affidavits | FORECLOSURE FRAUD | by DinSFLA - Part 2

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MA State Rep. Tim Madden’s House Bill No. HR 2766 Proposed Amendments and New Sections to Mortgage Laws

MA State Rep. Tim Madden’s House Bill No. HR 2766 Proposed Amendments and New Sections to Mortgage Laws


This is a very important bill to start cleaning up the mess created by the banks in the foreclosure crisis that is sweeping MA and the rest of the country.

Highlights include the elimination of MERS’s ability to “hide” transactions and avoid recording fees, defining what a mortgagee is in MA, requiring that all notary acknowledgements be completed in accordance with the requirements for notaries laid down by the Governor and others.

PLEASE forward this to as many people as you know that can contact their MA state Senator AND Rep. and send in written support for it.

Your support for HR2766 can be mailed (addresses below) or e-mailed to anthony.petruccelli@masenate.gov AND michael.costello@mahouse.gov.

Please CC your support to timothy.madden@mahouse.gov

It should be addressed to the Chairmen (please do not send any packages other than an envelope as it might get rejected):

Senator Anthony Petruccelli, Chairman

State House
Room 424
Boston, MA 02133

Representative Michael A. Costello, Chairman

State House
Room 254
Boston, MA 02133

Click For Summary of HR 2766

[ipaper docId=51613446 access_key=key-2mhf56chd9ua46klq8pp height=600 width=600 /]

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



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Chicago Court Orders Suspension of 1700 Foreclosures Due to Altered Documents

Chicago Court Orders Suspension of 1700 Foreclosures Due to Altered Documents


According to the Chicago Tribune

A Cook County Circuit Court judge has taken the unusual step of temporarily halting at least 1,700 mortgage foreclosures after a law firm told the court that the cases contained altered documents, the Tribune has learned.

Fisher and Shapiro LLC, one of the top three law firms used by mortgage servicers to handle their local foreclosure actions, reported to the court that, in a breach of protocol, affidavits in the cases were changed. Among other things, fees were added after the documents were signed by servicers.

[…]

“It’s similar to robo-signing in that it’s a high-volume pattern and practice of cutting corners, expediting the process through making false representations,” said Daniel Lindsey, an attorney at the Legal Assistance Foundation of Metropolitan Chicago, which is not directly involved in the matter. “The fallout is this order and some delay, and maybe (it will) help some people figure out some alternatives.”

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



Posted in STOP FORECLOSURE FRAUDComments (2)

Freddie Mac Tells Servicers NOT To Foreclose In MERS

Freddie Mac Tells Servicers NOT To Foreclose In MERS


Effective April 1, servicers managing Freddie Mac loans will no longer be allowed to foreclose on properties in the name of Mortgage Electronic Registration Systems (MERS).

Freddi Mac’s announcement  states

We have updated the Guide to eliminate the option for the foreclosure counsel or trustee to conduct a
foreclosure in the name of MERS. Effective for Mortgages registered with MERS that are referred to
foreclosure on or after April 1, 2011, Servicers must prepare an assignment of the Security Instrument
from MERS to the Servicer and instruct the foreclosure counsel or trustee to foreclose in the Servicer’s
name and take title in Freddie Mac’s name.

As required in Section 66.17, Foreclosing in the Servicer’s Name, Servicers must record the prepared
assignment where required by State law. State mandated recording fees are not reimbursable by Freddie
Mac, are not considered part of the Freddie Mac allowable attorney fees and must not be billed to the
Borrower.

Servicers should refer to updated Section 66.17 and Section 66.54, Vesting the Title and Avoiding
Transfer Taxes, for additional information.


[ipaper docId=51478894 access_key=key-uycf5vbb5ste8n2go4r height=600 width=600 /]

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



Posted in STOP FORECLOSURE FRAUDComments (1)

ProPublica | In Proposed Mortgage Fraud Settlement, a Gift to Big Banks

ProPublica | In Proposed Mortgage Fraud Settlement, a Gift to Big Banks


Lurking in a proposed mortgage fraud settlement with the state attorneys general is a clause that could be worth billions for the big banks.

Yes, I mean the settlement that might extract the supposedly large sum of $20 billion from the banks to settle foreclosure fraud. The one denounced as a “shakedown” by Sen. Richard Shelby of Alabama.

Despite such rhetoric, the settlement might let the banks avoid tens of billions of write-downs, thanks to a clause with a biblical flavor: the last shall be first.

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



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NYT | Another Inside Job

NYT | Another Inside Job


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



Posted in STOP FORECLOSURE FRAUDComments (0)

OH Judge Denies MTD “FDCPA, Ohio Consumer Sales Practices Act” TURNER v. Ohio Consumer Sales Practices Act

OH Judge Denies MTD “FDCPA, Ohio Consumer Sales Practices Act” TURNER v. Ohio Consumer Sales Practices Act


TAMARA TURNER, et al., Plaintiffs,
v.
LERNER, SAMPSON & ROTHFUSS, Defendant.

Case No. 1:11-CV-00056.United States District Court, N.D. Ohio.

March 4, 2011.

OPINION & ORDER

[Resolving Doc. No. 8]

JAMES S. GWIN, District Judge.

The Defendant, Lerner, Sampson & Rothfuss (“Lerner”), moves the Court to dismiss this action under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. [Doc. 8.] The Plaintiffs oppose the motion. [Doc. 14.] The Defendant replied. [Doc. 19.]

For the following reasons, the Court GRANTS IN PART and DENIES IN PART the Defendant’s motion to dismiss.

I. Background

In this putative class action, Plaintiffs Tamara Turner, Phillip Turner, Mary Sweeney, James Unger, and Kelly Unger file suit alleging violations of state and federal consumer protection statutes. [Doc. 1-1.] The Plaintiffs bring claims under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692, as well as a variety of Ohio state law claims, including the Ohio Consumer Sales Protection Act, O.R.C. Chapter 1345. [Doc. 1-1.]

This action stems from a number of mortgage foreclosure suits that Defendant Lerner initiated in Ohio state court. [Id.] Defendant Lerner is a law firm that prosecutes mortgage foreclosure actions. The Plaintiffs allege that Defendant Lerner engages in the widespread practice of filing and prosecuting mortgage foreclosure actions, notwithstanding the fact that many of Lerner’s clients lack proper standing to sue. [Id. at 2.] According to the Plaintiffs, the Defendant also employs individuals who regularly execute assignments of mortgages on behalf of the Mortgage Electronic Registration System (“MERS”) to their clients without proper legal authority to do so. [Id at 2.] The Plaintiffs further allege that Defendant Lerner has the practice of filing false and misleading affidavits in an effort to mislead courts into ruling that Lerner’s clients possess proper standing to prosecute foreclosure actions. [Id. at 2.] The Plaintiffs say that this practice has caused hundreds — and possibly thousands — of individuals in Ohio to defend frivolous foreclosure actions in which the Defendant’s clients lacked basic standing to sue. [Id.]

The Plaintiffs also set forth a number of allegations specific to the named Plaintiffs. First, the Plaintiffs say that Tamara and Phillip Turner resided in a home at 20526 Byron Road, Shaker Heights, Ohio, until Defendant Lerner filed a foreclosure action on behalf of Provident Funding Associates L.P. on October 16, 2009. [Id. at 5.] Tamara and Phillip Turner allege that they mistakenly believed that they only had twenty-eight days to vacate their home, and as a result, moved in with Phillip Turner’s mother. [Id. at 5.] On July 26, 2010, Defendant Lerner filed an affidavit with the Cuyahoga County Court of Common Pleas that falsely set forth the Provident Funding was the real party in interest in the foreclosure action. [Id. at 5.] However, on November 9, 2010, the Ohio state court action against the Turners was dismissed for lacking of standing, because Defendant Lerner was unable to prove that Provident had standing as holder of the relevant mortgage note to file the foreclosure action. [Id. at 5.] Apparently, Provident Funding took no appeal from that dismissal.

Second, the Plaintiffs say that Mary Sweeney owns a home located at 315 Overlook Park, Cleveland. [Id. at 6.] On January 5, 2010, Defendant Lerner filed a foreclosure action on behalf of Bank of America, claiming that Bank of America owned a promissory note which gave it standing to institute a foreclosure proceeding against her. [Id. at 6.] The Plaintiffs say that Defendant Lerner caused one of their employees — Shellie Hill — to fraudulently execute an assignment of the relevant mortgage note from MERS to Bank of America. [Id. at 6.] The Plaintiffs allege this assignment was not valid because Shellie Hill did not have any authority from MERS to execute the assignment to Bank of America. [Id. at 6.] However, on August 24, 2010, the Ohio state court action against Sweeney was dismissed for lacking of standing, because Defendant Lerner was unable to prove that Bank of America had standing as holder of the relevant mortgage note to file the foreclosure action. [Id. at 6-7.] Apparently, Bank of America took no appeal from that dismissal.

Third, and finally, Plaintiffs say that James and Kelly Unger own a home at 3158 Morley Road, Shaker Heights, Ohio. [Id. at 7.] On May 29, 2007, Defendant Lerner served the Ungers with a foreclosure complaint by on behalf of Bank of New York. [Id. at 7.] The Plaintiffs claim that Lerner’s employee, Shellie Hill, fraudulently assigned the mortgage note on behalf of MERS to Bank of New York. [Id. at 7-8.] The Plaintiffs say this assignment was not valid because Shellie Hill did not have any authority from MERS to execute the assignment to Bank of New York. [Id. at 7-8.] On July 14, 2009, the Cuyahoga County Court of Common Pleas dismissed the foreclosure action because the Defendant failed to prove that the Bank of New York had standing to sue. [Id. at 8.] The Ungers were again served with a foreclosure complaint in an action filed by the Bank of New York Mellon Trust Company on November 30, 2009. [Id. at 8.] This second action was dismissed on July 13, 2010; there is no allegation that Defendant Lerner directly participated in this second lawsuit. [Id. at 8.]

On January 4, 2011, Plaintiffs filed a complaint in the Cuyahoga County Court of Common Pleas. [Id.] The Plaintiffs bring six causes of action of behalf of a putative class of all Ohio homeowners who were defendants in foreclosure actions brought by Defendant Lerner since January 5, 2006. [Id.] Specifically, the Plaintiffs bring causes of action: (1) under the FDCPA, 15 U.S.C. §1692, saying the Defendant used false, deceptive, and misleading practices to prosecute foreclosure actions (Count 1); (2) under the FDCPA, saying that the Defendant’s behavior constitutes slander of credit (Count 2); (3) for abuse of process under Ohio state law (Count 3); (4) for malicious prosecution under Ohio state law (Count 4); (5) under the Ohio Consumer Sales Protection Act, O.R.C. Chapter 1345, saying the Defendant’s filing of frivolous lawsuits constitutes an “unfair, deceptive and unconscionable sales practice” (Count 5); and (6) for filing of frivolous lawsuits under Ohio Revised Code § 2323.51 (Count 6). [Doc. 1-1.]

On January 7, 2011, the Defendant removed the action to federal court. [Doc. 1.] The Court has proper subject matter jurisdiction over the claims brought under the FDCPA and supplemental jurisdiction over the claims brought under Ohio state law. 28 U.S.C. § 1331; 15 U.S.C. § 1692k(d); 28 U.S.C. § 1367(a). The Defendant now moves to dismiss this action for failing to state a claim. [Doc. 8.]

II. Legal Standard

A court may grant a motion to dismiss only when “it appears beyond doubt” that the plaintiff fails to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6); Conley v. Gibson, 355 U.S. 41, 45 (1957). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim for relief that is plausible on its face.'” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). The plausibility requirement is not a “probability requirement,” but requires “more than a sheer possibility that the defendant has acted unlawfully.” Id.

Federal Rule of Civil Procedure 8 provides the general standard of pleading and only requires that a complaint “contain . . . a short plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Iqbal, 129 S. Ct. at 1949Iqbal, 129 S. Ct. at 1949-51. (citations removed). In deciding a motion to dismiss under Rule 12(b)(6), “a court should assume the[] veracity” of “well-pleaded factual allegations,” but need not accept a plaintiff’s conclusory allegations as true.

