FNIS also challenges Plaintiff’s claim against it for violation of the Florida
Deceptive and Unfair Trade Practices Act (“FDUTPA”), Fla. Stat. § 501.204(1)(2001),
for failure to state a claim upon which relief may be granted. FDUTPA’s purpose is to
protect the consuming public and legitimate business enterprises from unlawful and
deceptive acts. Fla. Stat. § 501.202(2). A claim for damages under FDUTPA has three
elements: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages.
Virgilio v. Ryland Group, Inc., 680 F.3d 1329, 1338 n.25 (11th Cir. 2012) (quoting
Rollins, Inc. v. Butland, 951 So. 2d 860, 869 (Fla. Dist. Ct. App. 2006)). A practice is
unfair under FDUTPA if it “offends established public policy” or is “immoral, unethical,
oppressive, unscrupulous, or substantially injurious to consumers. PNR, Inc. v. Beacon
Prop. Mgmt., Inc., 842 So. 2d 773, 777 (Fla. 2003). Here, Plaintiff alleges that
Defendants, including FNIS, violated FDUTPA by using fake identities and manufactured
documents to deprive her of her homestead through foreclosure of a debt that was not in
default3 prior to inception of the foreclosure cases. (Dkt. 2, ¶¶ 16-19.) The First
Amended Complaint alleges that FNIS’s business of preparing forged documents using
fictitious identities was an unfair and deceptive practice. (Id.) Plaintiff identifies FNIS
and the other LPS Defendants as being directly or vicariously liable for the alleged
fraudulent acts that caused her to lose her homestead. (Id. at ¶¶ 11-42.) Plaintiff’s
allegations are sufficient to withstand a Rule 12(b)(6) dismissal motion. She must be
afforded the opportunity to prove the allegations through the discovery process.

FNIS further argues that Plaintiff fails to state a clam under the Fair Debt
Collection Practices Act (“FDCPA”) because FNIS was neither owed any part of the loan
debt nor did it attempt to collect any money from Plaintiff on the loan in question.
Notwithstanding, 15 U.S.C. §1692(a)(6) defines the term “debt collector” to include any
person who uses an instrumentality of interstate commerce or the mails in any business
the principal purpose of which is the enforcement of security interests. The Eleventh
Circuit has recently clarified that mortgage foreclosure can be debt collection under the
FDCPA. Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211 (11th Cir.
2012); Birster v. Am. Home Mortg. Servicing, Inc., 2012 WL 2913786 (11th Cir. Jul. 18,
2012). Plaintiff alleges that FNIS and its alter egos, the LPS Defendants, fabricated
documents in furtherance of a conspiracy to unlawfully divest Plaintiff of her homestead.
(Dkt. 2, ¶¶16, 18(a), 18(d)(1, 4-7), footnote 3.) She alleges that Goebel oversees a section
of individuals who produce thousands of sworn affidavits a day for filing in state and
federal litigation brought by FNF clients and several boilerplate documents used in the
foreclosure of Plaintiff’s home. (Id. at ¶ 16.) Furthermore, under 15 U.S.C. § 1692f, “[a]
debt collector may not use unfair or unconscionable means to collect or attempt to collect
any debt. Subparagraph (6) of that section specifically prohibits taking or threatening to
take any nonjudicial action to effect dispossession or disablement of property if there is
no present right to possession of the property claimed as collateral through an enforceable
security interest. Consequently, this Court must find that Plaintiff’s allegations present a
question of fact as to whether FNIS’s activities violated the FDCPA, and she must be
allowed the opportunity to establish those facts through the course of discovery.

[...]

Scribd

© 2010-13 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
www.StopForeclosureFraud.com

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 12a0197p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
BETTY WALLACE,
Plaintiff-Appellant,

v.

WASHINGTON MUTUAL BANK, F.A.;WELLS
FARGO BANK N.A.,
Defendants,

LERNER, SAMPSON & ROTHFUSS,
Defendant-Appellee.
No. 10-3694

Appeal from the United States District Court
for the Southern District of Ohio at Cincinnati.
No. 1:09-cv-481—Sandra S. Beckwith, District Judge.
Decided and Filed: June 26, 2012
Before: MERRITT and MOORE, Circuit Judges; MAYS, District Judge.*
_________________
COUNSEL

ON BRIEF: Andrew M. Engel, Moraine, Ohio, for Appellant. Rick D. DeBlasis,
Kimberlee S. Rohr, LERNER, SAMPSON & ROTHFUSS, Cincinnati, Ohio, for
Appellee.
_________________
OPINION
_________________

MERRITT, Circuit Judge. Washington Mutual foreclosed on property before
receiving an assignment and transfer of the promissory note and the delinquent home
mortgage and before recording it in the Warren County, Ohio, Recorder’s Office.

Because Washington Mutual did not own the mortgage, the homeowner and mortgagor,
plaintiff Betty Wallace, brought a lawsuit for an allegedly false claim of ownership
under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq., against the law
firm of Lerner, Sampson and Rothfuss, acting for the purported mortgagee, Washington
Mutual, in the foreclosure action.1 Plaintiff claims that defendant law firm violated the
Act, the Ohio Consumer Sales Practices Act, and intentionally inflicted emotional
distress on her under Ohio law when the foreclosure action was filed against her
claiming that Washington Mutual was the holder of her mortgage, a fact plaintiff alleges
was completely false at the time of the foreclosure filing because, as stated above, the
mortgage had not been assigned or recorded at that time. The district court dismissed
her complaint under Federal Rule of Civil Procedure 12(b)(6), finding that she did not
state a claim under the Act. The district court then declined to exercise supplemental
jurisdiction as to the state claims. The relevant portions of the complaint at issue are as
follows:

11. On information and belief, at some point after April 2008, Wells
Fargo sold or transferred the note and mortgage to WaMu. Although it
transferred its ownership interest in the note and mortgage, Wells Fargo
still serviced the loan on behalf of WaMu. This meant that Wells Fargo
collected the payments and provided other services in managing the
mortgage loan. It also made all decisions regarding the collection of the
note and enforcement of WaMu’s rights under the mortgage. At all times
after the transfer of ownership of the note and mortgage, Wells Fargo
acted as WaMu’s agent with respect to the Plaintiff’s loan.

The complaint then alleged that the law firm filed a foreclosure action containing false
assertions when it claimed that Washington Mutual was the owner:

12. On July 11, 2008, WaMu, through its attorney, LSR, and
based on the decision of Wells Fargo, instituted the Foreclosure Case.
In the Complaint, WaMu asserted that it was the holder of the note. That
assertion was false when made. It also asserted that the mortgage had
been assigned to it and that it was the holder of the mortgage. Those
assertions were false when made. The mortgage was actually assigned
by Wells Fargo to WaMu on August 14, 2008 by an instrument recorded
at Book 4731, Page 91 [sic – the actual page is 90] of the Warren County,
Ohio Recorder’s Office. At the time the Complaint was filed in the
foreclosure case, all defendants knew that WaMu was not the holder of
the note; that WaMu was not the holder of the mortgage; and that the
mortgage had not been assigned to WaMu.

Complaint at ¶¶ 11-12 (emphasis added) (R. 2).

Plaintiff also sued other entities at the same time, but appealed the decision
below only as to defendant law firm Lerner, Sampson & Rothfuss. Lerner, Sampson
does not dispute that it is a “debt collector” under the Act. Plaintiff does not pursue her
original claims against Washington Mutual and Wells Fargo on appeal. She appeals
only the dismissal of Count III of her complaint, the claim that alleged that the law firm
used “false, deceptive or misleading representations” in connection with the collection
of any debt in violation of 15 U.S.C. § 1692e.

I.

