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Johnson v. HSBC BANK USA, Dist. Court, SD California – Pooling and Servicing Agreement (“PSA”) allowed for homeowner to show improper transfers

Johnson v. HSBC BANK USA, Dist. Court, SD California – Pooling and Servicing Agreement (“PSA”) allowed for homeowner to show improper transfers


 

GREGORY JOHNSON, an individual, Plaintiff,
v.
HSBC BANK USA, NATIONAL ASSOCIATION AS TRUSTEE FOR THE ELLINGTON TRUST SERIES 2007-1; BANK OF AMERICA, N.A.; and Does 1-10, inclusive, Defendants.

 

 Case No. 3:11-cv-2091-JM-WVG.

United States District Court, S.D. California. 
March 19, 2012.

ORDER DENYING MOTION TO DISMISS Docket No. 12.

JEFFREY T. MILLER, District Judge.

On September 12, 2011, Plaintiff Gregory Johnson brought a complaint against HSBC Bank USA, National Association as Trustee for the Ellington Trust Series 2007-1 (“HSBC”) and Bank of America, N.A. (“BOA”). BOA has filed a motion to dismiss (“MTD” or “motion”). Plaintiff filed an opposition on February 17, 2012. HSBC originally failed to answer the complaint, but jointly moved with Plaintiff to set aside default. The court granted that motion, and HSBC now joins BOA’s motion to dismiss with no further argument. Neither Defendant has filed a reply brief. For the reasons stated below, the motion is DENIED.

I. BACKGROUND

In December of 2006, Plaintiff obtained a loan from Fremont Investment & Loan (“Fremont”) in order to purchase property located in Oceanside, California. Compl. ¶ 24. The Deed of Trust named Mortgage Electronic Registration Systems (“MERS”) as the nominee and beneficiary of the Deed of Trust. ¶ 24. The complaint alleges that Fremont “attempted to securitize and sell [the] loan to another entity or entities” that were “not HSBC Bank or the Ellington Trust.” ¶ 25. Consequently, HSBC “is merely a third-party stranger to the loan transaction.” ¶ 26. Plaintiff alleges that despite his requests, BOA (apparently his mortgage servicer), has failed to verify the debt and amount owed.[1] ¶ 26.

Specifically, Plaintiff alleges that the document purporting to assign the Deed of Trust from MERS to HSBC (Compl. Ex. A), dated May 29, 2008, was fraudulent, in part because the assignment was executed after the closing date of the trust, which violates the Pooling and Servicing Agreement (“PSA”).[2] ¶ 28-29. Plaintiff also alleges that Treva Moreland, “the purported signatory of the purported `Assignment’, was not the `Assistant Secretary’ for MERS and lacked the requisite corporate and legal authority to effect an actual `assignment’ of Plaintiff’s Note and Mortgage.” ¶ 38. The complaint states that Treva Moreland signs thousands of property record documents without any authority, and thus any amount Plaintiff owes is subject to equitable offset by damages owed by Defendants.

The complaint further alleges that in October of 2010, HSBC “caused a document purporting to be a Substitution of Trustee (`Substitution’) to be recorded with the County of San Diego.” ¶ 57. The substitution purported to substitute Quality Loan Service Corporation (“Quality”) as trustee, but Plaintiff claims that no such transfer ever occurred. ¶ 57. The complaint states that under California law, the lender must be the party to appoint the successor trustee, and HSBC was not the lender.

In the summer of 2009, Plaintiff sought a loan modification from Wilshire, the original servicer of Plaintiff’s loan. ¶ 66. At some point the loan “was sold or transferred to BOA.” ¶ 67. Plaintiff made nine payments under the modified plan, but BOA refused to honor the new plan. ¶ 68. After much confusion, Plaintiff obtained a loan modification from BOA to be effective February 1, 2011. ¶ 79. In March of 2011, Plaintiff sent a Qualified Written Request letter to verify the debt owed, but BOA did not provide a substantive response. ¶ 83.

Plaintiff also alleges that Defendants have not properly credited payments he has made on the mortgage and have incorrectly calculated interest. ¶ 85. He claims that Defendants knew at all times that Plaintiff was paying incorrect amounts. ¶ 86. As a result of their actions, Plaintiff’s credit has been damaged and his home has been made unmarketable because “the title to Plaintiff’s home has been slandered [and] clouded.” ¶ 89. Finally, the complaint states that “Plaintiff has offered to and is ready, willing, and able to unconditionally tender his obligation.” ¶ 96.

Based on these factual allegations, the complaint seeks relief under seven causes of action, each applied to both Defendants: (1) declaratory relief under 28 U.S.C. §§ 2201-2202; (2) negligence; (3) quasi-contract; (4) violation of 12 U.S.C. § 2605; (5) violation of 15 U.S.C. § 1692; (6) violation of Cal. Bus. & Prof. Code § 17200 et seq.; (7) accounting.

II. LEGAL STANDARD AND DISCUSSION

A motion to dismiss under Fed. R. Civ. P. 12(b)(6) challenges the legal sufficiency of the pleadings. De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978). In evaluating the motion, the court must construe the pleadings in the light most favorable to the non-moving party, accepting as true all material allegations in the complaint and any reasonable inferences drawn therefrom. See, e.g., Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. 2003). The Supreme Court has held that in order to survive a 12(b)(6) motion, “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The court should grant 12(b)(6) relief only if the complaint lacks either a “cognizable legal theory” or facts sufficient to support a cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

A. Viability of Attack on Loan Securitization

1. Ability to Challenge Loan Securitization

The threshold issue of whether Plaintiff can make any claim related to the loan’s securitization affects the viability of many of the individual claims discussed below. BOA cites Rodenhurst v. Bank of America, 773 F.Supp.2d 886, 899 (D. Haw. 2011) for its statement that “[t]he overwhelming authority does not support a cause of action based upon improper securitization.” However, the discussion cited in that case centers on plaintiffs who claim that securitization itself violates the agreement between the mortgagor and mortgagee. Here, Plaintiff does not dispute the right to securitize the mortgage, but alleges that as a result of improper procedures, the true owner of his mortgage is unclear. As a result, he has allegedly been paying improper entities an excess amount.

Ninth Circuit district courts have come to different conclusions when analyzing a plaintiff’s right to challenge the securitization process as Plaintiff has here. See Schafer v. CitiMortgage, Inc., 2011 WL 2437267 (C.D. Cal. 2011) (denying defendants’ motion to dismiss declaratory relief claim, which was based on alleged improper transfer due to alleged fraud in signing of documents); Vogan v. Wells Fargo Bank, N.A., 2011 WL 5826016 (E.D. Cal. 2011) (allowing § 17200 claim when plaintiffs alleged that assignment was executed after the closing date of securities pool, “giving rise to a plausible inference that at least some part of the recorded assignment was fabricated”). But see Armeni v. America’s Wholesale Lender, 2012 WL 603242 (C.D. Cal. 2012) (dismissing declaratory relief, quasi-contract, UCL, and accounting claims because “plaintiff lack[ed] standing to challenge the process by which his mortgage was (or was not) securitized because he is not a party to the PSA”); Junger v. Bank of America, N.A., 2012 WL 603262 at *3 (C.D.Cal. 2012).

Here, the court finds that Plaintiff is not categorically excluded from making claims based on allegations surrounding the loan’s securitization.[3] As in Vogan, and unlike Armeni, Plaintiff here alleges both violations of the PSA and relevant law. BOA has not sufficiently demonstrated that violations of law associated with the loan’s securitization can go unchecked because Plaintiff is not a party to the PSA.

Other cases cited by BOA on this issue are irrelevant or inapplicable here.

2. Sufficiency of Allegations of Improper Assignment

BOA also argues that Plaintiff makes no showing that the assignment was improper. It claims that Treva Moreland was authorized to assign the Deed of Trust, and there was no violation of the statute, asserting that “[n]owhere in [the complaint] does [Plaintiff] allege facts showing the Assignment was defective, invalid, or somehow voidable.” MTD at 4. However, the complaint states that MERS had no knowledge of the assignment, that Treva Moreland was never appointed to “assistant secretary” by the MERS board of directors, and thus there was no authority to make the assignment.

While BOA cites no case law on this point, Plaintiff provides persuasive authority to demonstrate that courts have accepted allegations such as his. In Kingman Holdings, LLC v. CitiMortgage, Inc., 2011 WL 1883829 (E.D. Tex. 2011), the court assessed a fraud claim against CitiMortgage in which the plaintiff alleged that MERS’ appointment of an assistant secretary (“Blackstun,” who later made the assignment) was invalid because it was not approved by the board of directors. The court upheld the fraud claim under the 9(b) standard, finding that Plaintiff’s allegations were plausible and that if Blackstun had no authority to bind MERS, then MERS filed a fraudulent document after he executed the assignment.

Similarly, in Vogan, the court denied defendants’ motion to dismiss a § 17200 claim because, as here, the plaintiff pleaded that Wells Fargo recorded a fabricated assignment of the loan because the assignment was executed after the closing date of the mortgage-backed security pool, “giving rise to a plausible inference” of fabrication. Id. at *7. Here, in addition to attacking Treva Moreland’s authority, Plaintiff has alleged that the assignment was made after the closing date of the trust, as required by Section 2.1 of the PSA.

B. Tender Requirement

BOA also argues that a plaintiff “must tender the entire unpaid balance of the loan to maintain an action challenging foreclosure.” MTD at 4. However, as BOA separately points out, Plaintiff is not currently in foreclosure—BOA rescinded its Notice of Default in March of 2011. BOA fails to acknowledge this fact in its argument, merely citing cases supporting the existence of the tender rule in actions for wrongful foreclosure.

Even if the fact of foreclosure were at issue, BOA has not sufficiently demonstrated that the tender rule should apply here. Plaintiff is not challenging Defendants’ compliance with the foreclosure law, but is claiming that defendants did not properly receive the assignment of their loan. The “tender requirement does not apply to this case because” Plaintiff challenges “the beneficial interest held by [Defendants] in the deed of trust, not the procedural sufficiency of the foreclosure itself.” Vogan at *8.

C. Declaratory Relief

BOA seeks dismissal of the declaratory relief claim because the issues “will be resolved by the other claims for relief.” MTD at 5. It also argues that the California foreclosure statute does not recognize a judicial action to determine whether a party foreclosing is authorized to do so.

The Ninth Circuit has explained that while there is no bar to declaratory relief if legal remedies exist, a court’s discretion should lead it to refuse to grant declaratory relief unless it would clarify the parties’ interests or relieve the uncertainty giving rise to the proceeding. U.S. v. Washington, 759 F.2d 1353, 1356-57 (9th Cir. 1985). The Schafer court upheld a declaratory relief claim in a similar action to this one, noting that there was a controversy over whether the assignment of a deed of trust was fraudulent, and the cause of action was not duplicative. 2011 WL 2437267 at *4.

While it is possible that declaratory relief will be unnecessary, it would be premature to dismiss the cause of action at this point. BOA has failed to show how resolution of each of the other claims will necessarily provide all of the requested relief if they are granted. Further, it remains possible that some or all of Plaintiff’s other claims will not survive to trial—if that occurs, declaratory judgment could serve to clarify the parties’ interests.

D. Negligence

The complaint alleges that HSBC and BOA were negligent because they demanded mortgage payments when they did not have the right to enforce that obligation. This allegedly caused Johnson to overpay in interest, among other things. As a result of the “reckless negligence, utter carelessness, and blatant fraud of the Defendants,” Plaintiff’s chain of title has been “rendered unmarketable and fatally defective.” Compl. ¶ 110.

Defendants’ motion to dismiss argues that they had no duty of care here, because Plaintiff “does not plead facts supporting a finding that Defendant’s conduct exceeded the scope of its conventional role as a lender.”[4] MTD at 6. Plaintiff states that his relationship with BOA is not conventional because the loan has been securitized, so “Defendants hold Plaintiff’s payments for the benefit of the certificate holders.” Pl. Opp. at 20. Further, Plaintiff argues that a lender that offers a loan modification has gone beyond its conventional role.