III. Analysis

III.A Fair Debt Collection Practices Act (Count 1)

Congress enacted the FDCPA in order to eliminate “the use of abusive, deceptive, and unfair debt collection practices by many debt collectors.” 15 U.S.C. § 1692(a). The statute is very broad, and was intended to remedy “what it considered to be a widespread problem.” Frey v. Gangwish, 970 F.2d 1516, 1521 (6th Cir.1992). “When interpreting the FDCPA, [courts should] begin with the language of the statute itself . . .” Schroyer v. Frankel, 197 F.3d 1170, 1174 (6th Cir.1999). With the purpose of the FDCPA in mind, the Court will proceed to the substance of the Plaintiffs’ claims.

i. Equitable Tolling

Claims brought under the FDCPA are subject to a one-year statute of limitations. 15 U.S.C. § 1692k(d). The claims brought by Plaintiffs James and Kelly Unger are not timely, since the last action alleged to be taken by the Defendant occurred in July, 2009. Therefore, unless equitable tolling applies to their claim, it must be dismissed as untimely.

The Sixth Circuit has not ruled on whether equitable tolling applies to claims under the FDCPA. Whittiker v. Deutsche Bank Nat. Trust Co., 605 F.Supp.2d 914, 917 (N.D. Ohio 2009). Nonetheless, since the Sixth Circuit has held that equitable tolling applies to claims brought under the Truth in Lending Act, district courts in this Circuit generally also apply equitable tolling principles to claims brought under the FDCPA. See, e.g., Zigdon v. LVNV Funding, LLC, 2010 WL 1838637 at *6-12 (N.D. Ohio, Apr. 23, 2010); Whittiker, 605 F. Supp.2d at 917; Foster, et al. v. D.B.S. Collection Agency, 463 F.Supp.2d 783, 799 (S.D. Ohio 2006).

To benefit from equitable tolling, a plaintiff must show that she has been pursuing her rights diligently and that some extraordinary circumstance stood in her way. Lawrence v. Florida, 549 U.S. 327, 335 (2007). Equitable tolling is “available only in compelling circumstances which justify a departure from established procedures.” Puckett v. Tennessee Eastman Co., 889 F.2d 1481, 1488 (6th Cir. 1989). Sixth Circuit case law has consistently held that the circumstances which will lead to equitable tolling are rare. Souter v. Jones, 95 F.3d 577, 590 (6th Cir. 2005). Moreover, the plaintiff has the burden of persuading the court that she is entitled to equitable tolling. Allen v Yukins, 366 F.3d 396, 401 (6th Cir. 2004). The following factors are generally considered when the issue of equitable tolling arises: (1) lack of notice of the filing requirement, (2) lack of constructive knowledge of the filing requirement, (3) diligence in pursuing one’s rights, (4) absence of prejudice to the defendant, and (5) the plaintiff’s reasonableness in remaining ignorant of the particular legal requirement. Chavez v. Carranza, 559 F.3d 486, 492 (6th Cir. 2009).

The Plaintiffs say that the claims of James and Kelly Unger should be subject to equitable tolling since another law firm attempted to foreclose on the Ungers’ home in 2010 on behalf of the Bank of New York Mellon Trust Company. The Plaintiffs allege that the firm which brought the second suit attempted to use the assignment of mortgage previously executed by one of Defendant Lerner’s employee as evidence of standing. [Doc. 14 at 9.] This second foreclosure action was ultimately dismissed on July 13, 2010, also for want of standing to sue. [Id.] There is no allegation that Defendant Lerner participated in this second action or otherwise was connected to it.

The Court does not find this sufficient reason to justify equitable tolling of the statute of limitations. The Ungers do not allege any circumstances that would have prevented them from filing this action within the one-year statute of limitations. The Ungers do not allege or proffer any evidence showing that they have been diligently pursuing their legal rights or that Defendant Lerner concealed their alleged wrongdoing or tricked them into not exercising rights. SeeMezo v. Holder, 615 F.3d 616, 620 (6th Cir. 2010); Barry v. Mukasey, 524 F.3d 721, 724 (6th Cir. 2008). Indeed, the Ungers were free to bring all claims related to the first lawsuit prior to or during the pendency of the second lawsuit. If anything, the Ungers are alleging an ongoing violation that did not end until July, 2010. However, this argument also fails, because there is no allegation that Defendant Lerner filed or otherwise participated in the second foreclosure action that was filed against the Ungers.

Accordingly, the Court GRANTS the Defendant’s motion to dismiss all claims brought by Plaintiffs James and Kelly Unger under the FDCPA.

ii. Violation of FDCPA

The Court will now proceed to the claims brought by Plaintiffs Tamara Turner, Phillip Turner, and Mary Sweeney, all of which are brought within the one-year statute of limitations.[1]

Section 1692e of the FDCPA generally prohibits a debt collector from using false, deceptive or misleading representation or means in connection with the collection of a debt. 15 U.S.C. § 1692e.[2] Section 1692f prohibits debt collectors from using “unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. § 1692f.[3] In the Sixth Circuit, a false statement that is not deceptive under the objective “least sophisticated consumer” test is not a violation of the FDCPA. See Lewis v. ACB Business Services, Inc., 135 F.3d 389, 401-02 (6th Cir. 1998). In Count 1, the Plaintiffs allege Defendant Lerner violated the FDCPA in the underlying foreclosure actions by misrepresenting who owned Plaintiffs’ mortgage notes at the time the underlying foreclosure actions were filed, thus concealing the fact that its clients lacked capacity to bring the suits. [Doc. 14 at 5.]

Simple inability to prove present debt ownership at the time a collection action is filed does not constitute a FDCPA violation. Harvey v. Great Seneca Financial Corporation, 453 F.3d 324, 331-33 (6th Cir.2006). Courts in the Sixth Circuit applying the FDCPA to lawsuits brought to collect a debt have generally found, however, that where a plaintiff alleges that the plaintiff in an underlying debt collection action says that it was the owner of a debt, “all the while knowing that they did not have means of proving the debt,” that a FDCPA complaint will survive a motion to dismiss for failure to state a claim. See, e.g., Delawder v. Platinum Financial Services, 443 F. Supp.2d 942, 945 (S.D. Ohio 2005)[4] (false affidavit attached to complaint “all the while knowing that they did not have means of proving the debt”).

Here, not only do the Plaintiffs allege that the Defendant filed the foreclosure actions knowing that it did not have the means of proving the ownership of the debt; they also allege that the Defendant knowingly executed misleading affidavits and unauthorized assignments of the notes to their clients. [Doc. 1-1.] The Court finds that this conduct, if proven true, would be actionable under the FDCPA under both Sections 1692e and 1692f. See Hartman v. Asset Acceptance Corp., 467 F. Supp.2d 769, 779 (S.D. Ohio 2004) (holding that a representation that defendant was a “holder in due course” of a debt is actionable as a representation concerning the “legal status” of the debt, if the representation is false and if the defendant does not satisfy the bona fide error defense); Kline, 2010 WL 1133452, at *8; Lee v. Javitch, Block & Rathbone, LLP, 484 F. Supp.2d 816, 820 (S.D. Ohio 2007) (“Section 1692f of the FDCPA . . . has been described as a `backstop’ in the statute, intended to cover actionable debt collection practices that may not be expressly addressed in Sections 1692d and 1692e”).[5]

Accordingly, the Court DENIES the Defendant’s motion to dismiss Count 1 of the complaint as to Plaintiffs Tamara Turner, Phillip Turner, and Mary Sweeney.

III.B Slander of Credit (Count 2)

The Plaintiffs next bring a cause of action for “slander of credit” under the FDCPA, saying that instituting a legal action based upon manufactured or false evidence constitutes slander of credit. [Doc. 1-1.] The Plaintiffs fail to explain the basis for this claim, other than saying they are bringing the claim under the FDCPA. The Court finds, given this paucity of explanation, that the Plaintiffs fail to allege a valid cause of action for slander of credit. A claim will not survive a motion to dismiss where a plaintiff simply lists causes of action, but neglects to make any plausible factual allegations related to them.

There are several theories under which “slander of credit” could be actionable. However, the Plaintiffs do not allege factual circumstances that would constitute possible violations. For example, the Plaintiffs fail to allege that the Defendant made a negative report to a credit reporting agency or that the Defendant threatened to report the Plaintiffs to a credit agency related to the mortgages in question. See 15 U.S.C. § 1681h; 15 U.S.C. § 1692e(8). The Court does not have the duty to imagine or devise theories of recovery, and accordingly, the Court GRANTS the Defendant’s motion to dismiss Count 2 of the complaint.[6]

III.C Abuse of Process (Count 3)

The Plaintiffs also bring a claim for abuse of process under Ohio state law. Under Ohio law, the elements of a claim for abuse of process are that: “(1) that a legal proceeding has been set in motion in proper form and with probable cause; (2) the proceeding has been perverted to attempt to accomplish an ulterior purpose for which it was not designed; and (3) direct damage has resulted from the wrongful use of process.” Voyticky v. Village of Timberlake, Ohio, 412 F.3d 669, 676 (6th Cir. 2005) (quoting Yaklevich v. Kemp, Schaeffer, & Rowe Co. et. al., 626 N.E.2d 115, 116 (Ohio 1994)). “The tort action termed `abuse of process’ has developed for `cases in which legal procedure has been set in motion in proper form, with probable cause, and even with ultimate success, but nevertheless has been perverted to accomplish an ulterior purpose for which it was not designed.'” Yaklevich, 626 N.E.2d at 118 (quoting Prosser & Keeton, The Law of Torts (5th ed.1984) 897, Section 121). Thus, “there is no liability [for abuse of process] where the defendant has done nothing more than carry out the process to its authorized conclusion, even though with bad intentions.” Id. at 118 n. 2 (citing Prosser & Keeton, supra, at 898). Rather, in an abuse of process case, “[t]he improper purpose usually takes the form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself, such as the surrender of property or the payment of money, by the use of the process as a threat or a club.” Robb v. Chagrin Lagoons Yacht Club, Inc., 662 N.E.2d 9, 14 (Ohio 1996).

Here, even accepting the Plaintiff’s allegations as true, their claim for abuse of process fails. In support of their claim, Plaintiffs say that “the very act of attempting to force people out of their homes when their client does not have the proper paperwork to prove ownership constitutes malice.” [Doc. 14 at 16.] However, the Plaintiffs own allegations negate several of the elements of this cause of action.

On the first element — a legal proceeding initiated in proper form and with probable cause — the Plaintiffs allege that the Defendants did not have the proper standing or evidence needed to initiate their foreclosure actions. In claiming that the Defendant’s clients did not have probable cause to sue, the Plaintiffs seek to prove the exact opposite of this element of the abuse of process claim. Similarly, on the second element of the abuse of process claim — the proceeding has been perverted to attempt to accomplish an ulterior purpose for which it was not designed — the Plaintiffs own allegations again negate this element. The Plaintiffs claim that the Defendants initiated foreclosure actions without standing in the hope that it could nonetheless force the residents out of their homes. [Doc. 1-1 at 2-3; Doc. 14 at 16.] However, the proper purpose of a foreclosure action is to force people out of their homes; the Plaintiffs are alleging not that the Defendant used a foreclosure action for an improper purpose, but that the Defendants instituted foreclosure actions without reasonable hope of success.

Indeed, “`abuse of process differs from malicious prosecution in that the former connotes the use of process properly initiated for improper purposes, while the latter relates to the malicious initiation of a lawsuit which one has no reasonable chance of winning.'” Clermont Environmental Reclamation Co. v. Hancock, 474 N.E.2d 357, 362 (Ohio Ct. App. 1984); see also Avco Delta Corp. v. Walker, 258 N.E.2d 254, 257 (Ohio Ct. App. 1969) (“the malicious abuse of process is the employment of a process in a manner not contemplated by law, or to obtain an object which such a process is not intended by law to effect”). Here, rather than using the lawsuit to obtain a collateral advantage, the Plaintiffs allege that the Defendant filed the appropriate type of action for their ultimate goal — foreclosure of a home — but filed that action without proper probable cause. See Havens-Tobias v. Eagle, 2003 WL 1601461, at *5 (Ohio Ct. App., Mar. 28, 2003).

Accordingly, since the Plaintiffs’ allegations do not make out a claim for abuse of process, the Court GRANTS the Defendant’s motion to dismiss on this claim.

III.D Malicious Prosecution (Count 4)

The Plaintiffs also assert a claim of malicious civil prosecution. [Doc. 1-1 at 10.] To assert a claim for malicious prosecution under Ohio law, a plaintiff must prove: “(1) malicious institution of prior proceedings against the plaintiff by defendant . . . (2) lack of probable cause for the filing of the prior lawsuit, . . . (3) termination of the prior proceedings in plaintiff’s favor, . . . and (4) seizure of plaintiff’s person or property during the course of the prior proceedings.” Robb, 662 N.E.2d at 13 (citing Crawford v. Euclid Nat’l Bank, 483 N.E.2d 1168, 1171 (Ohio 1985)).