For purposes of the motion to dismiss the complaint, we take the following facts as true.
In 1999, plaintiff purchased a home in Waynesville, Ohio, with a mortgage originating with
Norwest Mortgage. Plaintiff signed a promissory note in the amount of $66,000 and gave a
mortgage to Norwest to secure the note. Norwest and Wells Fargo later merged and plaintiff
began making her payments to Wells Fargo. In March or April 2008, Wells Fargo notified
plaintiff that she was delinquent on her mortgage, although she was not yet delinquent at that
time. Complaint at ¶ 10. (R.2). On August 14, 2008, Wells Fargo transferred and recorded
the note and the delinquent mortgage to Washington Mutual. On July 11, 2008, more than a
month before the transfer and assignment, Washington Mutual, through its attorneys, Lerner,
Sampson & Rothfuss, filed a foreclosure action against plaintiff in the Warren County Court
of Common Pleas in Ohio, asserting that Washington Mutual was the holder of the note and the
mortgage.

The problem in this case arises from the fact that the recordation and transfer of
ownership of the note and mortgage to Washington Mutual did not occur until August 14, 2008,
a little more than a month after Washington Mutual filed the foreclosure action asserting that
it owned the mortgage. An Ohio appellate court has so found. Washington Mutual Bank, N.A.
v. Wallace, 194 Ohio App. 3d 549, 559, 2011-Ohio-4174, 957 N.E.2d 92, 99 (Ohio Ct. App.)
(“[I]t is undisputed that [Washington Mutual] became the real party in interest in the
foreclosure action 34 days later on August 14, 2008, when . . . Wells Fargo executed a written
assignment of Wallace’s note and mortgage to [Washington Mutual]”.), appeal allowed by 130
Ohio St. 3d 1493, 2011-Ohio-6556, 958 N.E.2d 956 (2011) (briefing stayed pending resolution
of Fed. Home Loan Mortg. Corp. v. Schwartzwald, 194 Ohio App. 3d 644, 2011-Ohio-2681,
957 N.E.2d 790 (Ohio Ct. App.), motion to certify and appeal allowed by 129 Ohio St. 3d 1488,
2011-Ohio-5129, 954 N.E.2d 661 (Ohio Oct. 5, 2011)). Plaintiff did not respond to the
foreclosure notice, and a default judgment was entered against her on August 20, 2008.
A sheriff’s auction of her home was scheduled for December 8, 2008. When plaintiff learned
of the sale, she contacted Lerner, Sampson and tried to arrange to pay off the loan. When her
attempts to work out the loan were unsuccessful, plaintiff contacted Pro Seniors, an
organization that provides free legal services to senior citizens. She was able to get the sale
postponed. On December 15, 2008, defendants petitioned the state court to set another sale
date, which it did for late February or early March 2009. It appears from the docket sheet in
the foreclosure action that plaintiff’s home has since been sold at auction. Journal Entry
Confirming Sale in Washington Mutual Bank v. Wallace, 08-cv-71941 (Warren Cnty. [Ohio]
Ct. of Common Pleas Jan. 24, 2011) (found at http://www.co.warren.oh.us/clerkofcourt/search).

Plaintiff filed her complaint in this action in July 2009, alleging that Lerner, Sampson
and the banks violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., as well
as the Ohio Consumer Sales Practices Act, Ohio Rev. Code § 1345.01 et seq., when Lerner,
Sampson filed the foreclosure complaint against plaintiff in state court on behalf of Washington
Mutual. The district court found that plaintiff failed to state a claim under the Fair Debt
Collection Practices Act because the failure to record an Assignment of Mortgage before filing
a foreclosure action is not a deceptive practice under the Act. The single issue before us is
whether the filing of foreclosure action by the law firm claiming ownership of the mortgage by
its client Washington Mutual constitutes a “false, deceptive or misleading representation” under
the Fair Debt Collection Practices Act when the bank has not received a transfer of the
ownership documents. We hold that the complaint states a valid claim and reverse the
dismissal of the case.

II.

The Fair Debt Collection Practices Act prohibits a debt collector from the use of “any
false, deceptive, or misleading representation or means in connection with the collection of any
debt.” 15 U.S.C. § 1692e. Section 1692k of the statute allows the consumer to recover
statutory or actual damages for violations of the Act. In order to establish a claim under
§ 1692e: (1) plaintiff must be a “consumer” as defined by the Act; (2) the “debt” must arises
out of transactions which are “primarily for personal, family or household purposes;”
(3) defendant must be a “debt collector” as defined by the Act; and (4) defendant must have
violated § 1692e’s prohibitions. Whittiker v. Deutsche Bank Nat’l Trust Co., 605 F. Supp. 2d
914, 926 (N.D. Ohio 2007). Only the fourth element is at issue.

Whether a debt collector’s actions are false, deceptive, or misleading under § 1692e is
based on whether the “least sophisticated consumer” would be misled by defendant’s actions.
Harvey v. Great Seneca Fin. Corp., 453 F.3d 324, 329 (6th Cir. 2006). In addition, in applying
this standard, we have also held that a statement must be materially false or misleading to
violate Section 1692e. See Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 596–97 (6th Cir.
2009) (applying a materiality standard to a Section 1692e claim that was based on alleged
misstatements in legal pleadings). The materiality standard simply means that in addition to
being technically false, a statement would tend to mislead or confuse the reasonable
unsophisticated consumer.

Plaintiff alleges that the statement in the foreclosure complaint that Lerner, Sampson
filed against her on behalf of Washington Mutual contained the false statement that Washington
Mutual was the holder of her mortgage. District courts have decided, and we agree, that a
clearly false representation of the creditor’s name may constitute a “false representation . . . to
collect or attempt to collect any debt” under Section 1692e. Hepsen v. J.C. Christensen and
Assocs., Inc., No. 8:07-CV-1935-T-EAJ, 2009 WL 3064865, at *5 (M.D. Fla. Sept. 22, 2009)
(imposing liability based on a statement incorrectly identifying the name of a creditor comports
with the purposes of the Act); Blarek v. Encore Receivable Mgmt., Inc., No. 06-C-0420, 2007
WL 984096, at *15 (E.D. Wis. Mar. 27, 2007) (same). Lerner, Sampson does not dispute that
the foreclosure complaint identifies Washington Mutual as the actual holder of plaintiff’s
mortgage, but claims that Ohio law permits Washington Mutual to anticipate that it would
become the title holder after the foreclosure action was initiated but before it becomes final.
We disagree that the issue of standing in Ohio, even if resolved in Lerner, Sampson’s favor, has
any bearing on whether misidentifying a creditor is materially misleading under the Fair Debt
Collection Practices Act.1

Plaintiff alleges that identifying Washington Mutual as the holder of the note caused her
confusion and delay in trying to contact the proper party concerning payment on her loan and
resolution of the problem. She alleges that she called Washington Mutual, the purported owner
of the mortgage, to try to obtain information about her home loan and was told she had to have
a ten-digit account number for her loan, not the account number she had from Wells Fargo.
Plaintiff also alleges that her daughter ultimately contacted an attorney, as well as the Ohio
Attorney General’s Office, in an attempt to stop the sale of plaintiff’s home and get the loan
reinstated. Complaint at ¶ 15. Given these allegations, plaintiff has sufficiently alleged a
material misrepresentation that would confuse or mislead an unsophisticated consumer. By
reversing the district court on the Rule 12(b)(6) motion, we, of course, do not make any
findings about the merits of plaintiff’s claim under the Act or any defenses that may be raised
by Lerner, Sampson. We hold only that plaintiff has alleged sufficient facts to survive a motion
for dismissal on the pleadings.

For the foregoing reasons, we reverse the judgment of the district court and remand for
proceedings consistent with this opinion.

____________________________________________

*The Honorable Samuel H. Mays, Jr., United States District Judge for the Western District of
Tennessee, sitting by designation.