The rule that a lender does not have a duty to a borrower is only a “general rule,” and only applies to situations where a lender plays its conventional role. E.g., Taheny v. Wells Fargo Bank, N.A., 2010 WL 5394315 (E.D. Cal. 2010). Accepting the allegations of the complaint as true, BOA has gone beyond the typical lender’s role. As in Ansanelli v. JP Morgan Chase Bank, N.A., 2011 WL 1134451 at *7 (N.D. Cal. 2011), BOA established a loan modification plan with Plaintiff, made excessive interest charges and made “derogatory credit reports to credit bureaus.” Compl. ¶ 109. More generally, Plaintiff alleges that BOA did not have the legal authority to demand payments from Plaintiff because of the assignment’s invalidity. If BOA was not a lender legally authorized to collect payments from Plaintiff, the general rule shielding actual lenders from liability would not apply.

More generally, the court finds that the allegations Plaintiff has put forth meet the federal pleading standard under Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). While yet to be proven, Plaintiff presents plausible allegations of misconduct that, if true, would entitle him to relief.

E. Quasi-Contract

Based upon the same factual allegations, Plaintiff seeks to recover on a quasi-contract cause of action. BOA maintains that in California a quasi-contract claim is the same as a claim for unjust enrichment, and such an action does not lie if an express agreement governs the parties’ rights. Further, BOA argues that the rule of tender applies under Cal. Civ. Code § 1691(b), which governs rescission of a contract.

BOA is correct that a plaintiff may not recover on a quasi-contract action if an express agreement exists. E.g., Cal. Med. Ass’n, Inc. v. Aetna U.S. Healthcare of Cal., 94 Cal. App. 4th 151, 172 (2001). However, as Plaintiff points out, the complaint alleges that there is no valid agreement governing the transaction between Plaintiff and BOA. Thus, if Plaintiff succeeds in showing that BOA was not authorized to collect payment, he may be able to recover based on quasi-contract. For the same reason, BOA’s § 1691 argument fails—it does not state why the tender rule should apply if no contract exists.

F. Violation of 12 U.S.C. § 2605 — The Real Estate Settlement Procedures Act

The complaint alleges that Plaintiff sent a Qualified Written Request (“QWR”) to BOA in March of 2011 asking for information to verify the validity of the debt at issue. However, BOA failed to provide the legally-required information, only providing a partial history of the account.

BOA’s motion to dismiss states that instead of including information about why the account was in error, the QWR “includes a list of document demands which appear to be entirely irrelevant to a valid QWR under RESPA.” MTD at 9. Further, BOA maintains that Plaintiff’s damage claims are not sufficiently specific.

1. Whether Plaintiff Failed to Submit a Proper QWR

Generally, Ninth Circuit courts have held that a QWR must relate to the servicing of a loan, rather than its creation or modification. Gates v. Wachovia Mortg. FSB, 2011 WL 2602511 at *3 (E.D. Cal. 2010). Further, the “borrower’s inquiry must include a statement of the reasons for the belief of the borrower . . . that the account is in error or provide sufficient detail to the servicer regarding other information sought by the borrower.” Id; 12 U.S.C. § 2605(e).

BOA has not argued that the QWR was unrelated to servicing of the loan, but states that Plaintiff did not provide “a statement or supporting documentation of his reasons for believing the account was in error.” MTD at 9. While Plaintiff may not have stated the reasons he believed the account was in error, Defendant provides no argument on why it believes that the QWR failed to “provide sufficient detail to the servicer regarding other information sought by the borrower,” merely arguing that the list of document demands “appear to be entirely irrelevant to a valid QWR under RESPA.” MTD at 9. While some courts have found QWRs inadequate because they related to the creation or modification of a loan, the QWR here requested information that related to “making the payments of principal and interest with respect to the amounts received from the borrower.” 12 U.S.C. § 2605. For example, the QWR requested collection notes concerning the loan, as well as the name and contact information of the entity to which BOA was purportedly making the payments received from Plaintiff. While all of the information requested by Plaintiff may not have been validly sought under the statute, the QWR provided sufficient information concerning several requests for information that should have garnered a response by BOA. See Tamburri v. Suntrust Mortg., Inc., 2011 WL 6294472 at *7 (N.D. Cal. 2011) (noting that QWR requesting documentation supporting collection and enforcement efforts, including documents in support of enforcement of promissory note and deed of trust and a list of assignments “arguably request[ed] information as to how the servicer has handled [plaintiff’s] account”).

While BOA states that it provided a complete response following its initial letter confirming receipt and promising to provide a response, it has not detailed or produced the alleged response.

2. Whether Plaintiff Adequately Pled Damages

Plaintiff may recover for actual damages suffered under 12 U.S.C. § 2605(f)(1)(a). BOA asserts that Plaintiff has failed to plead damages adequately. Generally the requirement for damages has been interpreted liberally. Yulaeva v. Greenpoint Mortg. Funding, Inc., 2009 WL 2880393 at *15 (E.D. Cal. 2009). While Plaintiff does not provide substantial factual support, the allegations are sufficient to state a claim at the pleading stage—Plaintiff has specifically alleged that he sought certain information, BOA denied him his statutorily required information, and the failure to receive that information caused him to pay more than was necessary on his loan and to incur costs in repairing his credit.

G. Violation of 15 U.S.C. § 1692 — Fair Debt Collection Practices Act

The complaint states that BOA violated the FDCPA through making various false representations in its attempt to collect on the loan. The MTD asserts that the FDCPA’s definition of a “debt collector” does not include a mortgage servicer or an assignee of the debt, “where the `debt was not in default at the time it was obtained by [a servicing company].'” MTD at 10 (citing 15 U.S.C. §1692a(6)(F)). Further, it argues that a foreclosure on a property based on a deed of trust does not constitute collection of a debt within the meaning of the FDCPA.

Plaintiff agrees that the statute’s definition of “debt collector” does not include an entity attempting to collect a debt that was not in default when the debt was obtained by that entity. However, he has alleged that BOA took over servicing the debt sometime after September 2009, Compl. ¶ 67, and the debt went into default in May 2008. According to BOA, the default notice was not rescinded until 2011. BOA does not address this issue in its MTD.

BOA also argues that “foreclosure on a property based on a deed of trust does not constitute collection of a debt within the meaning of the FDCPA,” citing Hulse v. Ocwen Federal Bank, FSB, 195 F.Supp.2d 1188, 1204 (D. Or. 2002). In that case, the judge decided that “[f]oreclosing on a trust deed is distinct from the collection of the obligation to pay money . . . . Payment of funds is not the object of the foreclosure action.” Id. First, many courts have registered disagreement with this decision. See, e.g., Albers v. Nationstar Mortg., LLC 2011 WL 43584 (E.D. Wash. 2011) (noting that Hulse’s reasoning has been rejected by the Fourth and Fifth circuits and limited in other circumstances).

Second, as Plaintiff points out, he does not allege that foreclosure of the property constituted the violation; instead, he believes the demands of payment and threats were unlawful. Hulse held that “any actions taken by [defendant] in pursuit of the actual foreclosure may not be challenged as FDCPA violations,” but “plaintiffs may maintain any FDCPA claims based on alleged actions by [defendant] in collecting a debt.” Hulse at 1204. Based on this, even if the court were to accept Hulse’s reasoning, the FDCPA claim survives.

H. Violation of Cal. Bus. & Prof. Code § 17200

Plaintiff alleges that BOA has engaged in unfair, unlawful, and fraudulent business practices by executing misleading documents, executing documents without proper authority to do so, and demanding payments for non-existent debt, among other things.

BOA concedes that violation of another law serves as a predicate for stating a cause of action under § 17200, but states that “Plaintiff must plead facts to support the underlying statutory violation.” MTD at 11. Because the court has upheld Plaintiff’s other claims, the § 17200 claim must be upheld under the unlawful prong. See, e.g., Vogan v. Wells Fargo Bank, N.A., 2011 WL 5826016 at *6-7 (upholding § 17200 claim because court had also upheld claim under Truth in Lending Act, 15 U.S.C. §1641(g)).

I. Accounting

Plaintiff also requests an accounting for all payments made. BOA states that a request for accounting must be tied to another actionable claim, and Plaintiff has no viable claims. BOA also states that Plaintiff has not alleged he is owed a balance.

“A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.” Tamburri v. Suntrust Mortg., Inc., 2011 WL 6294472 at *17 (N.D. Cal. 2011) (quoting Teselle v. McLoughlin, 173 Cal.App.4th 156, 179 (2009) (also noting that the purpose of requesting an accounting is “to discover what, if any, sums are owed to the plaintiff” and that “an accounting may be used as a discovery device”)).

Further, “[a] request for a legal accounting must be tethered to relevant actionable claims.” Harvey G. Ottovich Revocable Living Trust Dated May 12, 2006 v. Washington Mutual, Inc., 2010 WL 3769459 (N.D. Cal. 2010). While the complaint does not specifically “tether” the request for accounting to another single cause of action, it is clearly based on the same set of circumstances that is the basis for most of the causes of action in this case—the collection of money that was not actually due to Defendants.

Because Plaintiff has pleaded viable claims that are related to the same facts under which he requests an accounting, the court declines to dismiss the accounting claim at this time.

J. Motion to Strike Request for Punitive Damages and Fees

Defendant has made a motion to strike the request for punitive damages, arguing the “complaint is patently insufficient to support” such a claim. Fed. R. Civ. P. 12(f) allows a court to strike an insufficient defense or “any redundant, immaterial, impertinent, or scandalous matter.”

BOA cites to Bureerong v. Uvawas, 922 F.Supp.1450 (C.D. Cal. 1996), which holds that a motion to strike may be used when damages are not recoverable as a matter of law. However, a more recent Ninth Circuit case, Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970 (9th Cir. 2010), held that “Rule 12(f) does not authorize district courts to strike claims for damages on the ground that such claims are precluded as a matter of law.” Id. at 974-75. Thus, without any argument that the claim for punitive damages is redundant, immaterial, impertinent, or scandalous, BOA’s motion cannot succeed.

BOA also asks the court to strike the request for attorney’s fees, claiming there is no contractual or statutory basis for the award. However, as Plaintiff points out, RESPA allows for attorney’s fees. 12 U.S.C. §2605(f)(3) (providing that costs may be recovered “together with any attorneys [sic] fees incurred in connection with such action”).

III. CONCLUSION

For the reasons stated above, the motion to dismiss is DENIED. Defendants’ motion has failed to demonstrate that Plaintiff’s claims were implausible or precluded as a matter of law.

IT IS SO ORDERED.

[1] While Plaintiff does not dispute that he owes money on the loan, he disputes the amount owed and “seeks the Court’s assistance in determining who the holder in due course is of his Note and Deed of Trust.” ¶ 22.

[2] Plaintiff admits he is not a party to or beneficiary of the PSA, but claims that the failure to securitize his note should prevent HSBC and BOA from claiming any interest in the mortgage.

[3] BOA has failed to apply its argument concerning the loan’s securitization to any of Plaintiff’s specific claims, and the court declines to perform this task.

[4] BOA also denies the existence of proximately-caused damages, but does not directly address the alleged damages from derogatory credit reports and excessive interest charges.

[ipaper docId=86890530 access_key=key-1qbfbamphivp774i494b height=600 width=600 /]

image: Housing Wire

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St. Louis Park (MN) woman has mortgage reinstated, but CitiMortgage still wants fees for its attorneys and foreclosure costs

St. Louis Park (MN) woman has mortgage reinstated, but CitiMortgage still wants fees for its attorneys and foreclosure costs


Star Tribune-

In a last-minute move, Citi- Mortgage called off the foreclosure sale of a St. Louis Park house whose owner battled to stay in her home with the support of the Minnesota attorney general.

Nancy Gosselin was scheduled to lose her house in a sheriff’s auction scheduled for Tuesday, even though an investigation by the attorney general determined that at most, she had missed one payment of $584 more than two years ago.

After Gosselin was featured in a Whistleblower column on Nov. 13, CitiMortgage postponed the foreclosure for a month. Then, this week, Gosselin got the good news.

[STAR TRIBUNE]

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CITIMORTGAGE, INC. v. Mortgage Electronic Registration Systems, Inc., Mich: Court of Appeals “Which Lien Is Superior?”

CITIMORTGAGE, INC. v. Mortgage Electronic Registration Systems, Inc., Mich: Court of Appeals “Which Lien Is Superior?”


The irony is that CitiMortgage & GMAC are both shareholders of MERS…Not to mention Freddie Mac is too.

CITIMORTGAGE, INC., and FEDERAL HOME LOAN MORTGAGE CORPORATION, Plaintiffs-Appellants,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., and GMAC MORTGAGE, L.L.C., Defendants-Appellees, and
SHERYLL D. CATTON and GREGORY J. CATTON, Defendants.