Under the first element, malicious institution of prior proceeding, the Court finds that the Plaintiffs’ allegation satisfy this element. The Plaintiff alleges that the Defendant filed the foreclosure actions with malice since the Defendant knew that its clients did not have proper standing to sue. [Doc. 1-1 at 2.] This allegation, if proven true, would sufficiently satisfy the malice element of a claim of malicious prosecution. See Eberhart v. Paintiff, 2005 WL 1962993 at *6 (Ohio Ct. App., Aug. 17, 2005) (“malice may be inferred from the absence of probable cause”);

On the second element, the Plaintiffs also adequately allege that the Defendant lacked probable cause for the filing of this lawsuit. In the complaint, the Plaintiffs say that the Defendant’s clients lacked basic standing to bring the lawsuit since their clients were not the proper holders of the mortgage notes and that Defendant knew of this lack of standing. [Doc. 1-1 at 2.] Therefore, this element is satisfied for purposes of a motion to dismiss.

As to the third element — termination of the prior proceeding in favor of the plaintiff — the Plaintiffs allege that all of the underlying foreclosures were terminated in their favor due to a lack of standing. This allegation, if proven true, would satisfy the third element. See Vitrano v. CWP Lmtd. Partnership, 1999 WL 1261151, at *4 (Ohio Ct. App., Dec. 22, 1999).

The Plaintiffs here, though, fail to adequately allege the fourth element — seizure of plaintiff’s person or property during the course of the prior proceedings. None of the Plaintiffs allege that their property was seized due to the actions of the Defendant, which is fatal to their claim of malicious prosecution. Ohio courts have emphasized that the seizure element is a necessary component of a claim for malicious civil prosecution and that the claim cannot survive without a seizure of property. See Robb, 662 N.E.2d at 14.

Indeed, a claim for malicious civil prosecution does not lie simply because a previously filed claim is meritless, but rather, only in cases “where there is a prejudgment seizure of property, i.e., where there essentially has been a judgment against, and a concomitant injury suffered by, a defendant before he has had a chance to defend himself.” Id.See, e.g., Aames Capital Corp. v. Wells, 2002 WL 500320 at *6 (Ohio Ct. App. Apr. 3, 2002) (“damage to a person’s credit, however, does not constitute seizure of property with regard to a malicious prosecution claim”); Clauder v. Holbrook, 2000 WL 98218 at *2 (Ohio Ct. App., Jan. 28, 2000) (holding that rendering a title to land unmarketable during pendency of a lawsuit is not a seizure for purposes of malicious prosecution); Ahlbeck v. Joelson, 1997 WL 458460, at *3 (Ohio Ct. App., Aug. 8, 1997) (freezing of assets during bankruptcy proceedings caused by suit does not satisfy seizure element). Thus, because none of the Plaintiffs allege that their property was seized during the course of the foreclosure proceedings instituted against them, the Court finds that they do not adequately plead this cause of action. at 14. This element of the cause of action has been strictly interpreted to apply only to seizures of actual real or personal property.

Accordingly, the Court GRANTS the Defendant’s motion to dismiss this claim.

III.E Ohio Consumer Sales Protection Act, Chapter 1345 (Count 5)

Next, the Plaintiffs allege a violation of the Ohio Consumer Sales Protection Act, Chapter 1345. Specifically, the Plaintiffs say that the conduct of the Defendant “commenc[ed] foreclosure proceedings when their clients lack standing [which] are unfair, deceptive and unconscionable sales practices under O.R.C. §§ 1345.02 and 1345.03.

Ohio Revised Code section 1345 makes it unlawful for a supplier to engage in an unfair, deceptive, or unconscionable act or practice in regard to a consumer transaction. O.R.C. § 1345.02. The OCSPA defines a “supplier” as a “person engaged in the business of effecting or soliciting consumer transactions, whether or not he deals directly with the consumer.” O.R.C. § 1345.01(B). The statute has been generally interpreted as applying to the collection of debts associated with consumer transactions by attorneys. See Celebrezze v. United Research, Inc., 482 N.E.2d 1260, 1262 (Ohio 1984); see also Schroyer v. Frankel, 197 F.3d 1170, 1177 (6th Cir. 1999). Thus, the Court concludes that the debt collection activities of Defendant Lerner fall within the purview of the statute. The Ohio Consumer Protection Statute provides generally that “[n]o supplier shall commit an unfair or deceptive act or practice in connection with a consumer transaction.” O.R.C. § 1345.02(A). Although a somewhat unresolved issue, other courts have held that a law firm collecting a debt on behalf of a mortgagee may be amenable to suit under this Act. See Delawder, 443 F. Supp.2d at 953; Havens-Tobias v. Eagle, 2003 WL 1601461, at *4-5 (Ohio Ct. App. March 28, 2003). Indeed, “[g]iven the [Ohio Consumer Protection Act’s] purpose to protect consumers from deceptive acts and practices, and Ohio courts’ recognition that debt collection falls within [its] ambit, the Court believes Ohio courts would recognize a cause of action under Section 1345.02(B)(10) for all deceptive debt collection practices, including a supplier’s deceptive lawsuit to collect a debt.” Delawder, 443 F.2d at 953. This Court now finds the rationale of the court in DelawderSee, e.g., Becker v. Montgomery, Lynch, 2003 WL 23335929, at *2 (N.D. Ohio, Feb. 26, 2003) (holding that conduct which violates the FDCPA also violates the Ohio Consumer Protection Staute); Lee, 484 F. Supp.2d at 821 (holding that Ohio Consumer Protection Act applies to debt collection practices of law firms). persuasive, and also finds that the filing of deceptive lawsuits violates the Ohio Consumer Protection Act.

Accordingly, the Court finds that the Plaintiffs’ allegations, if proven true, would be actionable under the Ohio Consumer Protection Act. The Plaintiffs here allege that the Defendant knowingly brought deceptive lawsuits and also made fraudulent assignments of mortgage notes to support standing to sue. The Court, therefore, DENIES the Defendant’s motion to dismiss this Count.[7]

III.F Frivolous Lawsuits — Ohio Revised Code Section 2323.51

Finally, the Plaintiffs bring a claim under Ohio Revised Code Section 2323.51, saying that they are entitled to “sanctions, including attorney fees,” since they argue that the Defendant filed frivolous lawsuits against them. [Doc. 1-1 at 11; Doc. 14 at 18.] The Defendant says this claim must be dismissed as untimely. [Doc. 9 at 18-19.]

Under Section 2323.51, a litigant may receive an award of attorney’s fees where their opponent has been found to have engaged in “frivolous conduct,” which is defined, inter alia, as conduct that is meant “merely to harass or maliciously injure” or “is not warranted under existing law [or] cannot be supported by a good faith argument,” as making “allegations or other factual contentions that have no evidentiary support,” or as denials “or factual contentions that are not warranted by the evidence.” O.R.C. § 2323.51(A)(2)(a)(i)-(iv).

Although the alleged conduct of the Defendant would seem fall within the purview of the statute, the Plaintiffs claim under the this statute fails for several reasons. First, the proper forum for a motion brought under O.R.C. Section 2323.51 would be the original state court foreclosure actions that the Defendant filed against the Plaintiffs. Indeed, the “[r]elief under R.C. 2323.51 is obtained by filing a motion in a pending case,” and not in a later separate civil action. Gevedon v. Gevedon,855 N.E.2d 548, 553 (Ohio Ct. App. 2006); see also Roo v. Sain, 2005 WL 1177940, at *5 (Ohio Ct. App. 2005). In that regard, Section 2323.51 is quite similar to Federal Rule of Civil Procedure 11, which itself does not create a separate cause of action, but rather, creates a means of punishing misconduct in a pending action. SeeSawyer v. Sinkey, 610 N.E.2d 1219, 1223 (Ohio Ct. App. 1992). Thus, the Plaintiffs attempt to improperly use that statute in this suit and any claims brought under that Section in this Court must be dismissed.

Second, even if that claim could be brought in this Court, the statute of limitations on the claim has run. Under the plain language of O.R.C. § 2323.51, any claim for attorney’s fees brought under that statute must be filed “not more than thirty days after the entry of final judgment in a civil action or appeal.” O.R.C. § 2323.51. Since more than thirty days have passed since the final judgment in each of the underlying state court foreclosure actions, the claims brought under that Section are not timely and must be dismissed. The Court, therefore, GRANTS the Defendant’s motion to dismiss this claim.

IV. Conclusion

For the foregoing reasons, the Court GRANTS the Defendant’s motion to dismiss Counts 2, 3, 4, and 6 of the complaint against all Plaintiffs and Count 1 of the complaint as to Plaintiffs James and Kelly Unger; the Court DENIES the Defendant’s motion to dismiss Count 1 of the complaint as to Plaintiffs Tamara Turner, Phillip Turner, and Mary Sweeney and Count 5 of the complaint as to all Plaintiffs.

IT IS SO ORDERED.

[1] As a preliminary matter, the Court finds that the Defendant is a “debt collector” under FDCPA. The Supreme Court has held that the FDCPA “applies to attorneys who `regularly’ engage in consumer-debt-collection activity, even when that activity consists of litigation.” Heintz v. Jenkins, 514 U.S. 291, 299 (1995). Under the FDCPA, a “debt collector” is “any person who uses any instrum entality of interstate commerce or the mails in any business the principle purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or assessed to be owed or due to another.” 15 U.S.C. § 1692a(6) (emphasis added).

[2] The sections of 15 U.S.C. § 1692e at issue provide in relevant part:

§ 1692e. False or misleading representations

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, am ount, or legal status of any debt; or . . .

(5) The threat to take any action that cannot legally be taken or that is not intended to be taken . . .

(10) The use of any false representations or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.

[3] The relevant sections of 15 U.S.C. § 1692f provide:

§ 1692f. Unfair practices

A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.

[4] See also Whittiker, 650 F. Supp.2d at 931 (holding that filing of foreclosure action while knowing that one lacks ability to prove ownership of debt is actionable under the FDCPA); Kline v. Mortgage Electronic Sec. Systems, 2010 WL 1133452, at *8 (S.D. Ohio, Mar. 22, 2010) (holding that an inability to prove a debt at the time of filing a collection lawsuit does not violate the FDCPA, but stating suing in court with false attachments in an attempt to prove debt would violate the FDCPA.); Williams v. Javitch, Block & Rathbone, LLP, 480 F. Supp.2d 1016 (S.D. Ohio 2007) (knowledge that information in affidavit is false as to specifics of debt violates FDCPA).

[5] The Court also notes that it concurs with the thoughtful analysis set forth in Hartman v. Asset Acceptance Corp., in which that court found that the common law immunity for statements and pleadings made in court is abrogated by the FDCPA. 467 F. Supp.2d 769 (S.D. Ohio 2004).

[6] As this case will proceed, this Court has authority to consider a motion to amend the complaint to reassert this claim if plaintiffs can more specifically allege a cause of action. Rule 54(b) provides:

“When an action presents more than one claim for relief []the court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay. Otherwise, any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities.

[7] The Court need not yet consider whether a class action under Chapter 1345 may be validly brought. This issue may more appropriately be resolved in a motion for class certification.

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REUTERS | Analysis: Mortgage settlement proposal likely doomed

REUTERS | Analysis: Mortgage settlement proposal likely doomed


WASHINGTON | Fri Mar 11, 2011 1:10pm EST

WASHINGTON (Reuters) – A settlement proposal by state attorneys general with the five biggest U.S. mortgage servicers stands out less for what it contains than for what it omits — terms for resolving the most difficult issues dividing regulators and the big banks.

The proposal, which calls for a dramatic increase in loan modifications, is intended as the basis for settling allegations of widespread wrongdoing by the big loan servicers in handling millions of foreclosures.

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BLOOMBERG | `Dozen’ States Don’t Back Foreclosure Plan, Cuccinelli Says

BLOOMBERG | `Dozen’ States Don’t Back Foreclosure Plan, Cuccinelli Says


Virginia is among “at least a dozen” U.S. states that don’t back a proposal submitted last week to resolve a nationwide probe of foreclosure and mortgage- servicing practices, Virginia Attorney General Kenneth Cuccinelli said.

There isn’t consensus among all 50 state attorneys general about the terms of the settlement proposed to U.S. banks, Cuccinelli, a Republican, said today in a telephone interview.

“When some attorneys general found out what was being agreed to, they had a great degree of unease over it,” Cuccinelli said. He declined to name which states, aside from his own, were opposed to parts of the plan.