1
15 U.S.C. § 1692e states in relevant part:
A debt collector may not use any false, deceptive, or misleading
representation or means in connection with the collection of any debt.
Without limiting the general application of the foregoing, the
following conduct is a violation of this section:
. . .
(2) The false representation of–
(A) the character, amount, or legal status of any debt; or
. . .
(10) The use of any false representation or deceptive means to collect or attempt to
collect any debt or to obtain information concerning a consumer.
Plaintiff does not specify in her complaint which subsection of Section 1692e she is invoking, but we have
included here the only two subsections relevant to her claim.

1The Ohio Supreme Court allowed an appeal and stayed briefing in plaintiff’s state case against
Washington Mutual, Wallace v. Wash. Mut. Bank, N.A., 130 Ohio St. 3d 1493, 2011-Ohio-6556, 958
N.E.2d 956 (Dec. 21, 2011), pending resolution of Fed. Home Loan Mortg. Corp. v. Schwartzwald,
194 Ohio App. 3d 644, 2011-Ohio-2681, 957 N.E.2d 790 (Ohio Ct. App.), motion to certify and appeal
allowed by 129 Ohio St. 3d 1488, 2011-Ohio-5129, 954 N.E.2d 661 (Ohio Oct. 5, 2011) (Consolidating
cases and certifying a conflict in the Ohio appellate courts on the issue of whether in order to have standing
as a plaintiff in a mortgage foreclosure action, a party must show that it owned the note and the mortgage
when the complaint was filed.). Should the Ohio courts decide that a potential mortgagee may anticipate
transfer of the note and mortgage and bring valid foreclosure proceedings in advance, the district court will
have to decide the impact of such a holding on Wallace’s claim for damages under the Fair Debt Collection
Practices Act. We do not agree, however, with the district courts of this Circuit that have treated the
debate in Ohio over standing to bring a foreclosure action as dispositive of whether a statement was
materially misleading under the Act. See, e.g., Whittiker v. Deutsche Bank Nat’l Trust Co., 605 F. Supp.
2d 914, 930-31 (N.D. Ohio 2009); Kline v. Mortg. Elec. Sec. Sys., No. 3:08cv408, 2010 WL 1133452, at
*7 (S.D. Ohio Mar. 22, 2010). Certainly, should the Ohio courts decide that Washington Mutual did not
have standing to bring the foreclosure action in the first place, the materiality of the false statement of
ownership would be patent. However, even if Ohio holds the opposite, the Act protects the unsophisticated
consumer from false statements tending to mislead or confuse—whether Washington Mutual may
ultimately succeed in an Ohio court in its foreclosure action has no bearing on whether the initial false
statements misled Wallace. The issue arises in the shadow of the recent subprime mortgage crises in which
financial institutions are charged with encouraging reckless lending standards and rapid transfer and sale
of subprime mortgages so as to profit from the mass securitization and sale of the mortgages.

 

© 2010-13 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
www.StopForeclosureFraud.com

One cannot step into the same river twice, Heraclitus famously declared.

Abstract:
This article takes as its point of departure the financing technique referred to as “securitization,” a close cousin of secured lending that has grown to enormous size since its origin more than two decades ago. The article pursues two themes. One is a critique of the legal foundations of securitization, which includes a perspective on aspects of fraudulent transfer law that are well established historically but have been neglected in recent decades. The other is exploration of the implications of this product growing so vast despite its dubious legal foundations. In that regard, the article explores two points of legal sociology that apply to new financial products generally. The first is that a product can become so widely used that it cannot be permitted to fail, notwithstanding its dubious legal foundations. The second is that the debt rating agencies have become de facto lawmakers, because it is their decision to give a favorable rating to a financial product the credit quality of which depends on a debatable legal judgment that allows the product to grow too big to fail. Two nascent products are identified as candidates for the operation of a similar dynamic. The article ends with a normative assessment of securitization from a pragmatic perspective, concluding that legislative action is appropriate to ratify the product’s object, with constraints.

Heraclitus

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1012937&

Scribd

© 2010-13 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
www.StopForeclosureFraud.com

“The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant-their description depended on which part they were touching at any given time.” Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2010).

 

We’re all having some issues here as far as selecting or choosing which is what or whom… so lets take a close look at the following cases that spell out the who’s what below. Perhaps its a figment of bankers imagination?

BAIN vs METROPOLITAN / SELKOWITZ vs LITTON

EXCERPT:

CHAMBERS, J. – In the 1990s, the Mortgage Electronic Registration
System Inc. (MERS) was established by several large players in the mortgage
industry. MERS and its allied corporations maintain a private electronic
registration system for tracking ownership of mortgage-related debt. This system
allows its users to avoid the cost and inconvenience of the traditional public
recording system and has facilitated a robust secondary market in mortgage backed
debt and securities. Its customers include lenders, debt servicers, and financial
institutes that trade in mortgage debt and mortgage backed securities, among
others. MERS does not merely track ownership; in many states, including our
own, MERS is frequently listed as the “beneficiary” of the deeds of trust that
secure its customers’ interests in the homes securing the debts. Traditionally, the
“beneficiary” of a deed of trust is the lender who has loaned money to the
homeowner (or other real property owner). The deed of trust protects the lender by
giving the lender the power to nominate a trustee and giving that trustee the power
to sell the horne if the homeowner’s debt is not paid. Lenders, of course, have long
been free to sell that secured debt, typically by selling the promissory note signed
by the homeowner. Our deed of trust act, chapter 61.24 RCW, recognizes that the
beneficiary of a deed of trust at any one time might not be the original lender. The
act gives subsequent holders of the debt the benefit of the act by defining
“beneficiary” broadly as “the holder of the instrument or document evidencing the
obligations secured by the deed of trust.” RCW 61.24.005(2).

Judge John C. Coughenour of the Federal District Court for the Western
District of Washington has asked us to answer three certified questions relating to
two home foreclosures pending in King County. In both cases, MERS, in its role
as the beneficiary of the deed of trust, was informed by the loan servicers that the
homeowners were delinquent on their mortgages. MERS then appointed trustees
who initiated foreclosure proceedings. The primary issue is whether MERS is a
lawful beneficiary with the power to appoint trustees within the deed of trust act if
it does not hold the promissory notes secured by the deeds of trust. A plain reading
of the statute leads us to conclude that only the actual holder of the promissory
note or other instrument evidencing the obligation may be a beneficiary with the
power to appoint a trustee to proceed with a nonjudicial foreclosure on real
property. Simply put, if MERS does not hold the note, it is not a lawful
beneficiary.

NIDAY vs GMAC, MERS

Excerpt:

The question before us–and one that homeowners and MERS are litigating
under similar state laws1–is whether MERS and its members can
avail themselves of Oregon’s statutory, nonjudicial foreclosure process for trust deeds.
Plaintiff is a homeowner who, like many other borrowers, executed a trust deed that
named MERS as the “beneficiary.” After plaintiff defaulted on her loan repayment
obligation, she received a notice of trustee’s sale that identified MERS as the
“beneficiary” of the sale and that asserted a power of sale under the trust deed. Plaintiff
then filed this declaratory judgment and injunctive relief action to stop the trustee’s sale,
arguing that, notwithstanding the labels used in the trust deed, MERS is not the
“beneficiary” of the trust deed for purposes of Oregon’s nonjudicial foreclosure laws.

The trial court granted summary judgment in favor of MERS and the other
defendants (the loan servicer and the trustee), ruling that MERS was the designated
“beneficiary” of the trust deed and that each statutory requirement for nonjudicial
foreclosure had been met–including the requirement that any assignments of the trust
deed must be recorded in the county mortgage records, ORS 86.735(1). Plaintiff now
appeals, again arguing that the “Oregon legislature intended the ‘beneficiary’ to be the one
for whose benefit the [deed of trust] is given, which is the party who lent the money,”
rather than MERS. We agree and hold that the “beneficiary” of a trust deed under the
Oregon Trust Deed Act is the person designated in that trust deed as the person to whom
the underlying loan repayment obligation is owed. The trust deed in this case designates
the lender, GreenPoint Mortgage Funding, Inc., as the party to whom the secured
obligation is owed. And, because there is evidence that GreenPoint assigned its
beneficial interest in the trust deed but did not record that assignment, the trial court erred
in granting summary judgment in favor of defendants.