 

No. 298004.
Court of Appeals of Michigan. 

December 15, 2011, 9:00 a.m.
Before: MURPHY, C.J., and BECKERING and RONAYNE KRAUSE, JJ.PER CURIAM.

Plaintiffs appeal as of right from the trial court’s order denying plaintiffs’ motion for summary disposition and granting defendants’[1] motion for summary disposition. We reverse and remand for further proceedings.

The facts of this case are not in dispute. On September 6, 2000, Sheryll D. Catton and Gregory J. Catton (“the Cattons”) purchased property in Wayne County with a mortgage granted to ABN AMRO Mortgage Group, Inc. (“ABN AMRO”). On May 4, 2001, the Cattons refinanced their loan, discharging the original mortgage in favor of a new mortgage also granted to ABN AMRO. On July 11, 2002, the Cattons obtained a home equity loan from GMAC, granting GMAC a second mortgage on the property. On November 25, 2002, the Cattons refinanced their 2001 loan, discharging the 2001 ABN AMRO mortgage in favor of another mortgage granted to ABN AMRO. There is no dispute that ABN AMRO was unaware of the GMAC mortgage at the time it took the new mortgage although GMAC’s mortgage was recorded. On August 22, 2005, the Cattons filed for bankruptcy and their property was subsequently sold at a foreclosure sale to Federal Home Loan Mortgage Corporation who sued, along with ABN AMRO’s successor-in-interest Citimortgage, Inc., to quiet title.

The issue in this matter is whether, as between the two lien holders, which of the two mortgage liens is superior. CitiMortgage holds the refinanced mortgage lien, and defendant holds the second mortgage, which would have been the junior lien but for the subsequent refinancing. More specifically, the issue is whether CitiMortgage can place its lien in first priority over defendants’ lien through application of the doctrine of equitable subrogation. The trial court concluded that CitiMortgage cannot, and this appeal followed. We review motions for summary disposition and questions of law de novo. Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999); Chapdelaine v Sochocki, 247 Mich App 167, 169; 635 NW2d 339 (2001).

Under then-existing provisions of Michigan’s race-notice recording statute, MCL 565.25(1) and (4), a first-recorded mortgage has priority over a later-recorded mortgage, and equity—and therefore equitable subrogation—may be used by the courts contrary to the plain language of that statute only in the presence of “`”unusual circumstances”` such as fraud or mutual mistake.'” Ameriquest Mortgage v Alton, 273 Mich App 84, 93-94, 99-100; 731 NW2d 99 (2006), quoting Devillers v Auto Club Ins Ass’n, 473 Mich 562, 590; 702 NW2d 539 (2005). See also, Ameriquest Mortgage, 273 Mich App at 100 (MURPHY, J., concurring). Other “unusual circumstances” might include a “preexisting jumble of convoluted case law through which the plaintiff was forced to navigate” or some sort of misconduct by another party. Devillers, 473 Mich at 590 n 64, n 65. However, MCL 565.25(1) and (4) have been repealed by 2008 PA 357. Consequently, the bulk of Ameriquest Mortgage is no longer valid.

That being the case, we conclude that the case law on point in Michigan is consistent with the Restatement of Property (Mortgages), 3d, § 7.3 (hereafter “the Restatement”), which provides as follows:

(a) If a senior mortgage is released of record and, as part of the same transaction, is replaced with a new mortgage, the latter mortgage retains the same priority as its predecessor, except

(1) to the extent that any change in the terms of the mortgage or the obligation it secures is materially prejudicial to the holder of a junior interest in the real estate, or

(2) to the extent that one who is protected by the recording act acquires an interest in the real estate at a time that the senior mortgage is not of record.

(b) If a senior mortgage or the obligation it secures is modified by the parties, the mortgage as modified retains priority as against junior interests in the real estate, except to the extent that the modification is materially prejudicial to the holders of such interests and is not within the scope of a reservation of right to modify as provided in Subsection (c).

(c) If the mortgagor and mortgagee reserve the right in a mortgage to modify the mortgage or the obligation it secures, the mortgage as modified retains priority even if the modification is materially prejudicial to the holders of junior interests in the real estate, except as provided in Subsection (d).

(d) If a mortgage contains a reservation of the right to modify the mortgage or the obligation as described in Subsection (c), the mortgagor may issue a notice to the mortgagee terminating that right. Upon receipt of the notice by the mortgagee, the right to modify with retention of priority under Subsection (c) becomes ineffective against persons taking any subsequent interests in the mortgaged real estate, and any subsequent modifications are governed by Subsection (b). Upon receipt of the notice, the mortgagee must provide the mortgagor with a certificate in recordable form stating that the notice has been received.

Of particular note, Comment b to the Restatement provides that “[u]nder § 7.3(a) a senior mortgagee that discharges its mortgage of record and records a replacement mortgage does not lose its priority as against the holder of an intervening interest unless that holder suffers material prejudice.” The associated Reporter’s Note, voluminously citing to many cases from other jurisdictions, explains that “courts routinely adhere to the principle that a senior mortgagee who discharges its mortgage of record and takes and records a replacement mortgage, retains the predecessor’s seniority as against intervening lienors unless the mortgagee intended a subordination of its mortgage or `paramount equities’ exist.”

For the reasons we discuss infra, we conclude that the Restatement, limited to the situations described by the quoted commentary—specifically, cases in which the senior mortgagee discharges its mortgage of record and contemporaneously takes a replacement mortgage, such as often occurs in the context of refinancing—is consistent with Michigan precedent. Thus limited, because the Restatement reflects the present state of the law in Michigan, we hereby adopt it. We caution, however, that the lending mortgagee seeking subrogation and priority over an intervening interest relative to its newly recorded mortgage must be the same lender that held the original mortgage before the intervening interest arose; and furthermore, any application of equitable subrogation is subject to a careful examination of the equities of all parties and potential prejudice to the intervening lienholder.

Our Supreme Court discussed what it called the doctrine of equitable mistake in Schanhite v Plymouth United Savings Bank, 277 Mich 33, 39; 268 NW 801 (1936), stating:

It is a general rule that the cancellation of a mortgage on the record is not conclusive as to its discharge, or as to the payment of the indebtedness secured thereby. And where the holder of a senior mortgage discharges it of record, and contemporaneously therewith takes a new mortgage, he will not, in the absence of paramount equities, be held to have subordinated his security to an intervening lien unless the circumstances of the transaction indicate this to have been his intention, or such intention upon his part is shown by extrinsic evidence. [Citations omitted.]

This reflects “the well-settled rule that the acceptance by a mortgagee of a new mortgage and his cancellation of the old mortgage do not deprive the mortgagee of priority over intervening liens.” Washington Mut Bank v ShoreBank Corp, 267 Mich App 111, 126; 703 NW2d 486 (2005).

In Washington Mut Bank, this Court rejected an equitable subrogation argument made by the plaintiff bank, where that bank provided refinancing on real property that had earlier been encumbered by a first mortgage, which was paid off with the proceeds from the refinancing, and then encumbered by two intervening mortgages in favor of other banks prior to the refinancing. Importantly, and distinguishable from the facts here, the plaintiff bank that sought subrogation and made the refinancing loan was not the original lender-mortgagee.[2] After an exhaustive examination of the case law regarding equitable subrogation and citing the “well-settled rule” from Schanhite, the Court stated:

[I]n this case, we are not presented with a new mortgage being accepted by the holder of the old mortgage. That is, had the new mortgage been given to Option One Mortgage [original lender], and Option One was before us rather than plaintiff, Schanhite might provide the authority to revive the original mortgage and give the new mortgage the same priority as the one it replaced. . . .

. . .

[W]e are unaware of any authority regarding the application of the doctrine of equitable subrogation to support the general proposition that a new mortgage, granted as part of a generic refinancing transaction, can take the priority of the original mortgage, which is being paid off, giving it priority over intervening liens. . . . Such bolstering of priority may be applicable where the new mortgagee is the holder of the mortgage being paid off[.] [Washington Mut Bank, 267 Mich App at 127-128 (emphasis added); see also Van Dyk Mtg Corp v United States, 503 F Supp 2d 876 (WD Mich, 2007) (applying Washington Mut Bank and Schanhite in granting equitable subrogation under circumstances comparable to the case at bar).]

Washington Mut Bank does not permit us to extend application of the Restatement to cases in which the new mortgagee was not the holder of the original mortgage being paid off through refinancing, consequently, we cannot adopt the Restatement in its entirety. But it does fully support, along with Schanhite, applying the Restatement where, as here, the new mortgagee seeking priority and subrogation held the original mortgage, and we do so here.

We note also that the refinancing in Schanhite actually worked to the benefit of the second mortgagee, because “the property would have been lost to the tax man” otherwise, so restoring the original lien priority was the equitable outcome for all parties. See Washington Mut Bank, 267 Mich App 126-127. Our Supreme Court then clarified that “[t]he theory of equitable or conventional subrogation is that the junior lienor’s position is left unchanged by the conduct of the party seeking subrogation and that he is not wronged by any acts permitting subrogation.” Lentz v Stoflet, 280 Mich 446, 451; 273 NW 763 (1937). Consistent with the Restatement provision in the limited form in which we adopt it, a refinanced mortgage maintains the priority position of the original mortgage so long as any junior lien holder is not prejudiced as a consequence.

Finally, we find it necessary to address the “mere volunteer” rule, which provides that equitable subrogation cannot be extended to a party that is a mere volunteer. Ameriquest Mortgage, 273 Mich App at 94-95. Underlying the rejection of the plaintiff bank’s equitable subrogation argument in Washington Mut Bank was the Court’s conclusion that the plaintiff was a mere volunteer. Washington Mut Bank, 267 Mich App at 119-120. The Court observed that “the doctrine of equitable subrogation does not allow a new mortgagee to take the priority of the older mortgagee merely because the proceeds of the new mortgage were used to pay off the indebtedness secured by the old mortgage[, and] [i]t is clear to us that . . . plaintiff is a mere volunteer and, therefore, is not entitled to equitable subrogation.” Id. Importantly, Washington Mut Bank reflected that the “mere volunteer” rule has no bearing in the context of a case where the new mortgagee and the old mortgagee are one in the same, even in a standard refinancing transaction, otherwise the panel would not have suggested a different outcome had the plaintiff bank held the original mortgage. Indeed, the Schanhite Court did not indicate that the rule allowing qualifying mortgagees to retain priority could only be employed on a finding that a mortgagee was not a mere volunteer. And the Restatement contains no such restriction or limitation. We hold that the “mere volunteer” rule has no applicability where the new mortgagee was also the original mortgagee.

We conclude that equitable subrogation is available to place a new mortgage in the same priority as a discharged mortgage if the new mortgagee was the original mortgagee and the holders of any junior liens are not prejudiced as a consequence. We further conclude that the Restatement, in the limited form in which we have adopted it, sets forth a reasonable and proper framework for determining whether junior lienholders have been prejudiced and whether the equities ultimately favor equitable subrogation. Because the trial court is the forum best suited to evaluating any prejudice and the competing equities, including making any relevant factual determinations, we remand this matter to the trial court to do so.

Reversed and remanded to the trial court for further proceedings consistent with this opinion. We direct that no taxable costs shall be awarded to any party under MCR 7.219. We do not retain jurisdiction.

[1] Defendants, Sheryll D. Catton and Gregory J. Catton, defaulted in this case and are not part of this appeal. References herein to “defendants” are to defendants-appellants, Mortgage Electronic Registration Systems, Inc. (“MERS”), as nominee for GMAC Mortgage, L.L.C. (“GMAC”), and GMAC itself.

[2] The descriptor of “original mortgagee” is amenable to confusion and therefore requires clarification. By that, we mean not only the originating mortgagee, but also any bona fide successor in interest. Here, CitiMortgage was not the original mortgagee, nor was it the new mortgagee at the time of the refinancing transaction. However, ABN AMRO was the original and new mortgagee, and CitiMortgage is ABN AMRO’s successor in interest, so CitiMortgage stands in the shoes of ABN AMRO for purposes of the analysis.