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DAILY FINANCE | What the Mortgage Mess Settlement Proposal Really Means

DAILY FINANCE | What the Mortgage Mess Settlement Proposal Really Means


Posted 12:20 AM 03/09/11

Now that I’ve had a chance to read the mortgage mess settlement proposal I realize what it really is: a repudiation of the servicing industries’ standard business practices.

Thankfully, it includes a couple provisions I was concerned were absent. Servicers have to show their math when announcing if a modification is denied, so the consumer can challenge the calculation, and foreclosures will no longer start with incomplete or fraudulent documentation. Those steps buttress other good provisions: banning foreclosures while modifications are negotiated and tried, and making trial modifications permanent after three payments.

While I’m glad those provisions are in the document, the term sheet is nonetheless pathetic. Repudiating the servicing industry’s business model mostly means telling servicers they can’t break the law and must act with basic good faith, such as crediting payments as of the day they were received and charging only one late fee for a late payment. As a result, the agreement reads as an indictment — not just of the servicing industry, but also of law enforcement, regulators and Congress.

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DailyFinance | Foreclosure Fraud in Maryland: Banks’ Lawyers Accused of Forging 1,000+ Deeds

DailyFinance | Foreclosure Fraud in Maryland: Banks’ Lawyers Accused of Forging 1,000+ Deeds


Posted 1:30 PM 03/09/11

As if the country needed more proof of the outlaw behaviors of banks and their agents, The Baltimore Sun‘s Jamie Smith Hopkins reports that 1,000 or more Maryland deeds are likely forgeries, created by a foreclosure mill. A former notary from law firm Shapiro & Burson filed an affidavit with law enforcement and regulators charging that the attorneys’ signatures on the deeds and other important documents were forgeries signed at the express direction of management. The affidavit attached sample signatures.

If the forgery claims are true — and that’s not much of an “if” — the false deeds cloud the properties’ titles, creating a nightmare for the innocent people who bought the homes after they were foreclosed upon.

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NALTEA | Restoring Integrity to the Land Title Records – A Commentary on MERS

NALTEA | Restoring Integrity to the Land Title Records – A Commentary on MERS


National Association of Land Title Examiners and Abstractors
7490 Eagle Road
Waite Hill, OH 44094

February 10, 2011

Restoring Integrity to the Land Title Records – A Commentary on MERS

As the faults in the MERS system of mortgage tracking become ever more apparent, so do the consequences begin to take shape. And, as high profile cases of abuse of process rapidly hit the mainstream press, as details continue to emerge, we can see with ever increasing clarity the problems caused by the systematic omission of mortgage
assignments from the public land records.

Continue below…

[ipaper docId=49861745 access_key=key-2b5lkrxox5o0hu6fqilz height=600 width=600 /]

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HSBC Suspends Foreclosure Actions

HSBC Suspends Foreclosure Actions


Bank made disclosure in annual SEC report

By Jonathan D. Epstein

Updated: March 1, 2011, 6:33 AM

HSBC Bank USA and HSBC Finance Corp. have stopped all home foreclosures until further notice and may face unspecified regulatory actions or fines, after regulators found “certain deficiencies” in servicing and foreclosure procedures, HSBC said in government filings Monday.

The disclosure by HSBC, buried deep within its annual financial report to the Securities and Exchange Commission, marks the first time HSBC has admitted to a foreclosure moratorium in the wake of a legal and paperwork crisis that swept the industry.

That’s a dramatic reversal from its stance just a few months ago, when it said publicly that it would not suspend home seizures because it didn’t feel its procedures were compromised by so-called “robo-signers” and faulty court affidavits.

“Robo-signing” refers to bank or law firm employees signing off on foreclosures without actually being familiar with the cases or reading paperwork.

Continue reading … BuffaloNews


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REUTERS | BofA, Wells, Citi see foreclosure probe fines

REUTERS | BofA, Wells, Citi see foreclosure probe fines


Fri Feb 25, 2011 9:20pm EST

CHARLOTTE, N.C./NEW YORK (Reuters) – Bank of America, Citigroup and Wells Fargo — three of the biggest banks in the United States — said they could face fines from a regulatory probe into the industry’s foreclosure practices.

The statements, made in regulatory filings on Friday, are the most direct admission yet from major banks that they could have to pay significant amounts of money to settle probes and lawsuits alleging that they improperly foreclosed on homes.

Bank of America Corp (BAC.N), the largest U.S. bank by assets, said the probe could lead to “material fines” and “significant” legal expenses in 2011.

Wells Fargo & Co (WFC.N), the largest U.S. mortgage lender, said it is likely to face fines or sanctions, such as a foreclosure moratorium or suspension, imposed by federal or state regulators. It said some government agency enforcement action was likely and could include civil money penalties.

Citigroup Inc (C.N) said it could pay fines or set up principal reduction programs.

The biggest U.S. mortgage lenders are being investigated by 50 state attorneys general and U.S. regulators for foreclosing on homes without having proper paperwork in place or without having properly reviewed paperwork before signing it.

The bad documentation threatens to slow down the foreclosure process and invalidate some repossessions.

Continue reading … REUTERS

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SunTrust finds problems in foreclosures

SunTrust finds problems in foreclosures


Fri Feb 25, 2011 1:14pm EST

* SunTrust to refile documents in 4,000 cases

* SunTrust expects costs to increase ‘modestly’

* Bank may revise processes, leading to higher costs

* Shares up 3.1 percent (Adds byline, details on foreclosure case refilings; rewrites paragraphs 1-4; updates share price)

By Joe Rauch

CHARLOTTE, N.C., Feb 25 (Reuters) – SunTrust Banks Inc (STI.N) is refiling documents in 4,000 foreclosure cases after an internal review found problems with the bank’s home repossessions.

The Atlanta-based bank said in its 2010 annual report filed with U.S. securities regulators on Friday that some foreclosure affidavits were signed by employees who did not directly review documents to ensure accuracy and instead relied on the work of others.

SunTrust said it is refiling the documents and expects to have the process substantially completed by the end of first quarter 2011.

The process, dubbed “robo-signing” by critics, forced some of the largest U.S. mortgage lenders to halt foreclosures last Fall amid a firestorm of public criticism.

Continue reading…REUTERS

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FL Attorney General Launches Investigation On BEN-EZRA & KATZ, P.A. Law Firm

FL Attorney General Launches Investigation On BEN-EZRA & KATZ, P.A. Law Firm


The case file cited below relates to a civil — not a criminal — investigation. The existence of an investigation does not constitute proof of any violation of law.

Case Number: L11-3-1012

Subject of investigation:

Ben-Ezra & Katz, P.A. and Marc A. Ben-Ezra, Individually and Marvin Katz, Individually

Subject’s address:

2901 STIRLING ROAD SUITE 300 FT. LAUDERDALE FL 33312 US

Subject’s business:

law firm/using deceptive paperwork to foreclose; obtain attorney’s fees which become the ultimate responsibility of the homeowner/defendant and calculate the indebtness of the homeowner/defendant.

Allegation or issue being investigated:
In apparent violation of Florida Statute 501 Part II, appears to be fabricating and/or presenting false and misleading documents in foreclosure cases. These documents have been presented in court before judges as actual assignments of mortgages and properly prepared affidavits that have later been shown to be legally inadequate and/or insufficient. Presenting and preparing faulty paperwork to use to foreclose; to collect attorney fees and to create affidavits of indebtness.

AG unit handling case:

Economic Crimes Division in Ft. Lauderdale, Florida

View contact information for Ft. Lauderdale.
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MERS Tells Servicers to Stop Foreclosing in Their Name

MERS Tells Servicers to Stop Foreclosing in Their Name


excerpt:

MERS is providing the following guidance to all Members to strengthen business practices, and minimize reputation, legal and compliance risk to MERS and its Members. In recent months legal challenges have arisen regarding alleged inadequacies and improprieties in the foreclosure process including allegations of insufficient or incorrect supporting documentation and challenges to the legal capacity of parties’ right to foreclose. MERS is committed to reevaluate and strengthen its systems and procedures to protect against these types of legal challenges. Consistent with this approach we have enhanced the Corporate Resolution Management System (CRMS) and instituted related policies and procedures designed to strengthen MERS’ business practices and limit compliance risks. To comply with this guidance, MERS Members should implement the following practices, effective immediately.

continue below…

[ipaper docId=49212713 access_key=key-2126bz3ngo6l300m1bh8 height=600 width=600 /]

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BLOOMBERG | Merscorp Lacks Right to Transfer Mortgages, Judge Says

BLOOMBERG | Merscorp Lacks Right to Transfer Mortgages, Judge Says


Click this Link to read the entire opinion…in case you missed it over the weekend when SFF posted this hot off the press:

NY BK Court SHREDS MERS “NO RIGHT TO TRANSFER MORTGAGES” In Re: FERREL L. AGARD

By Thom Weidlich – Feb 14, 2011 3:02 PM ET

(Corrects to show parties would come before the judge to lift the automatic ban in 20th paragraph.)

Merscorp Inc., operator of the electronic-registration system that contains about half of all U.S. home mortgages, has no right to transfer the mortgages under its membership rules, a judge said.

U.S. Bankruptcy Judge Robert E. Grossman in Central Islip, New York, in a decision he said he knew would have a “significant impact,” wrote that the membership rules of the company’s Mortgage Electronic Registration Systems, or MERS, don’t make it an agent of the banks that own the mortgages.

“MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not supported by the law,” Grossman wrote in a Feb. 10 opinion. “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.”


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NY BK Court SHREDS MERS “NO RIGHT TO TRANSFER MORTGAGES” In Re: FERREL L. AGARD

NY BK Court SHREDS MERS “NO RIGHT TO TRANSFER MORTGAGES” In Re: FERREL L. AGARD


In re: FERREL L. AGARD, Debtor.

Case No. 810-77338-reg

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK.

Filed: February 10, 2011

MEMORANDUM DECISION

Before the Court is a motion (the “Motion”) seeking relief from the automatic stay pursuant to 11 U.S.C. § 362(d)(1) and (2), to foreclose on a secured interest in the Debtor’s real property located in Westbury, New York (the “Property”). The movant is Select Portfolio Servicing, Inc. (“Select Portfolio” or “Movant”), as servicer for U.S. Bank National Association, as Trustee for First Franklin Mortgage Loan Trust 2006-FF12, Mortgage Pass-Through Certificates, Series 2006-FF12 (“U.S. Bank”). The Debtor filed limited opposition to the Motion contesting the Movant’s standing to seek relief from stay. The Debtor argues that the only interest U.S. Bank holds in the underlying mortgage was received by way of an assignment from the Mortgage Electronic Registration System a/k/a MERS, as a “nominee” for the original lender. The Debtor’s argument raises a fundamental question as to whether MERS had the legal authority to assign a valid and enforceable interest in the subject mortgage. Because U.S. Bank’s rights can be no greater than the rights as transferred by its assignor-MERS-the Debtor argues that the Movant, acting on behalf of U.S. Bank, has failed to establish that it holds an enforceable right against the Property.1 The Movant’s initial response to the Debtor’s opposition was that MERS’s authority to assign the mortgage to U.S. Bank is derived from the mortgage itself which allegedly grants to MERS its status as both “nominee” of the mortgagee and “mortgagee of record.” The Movant later supplemented its papers taking the position that U.S. Bank is a creditor with standing to seek relief from stay by virtue of a judgment of foreclosure and sale entered in its favor by the state court prior to the filing of the bankruptcy. The Movant argues that the judgment of foreclosure is a final adjudication as to U.S. Bank’s status as a secured creditor and therefore the Rooker-Feldman doctrine prohibits this Court from looking behind the judgment and questioning whether U.S. Bank has proper standing before this Court by virtue of a valid assignment of the mortgage from MERS.

The Court received extensive briefing and oral argument from MERS, as an intervenor in these proceedings which go beyond the arguments presented by the Movant. In addition to the rights created by the mortgage documents themselves, MERS argues that the terms of its membership agreement with the original lender and its successors in interest, as well as New York state agency laws, give MERS the authority to assign the mortgage. MERS argues that it holds legal title to mortgages for its member/lenders as both “nominee” and “mortgagee of record.” As such, it argues that any member/lender which holds a note secured by real property, that assigns that note to another member by way of entry into the MERS database, need not also assign the mortgage because legal title to the mortgage remains in the name of MERS, as agent for any member/lender which holds the corresponding note. MERS’s position is that if a MERS member directs it to provide a written assignment of the mortgage, MERS has the legal authority, as an agent for each of its members, to assign mortgages to the member/lender currently holding the note as reflected in the MERS database.