 

BANK of NEW YORK v. ALDERAZI

Excerpt:

Black’s Law Dictionary defines a nominee as “[a] person designated to act in place of another, usually in a very limited way”.

The Mortgage Assignment

In his affidavit Hyman also asserts that, Keri Selman, the person who signed the assignment, served as an officer of both Countrywide and MERS. He appended a copy of a MERS corporate resolution which appointed all officers of Countrywide Financial Corporation as assistant secretaries and vice presidents of MERS.

Even putting aside the fact that there is no evidence that Countrywide Financial Corporation and Countrywide Home Loans Inc., are the same entity, the fact that MERS authorized Countrywide officers to act on its behalf, is not evidence of the converse. It is no evidence that Countrywide authorized MERS officers to act as officers of Countrywide. Further, the fact that Selman may have been an officer of both Countrywide and MERS does not alter the fact that she executed the assignment on behalf of MERS.

The face of the assignment indicates that MERS is assigning the mortgage as nominee of America’s Wholesale Lender (a trade name of Countrywide), and more [*3]importantly that Selman executed the assignment as assistant vice president of MERS.

Hyman’s assertion that the assignment incorrectly lists Selman’s title as assistant vice president of MERS, instead of assistant secretary and vice president of MERS, is of no relevance other than to demonstrate the casual and cavalier manner in which these transactions have been conducted.

While Hyman further asserts in his affidavit that Selman “under her authority as an Assistant Secretary and Vice president of MERS, expedited the Assignment of Mortgage process on behalf of MERS, with the approval and for the benefit of Countrywide,” he provides no evidence that Countrywide in fact approved or authorized the assignment.

Similarly, William C. Hultman, Secretary and Treasurer of MERS, states in a conclusory fashion in paragraph 8 of his affidavit that Countrywide “instructed MERS to assign the Mortgage to Bank of New York” without offering the basis for that assertion, other than it role as nominee.

Plaintiff claims, that by the terms of the mortgage MERS as nominee, was granted the right “(A) to exercise any or all of those rights, including, but not limited to the right to foreclose and sell the Property, and (B) to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument.” However, this language is found on page two of the mortgage under the section “BORROWER’S TRANSFER TO LENDER OF RIGHTS IN THE PROPERTY” and therefore is facially an acknowledgment by the borrower. The fact that the borrower acknowledged and consented to MERS acting as nominee of the lender has no bearing on what specific powers and authority the lender granted MERS as nominee. The problem is not whether the borrower can object to the assignees’ standing, but whether the original lender, who is not before the Court, actually transferred its rights to the Plaintiff.

Furthermore, while the mortgage grants some rights to MERS it does not grant MERS the specific right to assign the mortgage. The only specific rights enumerated in the mortgage are the right to foreclose and sell the Property. The general language “to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument” is not sufficient to give the nominee authority to alienate or assign a mortgage without getting the mortgagee’s explicit authority for the particular assignment.

The MERS Agreement

Plaintiff also argues that the agreement between MERs and its members grants MERS the authority to assign the mortgages of its members. However a reading of the MERS agreement reveals only that MERS can execute assignments on behalf of its members when directed to do so by the member or its servicer.

Plaintiff cites Rules of MERS membership, Rule 2 section 5. However what that rule requires is that a member to warrant to MERS that the mortgage either names MERS as mortgagee or that they prepare an assignment of mortgage naming MERs as mortgagee.

In this case MERS was named in paragraph (c) of the mortgage as Mortgagee of record for the purpose of recording the mortgage. Being the mortgagee of record for the [*4]purpose of recording the mortgage does not confer the right to assign the mortgage absent an instruction to do so from the lender. Paragraph 2 of the MERS terms and conditions provide that “MERS shall serve as mortgagee of record with respect to all such mortgage loans solely as a nominee in an administrative capacity”, and that “MERS agrees not to assert any rights (other than rights specified in the governing documents) with respect to such mortgage loans or mortgaged properties”. Assigning or alienating a mortgage without an explicit instruction from a lender to do so, is not acting in an administrative capacity.

Further, paragraph 6 of the terms and conditions provides that, “the MERS system is not a vehicle for creating or transferring beneficial interests in mortgage loans.” (emphasis added)

Lastly, Section 6 of the MERS agreement provides that MERS shall comply with the instructions from the holder of the notes and that in the absence of instructions from the holder may rely on instructions from the servicer with respect to transfers of beneficial ownership.

What the MERS agreements and terms and conditions provide, is that MERS may execute an assignment when instructed to do so by the lender or its servicer. This is nothing

more than saying that if granted authority by the lender, or its agent, to assign a mortgage, MERs can assign the mortgage on behalf of the lender.

To read the MERS agreement as granting MERS authority to assign any of the mortgages of its thousands of members, on its own volition, without the instruction or consent of the member would lead to a nonsensical result.

Plaintiff has failed to meet the very basic requirement that proof of an agent’s authority must be shown from the mouth of the principal not from the agent. Lexow & Jenkins, P.C. v. Hertz Commercial Leasing Corp., 122 AD2d 25, 504 N.Y.S.2d 192 (2nd Dept 1986), Siegel v. Kentucky Fried Chicken of Long Island, Inc., 108 AD2d 218, 488 N.Y.S.2d 744 (2nd Dept 1985).

As Plaintiff has not shown that it owned the note and mortgage, it has no standing to maintain this foreclosure action. Therefore the renewed motion for an order of reference must be denied and the action dismissed.

The Court has raised the standing issue sua sponte because, in this case, it goes to the integrity of the entire proceeding. For the court to allow a purported assignee to foreclose, in the absence of some proof that the original lender authorized the assignment of the mortgage to them, would cast doubt upon the validity of the title of any subsequent purchasers, should the original lender or successor challenge the assignment at a future date.

In Re: FERREL L. AGARD

Excerpt:

In LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2 (N.Y. Sup. Aug. 26, 2010), the court analyzed the relationship between MERS and the original lender and concluded that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves. The court stated:

MERS… recorded the subject mortgage as “nominee” for FFFC. The word “nominee” is defined as “[a] person designated to act in place of another, usu. in a very limited way” or “[a] party who holds bare legal title for the benefit of others.” (Black’s Law Dictionary 1076 [8th ed 2004]). “This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves.” (Landmark National Bank v. Kesler, 289 Kan 528, 538 [2009]). The Supreme Court of Kansas, in Landmark National Bank, 289 Kan at 539, observed that:

The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship. See In re Sheridan, 2009 WL631355, at *4 (Bankr. D. Idaho, March 12, 2009) (MERS “acts not on its own account. Its capacity is representative.”); Mortgage Elec. Registrations Systems, Inc. v. Southwest, 2009 Ark. 152 -, 301 SW3d 1, 2009 WL 723182 (March 19, 2009) (“MERS, by the terms of the deed of trust, and its own stated purposes, was the lender’s agent”); La Salle Nat. Bank v. Lamy, 12 Misc.3d 1191[A], at *2 [Sup Ct, Suffolk County 2006])… (“A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.”). LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2; see also Bank of New York v. Alderazi, 900 N.Y.S.2d 821, 823 (N.Y. Sup. Ct. 2010) (nominee is “‘[a] person designated to act in place of another, usually in a very limited way.’”) (quoting Black’s Law Dictionary)).

In LaSalle Bank, N.A. v. Bouloute the court concluded that MERS must have some evidence of authority to assign the mortgage in order for an assignment of a mortgage by MERS to be effective. Evidence of MERS’s authority to assign could be by way of a power of attorney or some other document executed by the original lender. See Bouloute, 2010 WL 3359552, at *1; Alderazi, 900 N.Y.S.2d at 823 (“‘To have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage.’”) (quoting HSBC Bank USA, NA v. Yeasmin, 866 N.Y.S.2d 92 (N.Y. Sup. Ct. 2008)).