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Malagon v. CitiMortgage – Fla 3rd DCA “Concedes error on the trial court’s denial of appellants’ motion to vacate the final judgment of foreclosure”

Malagon v. CitiMortgage – Fla 3rd DCA “Concedes error on the trial court’s denial of appellants’ motion to vacate the final judgment of foreclosure”


Third District Court of Appeal
State of Florida, July Term, A.D. 2011
Opinion filed November 23, 2011.
Not final until disposition of timely filed motion for rehearing.
________________
No. 3D11-395
Lower Tribunal No. 08-59543
________________
Carlos Humberto Malagon a/k/a Carlos Malagon and Rosalba
Malagon,
Appellants,

vs.

Citimortgage, Inc. f/k/a Citifinancial Mortgage Company d/b/a
Citifinancial Mortgage Company (DE),
Appellee.

An Appeal from a non-final order from the Circuit Court for Miami-Dade

County, David C. Miller, Judge.

Garry W. Johnson and Bruce K. Herman (Fort Lauderdale), for appellants.

Burr & Forman and Reid S. Manley and Christine Irwin Parrish (Orlando),
for appellee.

Before SUAREZ and ROTHENBERG, JJ., and SCHWARTZ, Senior Judge.

SUAREZ, J.

Appellants, Carlos Humberto Malagon a/k/a Carlos Malagon and Rosalba
Malagon appeal the trial court’s order denying their motion to vacate final
judgment of foreclosure and to cancel and/or rescind sale. Appellee, Citimortgage,
Inc., concedes error on the trial court’s denial of appellants’ motion to vacate the
final judgment of foreclosure.1 Appellee consents to a reversal of the order and a
remand for further proceedings. Upon concession of error, this Court, therefore,
reverses the trial court’s denial of appellants’ motion to vacate the final judgment
of foreclosure and remands for further proceedings.

Reversed and remanded.

1 This Court appreciates appellee’s candor in conceding error

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Citimortgage v Stosel | NY App Div., 2nd Dept. “failed to establish how or when it became the lawful holder of the note either by delivery or valid assignment of the note”

Citimortgage v Stosel | NY App Div., 2nd Dept. “failed to establish how or when it became the lawful holder of the note either by delivery or valid assignment of the note”


Decided on November 15, 2011

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE DIVISION : SECOND JUDICIAL DEPARTMENT

MARK C. DILLON, J.P.
RUTH C. BALKIN
RANDALL T. ENG
JEFFREY A. COHEN, JJ.
2010-06292
(Index No. 3007/08)

.

[*1]Citimortgage, Inc., respondent,

v

Usher Stosel, appellant, et al., defendants. Sanford Solny, Brooklyn, N.Y., for appellant. Katz & Rychik, P.C., New York, N.Y. (Bennett R. Katz of counsel), for respondent.

DECISION & ORDER

In an action to foreclose a mortgage, the defendant Usher Stosel appeals, as limited by his brief, from so much of an order of the Supreme Court, Kings County (Velasquez, J.), dated April 12, 2010, as granted those branches of the plaintiff’s motion which were for summary judgment on the complaint insofar as asserted against him and for an order of reference, and, in effect, denied that branch of his cross motion which was to dismiss the complaint insofar as asserted against him for lack of standing.

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, those branches of the plaintiff’s motion which were for summary judgment on the complaint insofar as asserted against the defendant Usher Stosel and for an order of reference are denied, and that branch of the cross motion of the defendant Usher Stosel which was to dismiss the complaint insofar as asserted against him for lack of standing is granted.

Where, as here, a plaintiff’s standing to commence a foreclosure action is placed in issue by the defendant, it is incumbent upon the plaintiff to prove its standing to be entitled to relief (see US Bank N.A. v Madero, 80 AD3d 751, 752; U.S. Bank, N.A. v Collymore, 68 AD3d 752, 753). A plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note, “either by physical delivery or execution of a written assignment prior to the commencement of the action” (Aurora Loan Servs., LLC v Weisblum, 85 AD3d 95, 108). Moreover, “an assignment of the mortgage without assignment of the underlying note or bond is a nullity” (U.S. Bank, N.A. v Collymore, 68 AD3d at 754; see Bank of N.Y. v Silverberg, 86 AD3d 274, 280).

Contrary to the determination of the Supreme Court, the plaintiff failed to demonstrate that it had standing to commence this foreclosure action, since it failed to establish how or when it became the lawful holder of the note either by delivery or valid assignment of the note to it (see e.g. Bank of N.Y. v Silverberg, 86 AD3d at 280-283; Aurora Loan Servs., LLC v Weisblum, 85 AD3d at 109; US Bank N.A. v Madero, 80 AD3d at 752-753; U.S. Bank, N.A. v Collymore, 68 AD3d at 754). Accordingly, under the circumstances presented, those branches of the plaintiff’s motion which were for summary judgment on the complaint insofar as asserted against the defendant Usher Stosel and for an order of reference should have been denied, and that branch of the [*2]cross motion of the defendant Usher Stosel which was to dismiss the complaint insofar as asserted against him for lack of standing should have been granted.

In view of the foregoing, we do not reach the remaining contentions of the defendant Usher Stosel.
DILLON, J.P., BALKIN, ENG and COHEN, JJ., concur.

ENTER:

Matthew G. Kiernan

Clerk of the Court

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Whistleblower: Despite payments, a foreclosure threat

Whistleblower: Despite payments, a foreclosure threat


Mark my words, Someone is going to die from all the frustration these banks are causing and they are going to regret they ever fraudulently foreclosed on that person. If it hasn’t occurred already.

There are very ill people out there and this is going to cause a severe tragedy, for an unavoidable circumstance.

A banker says Nancy Gosselin made the mortgage payments on her St. Louis Park house, but CitiMortgage seems determined to foreclose.

Star Tribune-

Nancy Gosselin cannot understand why CitiMortgage is about to foreclose on her St. Louis Park house. Neither can her local banker or the Minnesota attorney general.

At the heart of the dispute is a single monthly payment of $584 that CitiMorgage says she failed to make more than two years ago, according to the attorney general’s office. Gosselin says she made all her payments. A loan officer at Bremer Bank agrees. The attorney general’s office, which says it can’t get a straight answer from CitiMortgage, has urged the mortgage giant to stop the foreclosure and work out a deal.

But the fallout from the alleged missed payment has been a series of cascading late fees and penalties and refused payments that has culminated in CitiMortgage’s threat to auction Gosselin’s home at a sheriff’s sale Dec. 2

“I did nothing wrong. This is very frustrating,” said Gosselin, standing on the sidewalk last week in front of her house on Xenwood Avenue S.

[STAR TRIBUNE]

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OneWEST BANK, FSB v. Dorner “CitiMortgage mortgage was defectively executed in that Dorner’s signature was not acknowledged by a notary public”

OneWEST BANK, FSB v. Dorner “CitiMortgage mortgage was defectively executed in that Dorner’s signature was not acknowledged by a notary public”


H/T The Home Equity Theft Reporter

2011 Ohio 4177
164 Ohio Misc.2d 63.

OneWest Bank, FSB,
v.
Dorner et al.

No. CI09-7477

Court of Common Pleas of Ohio, Lucas County.

 DATE: January 7, 2011.

 

Matthew J. Richardson and Robert B. Holman, for plaintiff.Joyce Anagnos, for defendant Toledo Department of Public Utilities.Steven E. Elder, Michelle Polly Murphy, Nicholas D. Donnermeyer, and Andrew P. George for intervening defendant, CitiMortgage, Inc.

 

OPINION AND JUDGMENT ENTRY

McDONALD, Judge.

{¶1} This case is before the court upon the motion for summary judgment as to lien priority filed by plaintiff OneWest Bank, FSB, against intervening defendant CitiMortgage, Inc. Upon consideration of the pleadings, the evidence, the written arguments of counsel, and the applicable law, I find that the motion for summary judgment should be granted.

I

{¶2} Defendant Kevin Dorner is the current owner of real estate located at 2026 N. Michigan Street, Toledo, Lucas County, Ohio (“the property”).

{¶3} On April 5, 2005, Dorner executed a mortgage and note on the property in favor of mortgagee Mortgage Electronic Registration Systems, Inc. (“MERS”). Mortgage Method, L.L.C. was the lender.[1]

{¶4} On February 8, 2007, Dorner executed a mortgage and note on the property in favor of mortgagee MERS. Indymac Bank, FSB was the lender.[2]

{¶5} On October 13, 2009, OneWest filed its complaint for foreclosure on its mortgage and note against Dorner, unknown spouse (if any) of Dorner, and the city of Toledo, Department of Public Utilities (“the city”). The city filed an answer to the complaint.

{¶6} On October 13, 2009, a preliminary judicial report for the property was filed.

{¶7} On October 22, 2009, the notice of filing of the final judicial report for the property was filed.

{¶8} On November 16, 2009, OneWest filed a motion for default judgment against Dorner and his unknown spouse, if any. This motion was granted.

{¶9} On December 18, 2009, CitiMortgage filed a motion to intervene as a party defendant. This motion was granted.

{¶10} On January 13, 2010, CitiMortgage filed an answer, cross-claim, and counterclaim. In its cross-claim and counterclaim, CitiMortgage alleges that Dorner is in default under the note and mortgage filed April 11, 2005, that it declared the debt due, and that it is entitled to have the mortgage foreclosed. CitiMortgage further alleges that OneWest and the city may claim an interest in the property. CitiMortgage prays that its mortgage be adjudged a valid first lien on the property, that its mortgage be foreclosed, that the property be sold, and that CitiMortgage be paid out of the proceeds of the sale. OneWest filed a reply to the counterclaim.

{¶11} An order of sale for the property was issued on March 5, 2010.

{¶12} On March 15, 2010, OneWest filed its motion for summary judgment as to the lien priority between its mortgage and CitiMortgage’s alleged mortgage.

{¶13} On April 20, 2010, CitiMortgage filed its motion to stay the sheriff sale so that the dispute over the priority of liens could be resolved. This motion was granted on May 4, 2010.

{¶14} On August 23, 2010, CitiMortgage filed an opposition to OneWest’s motion for summary judgment. Thereafter, OneWest filed a reply. The motion is now decisional.

II

{¶15} The general rules governing motions for summary judgment filed pursuant to Civ.R. 56 are well established. In Harless v. Willis Day Warehousing Co. (1978), 54 Ohio St.2d 64, 66, the Supreme Court of Ohio stated the requirements that must be met before a motion for summary judgment can be granted:

{¶16} “The appositeness of rendering a summary judgment hinges upon the tripartite demonstration: (1) that there is no genuine issue as to any material fact; (2) that the moving party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in his favor.

{¶17} “The burden of showing that no genuine issue exists as to any material fact falls upon the moving party in requesting a summary judgment.”

{¶18} A party who claims to be entitled to summary judgment on the ground that a nonmovant cannot prove its case bears the initial burden of (1) specifically identifying the basis of its motion, and (2) identifying those portions of the record that demonstrate the absence of a genuine issue of material fact regarding an essential element of the nonmovant’s case. Dresher v. Burt (1996), 75 Ohio St.3d 280, 293; see also Dresher, 75 Ohio St.3d at 299 (Pfeifer, J., concurring in judgment only). The movant satisfies this burden by calling attention to some competent summary-judgment evidence, of the type listed in Civ.R. 56, affirmatively demonstrating that the nonmovant has no evidence to support his or her claims. Id. Once the movant has satisfied this initial burden, the burden shifts to the nonmovant to set forth specific facts, in the manner prescribed by Civ.R. 56(E), indicating that a genuine issue of material fact exists for trial. Dresher at 293. Accord Mitseff v. Wheeler (1988), 38 Ohio St.3d 112, 114-115.

{¶19} The Sixth District Court of Appeals has consistently held that summary judgment should be granted with caution in order to protect the nonmoving party’s right to trial. As stated by the court in Viock v. Stowe-Woodward Co. (1983), 13 Ohio App.3d 7, 14-15:

{¶20} “We recognize that summary judgment, pursuant to Civ.R. 56, is a salutary procedure in the administration of justice. It is also, however, a procedure which should be used cautiously and with the utmost care so that a litigant’s right to a trial, wherein the evidentiary portion of the litigant’s case is presented and developed, is not usurped in the presence of conflicting facts and inferences. * * * It is settled law that `[t]he inferences to be drawn from the underlying facts contained in the affidavits and other exhibits must be viewed in the light most favorable to the party opposing the motion, * * *’ which party in the instant case is appellant. * * * It is imperative to remember that the purpose of summary judgment is not to try issues of fact, but rather to determine whether triable issues of fact exist.” (Citations omitted.)