For the reasons that follow, the Debtor’s objection to the Motion is overruled and the Motion is granted. The Debtor’s objection is overruled by application of either the Rooker-Feldman doctrine, or res judicata. Under those doctrines, this Court must accept the state court judgment of foreclosure as evidence of U.S. Bank’s status as a creditor secured by the Property. Such status is sufficient to establish the Movant’s standing to seek relief from the automatic stay. The Motion is granted on the merits because the Movant has shown, and the Debtor has not disputed, sufficient basis to lift the stay under Section 362(d).

Although the Court is constrained in this case to give full force and effect to the state court judgment of foreclosure, there are numerous other cases before this Court which present identical issues with respect to MERS and in which there have been no prior dispositive state court decisions. This Court has deferred rulings on dozens of other motions for relief from stay pending the resolution of the issue of whether an entity which acquires its interests in a mortgage by way of assignment from MERS, as nominee, is a valid secured creditor with standing to seek relief from the automatic stay. It is for this reason that the Court’s decision in this matter will address the issue of whether the Movant has established standing in this case notwithstanding the existence of the foreclosure judgment. The Court believes this analysis is necessary for the precedential effect it will have on other cases pending before this Court.

The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law.

Facts

Procedural Background

On September 20, 2010, the Debtor filed for relief under Chapter 7 of the Bankruptcy Code. In Schedule A to the petition, the Debtor lists a joint ownership interest in the Property described as follows:

A “[s]ingle family home owned with son, deed in son’s name since 2007; used as primary residence…. Debtor was on original deed and is liable on the mortgage, therefore has equitable title. Debtor is in default of the mortgage with a principal balance of over $450,000.00. The house is worth approximately $350,000. A foreclosure sale was scheduled 9/21/10.”

According to Schedule D, the Property is valued at $350,000 and is encumbered by a mortgage in the amount of $536,920.67 held by “SPS Select Portfolio Servicing.”


On October 14, 2010, the Movant filed the Motion seeking relief from the automatic stay pursuant to 11 U.S.C. §362(d) to foreclose on the Property. The Motion does not state that a foreclosure proceeding had been commenced or that a judgment of foreclosure was granted prior to the filing of the bankruptcy petition. Nor does it mention that the Debtor holds only equitable title and does not hold legal title to the Property. Instead, Movant alleges that U.S. Bank is the “holder” of the Mortgage; that the last mortgage payment it received from the Debtor was applied to the July, 2008 payment; and that the Debtor has failed to make any post-petition payments to the Movant. Movant also asserts that as of September 24, 2010, the total indebtedness on the Note and Mortgage was $542,902.33 and the Debtor lists the value of the Property at $350,000 in its schedules. On that basis, Movant seeks entry of an order vacating the stay pursuant to 11 U.S.C. § 362(d)(1) and (d)(2).

Annexed to the Motion are copies of the following documents:

  • SPECIAL-CHARS-DOT Adjustable Rate Note, dated June 9, 2006, executed by the Debtor as borrower and listing First Franklin a Division of Na. City Bank of In. (“First Franklin”) as the lender (“Note”);
  • SPECIAL-CHARS-DOT Balloon Note Addendum to the Note, dated June 9, 2006;
  • SPECIAL-CHARS-DOT Mortgage, dated June 9, 2006 executed by the Debtor and listing First Franklin as lender, and MERS as nominee for First Franklin and First Franklin’s successors and assigns (“Mortgage”);
  • SPECIAL-CHARS-DOT Adjustable Rate and Balloon Rider, dated June 9, 2006;
  • SPECIAL-CHARS-DOT Addendum to Promissory Note and Security Agreement executed by the Debtor; and
  • SPECIAL-CHARS-DOT Assignment of Mortgage, dated February 1, 2008, listing MERS as nominee for First Franklin as assignor, and the Movant, U.S. Bank National Association, as Trustee for First Franklin Mortgage Loan Trust 2006-FF12, Mortgage Pass-through Certificates, Series 2006-FF12, as assignee (“Assignment of Mortgage”).

The Arguments of the Parties

On October 27, 2010, the Debtor filed “limited opposition” to the Motion, alleging that the Movant lacks standing to seek the relief requested because MERS, the purported assignor to the Movant, did not have authority to assign the Mortgage and therefore the Movant cannot establish that it is a bona fide holder of a valid secured interest in the Property.

The Movant responded to the Debtor’s limited opposition regarding MERS’s authority to assign by referring to the provisions of the Mortgage which purport to create a “nominee” relationship between MERS and First Franklin. In conclusory fashion, the Movant states that it therefore follows that MERS’s standing to assign is based upon its nominee status.

On November 15, 2010, a hearing was held and the Court gave both the Debtor and Movant the opportunity to file supplemental briefs on the issues raised by the Debtor’s limited opposition.

On December 8, 2010, the Movant filed a memorandum of law in support of the Motion arguing that this Court lacks jurisdiction to adjudicate the issue of whether MERS had authority to assign the Mortgage, and even assuming the Court did have jurisdiction to decide this issue, under New York law the MERS assignment was valid. In support of its jurisdictional argument, the Movant advises the Court (for the first time) that a Judgement of Foreclosure and Sale (“Judgment of Foreclosure”) was entered by the state court in favor of the Movant on November 24, 2008, and any judicial review of the Judgment of Foreclosure is barred by the doctrines of res judicata, Rooker-Feldman, and judicial estoppel.2 The Movant argues that the Debtor had a full and fair opportunity to litigate these issues in state court, but chose to default, and cannot now challenge the state court’s adjudication as to the Movant’s status as a secured creditor or holder of the Note and Mortgage, or its standing to seek relief from the automatic stay in this Court. The Movant also notes that the Debtor admits in her petition and schedules that she is liable on the Mortgage, that it was in default and the subject of a foreclosure sale, and thus judicial estoppel bars her arguments to the contrary.

In addition to its preclusion arguments, on the underlying merits of its position the Movant cites to caselaw holding that MERS assignments similar to the assignment in this case, are valid and enforceable. See U.S. Bank, N.A. v. Flynn, 897 N.Y.S. 2d 855, 858 (N.Y. Sup. Ct. 2010); Kiah v. Aurora Loan Services, LLC, 2010 U.S. Dist. LEXIS 121252, at *1 (D. Mass. Nov. 16, 2010); Perry v. Nat’l Default Servicing Corp., 2010 U.S. Dist. LEXIS 92907, at *1 (Dist. N.D. Cal. Aug. 20, 2010). It is the Movant’s position that the provisions of the Mortgage grant to MERS the right to assign the Mortgage as “nominee,” or agent, on behalf of the lender, First Franklin. Specifically, Movant relies on the recitations of the Mortgage pursuant to which the “Borrower” acknowledges that MERS holds bare legal title to the Mortgage, but has the right “(A) to exercise any or all those rights, including, but not limited to, the right to foreclose and sell the Property; and (B) to take any action required of Lender including, but not limited to, releasing and canceling [the Mortgage].” In addition, the Movant argues that MERS’s status as a “mortgagee” and thus its authority to assign the Mortgage is supported by the New York Real Property Actions and Proceedings Law (“RPAPL”) and New York Real Property Law (“RPL”). Movant cites to RPAPL § 1921-a which allows a “mortgagee” to execute and deliver partial releases of lien, and argues that MERS falls within the definition of “mortgagee” which includes the “current holder of the mortgage of record… or… their… agents, successors or assigns.” N.Y. Real Prop. Acts. Law § 1921(9)(a) (McKinney 2011). Although the definition of “mortgagee” cited to by the Movant only applies to RPAPL § 1921, Movant argues that it is a “mortgagee” vested with the authority to execute and deliver a loan payoff statement; execute and deliver a discharge of mortgage and assign a mortgage pursuant to RPL §§ 274 and 275.

In addition to its status as “mortgagee,” Movant also argues that the assignment is valid because MERS is an “agent” of each of its member banks under the general laws of agency in New York, see N.Y. Gen. Oblig. Law § 5-1501(1) (McKinney 2011), 3 and public policy requires the liberal interpretation and judicial recognition of the principal-agent relationship. See Arens v. Shainswitt, 37 A.D.2d 274 (N.Y. App. Div. 1971), aff’d 29 N.Y.2d 663 (1971). In the instant case, Movant argues, the Mortgage appoints MERS as “nominee,” read “agent,” for the original lender and the original lender’s successors and assigns. As nominee/agent for the lender, and as mortgagee of record, Movant argues MERS had the authority to assign the Mortgage to the Movant, U.S. Bank, “in accordance with the principal’s instruction to its nominee MERS, to assign the mortgage lien to U.S. Bank….”


Finally, Movant argues that even absent a legally enforceable assignment of the Mortgage, it is entitled to enforce the lien because U.S. Bank holds the Note. The Movant argues that if it can establish that U.S. Bank is the legal holder the Note, the Mortgage by operation of law passes to the Movant because the Note and the Mortgage are deemed to be inseparable. See In re Conde-Dedonato, 391 B.R. 247 (Bankr. E.D.N.Y. 2008). The Movant represents, but has not proven, that U.S. Bank is the rightful holder of the Note, and further argues that the assignment of the Note has to this point not been contested in this proceeding.

MERS moved to intervene in this matter pursuant to Fed. R. Bankr. P. 7024 because:

12. The Court’s determination of the MERS Issue directly affects the business model of MERS. Additionally, approximately 50% of all consumer mortgages in the United States are held in the name of MERS, as the mortgagee of record.

13. The Court’s determination of the MERS Issue will have a significant impact on MERS as well as the mortgage industry in New York and the United States.

14.MERS has a direct financial stake in the outcome of this contested matter, and any determination of the MERS Issue has a direct impact on MERS. (Motion to Intervene, ¶¶12-14).

Permission to intervene was granted at a hearing held on December 13, 2010.

In addition to adopting the arguments asserted by the Movant, MERS strenuously defends its authority to act as mortgagee pursuant to the procedures for processing this and other mortgages under the MERS “system.” First, MERS points out that the Mortgage itself designates MERS as the “nominee” for the original lender, First Franklin, and its successors and assigns. In addition, the lender designates, and the Debtor agrees to recognize, MERS “as the mortgagee of record and as nominee for ‘Lender and Lender’s successors and assigns'” and as such the Debtor “expressly agreed without qualification that MERS had the right to foreclose upon the premises as well as exercise any and all rights as nominee for the Lender.” (MERS Memorandum of Law at 7). These designations as “nominee,” and “mortgagee of record,” and the Debtor’s recognition thereof, it argues, leads to the conclusion that MERS was authorized as a matter of law to assign the Mortgage to U.S. Bank.

Although MERS believes that the mortgage documents alone provide it with authority to effectuate the assignment at issue, they also urge the Court to broaden its analysis and read the documents in the context of the overall “MERS System.” According to MERS, each participating bank/lender agrees to be bound by the terms of a membership agreement pursuant to which the member appoints MERS to act as its authorized agent with authority to, among other things, hold legal title to mortgages and as a result, MERS is empowered to execute assignments of mortgage on behalf of all its member banks. In this particular case, MERS maintains that as a member of MERS and pursuant to the MERS membership agreement, the loan originator in this case, 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.” MERS explains that subsequent to the mortgage’s inception, First Franklin assigned the Note to Aurora Bank FSB f/k/a Lehman Brothers Bank (“Aurora”), another MERS member. According to MERS, note assignments among MERS members are tracked via self-effectuated and self-monitored computer entries into the MERS database. As a MERS member, by operation of the MERS membership rules, Aurora is deemed to have appointed MERS to act as its agent to hold the Mortgage as nominee. Aurora subsequently assigned the Note to U.S. Bank, also a MERS member. By operation of the MERS membership agreement, U.S. Bank is deemed to have appointed MERS to act as its agent to hold the Mortgage as nominee. Then, according to MERS, “U.S. Bank, as the holder of the note, under the MERS Membership Rules, chose to instruct MERS to assign the Mortgage to U.S. Bank prior to commencing the foreclosure proceedings by U.S. Bank.” (Affirmation of William C. Hultman, ¶ 12).

MERS argues that the express terms of the mortgage coupled with the provisions of the MERS membership agreement, is “more than sufficient to create an agency relationship between MERS and lender and the lender’s successors in interest” under New York law and as a result establish MERS’s authority to assign the Mortgage. (MERS Memorandum of Law at 7).