Other than naming MERS as “nominee”, the Mortgage also provides that the Borrower transfers legal title to the subject property to MERS, as the Lender’s nominee, and acknowledges MERS’s rights to exercise certain of the Lender’s rights under state law. This too, is insufficient to bestow any authority upon MERS to assign the mortgage. In Bank of New York v. Alderazi, the court found “[t]he fact that the borrower acknowledged and consented to MERS acting as nominee of the lender has no bearing on what specific powers and authority the lender granted MERS.” Alderazi, 900 N.Y.S.2d at 824. Even if it did bestow some authority upon MERS, the court in Alderazi found that the mortgage did not convey the specific right to assign the mortgage.

The Court agrees with the reasoning and the analysis in Bouloute and Alderazi, and the other cases cited herein and finds that the Mortgage, by naming MERS a “nominee,” and/or “mortgagee of record” did not bestow authority upon MERS to assign the Mortgage.

The MERS membership rules

According to MERS, in addition to the alleged authority granted to it in the Mortgage itself, the documentation of the Assignment of Mortgage comports with all the legal requirements of agency when read in conjunction with the overall MERS System. MERS’s argument requires that this Court disregard the specific words of the Assignment of Mortgage or, at the very least, interpret the Assignment in light of the overall MERS System of tracking the beneficial interests in mortgage securities. MERS urges the Court to look beyond the four corners of the Mortgage and take into consideration the agency relationship created by the agreements entered into by the lenders participating in the MERS System, including their agreement to be bound by the terms and conditions of membership.

MERS has asserted that each of its member/lenders agrees to appoint MERS to act as its agent. In this particular case, the Treasurer of MERS, William C. Hultman, declared under penalty of perjury that “pursuant to the MERS’s Rules of Membership, Rule 2, Section 5… First Franklin appointed MERS to act as its agent to hold the Mortgage as nominee on First Franklin’s behalf, and on behalf of First Franklin’s successors and assigns.” (Affirmation of William C. Hultman, ¶7).

However, Section 5 of Rule 2, which was attached to the Hultman Affirmation as an exhibit, contains no explicit reference to the creation of an agency or nominee relationship. Consistent with this failure to explicitly refer to the creation of an agency agreement, the rules of membership do not grant any clear authority to MERS to take any action with respect to the mortgages held by MERS members, including but not limited to executing assignments. The rules of membership do require that MERS members name MERS as “mortgagee of record” and that MERS appears in the public land records as such. Section 6 of Rule 2 states that “MERS shall at all times comply with the instructions of the holder of mortgage loan promissory notes,” but this does not confer any specific power or authority to MERS.

State law

Under New York agency laws, an agency relationship can be created by a “manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and the consent by the other to act.” Meisel v. Grunberg, 651 F.Supp.2d 98, 110 (S.D.N.Y. 2009) (citing N.Y. Marine & Gen. Ins. Co. v. Tradeline, L.L.C., 266 F.3d 112, 122 (2d Cir.2001)).

‘Such authority to act for a principal may be actual or apparent.’… Actual authority arises from a direct manifestation of consent from the principal to the agent…. The existence of actual authority ‘depends upon the actual interaction between the putative principal and agent, not on any perception a third party may have of the relationship.’

Meisel v. Grunberg, 651 F.Supp.2d at 110 (citations omitted).

Because MERS’s members, the beneficial noteholders, purported to bestow upon MERS interests in real property sufficient to authorize the assignments of mortgage, the alleged agency relationship must be committed to writing by application of the statute of frauds. Section 5-703(2) of the New York General Obligations Law states that:

An estate or interest in real property, other than a lease for a term not exceeding one year, or any trust or power, over or concerning real property, or in any manner relating thereto, cannot be created, granted, assigned, surrendered or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the person creating, granting, assigning, surrendering or declaring the same, or by his lawful agent, thereunto authorized by writing.

See N.Y. Gen. Oblig. Law § 5-703(1) (McKinney 2011); Republic of Benin v. Mezei, No. 06 Civ. 870 (JGK), 2010 WL 3564270, at *3 (S.D.N.Y. Sept. 9, 2010); Urgo v. Patel, 746 N.Y.S.2d 733 (N.Y. App. Div. 2002) (finding that unwritten apparent authority is insufficient to satisfy the statute of frauds) (citing Diocese of Buffalo v. McCarthy, 91 A.D.2d 1210 (4th Dept. 1983)); see also N.Y. Gen. Oblig. Law § 5-1501 (McKinney 2011) (“‘agent’ means a person granted authority to act as attorney-in-fact for the principal under a power of attorney…”). MERS asks this Court to liberally interpret the laws of agency and find that an agency agreement may take any form “desired by the parties concerned.” However, this does not free MERS from the constraints of applicable agency laws.

The Court finds that the record of this case is insufficient to prove that an agency relationship exists under the laws of the state of New York between MERS and its members. According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents. For example, MERS argues that its agent status can be found in the Mortgage which states that MERS is a “nominee” and a “mortgagee of record.” However, the fact that MERS is named “nominee” in the Mortgage is not dispositive of the existence of an agency relationship and does not, in and of itself, give MERS any “authority to act.” See Steinbeck v. Steinbeck Heritage Foundation, No. 09-18360cv, 2010 WL 3995982, at *2 (2d Cir. Oct. 13, 2010) (finding that use of the words “attorney in fact” in documents can constitute evidence of agency but finding that such labels are not dispositive); MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (designation as the ‘mortgagee of record’ does not qualify MERS as a “mortgagee”). MERS also relies on its rules of membership as evidence of the agency relationship. However, the rules lack any specific mention of an agency relationship, and do not bestow upon MERS any authority to act. Rather, the rules are ambiguous as to MERS’s authority to take affirmative actions with respect to mortgages registered on its system.

In addition to casting itself as nominee/agent, MERS seems to argue that its role as “mortgagee of record” gives it the rights of a mortgagee in its own right. MERS relies on the definition of “mortgagee” in the New York Real Property Actions and Proceedings Law Section 1921 which states that a “mortgagee” when used in the context of Section 1921, means the “current holder of the mortgage of record… or their agents, successors or assigns.” N.Y. Real Prop. Acts. L. § 1921 (McKinney 2011). The provisions of Section 1921 relate solely to the discharge of mortgages and the Court will not apply that definition beyond the provisions of that section in order to find that MERS is a “mortgagee” with full authority to perform the duties of mortgagee in its own right. Aside from the inappropriate reliance upon the statutory definition of “mortgagee,” MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best.

Adding to this absurdity, it is notable in this case that the Assignment of Mortgage was by MERS, as nominee for First Franklin, the original lender. By the Movant’s and MERS’s own admission, at the time the assignment was effectuated, First Franklin no longer held any interest in the Note. Both the Movant and MERS have represented to the Court that subsequent to the origination of the loan, the Note was assigned, through the MERS tracking system, from First Franklin to Aurora, and then from Aurora to U.S. Bank. Accordingly, at the time that MERS, as nominee of First Franklin, assigned the interest in the Mortgage to U.S. Bank, U.S. Bank allegedly already held the Note and it was at U.S. Bank’s direction, not First Franklin’s, that the Mortgage was assigned to U.S. Bank. Said another way, when MERS assigned the Mortgage to U.S. Bank on First Franklin’s behalf, it took its direction from U.S. Bank, not First Franklin, to provide documentation of an assignment from an entity that no longer had any rights to the Note or the Mortgage. The documentation provided to the Court in this case (and the Court has no reason to believe that any further documentation exists), is stunningly inconsistent with what the parties define as the facts of this case.

However, even if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that MERS did not have authority, as “nominee” or agent, to assign the Mortgage absent a showing that it was given specific written directions by its principal.