III

{¶21} OneWest contends that it is entitled to summary judgment, as its lien is superior to CitiMortgage’s lien. OneWest argues that CitiMortgage’s alleged mortgage is invalid because it is not notarized. Moreover, OneWest maintains that its knowledge of the defective mortgage is irrelevant. OneWest cites R.C. 5301.01 and 5301.25, as well as numerous cases, including Citizens Natl. Bank v. Denison (1956), 165 Ohio St. 89, and Mtg. Elec. Registration Sys. v. Odita, 159 Ohio App.3d 1, 2004-Ohio-5546.

{¶22} In opposition, CitiMortgage asserts that its mortgage, which properly described the property, was recorded first, and OneWest had actual or constructive notice of the mortgage. CitiMortgage claims that pursuant to R.C. 5301.23, it is entitled to priority because first in time should be first in right, and its mortgage was recorded almost two years before OneWest’s mortgage. CitiMortgage submits that even if there is an error in the acknowledgement clause, this mistake does not void the instrument, as it is subject to reformation pursuant to R.C. 2719.01. CitiMortgage maintains that OneWest would be unjustly enriched if OneWest were allowed to maintain an interest in the property to the exclusion of CitiMortgage.

{¶23} In its reply, OneWest observes that R.C. 5301.23 is not applicable, as it applies to only properly executed mortgages. OneWest agrees with CitiMortgage that first in time means first in right, but OneWest notes that this provision applies to only properly executed mortgages, not defective instruments. OneWest offers that Ohio law is clear that when a notary’s ackowledgement is defective, the instrument is ineffective against subsequent creditors. OneWest maintains that because its mortgage is properly executed, it takes priority over the defective mortgage, which was not entitled to be recorded and is not entitled to reformation.

{¶24} Before the motion for summary judgment is analyzed, it must be noted that the assignment of the mortgage from MERS to OneWest occurred on October 22, 2009, more than a week after OneWest filed its complaint in the present case. The notice of assignment was filed with the court less than one month later. Thus, the notice was sufficient to alert the court, Dorner, and others that OneWest was the real party in interest. See Campus Sweater & Sportswear Co. v. M. B. Kahn Constr. Co. (D.C.S.C.1979), 515 F.Supp. 64, 84-85 (because the assignment took place a year before trial, the defendant was not prejudiced by the assignment, and the assignee was the real party in interest to bring the suit.). Moreover, no party has raised the issue that OneWest is not the real party in interest. See Wachovia Bank, N.A. v. Cipriano, 5th Dist. No. 09CA007, 2009-Ohio-5470, at ¶ 38 (“Pursuant to Civ.R. 17(A), the real party of interest shall `prosecute’ the claim. The rule does not state `file’ the claim”). See also LaSalle Bank Natl. Assn. v. Street, 5th Dist. No. 08 CA 60, 2009-Ohio-1855, at ¶ 28. Accordingly, OneWest, as the real party in interest, has legal standing to bring this foreclosure action.

{¶25} With respect to the motion for summary judgment, OneWest contends that CitiMortgage’s mortgage is defective, yet CitiMortgage maintains that the mortgage should be reformed.

{¶26} R.C. 5301.01 provides:

{¶27} “(A) A deed, mortgage * * * shall be signed by the grantor, mortgagor * * *. The signing shall be acknowledged by the grantor, mortgagor * * * before a judge or clerk of a court of record in this state, or a county auditor, county engineer, notary public, or mayor, who shall certify the acknowledgement and subscribe the official’s name to the certificate of the acknowledgement.”

{¶28} R.C. 5301.23 provides:

{¶29} “(A) All properly executed mortgages shall be recorded in the office of the county recorder of the county in which the mortgaged premises are situated and shall take effect at the time they are delivered to the recorder for record. * * *

{¶30} “(B) A mortgage that is presented for record shall contain the then current mailing address of the mortgagee. The omission of this address or the inclusion of an incorrect address shall not affect the validity of the instrument or render it ineffective for purposes of constructive notice.”

{¶31} In Citizens Natl. Bank v. Denison, 165 Ohio St. at 95, the Ohio Supreme Court held that when the acknowledgment or execution of a deed is defective, the deed is ineffective as against subsequent creditors, but the deed “is valid as between the parties thereto, in the absence of fraud.” Moreover, a defectively executed mortgage is invalid as to a subsequent lienholder, even if the subsequent lienholder had actual knowledge of the prior, defectively executed mortgage. Odita, 159 Ohio App.3d 1, 2004-Ohio-5546, at ¶ 15.

{¶32} R.C. 2719.01 states:

“When there is an omission, defect, or error in an instrument in writing or in a proceeding by reason of the inadvertence of an officer, or of a party, person, or body corporate, so that it is not in strict conformity with the laws of this state, the courts of this state may give full effect to such instrument or proceeding, according to the true, manifest intention of the parties thereto.”

{¶33} Reformation of an instrument is an equitable remedy wherein a court modifies the instrument that, due to mutual mistake on the part of the original parties to the instrument, does not express the real intention of those parties. Greenfield v. Aetna Cas. & Sur. Co. (1944), 75 Ohio App. 122, 128. However, a defectively executed instrument, not acknowledged, cannot be reformed. Delfino v. Paul Davies Chevrolet, Inc. (1965), 2 Ohio St.2d 282, paragraphs two and three of the syllabus (“The curative effect of Section 2719.01, Revised Code, operates to validate instruments in relation to technical defects of content. It does not validate a lease which does not comply with the mandatory requirements of the statute of conveyances (Section 5301.01, Revised Code) as to execution. Where * * * [R.C. 5301.01] requires certain formalities for the execution of an instrument, reformation cannot be granted to supply these formalities”).

{¶34} Applying these principles to the present case, the CitiMortgage mortgage was defectively executed in that Dorner’s signature was not acknowledged by a notary public as required by R.C. 5301.01. Moreover, this defect cannot be cured by reformation. Thus, CitiMortgage’s defectively executed mortgage cannot take priority over a subsequent, valid, recorded mortgage. The record shows that OneWest’s subsequent mortgage was properly executed, valid, and recorded. Accordingly, OneWest’s mortgage is entitled to priority over CitiMortgage’s defective mortgage.

JUDGMENT ENTRY

{¶35} The court finds that there are no genuine issues of material fact and that plaintiff OneWest Bank, FSB is entitled to summary judgment as to lien priority against intervening defendant CitiMortgage, Inc. as a matter of law. It is ordered that plaintiff OneWest Bank, FSB have summary judgment against intervening defendant CitiMortgage, Inc. as to lien priority. It is further ordered that plaintiff OneWest Bank, FSB’s mortgage is entitled to priority over the defective mortgage of intervening defendant CitiMortgage, Inc.

So ordered.

[1] MERS assigned the mortgage to CitiMortgage on December 2, 2009.

[2] On November 16, 2009, OneWest filed a notice of filing of assignment of mortgage from MERS to OneWest. The assignment occurred on October 22, 2009.

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Iowa Class Action Against CitiMortgage “agressively and falsely advertised its commitment to help homeowners obtain affordable loan modifications.”

Iowa Class Action Against CitiMortgage “agressively and falsely advertised its commitment to help homeowners obtain affordable loan modifications.”


H/T   Adam Belz

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF IOWA
CENTRAL DIVISION

KEITH GOODYK, on behalf of himself and all
others similarly situated,
Plaintiff,

V.

CITIMORTGAGE, INC.,
Defendant.

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Ohio Appeals Court Reverses/Remands Mortgage Foreclosure Case For Trespass and Damage to Personal Property.

Ohio Appeals Court Reverses/Remands Mortgage Foreclosure Case For Trespass and Damage to Personal Property.


[Cite as CitiMortgage, Inc. v. Robson, 2011-Ohio-4617.]

COURT OF APPEALS
RICHLAND COUNTY, OHIO
FIFTH APPELLATE DISTRICT

CITIMORTGAGE, INC.
Plaintiff-Appellee

-vs-

DONALD SCOTT ROBSON, ET AL
Defendant-Appellant

Excerpts:

{¶4} The case began as a mortgage foreclosure case, and appellant
counterclaimed for trespass and damage to his personal property. The court found the
mortgaged house was unoccupied so appellee hired a contractor to enter and secure
the house and change the locks. Appellant alleged the contractor damaged an alarm
system in the house. The property has since been sold in a foreclosure sale.

[…]

{¶11} Nonetheless, the trial court addressed the issue of trespass. We find the
trial court should not have proceeded to determine the mortgage permitted appellee to
enter appellant’s property. This was beyond the scope of the motion for summary
judgment.

{¶12} The court also erred in finding appellant could not prevail because he had
not established damages. A property owner must prove two essential elements to state
a cause of action sounding in trespass: (1) an unauthorized intentional act, (2) resulting
in an intrusion that interferes with the owner’s right of exclusive possession of the
property. Merino v. The Salem Hunting Club, Columbiana App. No. 07CO16, 2008-
Ohio-6366, paragraph 41, citations deleted. If a property owner proves the elements of
trespass, he has a right to nominal damages without proof of actual damages. Id. at
paragraph 42, citations deleted.

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CitiMortgage Sued by Iraq War Veteran Over Home Foreclosure

CitiMortgage Sued by Iraq War Veteran Over Home Foreclosure


BLOOMBERG-

A Citigroup Inc. (C) unit was sued by an Iraq War veteran who claims the lender illegally foreclosed on his home while he was on active military duty.

Jorge Rodriguez, a U.S. Army sergeant, claimed in a complaint filed today in federal court in Manhattan that he was in training in preparation for deployment to Iraq in 2006 when CitiMortgage filed a foreclosure suit against his home in Del Valle, Texas.

CitiMortgage lawyers falsely said in an affidavit that Rodriguez wasn’t on active service at the time, depriving him of protection under the Servicemembers Civil Relief Act, or SCRA, according to the complaint. Rodriguez is seeking to have the suit certified as a class action against CitiMortgage on behalf of other service members whose homes were foreclosed.

Continue reading [BLOOMBERG]

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NY Judge Spinner Denies 86 Applications for JUDGMENT OF FORECLOSURE AND SALE Due to No Affirmation by Plaintiff Counsel

NY Judge Spinner Denies 86 Applications for JUDGMENT OF FORECLOSURE AND SALE Due to No Affirmation by Plaintiff Counsel


Excerpt:

Plaintiff has applied to this Court for the granting of a Judgment of Foreclosure & Sale pursuant to RPAPL § 1351. The express provisions of the Administrative Order of the Chief Administrative Judge of the Courts, no. A0548/10 require the filing of an Affirmation by Plaintiff’s counsel. No such Affirmation has been filed in this proceeding, in derogation of the aforesaid mandate. Accordingly, this application must be denied.

It is, therefore,

ORDERED that the within application by the Plaintiff shall be and the same is hereby denied without prejudice.

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Ohio Appeal CT Reversal “AFFIDAVIT FAIL” CitiMortgage v. ELIA

Ohio Appeal CT Reversal “AFFIDAVIT FAIL” CitiMortgage v. ELIA


CITIMORTGAGE, INC.

v.

ZIAD F. ELIA, et al.

Excerpt:

{¶8} In support of its motion for summary judgment, CitiMortgage relied on the affidavit of Aaron Menne, who identified himself as its vice president. Menne averred that he had custody of and familiarity with the “records of the payments on the account of Ziad F. Elia.” Menne further averred that the September 1, 2008 payment was the last one received on the account and, due to a default thereafter, “[CitiMortgage] *** elected to call the entire balance of
said account due and payable, in accordance with the terms of the note and mortgage.” The affidavit then noted the amount due and owing on the loan and the applicable interest rate. CitiMortgage did not attach any documents to Menne’s affidavit or incorporate any documents by reference through his affidavit. The affidavit was the only item appended to CitiMortgage’s motion. The copies of the note and mortgage upon which CitiMortgage brought suit were filed with the complaint.

[…]

Personal Knowledge

{¶11} The Elias argue that CitiMortgage’s affiant, Menne, could not have personal knowledge of the truth of the statements set forth in his affidavit because: (1) CitiMortgage was not even assigned the mortgage until after the alleged default occurred; and (2) Menne’s affiliation with CitiMortgage was in question, as he claimed to be a vice president of both CitiMortgage and MERS “at virtually the same time.

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TX Court “It appears to be more than mere negligence by MERS” KINGMAN HOLDINGS, LLC v. CITIMORTGAGE, INC. and MERS

TX Court “It appears to be more than mere negligence by MERS” KINGMAN HOLDINGS, LLC v. CITIMORTGAGE, INC. and MERS


KINGMAN HOLDINGS, LLC

v.