On December 20, 2010, the Debtor filed supplemental opposition to the Motion. The Debtor argues that the Rooker-Feldman doctrine should not preclude judicial review in this case because the Debtor’s objection to the Motion raises issues that could not have been raised in the state court foreclosure action, namely the validity of the assignment and standing to lift the stay. The Debtor also argues that the Rooker-Feldman doctrine does not apply because the Judgment of Foreclosure was entered by default. Finally, she also argues that the bankruptcy court can review matters “which are void or fraudulent on its face.” See In re Ward, 423 B.R. 22 (Bankr. E.D.N.Y. 2010). The Debtor says that she is “alleging questionable, even possibly fraudulent conduct by MERS in regards to transferring notes and lifting the stay.” (Debtor’s Supplemental Opposition at 3).

The Movant filed supplemental papers on December 23, 2010 arguing that the Motion is moot because the Property is no longer an asset of the estate as a result of the Chapter 7 Trustee’s “report of no distribution,” and as such, the Section 362(a) automatic stay was dissolved upon the entry of a discharge on December 14, 2010. See Brooks v. Bank of New York Mellon, No. DKC 09-1408, 2009 WL 3379928, at *2 (D. Md. Oct. 16, 2009); Riggs Nat’l Bank of Washington, D.C. v. Perry, 729 F.2d 982, 986 (4th Cir. 1984).

The Movant also maintains that Rooker-Feldman does apply to default judgments because that doctrine does not require that the prior judgment be a judgment “on the merits.” Charchenko v. City of Stillwater, 47 F.3d 981, 983 n.1 (8th Cir. 1995); see also Kafele v. Lerner, Sampson & Rothfuss, L.P.A., No. 04-3659, 2005 WL 3528921, at *2-3 (6th Cir. Dec. 22, 2005); In re Dahlgren, No. 09-18982, 2010 WL 5287400, at *1 (D.N.J. Dec. 17, 2010). The Movant points out that the Debtor seems to be confusing the Rooker-Feldman doctrine with issue and claim preclusion and that the Debtor has misapplied Chief Judge Craig’s ruling in In re Ward.

Discussion

As a threshold matter, this Court will address the Movant’s argument that this Motion has been mooted by the entry of the discharge order.

Effect of the Chapter 7 discharge on the automatic stay

Section 362(c) provides that:

Except as provided in subsections (d), (e), (f), and (h) of this section–

(1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate;

(2) the stay of any other act under subsection (a) of this section continues until the earliest of–
(A) the time the case is closed;

(B) the time the case is dismissed; or

(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied;

11 U.S.C. § 362(c) (emphasis added).

Pursuant to Section 362(c)(1), the automatic stay which protects “property of the estate,” as opposed to property of the debtor, continues until the property is no longer property of the estate regardless of the entry of the discharge. The provision of the statute relied upon by the Movant for the proposition that the automatic stay terminates upon the entry of a discharge, relates only to the stay of “any other act under subsection(a), “, i.e., an act against property that is not property of the estate, i.e., is property “of the debtor.” The relationship between property of the estate and property of the debtor is succinctly stated as follows:

Property of the estate consists of all property of the debtor as of the date of the filing of the petition. 11 U.S.C. § 541. It remains property of the estate until it has been exempted by the debtor under § 522, abandoned by the trustee under § 554(a), or sold by the trustee under § 363. If property of the estate is not claimed exempt, sold, or abandoned by the trustee, it is abandoned to the debtor at the time the case is closed if the property was scheduled under § 521(1). If the property is not scheduled by the debtor and is not otherwise administered, it remains property of the estate even after the case has been closed.

If the property in question is property of the estate, it remains subject to the automatic stay until it becomes property of the debtor and until the earlier of the time the case was closed, the case is dismissed, or a discharge is granted or denied in a chapter 7 case.

In re Pullman, 319 B.R. 443, 445 (Bankr. E.D. Va. 2004).

Movant’s position seems to be that the Chapter 7 Trustee’s filing of a “report of no distribution,” otherwise known as a “no asset report,” effectuated an abandonment of the real property at issue in this case, and therefore the Property has reverted back to the Debtor. However, Movant fails to cite the relevant statute. Section 554(c) provides that “[u]nless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.” 11 U.S.C. § 554(c) (emphasis added); Fed. R. Bankr. P. 6007. Cases interpreting Section 554(c) hold that the filing of a report of no distribution does not effectuate an abandonment of estate property. See, e.g., In re Israel, 112 B.R. 481, 482 n.3 (Bankr. D. Conn. 1990) (“The filing of a no-asset report does not close a case and therefore does not constitute an abandonment of property of the estate.”) (citing e.g., Zlogar v. Internal Revenue Serv. (In re Zlogar), 101 B.R. 1, 3 n.3 (Bankr. N.D. Ill. 1989); Schwaber v. Reed (In re Reed), 89 B.R. 100, 104 (Bankr. C.D. Cal. 1988); 11 U.S.C. § 554(c)).

Because the real property at issue in this case has not been abandoned it remains property of the estate subject to Section 362(a) unless and until relief is granted under Section 362(d).

Rooker-Feldman and res judicata4

The Movant argues that U.S. Bank’s status as a secured creditor, which is the basis for its standing in this case, already has been determined by the state court and that determination cannot be revisited here. The Movant relies on both the Rooker-Feldman doctrine and res judicata principles to support this position.

The Rooker-Feldman doctrine is derived from two Supreme Court cases, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and D.C. Court of Appeals v. Feldman, 460 U.S. 462 (1983), which together stand for the proposition that lower federal courts lack subject matter jurisdiction to sit in direct appellate review of state court judgments. The Rooker-Feldman doctrine is a narrow jurisdictional doctrine which is distinct from federal preclusion doctrines. See McKithen v. Brown, 481 F.3d 89, 96-97 (2d Cir. 2007) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005), and Hoblock v. Albany County Board of Elections, 422 F.3d 77, 85 (2d Cir. 2005)). In essence, the doctrine bars “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments. Rooker-Feldman does not otherwise override or supplant preclusion doctrine or augment the circumscribed doctrines that allow federal courts to stay or dismiss proceedings in deference to state-court actions.” Exxon Mobil, 544 U.S. at 283.

The Second Circuit has delineated four elements that must be satisfied in order for Rooker-Feldman to apply:

First, the federal-court plaintiff must have lost in state court. Second, the plaintiff must “complain [] of injuries caused by [a] state-court judgment[.]” Third, the plaintiff must “invit[e] district court review and rejection of [that] judgment [].” Fourth, the state-court judgment must have been “rendered before the district court proceedings commenced”-i.e., Rooker-Feldman has no application to federal-court suits proceeding in parallel with ongoing state-court litigation. The first and fourth of these requirements may be loosely termed procedural; the second and third may be termed substantive.

McKithen, 481 F.3d at 97 (internal citation omitted and alteration in original) (quoting Hoblock,422 F.3d at 85).

In a case with facts similar to the instant case, Chief Judge Craig applied the Rooker-Feldman doctrine to overrule a debtor’s objection to a motion for relief from the automatic stay. See In re Ward, 423 B.R. 22 (Bankr. E.D.N.Y. 2010). In In re Ward, a foreclosure sale was conducted prior to the filing of the bankruptcy petition. When the successful purchaser sought relief from stay in the bankruptcy case to proceed to evict the debtor, the debtor opposed the motion. The debtor argued that the foreclosure judgment was flawed because “no original note was produced”, “the mortgage was rescinded”, “the plaintiff in the action doesn’t exist” or “was not a proper party to the foreclosure action”, and that “everything was done irregularly and underneath [the] table.” In re Ward, 423 B.R. at 27. Chief Judge Craig overruled the debtor’s opposition and found that each of the elements of the Rooker-Feldman doctrine were satisfied:

The Rooker-Feldman doctrine applies in this case because the Debtor lost in the state court foreclosure action, the Foreclosure Judgment was rendered before the Debtor commenced this case, and the Debtor seeks this Court’s review of the Foreclosure Judgment in the context of her opposition to the Purchaser’s motion for relief from the automatic stay. The injury complained of, i.e., the foreclosure sale to the Purchaser, was “caused by” the Foreclosure Judgment because “the foreclosure [sale] would not have occurred but-for” the Foreclosure Judgment. Accordingly, the Rooker-Feldman doctrine does not permit this Court to disregard the Foreclosure Judgment.

In re Ward, 423 B.R. at 28 (citations omitted and alteration in original).

In the instant case, the Debtor argues that the Rooker-Feldman doctrine does not apply because the Judgment of Foreclosure was entered on default, not on the merits. She also argues that Rooker-Feldman should not apply because she is alleging that the Judgment of Foreclosure was procured by fraud in that the MERS system of mortgage assignments was fraudulent in nature or void. However, this Court is not aware of any exception to the Rooker-Feldman doctrine for default judgments, or judgments procured by fraud and the Court will not read those exceptions into the rule. See Salem v. Paroli, 260 B.R. 246, 254 (S.D.N.Y. 2001) (applying Rooker-Feldman to preclude review of state court default judgment); see also Lombard v. Lombard, No. 00-CIV-6703 (SAS), 2001 WL 548725, at *3-4 (S.D.N.Y. May 23, 2001) (applying Rooker-Feldman to preclude review of stipulation of settlement executed in connection with state court proceeding even though applicant argued that the stipulation should be declared null and void because he was under duress at the time it was executed).

The Debtor also argues that Rooker-Feldman does not apply in this case because she is not asking this Court to set aside the Judgment of Foreclosure, but rather is asking this Court to make a determination as to the Movant’s standing to seek relief from stay. The Debtor argues that notwithstanding the Rooker-Feldman doctrine, the bankruptcy court must have the ability to determine the standing of the parties before it.

Although the Debtor says she is not seeking affirmative relief from this Court, the net effect of upholding the Debtor’s jurisdictional objection in this case would be to deny U.S. Bank rights that were lawfully granted to U.S. Bank by the state court. This would be tantamount to a reversal which is prohibited by Rooker-Feldman.

Even if Rooker-Feldman were found not to apply to this determination, the Court still would find that the Debtor is precluded from questioning U.S. Bank’s standing as a secured creditor under the doctrine of res judicata. The state court already has determined that U.S. Bank is a secured creditor with standing to foreclose and this Court cannot alter that determination in order to deny U.S. Bank standing to seek relief from the automatic stay.

The doctrine of res judicata is grounded in the Full Faith and Credit Clause of the United States Constitution. U.S. Const. art. IV, § 1. It prevents a party from re-litigating any issue or defense that was decided by a court of competent jurisdiction and which could have been raised or decided in the prior action. See Burgos v. Hopkins, 14 F.3d 787, 789 (2d Cir. 1994) (applying New York preclusion rules); Swiatkowski v. Citibank, No. 10-CV-114, 2010 WL 3951212, at *14 (E.D.N.Y. Oct. 7, 2010) (citing Waldman v. Vill. of Kiryas Joel, 39 F.Supp.2d 370, 377 (S.D.N.Y. 1999)). Res judicata applies to judgments that were obtained by default, see Kelleran v. Andrijevic, 825 F.2d 692, 694-95 (2d Cir. 1987), but it may not apply if the judgment was obtained by extrinsic fraud or collusion. “Extrinsic fraud involves the parties’ ‘opportunity to have a full and fair hearing, ‘ while intrinsic fraud, on the other hand, involves the ‘underlying issue in the original lawsuit.'” In re Ward, 423 B.R. at 29. The Debtor’s assertions that the MERS system of assignments may have been fraudulent is more appropriately deemed an intrinsic fraud argument. The Debtor has not alleged any extrinsic fraud in the procurement of the Judgment of Foreclosure which prevented a full and fair hearing before the state court.

As a result, the Court finds that the Judgment of Foreclosure alone is sufficient evidence of the Movant’s status as a secured creditor and therefore its standing to seek relief from the automatic stay. On that basis, and because the Movant has established grounds for relief from stay under Section 362(d), the Motion will be granted.

MERS

Because of the broad applicability of the issues raised in this case the Court believes that it is appropriate to set forth its analysis on the issue of whether the Movant, absent the Judgment of Foreclosure, would have standing to bring the instant motion. Specifically MERS’s role in the ownership and transfer of real property notes and mortgages is at issue in dozens of cases before this Court. As a result, the Court has deferred ruling on motions for relief from stay where the movants’ standing may be affected by MERS’s participation in the transfer of the real property notes and mortgages. In the instant case, the issues were resolved under the Rooker-Feldman doctrine and the application of res judicata. Most, if not all, of the remainder of the “MERS cases” before the Court cannot be resolved on the same basis. For that reason, and because MERS has intervened in this proceeding arguing that the validity of MERS assignments directly affects its business model and will have a significant impact on the national mortgage industry, this Court will give a reasoned opinion as to the Movant’s standing to seek relief from the stay and how that standing is affected by the fact that U.S. Bank acquired its rights in the Mortgage by way of assignment from MERS.