This Court finds that MERS’s theory that it can act as a “common agent” for undisclosed principals is not support by the law. The relationship between MERS and its lenders and its distortion of its alleged “nominee” status was appropriately described by the Supreme Court of Kansas as follows: “The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant-their description depended on which part they were touching at any given time.” Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2010).

BAIN v. ONEWEST

Excerpt:

MERS asserts that Plaintiff has not shown an unfair or deceptive practice on its part, has not shown how any act of MERS impacts the public interest, and presents nothing showing injuries caused by an unfair or deceptive practice by MERS. The Court disagrees. Like her other claims arising under the Deed of Trust Act, Plaintiff’s CPA claims depend on whether MERS may be the beneficiary (or nominee of the beneficiary) under Washington state law. MERS’s attempt to serve as the beneficiary may have been improper under state law and it may have led to widespread confusion regarding home ownership, payment delivery, and negotiable positions. If MERS violated state law, its conduct may very well be classified as “unfair” under the CPA. There is no doubt that MERS’s conduct impacts the public interest. See Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 537-38 (Wash. 1986) (listing factors for determining public interest); Peterson, supra, at 1362 (“Although MERS is a young company, 60 million mortgage loans are registered on its system.”); R. K. Arnold, Yes, There Is Life on MERS, 11 Prob. & Prop. 32, 33 (1997) (“Some have called MERS the most significant event for the mortgage industry since the formation of Fannie Mae and Freddie Mac. Others have compared it to the creation of uniform mortgage instruments, which have become standard throughout the residential mortgage industry. This suggests that the journey to MERS will have a tremendous effect on the mortgage industry.”). And the harm Plaintiff may have suffered because of MERS’s conduct may include expending resources to avert an unlawful foreclosure and preventing Plaintiff from identifying the real beneficiary and negotiating a new arrangement to avoid foreclosure.

<SNIP>

III. CONCLUSION

Plaintiff admits that she has been delinquent in her mortgage payments. A ruling favorable to Plaintiff in this case and others like it cannot and should not create a windfall for all homeowners to avoid upholding their end of the mortgage bargain—paying for their homes. But a homeowner’s failure to make payments cannot grant lenders, trustees, and so-called beneficiaries like MERS license to ignore state law and foreclose using any means necessary. Whether these and similar defendants complied with Washington state law remains unclear.

IN RE: SALAZAR

Excerpt:

Gomes also relied upon the borrower’s acknowledgement of MERS’ authority to foreclose as nominal beneficiary. Gomes, 192 Cal. App. 4th at 1157-58; see also Pantoja, 640 F. Supp. 2d at 1189- 90. Even if US Bank had not replaced MERS as the foreclosing beneficiary by the time of the foreclosure here, MERS still had no authority to nonjudicially foreclose under Salazar’s DOT under its express terms. The Lender, not MERS, had the right to “invoke the power of sale” under the DOT, ‘l[ 13 22, here. This acknowledgement of MERS’ authority also did not extend so far as to permit it to foreclose. Salazar’s acknowledgement was limited to the situation where MERS’ enforcement actions were “necessary to comply with law or custom” (emphasis added). Whatever “necessary to comply with law or custom” means, and there is no evidence in the record to explain it, it should not mean that US Bank or MERS can contract away their obligations to comply with the foreclosure statutes.12

<SNIP>

MERS System is not an Alternative to Statutory Foreclosure Law

The Court also rejects US Bank’s invitation to overlook the statutory foreclosure mandates of California law, and rely upon MERS as an extra-judicial commercial alternative.14 The full scope of California’s nonjudicial foreclosure law, found at Civil Code sections 2020-2955, exhaustively covers every aspect of the real estate foreclosure process and must be respected. I. E. Associates v. Safe co Title Ins. Co., 39 Cal. 3d 281, 285 (1985) (refusing to supplement the notice requirements found in Civil Code section 2924); Dimock, 81 Cal. App. 4th at 874 (holding a sale under a deed of trust by former trustee void as failing to comply with Civil Code section 2934); Moeller v. Lien, 25 Cal. App.4th 822, 834 (1994) (holding Civil Code section 2924 includes a myriad of rules relating to notice and right to cure, but no relief from forfeiture under Civil Code section 3275). To overlook statutory foreclosure requirements would require legislative action, of which the Court is not capable. Westside Apts., LLC v. Butler (In re Butler), 271 B.R. 867, 873 (Bankr. C.D. Cal. 2002). This Court instead  joins the courts in other states that have rejected MERS’ offer of an alternative to the public recording system. In re Agard, No. 10-77338-reg, 2011 Bankr. LEXIS 488, at *58-*59 (Bankr. E.D.N.Y. Feb. 10, 2011); In re McCoy, No. J0-63814-fra13, 2011 Bankr. LEXIS 534, at *10 (Bankr. Or. Feb. 7, 2011); MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010); LaSalle Bank Nat’/ Ass’n v. Lamy, No. 030049/2005, 2006 NY Slip Op 51534U, slip op. 2 (N.Y. Sup. Ct. 2006).

US Bank as the foreclosing assignee was obligated to record its interest before the sale despite MERS’ initial role under the DOT, and this role cannot be used to bypass Civil Code section 2932.5.

Since US Bank failed to record its interest, Salazar has a valid property interest in his residence that is entitled to protection through the automatic stay.

Some Side Info:

The Nature of MERS’ Business

• MERS does not take applications for, underwrite or negotiate mortgage loans.
• MERS does not make or originate mortgage loans to consumers.
• MERS does not extend any credit to consumers.
• MERS has no role in the origination or original funding of the mortgages or deeds of trust for which it serves as “nominee”.
• MERS does not service mortgage loans.
• MERS does not sell mortgage loans.
• MERS is not an investor who acquires mortgage loans on the secondary market.
• MERS does not ever receive or process mortgage applications.
• MERS simply holds mortgage liens in a nominee capacity and through its electronic registry, tracks changes in the ownership of mortgage loans and servicing rights related thereto.
• MERS© System is not a vehicle for creating or transferring beneficial interests in mortgage loans.
• MERS is not named as a beneficiary of the alleged promissory note.

Ownership of Promissory Notes or Mortgage Indebtedness

• MERS is never the owner of the promissory note for which it seeks foreclosure.
• MERS has no legal or beneficial interest in the promissory note underlying the security instrument for which it serves as “nominee”.
• MERS has no legal or beneficial interest in the loan instrument underlying the security instrument for which it serves as “nominee”
• MERS has no legal or beneficial interest in the mortgage indebtedness underlying the security instrument for which it serves as “nominee”.
• MERS has no interest at all in the promissory note evidencing the mortgage indebtedness.
• MERS is not a party to the alleged mortgage indebtedness underlying the security instrument for which it serves as “nominee”.
• MERS has no financial or other interest in whether or not a mortgage loan is repaid.
• MERS is not the owner of the promissory note secured by the mortgage and has no rights to the payments made by the debtor on such promissory note.
• MERS does not make or acquire promissory notes or debt instruments of any nature and therefore cannot be said to be acquiring mortgage loans.
• MERS has no interest in the notes secured by mortgages or the mortgage servicing rights related thereto.
• MERS does not acquire any interest (legal or beneficial) in the loan instrument (i.e., the promissory note or other debt instrument).
• MERS has no rights whatsoever to any payments made on account of such mortgage loans, to any servicing rights related to such mortgage loans, or to any mortgaged properties securing such mortgage loans.
• The note owner appoints MERS to be its agent to only hold the mortgage lien interest, not to hold any interest in the note.
• MERS does not hold any interest (legal or beneficial) in the promissory notes that are secured by such mortgages or in any servicing rights associated with the mortgage loan.
• The debtor on the note owes no obligation to MERS and does not pay MERS on the note.