CITIMORTGAGE, INC. and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.

CASE NO. 4:10-CV-619

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS, SHERMAN DIVISION

2011 U.S. Dist. LEXIS 52770

April 21, 2011, Decided

April 21, 2011, Filed

COUNSEL: [*1] For Kingman Holdings LLC, Plaintiff: Kenneth Stuart Harter, LEAD ATTORNEY,Law Office of Kenneth S. Harter, Carrollton, TX.

For CitiMortgage, Inc., Defendant: Joshua James Bennett, LEAD ATTORNEY, Christopher Charles Townsend, Akerman Senterfitt, LLP-Dallas, Dallas, TX.

For Mortgage Electronic Registration Systems, Inc., Reston, Va, Defendant: Joshua James Bennett, Akerman Senterfitt, LLP-Dallas, Dallas, TX.

JUDGES: AMOS L. MAZZANT, UNITED STATES MAGISTRATE JUDGE.

OPINION BY: AMOS L. MAZZANT

OPINION

REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Pending before the Court is CitiMortgage, Inc. and Mortgage Electronic Registration Systems, Inc.’s Motion to Dismiss for Failure to State a Claim (Dkt. #10). The Court, having considered the relevant pleadings, finds that Defendants’ Motion to Dismiss should be granted in part and denied in part.

Plaintiff filed his Original Petition in the 380th Judicial District Court of Collin County on October 29, 2010, against CitiMortgage, Inc. (“CitiMortgage”), seeking to extinguish CitiMortgage’s security interest through a quiet title claim. On November 10, 2010, CitiMortgage removed this case to this Court (Dkt. #1). On January 7, 2011, Plaintiff filed its Amended Complaint  [*2] (Dkt. #6). Mortgage Electronic Registration Systems, Inc. (“MERS”) was added as a Defendant.

On or about April 7, 2008, Robert A. Ross, II and Lisa M. Ross (the “Rosses”) purchased the property located at 1410 Cedar Lake, Prosper, Texas (the “Property”) and executed a Note and Deed of Trust. The Note and Deed of Trust was in the name of Bankers Financial Mortgage Group. The Deed of Trust named MERS as a beneficiary, as nominee for Bankers Financial Mortgage Group. On September 7, 2010, Plaintiff purchased the Property through “a junior lien foreclosure sale.” On December 23, 2009, MERS recorded an Assignment of Deed of Trust to CitiMortgage. Nate Blackstun (“Blackstun”) executed the assignment on MERS’ behalf.

Plaintiff alleges that the assignment by MERS to CitiMortgage is void for the following reasons: (1) Blackstun was not appointed as vice president by MERS’ board of directors; and (2) MERS was without authority to transfer the Note. Plaintiff claims that the Deed of Trust is a cloud on its title and sues to quiet title in the Property and claims the assignment violates Chapiter 12 of the Texas Civil Practices and Remedies Code. Alternatively, Plaintiff sues to enforce its equity  [*3] in redemption.

On February 25, 2011, Defendants filed their motion to dismiss (Dkt. #10). On March 14, 2011, Plaintiff filed a response (Dkt. #12). Defendants filed a reply on March 24, 2011 (Dkt. #15).

Defendants move for dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure, which authorizes certain defenses to be presented via pretrial motions. A Rule 12(b)(6) motion to dismiss argues that, irrespective of jurisdiction, the complaint fails to assert facts that give rise to legal liability of the defendant. The Federal Rules of Civil Procedure require that each claim in a complaint include “a short and plain statement . . . showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The claims must include enough factual allegations “to raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570).

Rule 12(b)(6) provides that a party may move for dismissal  [*4] of an action for failure to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). The Court must accept as true all well-pleaded facts contained in the plaintiff’s complaint and view them in the light most favourable to the plaintiff. Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). In deciding a Rule 12(b)(6) motion, “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007); Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir. 2009). “The Supreme Court recently expounded upon the Twombly standard, explaining that ‘[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Gonzalez, 577 F.3d at 603 (quoting Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “It follows, that ‘where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint  [*5] has alleged – but it has not ‘shown’ – ‘that the pleader is entitled to relief.'” Id.

In Iqbal, the Supreme Court established a two-step approach for assessing the sufficiency of a complaint in the context of a Rule 12(b)(6) motion. First, the Court identifies conclusory allegations and proceeds to disregard them, for they are “not entitled to the assumption of truth.” Iqbal, 129 S.Ct. at 1951. Second, the Court “consider[s] the factual allegations in [the complaint] to determine if they plausibly suggest an entitlement to relief.” Id. “This standard ‘simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of’ the necessary claims or elements.” Morgan v. Hubert, 335 F. App’x 466, 469 (5th Cir. 2009). This evaluation will “be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 129 S.Ct. at 1950.

In determining whether to grant a motion to dismiss, a district court may generally not “go outside the complaint.” Scanlan v. Tex. A & M Univ., 343 F.3d 533, 536 (5th Cir. 2003). When ruling on a motion to dismiss a pro se complaint, however, a district court is “required to look beyond  [*6] the [plaintiff’s] formal complaint and to consider as amendments to the complaint those materials subsequently filed.” Howard v. King, 707 F.2d 215, 220 (5th Cir. 1983); Clark v. Huntleigh Corp., 119 F. App’x 666, 667 (5th Cir. 2005) (finding that because of plaintiff’s pro se status, “precedent compels us to examine all of his complaint, including the attachments”); Fed. R. Civ. P. 8(e) (“Pleadings must be construed so as to do justice.”). Furthermore, a district court may consider documents attached to a motion to dismiss if they are referred to in the plaintiff’s complaint and are central to the plaintiff’s claim. Scanlan, 343 F.3d at 536.

Defendants move to dismiss all claims, asserting that Plaintiff has failed to plead facts that would support a request to quiet title. First, Plaintiff asserts a claim to quiet title. Plaintiff argues that the original payee of the Note no longer owns and holds the Note and therefore may not enforce the Deed of Trust. Plaintiff also alleges that Blackstun has no authority to execute the assignment to CitiMortgage.

Defendants move to dismiss this claim because Plaintiff cannot plead sufficient facts to prevail on a trespass-to-try-title case. Specifically,  [*7] Defendants assert that Plaintiff fails to adequately explain why the Deed of Trust is void merely because the assignment is allegedly void. Defendants also assert that Plaintiff cannot sue to quiet title relying on nothing more than a purported weakness in its opponents’ claim.

“To prevail in a trespass-to-try-title action, Plaintiff must usually (1) prove a regular chain of conveyances from the sovereign, (2) establish superior title out of a common source, (3) prove title by limitations, or (4) prove title by prior possession coupled with proof that possession was not abandoned.” Martin v. Amerman, 133 S.W.3d 262, 265 (Tex. 2004)(citation omitted). “The pleading rules are detailed and formal, and require a plaintiff to prevail on the superiority of his title, not on the weakness of a defendant’s title.” Id. (citation omitted).

Defendants assert that the only way Plaintiff can extinguish their interest in the Property is to plead and prove a trespass-to-try-title action based upon Plaintiff’s superior title to the Property. The Court agrees. Plaintiff does not assert a superior title, and it alleges no facts that would support this claim. Plaintiff merely asserts legal conclusions,  [*8] and until Plaintiff pleads a proper claim to a superior title, Plaintiff’s claim is not plausible.

Although the factual situation does raise interesting questions under Texas law regarding the splitting of the Deed of Trust from the Note, this issue has not been properly presented to this Court. Even if CitiMortgage is not the holder of the Note, Plaintiff purchased the Property at an inferior loan foreclosure and took the Property subject to superior liens. “Foreclosure does not terminate interests in the foreclosed real estate that are senior to the mortgage being foreclosed. In fact, the general rule is that the successful bidder at a junior lien foreclosure takes title subject to the prior liens.” Conversion Properties, L.L.C. v. Kessler, 994 S.W.2d 810, 813 (Tex. App.-Dallas 1999, pet. denied)(citations omitted). Because Plaintiff has failed to allege that it owns superior title to the Property, its claim to quiet title should be dismissed. Furthermore, Plaintiff’s complaint is regarding the assignment, and no facts are pleaded that the Deed of Trust is invalid.

Defendants move to dismiss Plaintiff’s second claim for equity of redemption because Plaintiff has not tendered the redemption  [*9] amount. Defendants assert that although Plaintiff asserts it is “ready, willing and able to cure any default under the note,” this allegation is insufficient to satisfy the requirements of Plaintiff’s equitable claim. Defendants assert that Plaintiff cannot obtain equity without first tendering the redemption amount, which would be the full amount of CitiMortgage’s lien and its foreclosure costs, not merely the amount in default.

Texas courts have made clear that “a necessary prerequisite to the … recovery of title … is tender of whatever amount is owed on the note.” Fillion v. David Silvers Company, 709 S.W.2d 240, 246 (Tex. App.-Houston [14th Dist.] 1986, writ ref’d n.r.e.); see also Lambert v. First National Bank of Bowie, 993 S.W.2d 833, 835-36 (Tex. App.-Fort Worth 1999, pet. denied); Grella v. Berry, 647 S.W.2d 15, 18 (Tex. App.-Houston [1st Dist.] 1982, no writ). “[I]t is a principle of equity that to obtain equitable relief the applicant must have done equity.” Grella, 647 S.W.2d at 18. Plaintiff’s failure to “do equity”-that is, its failure to tender the amount due on the loan-prevents this Court from granting Plaintiff equitable relief. See Lambert, 993 S.W.2d at 835-36.

Plaintiff  [*10] asserts that CitiMortgage has never advised Plaintiff the sum of money required to be tendered in order to cure any default under the underlying Note. Plaintiff’s argument is misplaced. In Texas, “[t]ender of whatever sum is owed on the mortgage debt is a condition precedent” to recovery of title. See Fillion, 709 S.W.2d at 246 (citing Willoughby v. Jones, 151 Tex. 435, 251 S.W.2d 508 (Tex. 1952)). Plaintiff has not tendered the amount CitiMortgage claims is owed on the loan, nor has it attempted to tender any other amount. Plaintiff’s failure to affirmatively demonstrate its ability to tender any amount bars the Court from granting Plaintiff equitable relief.

Defendants next move to dismiss Plaintiff’s claim under Chapter 12 of the Civil Practices and Remedies Code because Plaintiff failed to satisfy Federal Rule of Civil Procedure 9(b).

Section 12.002(a) of the Texas Civil Practices and Remedies Code establishes the requirements for a fraudulent lien cause of action as follows:

A person may not make, present, or use a document or other record with: (1) knowledge that the document or other record is a fraudulent court record or a fraudulent lien or claim against real or personal property  [*11] or an interest in real or personal property;

(2) intent that the document or other record be given the same legal effect as a court record or document of a court created by or established under the constitution or laws of this state or the United States or another entity listed in Section 37.01, Penal Code, evidencing a valid lien or claim against real or personal property or an interest in real or personal property; and

(3) intent to cause another person to suffer:

(A) physical injury;

(B) financial injury; or

(C) mental anguish or emotional distress.

Tex. Civ. Prac. & Rem. Code ß 12.002(a).

Someone who violates the fraudulent lien statute may become liable to an injured person to the greater of $10,000 or the actual damages caused by such violation in addition to incurring liability for court costs, reasonable attorney’s fees, and even exemplary damages as determined by the court. Tex, Civ. Prac. & Rem. Code ß 12.002(b).

Section 12.002 requires a showing that Defendants made, presented, or used a document with: (1) knowledge that the document was a fraudulent lien or claim against real or personal property or an interest in real or personal property; (2) intent that the document or other  [*12] record be given legal effect; and (3) intent to cause another person to suffer: (A) physical injury; (B) financial injury; or (C) mental anguish or emotional distress. Tex. Civ. Prac. & Rem. Code ß 12.002(a); see Aland v. Martin, 271 S.W.3d 424, 430 (Tex. App.-Dallas 2008, no pet.). Plaintiff has the burden to prove all three elements of its claim. See Preston Gate, LP v. Bukaty, 248 S.W.3d 892, 896-97 (Tex. App.-Dallas 2008, no pet.). In the context of Section 12.002(a)(3), Texas courts have interpreted the “intent” element to require only that the person filing the fraudulent lien be aware of the harmful effect that filing such a lien could have on a landowner. Taylor Elec. Services, Inc. v. Armstrong Elec. Supply Co., 167 S.W.3d 522, 531-32 (Tex. App.-Ft. Worth 2005, no pet.).