Standing to seek relief from the automatic stay

The Debtor has challenged the Movant’s standing to seek relief from the automatic stay. Standing is a threshold issue for a court to resolve. Section 362(d) states that relief from stay may be granted “[o]n request of a party in interest and after notice and a hearing.” 11 U.S.C. § 362(d). The term “party in interest” is not defined in the Bankruptcy Code, however the Court of Appeals for the Second Circuit has stated that “[g]enerally the ‘real party in interest’ is the one who, under the applicable substantive law, has the legal right which is sought to be enforced or is the party entitled to bring suit.” See Roslyn Savings Bank v. Comcoach (In re Comcoach), 698 F.2d 571, 573 (2d Cir. 1983). The legislative history of Section 362 “suggests that, notwithstanding the use of the term ‘party in interest’, it is only creditors who may obtain relief from the automatic stay.” Id. at 573-74. (citing H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 175, reprinted in 1978 U.S.Code Cong. & Ad. News 5787, 6136); see also Greg Restaurant Equip. And Supplies v. Toar Train P’ship (In re Toar Train P’ship), 15 B.R. 401, 402 (Bankr. D. Vt.1981) (finding that a judgment creditor of the debtor was not a “party in interest” because the judgment creditor was not itself a direct creditor of the bankrupt).

Using the standard established by the Second Circuit, this Court must determine whether the Movant is the “one who, under applicable substantive law, has the legal right” to enforce the subject Note and Mortgage, and is therefore a “creditor” of this Debtor. See In re Toar, 15 B.R. at 402; see also In re Mims, 438 B.R. 52, 55 (Bankr. S.D.N.Y. 2010). The Bankruptcy Code defines a “creditor” as an “entity that has a claim against the debtor that arose at the time of or before the order for relief….” 11 U.S.C. § 101(10). “Claim” is defined as the “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured….” 11 U.S.C. § 101(5)(A). In the context of a lift stay motion where the movant is seeking to commence or continue with an action to foreclose a mortgage against real property, the movant must show that it is a “party in interest” by showing that it is a creditor with a security interest in the subject real property. See Mims, 438 B.R. at 57 (finding that as movant “failed to prove it owns the Note, it has failed to establish that it has standing to pursue its state law remedies with regard to the Mortgage and Property”). Cf. Brown Bark I L.P. v. Ebersole (In re Ebersole), 440 B.R. 690, 694 (Bankr. W.D. Va. 2010) (finding that movant seeking relief from stay must prove that it is the holder of the subject note in order to establish a ‘colorable claim’ which would establish standing to seek relief from stay).

Noteholder status

In the Motion, the Movant asserts U.S. Bank’s status as the “holder” of the Mortgage. However, in order to have standing to seek relief from stay, Movant, which acts as the representative of U.S. Bank, must show that U.S. Bank holds both the Mortgage and the Note. Mims, 438 B.R. at 56. Although the Motion does not explicitly state that U.S. Bank is the holder of the Note, it is implicit in the Motion and the arguments presented by the Movant at the hearing. However, the record demonstrates that the Movant has produced no evidence, documentary or otherwise, that U.S. Bank is the rightful holder of the Note. Movant’s reliance on the fact that U.S. Bank’s noteholder status has not been challenged thus far does not alter or diminish the Movant’s burden to show that it is the holder of the Note as well as the Mortgage.
Under New York law, Movant can prove that U.S. Bank is the holder of the Note by providing the Court with proof of a written assignment of the Note, or by demonstrating that U.S. Bank has physical possession of the Note endorsed over to it. See, eg., LaSalle Bank N.A. v. Lamy, 824 N.Y.S.2d 769, 2006 WL 2251721, at *1 (N.Y. Sup. Ct. Aug. 7, 2006). The only written assignment presented to the Court is not an assignment of the Note but rather an “Assignment of Mortgage” which contains a vague reference to the Note. Tagged to the end of the provisions which purport to assign the Mortgage, there is language in the Assignment stating “To Have and to Hold the said Mortgage and Note, and also the said property until the said Assignee forever, subject to the terms contained in said Mortgage and Note.” (Assignment of Mortgage (emphasis added)). Not only is the language vague and insufficient to prove an intent to assign the Note, but MERS is not a party to the Note and the record is barren of any representation that MERS, the purported assignee, had any authority to take any action with
respect to the Note. Therefore, the Court finds that the Assignment of Mortgage is not sufficient to establish an effective assignment of the Note.

By MERS’s own account, it took no part in the assignment of the Note in this case, but merely provided a database which allowed its members to electronically self-report transfers of the Note. MERS does not confirm that the Note was properly transferred or in fact whether anyone including agents of MERS had or have physical possession of the Note. What remains undisputed is that MERS did not have any rights with respect to the Note and other than as described above, MERS played no role in the transfer of the Note.

Absent a showing of a valid assignment of the Note, Movant can demonstrate that U.S. Bank is the holder of the Note if it can show that U.S. Bank has physical possession of the Note endorsed to its name. See In re Mims, 423 B.R. at 56-57. According to the evidence presented in this matter the manner in which the MERS system is structured provides that, “[w]hen the beneficial interest in a loan is sold, the promissory note is [] transferred by an endorsement and delivery from the buyer to the seller [sic], but MERS Members are obligated to update the MERS® System to reflect the change in ownership of the promissory note….” (MERS Supplemental Memorandum of Law at 6). However, there is nothing in the record to prove that the Note in this case was transferred according to the processes described above other than MERS’s representation that its computer database reflects that the Note was transferred to U.S. Bank. The Court has no evidentiary basis to find that the Note was endorsed to U.S. Bank or that U.S. Bank has physical possession of the Note. Therefore, the Court finds that Movant has not satisfied its burden of showing that U.S. Bank, the party on whose behalf Movant seeks relief from stay, is the holder of the Note.

Mortgagee status

The Movant’s failure to show that U.S. Bank holds the Note should be fatal to the Movant’s standing. However, even if the Movant could show that U.S. Bank is the holder of the Note, it still would have to establish that it holds the Mortgage in order to prove that it is a secured creditor with standing to bring this Motion before this Court. The Movant urges the Court to adhere to the adage that a mortgage necessarily follows the same path as the note for which it stands as collateral. See Wells Fargo Bank, N.A. v. Perry, 875 N.Y.S.2d 853, 856 (N.Y. Sup. Ct. 2009). In simple terms the Movant relies on the argument that a note and mortgage are inseparable. See Carpenter v. Longan, 83 U.S. 271, 274 (1872). While it is generally true that a mortgage travels a parallel path with its corresponding debt obligation, the parties in this case have adopted a process which by its very terms alters this practice where mortgages are held by MERS as “mortgagee of record.” By MERS’s own account, the Note in this case was transferred among its members, while the Mortgage remained in MERS’s name. MERS admits that the very foundation of its business model as described herein requires that the Note and Mortgage travel on divergent paths. Because the Note and Mortgage did not travel together, Movant must prove not only that it is acting on behalf of a valid assignee of the Note, but also that it is acting on behalf of the valid assignee of the Mortgage.5

MERS asserts that its right to assign the Mortgage to U.S. Bank in this case, and in what it estimates to be literally millions of other cases, stems from three sources: the Mortgage documents; the MERS membership agreement; and state law. In order to provide some context to this discussion, the Court will begin its analysis with an overview of mortgage and loan processing within the MERS network of lenders as set forth in the record of this case.

In the most common residential lending scenario, there are two parties to a real property mortgage-a mortgagee, i.e., a lender, and a mortgagor, i.e., a borrower. With some nuances and allowances for the needs of modern finance this model has been followed for hundreds of years. The MERS business plan, as envisioned and implemented by lenders and others involved in what has become known as the mortgage finance industry, is based in large part on amending this traditional model and introducing a third party into the equation. MERS is, in fact, neither a borrower nor a lender, but rather purports to be both “mortgagee of record” and a “nominee” for the mortgagee. MERS was created to alleviate problems created by, what was determined by the financial community to be, slow and burdensome recording processes adopted by virtually every state and locality. In effect the MERS system was designed to circumvent these procedures. MERS, as envisioned by its originators, operates as a replacement for our traditional system of public recordation of mortgages.

Caselaw and commentary addressing MERS’s role in the mortgage recording and foreclosure process abound. See Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. Cin. L. Rev. 1359 (2010). In a 2006 published opinion, the New York Court of Appeals described MERS system as follows:

In 1993, the MERS system was created by several large participants in the real estate mortgage industry to track ownership interests in residential mortgages.

Mortgage lenders and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system.

The initial MERS mortgage is recorded in the County Clerk’s office with ‘Mortgage Electronic Registration Systems, Inc.’ named as the lender’s nominee or mortgagee of record on the instrument. During the lifetime of the mortgage, the beneficial ownership interest or servicing rights may be transferred among MERS members (MERS assignments), but these assignments are not publicly recorded; instead they are tracked electronically in MERS’s private system. In the MERS system, the mortgagor is notified of transfers of servicing rights pursuant to the Truth in Lending Act, but not necessarily of assignments of the beneficial interest in the mortgage.

Merscorp, Inc., v. Romaine, 8 N.Y.3d 90 (N.Y. 2006) (footnotes omitted).

In the words of MERS’s legal counsel, “[t]he essence of MERS’ business is to hold legal title to beneficial interests under mortgages and deeds of trust in the land records. The MERS® System is designed to allow its members, which include originators, lenders, servicers, and investors, to accurately and efficiently track transfers of servicing rights and beneficial ownership.” (MERS Memorandum of Law at 5). The MERS® System “… eliminate[s] the need for frequent, recorded assignments of subsequent transfers.” (MERS Supplemental Memorandum of Law at 4). “Prior to MERS, every time a loan secured by a mortgage was sold, the assignee would need to record the assignment to protect the security interest. If a servicing company serviced the loan and the servicing rights were sold,-an event that could occur multiple times during the life of a single mortgage loan-multiple assignments were recorded to ensure that the proper servicer appeared in the land records in the County Clerk’s office.” (MERS Supplemental Memorandum of Law at 4-5).

“When the beneficial interest in a loan is sold, the promissory note is still transferred by an endorsement and delivery from the buyer to the seller, but MERS Members are obligated to update the MERS® System to reflect the change in ownership of the promissory note…. So long as the sale of the note involves a MERS Member, MERS remains the named mortgagee of record, and continues to act as the mortgagee, as the nominee for the new beneficial owner of the note (and MERS’ Member). The seller of the note does not and need not assign the mortgage because under the terms of that security instrument, MERS remains the holder of title to the mortgage, that is, the mortgagee, as the nominee for the purchaser of the note, who is then the lender’s successor and/or assign.” (MERS Supplemental Memorandum of Law at 6). “At all times during this process, the original mortgage or an assignment of the mortgage to MERS remains of record in the public land records where the security real estate is located, providing notice of MERS’s disclosed role as the agent for the MERS Member lender and the lender’s successors and assigns.” (Declaration of William C. Hultman, ¶9).

MERS asserts that it has authority to act as agent for each and every MERS member which claims ownership of a note and mortgage registered in its system. This authority is based not in the statutes or caselaw, but rather derives from the terms and conditions of a MERS membership agreement. Those 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, for the beneficial owner or owners thereof from time to time.” (Declaration of William C. Hultman, ¶5). MERS “holds the legal title to the mortgage and acts as the agent or nominee for the MERS Member lender, or owner of the mortgage loan.” (Declaration of William C. Hultman, ¶6). According to MERS, it is the “intent of the parties… for MERS to serve as the common nominee or agent for MERS Member lenders and their successors and assigns.” (MERS Supplemental Memorandum of Law at 19) (emphasis added by the Court). “Because MERS holds the mortgage lien for the lender who may freely transfer its interest in the note, without the need for a recorded assignment document in the land records, MERS holds the mortgage lien for any intended transferee of the note.” (MERS Supplemental Memorandum of Law at 15) (emphasis added by the Court). If a MERS member subsequently assigns the note to a non-MERS member, or if the MERS member which holds the note decides to foreclose, only then is an assignment of the mortgage from MERS to the noteholder documented and recorded in the public land records where the property is located. (Declaration of William C. Hultman, ¶12).

Before commenting on the legal effect of the MERS membership rules or the alleged “common agency” agreement created among MERS members, the Court will review the relevant portions of the documents presented in this case to evaluate whether the documentation, on its face, is sufficient to prove a valid assignment of the Mortgage to U.S. Bank.