Beneficial Interest in the Mortgage Indebtedness

• MERS holds legal title to the mortgage for the benefit of the owner of the note.
• The beneficial interest in the mortgage (or person or entity whose interest is secured by the mortgage) runs to the owner and holder of the promissory note and/or servicing rights thereunder.
• MERS has no interest at all in the promissory note evidencing the mortgage loan.
• MERS does not acquire an interest in promissory notes or debt instruments of any nature.
• The beneficial interest in the mortgage (or the person or entity whose interest is secured by the mortgage) runs to the owner and holder of the promissory note (NOT MERS).

MERS’ Rights To Control the Foreclosure

• MERS must all times comply with the instructions of the holder of the mortgage loan promissory notes.
• MERS only acts when directed to by its members and for the sole benefit of the owners and holders of the promissory notes secured by the mortgage instruments naming MERS as nominee owner.
• MERS’ members employ and pay the attorneys bringing foreclosure actions in/via MERS’ name.

© 2010-13 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
www.StopForeclosureFraud.com

NO. THERE’S NO LIFE AT MERS

By DinSFLA

Mortgage Electronic Registration Systems, Inc (MERS) has a very long history. The beginning stages have remained a mystery until now.

In 1989, Brian Hershkowitz developed the “Whole Loan Book Entry” concept while serving as a director for the Mortgage Bankers Association (MBA). In 1990, he first introduced this concept to seven different industry groups; Document Custodian, Originators, Servicers, Title Insurers, County Recorders, Government Sponsored Enterprises (GSE’s) and Warehouse/Interim Lenders. The reception was very positive and it was viewed as a very useful recording system to be used for how equity and debt securities could be identified and managed.

In 1991, Mr. Hershkowtiz published Farming It Out in Mortgage Banking Magazine. His main discussion in this article is primarily about getting the opinion of the experts in the technology outsourcing service industry. In 1992, Mr. Hershkowitz published another article called Cutting Edge Solutions in Mortgage Banking Magazine. In this particular article he mentions the actual meeting that took place at the Mortgage Bankers Association of America (MBA) headquarters with many key players that are known today as some of MERSCORP’s shareholders, such as, Fannie Mae and Freddie Mac. In this meeting they discussed a “System” that will bring changes in mortgage records.

Mr. Hershkowitz went on to become President and COO of LandSafe Credit, a leading settlement service provider that was a subsidiary of Countrywide. Mr. Hershkowitz also spent several years serving Countrywide in the areas of strategic planning and executive management.

In 2001, Mr. Hershkowitz became Executive Vice President at Fidelity National Information Services (FNIS) and President of its mortgage and information services division. His responsibilities included management of the Company’s data offerings, including public records information, credit reporting information, flood hazard compliance data, real estate tax information and collateral valuation services. He left FNIS in November of 2006 to become Chief Executive Officer of Maximum Value Group, a consulting firm focused on providing advice to private equity and other market participants in the area of banking and mortgages.

ENTER THE X-FILES

MERS has evolved into a totally different purpose today.

Mortgage Electronic Registration Systems, Inc. is a wholly owned subsidiary of MERSCORP Inc., located at 1595 Spring Hill Rd Ste 310 Vienna, VA 22182.

MERS was founded by the mortgage industry. MERS tracks “changes” in the ownership of the beneficial and servicing interests of mortgage loans as they are bought and sold among MERS members or others. Simultaneously, MERS acts as the “mortgagee” of record in a “nominee” capacity (a form of agency) for the beneficial owners of these loans.

To ensure widespread acceptance within the industry, MERS sought to have security instruments modified to contain MERS as the original mortgagee (MOM) language. MERS began to change decades of business practices after the two biggest mortgage funders in the U.S. the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Ferderal National Mortgage Association (Fannie Mae) modified their Uniform Security Instruments to include MOM language. Their approval opened the doors to incorporate MERS into loans at origination.

Soon after, U.S. government agencies like the Veterans Administration, Federal Housing administration and Government National Mortgage Association (Ginne Mae), and several state housing agencies followed both Fannie/Freddie to approve MERS.

More than 60 percent of all newly-originated mortgages are registered in MERS. Its mission is to register every mortgage loan in the United States on the MERS System. Since 1997, more than 65 million home mortgages have been assigned a Mortgage Identification Number (MIN) and have been registered on the MERS System.

The mortgage-backed security (MBS) sector tested the viability of MERS because a substantial number of mortgages are securitized in the secondary market. In February 1999, Lehman Brothers was the first company to include MERS registered loans in a MBS.

Moody’s Investor Service issued an independent Structured Finance special report  on MERS and it’s impact of MBS transactions and found that where the securitzer used MERS, new assignments of mortgages to the trustee of MBS transactions were not necessary.

Since MERS is a privately owned data system and not public, all mortgages and assignments must be recorded in order to perfect a lien. Since they failed to record assignments when these loans often traded ownership several times before any assignment was created, the legal issue is apparent. MERS may have destroyed the public land records by breaking the chain of title to millions of homes.

IN MERS CEO’S OWN WORDS

In or around the summer of 1997, MERSCORP President and CEO R.K. Arnold wrote, “Yes, There is life on MERS” Mr. Arnold stated, “Some county recorders have expressed concerns that MERS will eliminate their offices nationwide or destroy the public land records by breaking the chain of title. As implemented, MERS will not create a break in the chain of title, and, because MERS is premised on an assignment recorded in the public land records, MERS cannot work without county recorders.”

In this same article Mr. Arnold also states “The sheer volume of transfers between servicing companies and the resulting need to record assignments caused a heavy drag on the secondary market. Loan servicing can trade several times before even the first assignment in a chain is recorded, leaving the public land records clogged with unnecessary assignments. Sometimes these assignments are recorded in the wrong sequence, clouding title to the property”. Mr. Arnold never mentions the fact that the mortgage notes have been securitized, thereby becoming “negotiable securities” under the Uniform Commercial Code.

In an interview for The New York Times, Mr. Arnold said, “that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies MERS brought to the mortgage trade.”

Mr. Arnold went on to say that, ” far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.”

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”

Unfortunately, even a simple search in the Florida Land Records proves the opposite to be the case. Researchers have  easily found affidavits of lost assignments actually stating, “the said mortgage was assigned to Mortgage Electronic Registration Systems, Inc., from “XXXXXXX”, the original of the said assignment to Mortgage Electronic Registration Systems, Inc., was lost, misplaced or destroyed before same could be placed of record with the Florida Land Records County Clerk’s office; That, “XXXXXXX”, it’s successors and/or assignee is no longer in business/or do not respond to our request for a duplicate assignment, and therefore, a duplicate original of said assignment cannot be obtained.”

According to affidavits such as these, not only have the borrowers lost contact with the lenders, but the same is true that MERS did as well.

On September 25, 2009, Mr. R.K. Arnold was deposed in Alabama. Mr. Arnold admitted MERS does not have a beneficial interest in any loan, does not loan money and does not suffer a default if monies are not paid. On November 11, 2009, William C. Hultman was deposed in Alabama and made the same admissions.

Yet again, researchers have easily located affidavits recorded in the Florida Land Records stating “That said Deed of Trust has not been assigned to any other party and that MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, Inc. is the current holder and owner of the Note and Deed of Trust in question.”

NO. THERE’S NO LIFE AT MERS

Aside from not recording assignments, Mr. Arnold failed to mention that the certifying officers given authority to execute sensitive loan documents would not be paid employees of MERS. This raises the critical legal question as to how one can act as a certified officer and execute any equitable interest on behalf of any security instruments without being an employee of MERS.

On April 7, 2010, in the Superior Court of New Jersey, MERS Treasurer and Secretary William C. Hultman gave an oral sworn video/telephone deposition in the case of Bank Of New York v. Ukpe.:

Q Do the assistant secretaries — first off, are
you a salaried employee of MERS?
A No.

Q Are you a salaried employee of MERS Corp,
Inc.?
A Yes.

Q Are any of the employees of MERS, Inc.
salaried employees?
A I don’t understand your question.