Defendants assert that Plaintiff’s section 12.002 claim lacks plausibility because it rests on legal conclusions instead of facts and that Plaintiff has failed to allege facts to show that MERS made, presented or used the assignment with knowledge that it was a fraudulent court record or a fraudulent lien or claim against the Property, that MERS intended the assignment be given the same legal effect as a court  [*13] record evidencing a valid lien against the Property, and that MERS intended to cause another person to suffer financial injury.

Defendants argue that Plaintiff alleges that MERS’ corporate secretary appointed Blackstun as a MERS assistant secretary, and the appointment was not valid because Blackstun’s appointment was not also approved by MERS’ board of directors, as allegedly required by MERS’ by-laws. Defendants argue that this is negligence at best, and not fraud. Defendants also assert that the party that would be the defrauded party would be MERS, not Plaintiff, and that Plaintiff’s interest in the Property is wholly unaffected by the assignment.

Plaintiff argues that the Assignment filed in the property records is a fraudulent lien claim. Plaintiff alleges that the assignment is void because it was executed by a person neither employed nor authorized by MERS to execute a conveyance. Plaintiff alleges that MERS intended that the document be given the same effect as a lawfully executed instrument, and the execution and filing of the documents were done for the purpose of harming Plaintiff. Plaintiff alleges that there was a scheme on the part of a MERS officer to bypass the Board  [*14] of Directors and cloak others with authority only allowed by the Board of Directors. Plaintiff argues that this is not an inadvertent failure to comply with a duty, but rather an intentional act, done knowingly with the specific intent that the consequences of his action be brought to fruition.

In this case it is alleged that MERS did not properly appoint Blackstun as an officer of MERS and that Blackstun did not have authority to bind MERS, and when Blackstun executed the assignment, it caused MERS to file a fraudulent document in the deed records. The Court finds that Plaintiff has stated a plausible claim, in part, because Defendants fail to address the issue of the legal effect of Blackstun not being authorized to execute the assignment. If he had no such authority, MERS would know that fact. It appears to be more than mere negligence by MERS. Discovery should be allowed, and after discovery is completed, the issue of whether there is a valid claim under ß12.002 can be determined by a motion for summary judgment.

RECOMMENDATION

Based on the foregoing, the Court recommends that CitiMortgage, Inc. and Mortgage Electronic Registration Systems, Inc.’s Motion to Dismiss for Failure to  [*15] State a Claim (Dkt. #10) should be GRANTED in part and Plaintiffs quiet title and equity of redemption claims should be DISMISSED with prejudice. Plaintiffs claim for violation of the Civil Practices and Remedies Code ß 12.002 should remain at this time.

Within fourteen (14) days after service of the magistrate judge’s report, any party may serve and file written objections to the findings and recommendations of the magistrate judge. 28 U.S.C. ß 636(b)(1)(C).

Failure to file written objections to the proposed findings and recommendations contained in this report within fourteen days after service shall bar an aggrieved party from de novo review by the district court of the proposed findings and recommendations and from appellate review of factual findings accepted or adopted by the district court except on grounds of plain error or manifest injustice. Thomas v. Arn, 474 U.S. 140, 148 (1985); Rodriguez v. Bowen, 857 F.2d 275, 276-77 (5th Cir. 1988).

SIGNED this 21st day of April, 2011.

/s/ Amos L. Mazzant

AMOS L. MAZZANT

UNITED STATES MAGISTRATE JUDGE

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Indiana Appeals Court “MERS INTEREST” | CITIMORTGAGE v. BARABAS

Indiana Appeals Court “MERS INTEREST” | CITIMORTGAGE v. BARABAS


IN THE
COURT OF APPEALS OF INDIANA

CITIMORTGAGE, INC.,
Appellant-Intervenor/Cross-Claimaint,

vs.

SHANNON S. BARABAS A/K/A SHANNON
SHEETS BARABAS,1
Cross-Claim Defendant,

RECASA FINANCIAL GROUP, LLC,
Appellee-Plaintiff/Cross-Claim Defendant,
and
RICK A. SANDERS,
Appellee/Third-Party Defendant.

EXCERPT:

9. The [c]ourt further finds that [Citi?s] Relief Motion did not provide any notice to ReCasa and the creditors of the [b]ankruptcy [p]roceeding as to any interest of [Citi] in the Real Estate and as to Irwin Mortgage.

***

16. The [c]ourt further finds that [Citi?s] September 22, 2008 Relief Motion and the [b]ankruptcy [p]roceeding could not provide notice of any interest obtained by [Citi] pursuant to the [a]ssignment of [m]ortgage since the [a]ssignment of [m]ortgage was executed more than six months after the filing of the Relief Motion and after the termination and closure of the [b]ankruptcy [p]roceeding.

17. The [c]ourt further finds that no one has provided any evidence to this [c]ourt of the existence of any document providing notice of [Citi?s] interest in the Real Estate and the Irwin Mortgage prior to the filing of ReCasa?s June 13, 2008 [c]omplaint.

18. The [c]ourt further finds that no one has provided to this [c]ourt any document evidencing and providing notice of [Citi?s] interest in Real Estate and Irwin Mortgage other than [Citi?s] submission of an April 1, 2009 [a]ssignment of [m]ortgage recorded 22 months after the filing of ReCasa?s [c]omplaint and six months after the [c]ourt?s September 9, 2008 [d]efault [j]udgment and order of foreclosure.

19. The [c]ourt further finds that pursuant to Indiana Code [§] 32-29-8-2 and the findings herein, [Citi] failed to have its [a]ssignment of [m]ortgage properly placed on the mortgage record, and [Citi] is bound by this [c]ourt?s September 9, 2008 [d]efault [j]udgment, September 16, 2008 [a]mended [d]efault [j]udgment, and order of foreclosure in this cause of action as if [Citi] were a party to ReCasa?s [c]omplaint.

[…]

Ultimately, the Kansas supreme court found that in this case, MERS was little more than a “straw man” for Millennia (and later Sovereign). Id. at 166. The supreme court also noted that the mortgage repeatedly referenced the lender—not MERS—with respect to how notice was to be provided. Id. at 165-166. As such, the supreme court held that

[e]ven if MERS was technically entitled to notice and service in the initial foreclosure action—an issue we do not decide at this time—we are not compelled to conclude that the trial court abused its discretion in denying the motion to vacate default judgment and require joinder of MERS and Sovereign.

Id. at 168.5

We choose to follow the persuasive reasoning of the Landmark case because it is factually similar to the present case. Like Landmark, Citi seeks to have the default judgment set aside based on the fact that it received its interest from MERS, which served as the mortgagee “solely as nominee” for Irwin Mortgage. (Appellant?s App. p. 88). Thus, when Irwin Mortgage filed a petition and disclaimed its interest in the foreclosure, MERS, as mere nominee and holder of nothing more than bare legal title to the mortgage, did not have an enforceable right under the mortgage separate from the interest held by Irwin Mortgage. With respect to notice, just as the mortgage in Landmark referenced all notice to be sent to the lender, here, too, the mortgage states that notice to the lender should be sent to the lender?s address, or “10500 Kincaid Drive, Fishers, IN 46038,” which is the address of Irwin Mortgage. (Appellant?s App. p. 88). Thus, we find that the trial court did not abuse its discretion when it declined to set aside ReCasa?s amended default judgment.6

Continue below…

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CitiMortgage Answer & Counterclaims to Law Offices of David J. Stern Firm

CitiMortgage Answer & Counterclaims to Law Offices of David J. Stern Firm


Law Offices of David J. Stern, P.A. v. CitiMortgage, Inc.

Plaintiff: Law Offices of David J. Stern, P.A.
Defendant: CitiMortgage, Inc.
Counter_claimant: CitiMortgage, Inc.
Counter_defendant: Law Offices of David J. Stern, P.A.
Case Number: 1:2011cv21223
Filed: April 7, 2011
Court: Florida Southern District Court
Office: Miami         Office
County: Miami-Dade
Presiding Judge: Paul C. Huck
Nature of Suit: Contract – Other Contract
Cause: 28:1332
Jurisdiction: Diversity
Jury Demanded By: None

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Law Offices of David J. Stern, P.A. files lawsuit against CitiMortgage Inc.

Law Offices of David J. Stern, P.A. files lawsuit against CitiMortgage Inc.


According to court records, David J. Stern Law firm has filed a lawsuit against CitiMortgage Inc. in the Florida Southern District of Court on April 7, 2011. The cause of action is contract, case number 1:2011cv21223.

Law Offices of David J. Stern, P.A. v. CitiMortgage, Inc.

Plaintiff: Law Offices of David J. Stern, P.A.
Defendant: CitiMortgage, Inc.
Counter_claimant: CitiMortgage, Inc.
Counter_defendant: Law Offices of David J. Stern, P.A.
Case Number: 1:2011cv21223
Filed: April 7, 2011
Court: Florida Southern District Court
Office: Miami         Office
County: Miami-Dade
Presiding Judge: Paul C. Huck
Nature of Suit: Contract – Other Contract
Cause: 28:1332
Jurisdiction: Diversity
Jury Demanded By: None
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MA BK COURT | MERS Purported Note “assignments” All Invalid.  MERS Cannot Assign Mortgage AND Note IN RE: THOMAS

MA BK COURT | MERS Purported Note “assignments” All Invalid. MERS Cannot Assign Mortgage AND Note IN RE: THOMAS


In re: KATHLEEN THOMAS, Chapter 7, Debtor.
KATHLEEN THOMAS, Plaintiff
v.
CITIMORTGAGE, INC., FLAGSTAR BANK, FSB and ALLIED HOME MORTGAGE CAPITAL CORPORATION, Defendants.

Case No. 10-40549-MSH, Adv. Pro. No. 10-04086.

United States Bankruptcy Court, D. Massachusetts, Central Division.

February 9, 2011.

MEMORANDUM OF DECISION ON THE MOTION TO COMPEL ARBITRATION OF ALLIED HOME MORTGAGE CAPITAL CORPORATION, THE MOTION TO DISMISS OF FLAGSTAR BANK, FSB AND THE MOTION FOR JUDGMENT ON THE PLEADINGS OF FLAGSTAR BANK, FSB AND CITIMORTGAGE, INC.

MELVIN S. HOFFMAN, Bankruptcy Judge.

Before me is a motion of defendant Allied Home Mortgage Capital Corporation (“Allied”) to compel arbitration, a motion of defendant Flagstar Bank, FSB (“Flagstar”) to dismiss this adversary proceeding pursuant to Fed. R. Civ. P. 12(b)(6), made applicable to this proceeding by Fed. R. Bankr. P 7012 and a motion of Flagstar and CitiMortgage, Inc. (“CitiMortgage”) for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c), made applicable by Fed. R. Bankr. P. 7012. Because the motions involve the same facts and underlying transaction, I will address them together.

Background

In 2006, the plaintiff, who is the debtor in the main bankruptcy case, engaged Allied to assist her in refinancing the mortgage on her home. On April 26, 2006, the plaintiff signed an arbitration agreement in which she agreed that any disputes with Allied would be resolved through arbitration. The refinancing transaction occurred on May 8, 2006, at which time the plaintiff executed a promissory note payable to Allied in the amount of $153,000, and a mortgage to secure her obligations under the note. Mortgage Electronic Registration Systems, Inc. (“MERS”), acting solely as a nominee for Allied and its successors and assigns, was named as mortgagee. The note was subsequently indorsed to defendant Flagstar. Flagstar and CitiMortgage claim that Flagstar indorsed the note in blank by way of an allonge and sold the plaintiff’s loan to CitiMortgage. CitiMortgage attached a copy of the note to its motion for judgment on the pleadings to support this claim.[1] The last page of the note is blank except for the following legend:

PAY TO THE ORDER OF WITHOUT RECOURSE FLAGSTAR BANK, FSB

There are two entirely illegible signatures under this legend. On August 3, 2009, MERS executed an instrument entitled “Assignment of Mortgage” which purported, inter alia, to assign to CitiMortgage the “mortgage and the note and claim secured thereby.”