The Mortgage

First Franklin is the “Lender” named in the Mortgage. With reference to MERS’s role in the transaction, the Mortgage states:

MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, MI 48501-2026, tel. (888) 679 MERS. FOR PURPOSES OF RECORDING THIS MORTGAGE, MERS IS THE MORTGAGEE OF RECORD.

(Mortgage at 1 (emphasis added by the Court)).

The Mortgage also purports to contain a transfer to MERS of the Borrower’s (i.e., the Debtor’s) rights in the subject Property as follows:

BORROWER’S TRANSFER TO LENDER OF RIGHTS IN THE PROPERTY

[The Borrower] mortgage[s], grant[s] and convey[s] the Property to MERS (solely as nominee for Lender and Lender’s successors in interest) and its successors in interest subject to the terms of this Security Instrument. This means that, by signing this Security Instrument, [the Borrower is] giving Lender those rights that are stated in this Security Instrument and also those rights that Applicable Law gives to lenders who hold mortgage on real property. [The Borrower is] giving Lender these rights to protect Lender from possible losses that might result if [the Borrower] fail[s] to [comply with certain obligations under the Security Instrument and accompanying Note.]

[The Borrower] understand[s] and agree[s] that MERS holds only legal title to the rights granted by [the Borrower] in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lenders’s successors and assigns) has the right: (A) to exercise any or all those rights, including, but not limited to, the right to foreclose and sell the Property; and (B) to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

[The Borrower gives] MERS (solely as nominee for Lender and Lender’s successors in interest), rights in the Property…

(Mortgage at 3) (emphasis added).

The Assignment of Mortgage references the Mortgage and defines the “Assignor” as “‘Mers’ Mortgage Electronic Registration Systems, Inc., 2150 North First Street, San Jose, California 95131, as nominee for First Franklin, a division of National City Bank of IN, 2150 North First Street San Jose, California 95153.” (Emphasis added by the Court). The “Assignee” is U.S. Bank.

Premised on the foregoing documentation, MERS argues that it had full authority to validly execute the Assignment of Mortgage to U.S. Bank on February 1, 2008, and that as of the date the foreclosure proceeding was commenced U.S. Bank held both the Note and the Mortgage. However, without more, this Court finds that MERS’s “nominee” status and the rights bestowed upon MERS within the Mortgage itself, are insufficient to empower MERS to effectuate a valid assignment of mortgage.

There are several published New York state trial level decisions holding that the status of “nominee” or “mortgagee of record” bestowed upon MERS in the mortgage documents, by itself, does not empower MERS to effectuate an assignment of the mortgage. These cases hold that MERS may not validly assign a mortgage based on its nominee status, absent some evidence of specific authority to assign the mortgage. See Bank of New York v. Mulligan, No. 29399/07, 2010 WL 3339452, at *7 (N.Y. Sup. Ct. Aug. 25, 2010); One West Bank, F.S.B. v. Drayton, 910 N.Y.S.2d 857, 871 (N.Y. Sup. Ct. 2010); Bank of New York v. Alderazi, 900 N.Y.S.2d 821, 824 (N.Y. Sup. Ct. 2010) (the “party who claims to be the agent of another bears the burden of proving the agency relationship by a preponderance of the evidence”); HSBC Bank USA v. Yeasmin, No. 34142/07, 2010 WL 2089273, at *3 (N.Y. Sup. Ct. May 24, 2010); HSBC Bank USA v. Vasquez, No. 37410/07, 2009 WL 2581672, at *3 (N.Y. Sup. Ct. Aug. 21, 2010); LaSalle Bank N.A. v. Lamy, 824 N.Y.S.2d 769, 2006 WL 2251721, at *2 (N.Y. Sup. Ct. Aug. 7, 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.”). See also MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (“MERS’s only right is to record the mortgage. Its designation as the ‘mortgagee of record’ in the document does not change or expand that right…”). But see US Bank, N.A. v. Flynn, 897 N.Y.S.2d 855 (N.Y. Sup. Ct. 2010) (finding that MERS’s “nominee” status and the mortgage documents give MERS authority to assign); Crum v. LaSalle Bank, N.A., No. 2080110, 2009 WL 2986655, at *3 (Ala. Civ. App., Sept. 18, 2009) (finding MERS validly assigned its and the lender’s rights to assignee); Blau v. America’s Servicing Company, et al., No. CV-08-773-PHX-MHM, 2009 WL 3174823, at *8 (D. Ariz. Sept. 29, 2009) (finding that assignee of MERS had standing to foreclose).

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).

Conclusion

For all of the foregoing reasons, the Court finds that the Motion in this case should be granted. However, in all future cases which involve MERS, the moving party must show that it validly holds both the mortgage and the underlying note in order to prove standing before this Court.

Dated: Central Islip, New York February 10, 2011
Hon. Robert E. Grossman, Bankruptcy Judge

——–
Notes:

1. The Debtor also questions whether Select Portfolio has the authority and the standing to seek relief from the automatic stay. The Movant argues that Select Portfolio has standing to bring the Motion based upon its status as “servicer” of the Mortgage, and attaches an affidavit of a vice president of Select Portfolio attesting to that servicing relationship. Caselaw has established that a mortgage servicer has standing to seek relief from the automatic stay as a party in interest. See, e.g., Greer v. O’Dell, 305 F.3d 1297 (11th Cir. 2002); In re Woodberry, 383 B.R. 373 (Bankr. D.S.C. 2008). This presumes, however, that the lender for whom the servicer acts validly holds the subject note and mortgage. Thus, this Decision will focus on whether U.S. Bank validly holds the subject note and mortgage.

2. The Judgment of Foreclosure names the Debtor and an individual, Shelly English, as defendants. Shelly English is the Debtor’s daughter-in-law. At a hearing held on December 13, 2010, the Debtor’s counsel stated that he “believed” the Debtor transferred title to the Property to her son, Leroy English, in 2007. This is consistent with information provided by the Debtor in her petition and schedules. Leroy English, however, was not named in the foreclosure action. No one in this case has addressed the issue of whether the proper parties were named in the foreclosure action. However, absent an argument to the contrary, this Court can only presume that the Judgment of Foreclosure is a binding final judgment by a court of competent jurisdiction.

3. Movant cites to New York General Obligations Law for the proposition that “an agency agreement may take any form ‘desired by the parties concerned.'” The direct quote “desired by the parties concerned” seems to be attributed to the General Obligations Law citation, however, the Court could find no such language in the current version of § 5-1501(1). That provision, rather, defines an agent as “a person granted authority to act as attorney-in-fact for the principal under a power of attorney, and includes the original agent and any co-agent or successor agent. Unless the context indicates otherwise, an ‘agent’ designated in a power of attorney shall mean ‘attorney-in-fact’ for the purposes of this title. An agent acting under a power of attorney has a fiduciary relationship with the principal.” N.Y. Gen. Oblig. Law § 5-1501(1) (McKinney 2011) (emphasis added).

4. Because the Debtor’s objection is overruled under Rooker-Feldman and res judicata, the Court will not address the merits of the Movant’s judicial estoppel arguments.

5. MERS argues that notes and mortgages processed through the MERS System are never “separated” because beneficial ownership of the notes and mortgages are always held by the same entity. The Court will not address that issue in this Decision, but leaves open the issue as to whether mortgages processed through the MERS system are properly perfected and valid liens. See Carpenter v. Longan, 83 U.S. at 274 (finding that an assignment of the mortgage without the note is a nullity); Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2009) (“[I]n the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable”).

in re: AGARD New York Bankruptcy Case

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WISCONSIN ‘Flawed Affidavits, SJ Reversed” BANK OF NEW YORK (BONY) v. CANO

WISCONSIN ‘Flawed Affidavits, SJ Reversed” BANK OF NEW YORK (BONY) v. CANO


BANK OF NEW YORK, AS TRUSTEE FOR THE CERTIFICATE-HOLDERS CWABS, INC. ASSET-BACKED CERTIFICATES SERIES 2006-14, C/O BAC HOME LOANS SERVICING, L.P., PLAINTIFF-RESPONDENT,
v.
DIANE G. CANO AND UNKNOWN SPOUSE OF DIANE G. CANO [MARIO CANO], DEFENDANTS-APPELLANTS,
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., AS NOMINEE FOR S&L INVESTMENT LENDING, INC., DEFENDANT.

No. 2010AP477.

Court of Appeals of Wisconsin, District IV.

Opinion Filed: January 20, 2011.

Before Vergeront, P.J., Lundsten and Blanchard, JJ.

¶ 1 PER CURIAM.

Diane and Mario Cano appeal a foreclosure judgment. The Canos contend that (1) the circuit court erroneously exercised its discretion in granting the Bank of New York’s motion to reopen its foreclosure action against the Canos; and (2) the court erred in granting summary judgment to the Bank. We conclude that the court properly reopened the foreclosure action, but that the Bank did not establish a prima facie case for summary judgment. Accordingly, we reverse and remand for further proceedings.

Continue below…

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The Florida Bar’s Director of Lawyer Regulation, “sometimes lawyers make mistakes that are not worthy of discipline”

The Florida Bar’s Director of Lawyer Regulation, “sometimes lawyers make mistakes that are not worthy of discipline”


Foreclosure lawyers’ misdeeds ignored in Florida?

Despite complaints, ethics breaches slip past discipline system

Florida courthouses are rife with evidence of errors and fabrications made by attorneys handling foreclosure cases, and yet so far no lawyers have been disciplined.

With pressure mounting to police its own members, the Florida Bar established a special category of complaints listed as “foreclosure fraud.”

But in 20 complaints investigated in that category, the Bar has not found cause to discipline anyone — even lawyers who admitted to breaking ethical rules.

Some observers say that early track record of ignoring misdeeds by its members raises questions about whether the system of self-policing for lawyers can handle the depth of wrongdoing in the foreclosure crisis.

The complaints have been filed by judges, lawyers, homeowners and the Florida Bar itself, and reflect the issues seen in courtrooms almost daily for the past two years, including forged signatures and backdated documents used to improperly seize homes in foreclosures.


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FDL | 10,000 GMAC Foreclosures Stopped in Maryland

FDL | 10,000 GMAC Foreclosures Stopped in Maryland


Posts by David Dayen Sunday January 16, 2011 7:00 am

In a major ruling Friday, a coalition of nonprofit defense lawyers and consumer protection advocates in Maryland successfully got over 10,000 foreclosure cases managed by GMAC Mortgage tossed out, because affidavits in the cases were signed by Jeffrey Stephan, the infamous GMAC “robo-signer” who attested to the authenticity of foreclosure documents without any knowledge about them, as well as signing other false statements.

The University of Maryland Consumer Protection Clinic and Civil Justice, Inc., a nonprofit, filed the class action lawsuit, arguing that any case using Jeffrey Stephan as a signer was illegitimate and must be dismissed. In court Friday, GMAC agreed to dismiss every case in Maryland relying on a Stephan affidavit. They can refile foreclosure actions on the close to 10,000 homes, but only at their own expense, and subject to new Maryland regulations which require mandatory mediation between borrower and lender before moving to foreclosure. Civil Justice and the Consumer Protection Clinic also want any cases with affidavits from Xee Moua of Wells Fargo, who has also admitted to robo-signing, thrown out, but that case has not yet been settled.

This was not the plan of GMAC and other banks caught using robo-signers last year. They hoped to undergo a pause in proceedings, run a quick “double-check” and then issue substitute documents in the same cases. That would have been a much more rapid solution for the banks and would have resulted in many more foreclosures. Now GMAC has to go back and basically file the entire case all over again, meaning they have to give notice of foreclosure to the borrower, engage the borrower in modification options, and basically run through the whole process from the beginning. They cannot use the shortcut solution, thanks to the class action suit filed. GMAC’s dismissal of every foreclosure in Maryland shows their doubts they would have won the class action.

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[VIDEO] Highlights of Maine Attorney Thomas Cox: “Foreclosed Justice: Causes and Effects of the Foreclosure Crisis” Pt 2

[VIDEO] Highlights of Maine Attorney Thomas Cox: “Foreclosed Justice: Causes and Effects of the Foreclosure Crisis” Pt 2


Thomas A. Cox is a retired bank lawyer in Portland, Maine who serves as the Volunteer Program Coordinator for the Maine Attorney’s Saving Homes (MASH) program. He represents homeowners in foreclosure, and assists and consults with other volunteer lawyers in providing pro bono legal services to these Maine homeowners.

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GARY DUBIN LAW OFFICES FORECLOSURE DEFENSE HAWAII and CALIFORNIA
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