Q Does anyone get a paycheck, if they are an
employee of MERS, Inc., do they get a paycheck from
Mercer, Inc.?
A There is no MERS, Inc.

Q I thought, sir, there’s a company that was
formed January 1, 1999, Mortgage Electronic Registration
Systems, Inc. Does it have paid employees?
A No, it does not.

Q Does it have employees?
A No.

Q Does MERS have any employees?
A Did they ever have any? I couldn’t hear you.

Q Does MERS have any employees currently?
A No.

Q In the last five years has MERS had any
employees?
A No.

<SNIP>

Q How many assistant secretaries have you
appointed pursuant to the April 9, 1998 resolution; how
many assistant secretaries of MERS have you appointed?
A I don’t know that number.

Q Approximately?
A I wouldn’t even begin to be able to tell you
right now.

Q Is it in the thousands?
A Yes.

Q Have you been doing this all around the
country in every state in the country?
A Yes.

Q And all these officers I understand are unpaid
officers of MERS?
A Yes.

Q And there’s no live person who is an employee
of MERS that they report to, is that correct, who is an employee?
A There are no employees of MERS.

If so, how does anyone have any authority to sign security instruments encumbered by any loan documents, if these certifying officers are not paid employees and never attend corporate meetings in the capacity as Vice President, Assistant Secretary, etc. with Mortgage Electronic Registration System, Inc..

COURTS FIND ISSUES WITH MERS

Federal and state judges across America are realizing that the mortgage industry’s nominee is backfiring.

In Mr. Arnold’s own words, “For these servicing companies to perform their duties satisfactorily, the note and mortgage were bifurcated. The investor or its designee held the note and named the servicing company as mortgagee, a structure that became standard.” What has become a satisfactory standard structure for the mortgage industry has not been found by many courts to be legally sufficient to foreclose upon the property.

Again, MERS only acts as nominee for the mortgagee of record for any mortgage loan registered on the computer system MERS maintains, called the MERS System. MERS cannot negotiate a security instrument. Therefore, MERS certifying officers cannot have legal standing to assign what MERS does not own or hold.

The Supreme Court of New York Nassau County:
Bank of New York Mellon V. Juan Mojica Index No: 26203/09
Justice Thomas A. Adams stated, “Not only has plaintiff failed to establish MERS’ right as a nominee for purposes of recording to assign the mortgage, more importantly, no effort has been made to establish the authority of MERS, a non-party to the note, to transfer its ownership.”

The Supreme Court of Maine:
Mortgage Electronic Registration Systems, Inc. v. Saunders, No. 09-640, 2010 WL 3168374, (Me. August 12, 2010) The Court explains that the only rights conveyed to MERS in either the Saunders’ mortgage or the corresponding promissory note are bare legal title to the property for the sole purpose of recording the mortgage and the corresponding right to record the mortgage with the Registry of Deeds. This comports with the limited role of a nominee. A nominee is a “person designated to act in place of another, usu[ally] in a very limited way,” or a “party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Black’s Law Dictionary 1149 (9th ed. 2009).

In Hawkins, No. BK-S-07-13593-LBR, 2009 WL 901766
The Court found that the deed of trust “attempts to name MERS as both beneficiary and a nominee” but held that MERS was not the beneficiary, as it had “no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans.”

In Re: Walker, Case No. 10-21656-E-11 – Eastern District of CA Bankruptcy court rules MERS has NO actionable interest in title. “Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.” “MERS could not, as a matter of law, have transferred the note to Citibank from the original lender, Bayrock Mortgage Corp.” The Court’s ruled that MERS and Citibank are not the real parties in interest.

In re Vargas, 396 B.R. at 517-19. Judge Bufford found that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. “The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.”

FRAUD ON THE COURT

In US Bank v. Harpster the Law Offices Of David J. Stern committed fraud on the court by the evidence based on the Assignment of Mortgage that was created and notarized on December 5, 2007. However, that purported creation/notarization date was facially impossible: the stamp on the notary was dated May 19, 2012. Since Notary commissions only last four years in Florida (see F .S. Section 117.01 (l)), the notary stamp used on this instrument did not even exist until approximately five months after the purported date on the Assignment.

The Court specifically finds that the purported Assignment did not exist at the time of filing of this action; that the purported Assignment was subsequently created and the execution date and notarial date were fraudulently backdated, in a purposeful, intentional effort to mislead the Defendant and this Court. The Court rejects the Assignment and finds that is not entitled to introduction in evidence for any purpose. The Court finds that the Plaintiff does not have standing to bring its action.

The Court dismissed this case with prejudice.

In Duval County, Florida another foreclosure case was dismissed with prejudice for fraud on the court. In JPMorgan V. Pocopanni, the Court found that Fishman & Shapiro representing JPMorgan had actual knowledge at all times that the Complaint, the Assignment, and the Motion for Substitution were all false. The Court found that by clear and convincing evidence WAMU, Chase and Shapiro & Fishman committed fraud on this court.

Both these cases involved Mortgage Electronic Registration Systems Inc. assignments.

FRAUD INVESTIGATIONS

Two RICO Class Action lawsuits have commenced against Foreclosure Law Firms and MERSCORP for fabricating and forging documents that are entered into courts as evidence in order to have standing to foreclose. Unknown to judges and the borrowers, they accept these documents because they are executed under perjury of the law. These “tromp l’oeil” actions have finally surfaced and the courts has taking notice.

The lack of supervision and managing of MERS “Robo-Signers” has led to a national frenzy of fabrication, forgery and certifying officers wearing multiple corporate hats. Anyone who compares signatures of these certifying officers will see a major problem with forgery in hundreds of thousands affidavits and assignments which creates an enormous dark cloud of title defects to millions of homes across the US.

On August 10, 2010 Florida attorney general Bill McCollum announced that he is investigating three foreclosure law firms for allegedly providing fraudulent assignments and affidavits relating in foreclosure cases.

In a deposition taken in December 2009, GMAC employee Jeffrey Stephan said he signed 10,000 affidavits or similar documents a month without personally verifying who the mortgage holder was. That means many foreclosures could have taken place based on false documentation and many homes may have been unlawfully foreclosed on.

On September 20, 2010, GMAC halted foreclosures in 23 different states. Two of the three firms being investigated by the Florida attorney general, the Law Office of Marshall C. Watson and the Law Offices of David J. Stern PA, have represented GMAC in foreclosure proceedings.

This is not limited to only GMAC Mortgage. There are many hundreds of thousands of these same documents that are being created by many foreclosure law firms across the nation.

University of Utah law professor Christopher L. Peterson has raised the issue that MERS should be regarded as a debt collector. He argues that some of MERS’ methods are just the sort of deceptive practices that ought to be regulated under The Fair Debt Collection Practices Act (FDCPA), 15 U. S. C. §1692(a),(j).

CONCLUSION

Finally in May, 2009, Mr. Arnold said in Mortgage Technology Magazine, “Every system in the mortgage industry can switch MERS registry on or off at will,” referencing that both the Obama administration and Congressional leaders are aware of this.

President Obama and Congressional leaders it is time to permanently switch MERS lifeless device off!

Not until MERS became the primary focus for challenges to legal standing in foreclosure courts as reported by the alternative media, have the main stream media and the mortgage industry have begun to realize that property records cross the United States have become totally unreliable.

It has taken more than a decade for the courts to recognize that MERS has become a mortgage backfire system leaving clouded titles in over 65 million loans since 1997.

Courts across the nation must comply with the law.  Any documents submitted to the courts regarding property ownership should be assumed to be nothing but smoke in a mirror.

No, Mr. Arnold, there’s no life at MERS.

DinSFLA, “nominee” of stopforeclosurefraud.com, a blog on Foreclosure Fraud.

© 2010 FORECLOSURE FRAUD | by DinSFLA. All rights reserved. www.StopForeclosureFraud.com

© 2010-13 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
www.StopForeclosureFraud.com