The plaintiff eventually fell behind in her mortgage payments and CitiMortgage began foreclosure proceedings. On February 2, 2010, the plaintiff filed a petition for relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 101-1532, in this court. On February 12, 2010, CitiMortgage filed a motion for relief from the automatic stay provisions of the Bankruptcy Code in order to proceed to foreclose its mortgage on the plaintiff’s property. At a hearing on the motion for relief, I ordered the plaintiff to make adequate protection payments of $925 per month to CitiMortgage and upon the plaintiff’s filing of her complaint, consolidated the motion for relief with this adversary proceeding.

The plaintiff alleges that the May 8, 2006 loan transaction violated the Massachusetts Predatory Home Loan Practices Act, Mass. Gen. Laws. ch. 183C (“Chapter 183C”). The plaintiff also alleges that the promissory note was never properly negotiated to CitiMortgage and that CitiMortgage may not assert a secured claim in her bankruptcy case.

On July 1, 2010, Flagstar filed a motion to dismiss the adversary proceeding. On July 2, 2010, Allied filed a motion to compel arbitration and to dismiss, arguing that pursuant to the arbitration agreement signed by the plaintiff, she is required to submit to arbitration with respect to her claims against Allied. On October 4, 2010, CitiMortgage filed a motion for judgment on the pleadings. On October 7, 2010, I held a hearing on Flagstar’s motion to dismiss and Allied’s motion to compel arbitration. On December 1, 2010, I held a hearing on CitiMortgage’s motion for judgment on the pleadings. Flagstar subsequently moved to join CitiMortgage’s motion and on December 23, 2010, I entered an order allowing Flagstar to do so.

Analysis

Allied’s Motion to Compel Arbitration

Allied argues that the arbitration agreement of April 20, 2006 obligates the plaintiff to submit her claims against Allied to binding arbitration and, therefore, seeks dismissal and an order compelling arbitration. Through the affidavit of Joseph James, Allied’s senior counsel, Allied submitted a copy of the agreement on which it relies. The plaintiff has contested the enforceability of the agreement. The agreement is signed by the plaintiff only and not by Allied. In fact, there is no reference to Allied by name anywhere in the agreement. Rather than identifying Allied by name, the agreement consistently refers to the plaintiff’s counterparty obscurely using the pronouns “we”, “our” and “us.” The second paragraph of the agreement states that “[t]his Agreement is effective and binding on both you and your heirs, successors and assigns and us when it is signed by both parties.”

Allied correctly observes that in Massachusetts a contract may be enforceable if signed by only one party if the other party manifests acceptance. Haufler v. Zotos, 446 Mass. 489, 498-99, 845 N.E.2d 322, 331(2006). Allied also notes specific cases in which courts enforced arbitration agreements lacking one party’s signature. Samincorp South American Minerals & Merchandise Corp. v. Lewis, 337 Mass. 298, 302-03, 149 N.E.2d 385, 388 (1958); Gvonzdenovic v. United Airlines, Inc., 933 F.2d 1100, 1105 (2d Cir. 1991).

While the law in Massachusetts may permit the enforcement of an arbitration agreement that is not signed by both parties, such would not be the case when the express language of the agreement requires the signature of both parties. In All State Home Mortgage, Inc. v. Daniel, 187 Md. App. 166, 977 A.2d 438 (2009), the Court of Special Appeals of Maryland addressed this issue with respect to a form of agreement nearly identical to the one in the present case. The court held that while a signature may not always be required for an arbitration agreement to be enforceable, an arbitration agreement that specifically provided for it to be “effective and binding to [sic] you and your heirs, successors and assigns and us when both parties sign it” established that execution by both parties was a condition precedent to enforcement of the contract. Id. at 171. Because the language of the arbitration agreement was unambiguous and because it was not signed by the lender, the court refused to enforce it. Id. at 183. Massachusetts contract law appears to be no different than Maryland’s in this regard. See Tilo Roofing Co. v. Pellerin, 331 Mass. 743, 7456, 122 N.E.2d 460, 462 (1954) (holding that if a condition precedent to the enforcement of a contract is “shown not to have been performed, the writing does not become a binding obligation.”). The arbitration agreement between the plaintiff and Allied is explicit—both parties must sign before the agreement is “effective and binding.” Because Allied did not sign the agreement, it never became binding on the parties and is unenforceable.

Flagstar’s Motion to Dismiss

In deciding a motion to dismiss under Fed. R. Civ. P. 12(b)(6), made applicable here by Fed. R. Bankr. P. 7012, a court must review the complaint and the documents attached to it to determine if the complaint contains sufficient facts, accepted as true, to state a claim to relief that is plausible on its face. Bell Atlantic v. Twombley, 550 U.S. 544, 570, 127 S. Ct. 1955, 1966, 167, L. Ed. 2d 929 (2007); Rederford v. U.S. Airways, Inc., 589 F.3d 30, 35 (1st Cir. 2009). A court must accept as true the factual allegations of the complaint but not the legal conclusions, even if couched as facts. Ashcroft v. Iqbal, — U.S. –, 129 S. Ct. 1937, 1947, 173 L. Ed.2d 868 (2009). Recitations of the elements of a cause of action supported only by legal conclusions are insufficient to withstand a motion to dismiss. Id.

In its motion, Flagstar seeks dismissal of Count I (violation of Chapter 183C) and Count II (determination of extent of mortgage lien due to Chapter 183C violation) of the plaintiff’s complaint on the grounds that Chapter 183C is preempted by federal law because Flagstar is a federal savings bank. Flagstar notes that the Home Owners’ Loan Act, 12 U.S.C. §§ 1461-70 (2009) (“HOLA”), authorized the Office of Thrift Supervision (“OTS”) (formerly the Federal Home Loan Bank Board) to promulgate regulations providing “for the organization, incorporation, examination, operation, and regulation” of federal savings associations and federal savings banks (collectively referred to as “federal thrifts”) such as Flagstar. Id. § 1464(a).

The OTS received broad rulemaking authority to preempt state laws that would otherwise govern the banking activities of federal thrifts. Id. § 1465; Fidelity Fed. Say. & Loan Ass’n v. de la Cuesta, 458 U.S. 141 (1982). Accordingly the OTS promulgated a regulation, 12 C.F.R. § 560.2, occupying the field in connection with the lending operations of federal thrifts. This regulation expressly preempts state laws like Chapter 183C which regulate loan-related fees.[2] The OTS has issued interpretive letters concluding that the anti-predatory lending laws of New York, New Mexico, New Jersey, and Georgia are preempted by the federal scheme,[3] and courts have generally adopted the preemption approach. See, e.g., Jarbo v. BAC Home Loan Servicing, 2010 WL 5173825, (E.D. Mich.); Coppes v. Wachovia Mortg. Corp., 2010 WL 4483817 (E.D. Cal.). It is clear, therefore, that federal thrifts are not subject to Chapter 183C with respect to loans they originate.

The calculus changes, however, when a federal thrift does not originate a loan but merely acquires it from a non-federal thrift lender. If a non-federal thrift lender could “cleanse” a predatory loan by selling it to a federal thrift, a vital component of many states’ consumer protection regimes would be undermined. The OTS could not have intended this result when it promulgated its preemption regulation. See, e.g. Viereck v. Peoples Sav. & Loan Ass’n., 343 N.W.2d 30 (Minn. 1984) (preemption does not apply when a federal thrift purchases a loan from an institution not subject to preemption); Garrison v. First Fed. Sav. & Loan Ass’n of S.C., 402 S.E.2d 25 (Va. 1991) (a federal thrift, as assignee of mortgage company which originated loan, is not entitled to preemption even though loan was one of large pool sold to it).

So if Flagstar were the originator of the plaintiff’s loan, then federal preemption would dispossess the plaintiff from her Chapter 183C claims against it, but if Flagstar were an assignee who purchased the loan, then the plaintiff’s state law claims against Flagstar survive preemption.

The loan documents attached to the plaintiff’s complaint indicate that Allied, not Flagstar, was the lender in this transaction. In its motion to dismiss Flagstar supports this characterization stating that there “are no allegations that Flagstar originated the loan.” Mot. to Dismiss at 4. Surprisingly, however, at one of the hearings on defendants’ motions, Flagstar’s counsel seemed to take a contrary position. He indicated that the loan had been “table-funded,” meaning that Allied was the lender in name only, but really acted as the broker in the transaction on behalf of Flagstar, who actually funded the loan. Loans which are table-funded by federal thrifts would be subject to the federal preemption scheme of HOLA. See, e.g., Comptroller of the Currency, Interpretive Letter # 1002 (May 13, 2004) (finding that a national bank would be considered the lender, and not subject to state anti-predatory lending laws, in a loan transaction table-funded by the national bank with a non-national bank broker listed as the lender).[4] Flagstar’s curious inconsistencies notwithstanding, my field of vision with respect to a motion to dismiss is confined to the pleadings and the attachments thereto. Reviewing these in the light most favorable to the plaintiff, I conclude that the plaintiff has stated a claim that Flagstar was an assignee of the plaintiff’s lender, Allied. Therefore, Chapter 183C is not preempted with respect to this transaction and I must deny Flagstar’s motion to dismiss Counts I and II of the complaint.

CitiMortgage and Flagstar’s Motion for Judgment on the Pleadings

Having declined to grant Flagstar’s motion to dismiss on preemption grounds, I turn to the motion for judgment on the pleadings.[5] The standard in deciding a motion for judgment on the pleadings under Rule 12(c) is similar to that applied to a motion to dismiss under Rule 12(b)(6). Gray v. Evercore Restructuring L.L.C., 544 F.3d 320, 324 (1st Cir. 2008) (noting that the standard is the same for Rule 12(b)(6) and 12(c) motions).

Counts I and II of the Complaint

Chapter 183C, §§ 2 and 3 categorize certain consumer home mortgage loans as high cost home mortgage loans (“high cost loans”) and render them unenforceable unless an approved housing agency certifies to the lender or broker that the borrower received pre-closing counseling on the advisability of the transaction. The plaintiff alleges that her loan is unenforceable because it is a high cost loan made in the absence of the required counseling.

The defendants do not dispute the fact that the plaintiff received no counseling. Rather, the dispute is over whether the loan is a high cost loan. The plaintiff argues that her mortgage loan meets the definition of a high cost loan because the “points and fees” associated with the loan, as defined by Chapter 183C, § 2,[6] net of up to two bona fide discount points, exceeded five percent of the total loan amount. To support this allegation, the plaintiff included in her complaint a list of charges from the loan settlement statement that she argues qualify as points and fees. The total of these charges is $10,446.44, which exceeds five percent of the $153,000 loan. CitiMortgage and Flagstar argue that many of these charges do not qualify as points and fees, and the ones that do total significantly less than $7650, which is five percent of the loan amount.[7]

There is no dispute that $4879 of charges constitute points and fees under the statute. If the pleadings support a minimum of $2772 in additional points and fees then the plaintiff will have stated a claim which survives the defendants’ motion.

Line 802 of the settlement statement reflects a charge in the amount of $2255.22 described as “Loan Discount to Allied Home Mortgage Capital Corp.” All compensation to a lender or mortgage broker, “including a broker that originates a home loan in its own name in a table funded transaction,” is included in the definition of points and fees under the statute, with the exception of up to two “bona fide discount points.” Chapter 183C, § 2. The defendants argue that the $2255.22 loan discount charge, which amounts to 1.474% of the loan, or 1.474 discount points, falls within the exception. The plaintiff argues that whether these discount points are bona fide is a question of fact that may not be decided as part of a motion for judgment on the pleadings.

To be a bona fide discount point, a charge must be “(1) knowingly paid by the borrower; (2) paid for the express purpose of lowering the benchmark [interest] rate; and (3) in fact reduc[es] the interest rate or time-price differential applicable to the loan from an interest rate which does not exceed the benchmark rate.” Chapter 183C, § 2. Nothing in the record indicates whether the plaintiff was aware of the loan discount charge, whether she knowingly paid the fee for the purpose of getting a discounted interest rate, or, most significantly, whether the interest rate reflected in the note was in fact discounted from the benchmark rate in effect at the time. For the purpose of the motion for judgment on the pleadings, therefore, I must find that the loan discount fee is not excluded from the points and fees used in determining whether the loan is a high cost loan.

Line 1107 reflects a $460 charge described as “Attorney’s fees to Viera & DiGianfilippo, Ltd.” While Chapter 183C, § 2 provides that certain fees commonly charged by closing attorneys, defined as “real-estate related fees” by 12 C.F.R. § 226.4(c)(7) and 209 Mass. Code Regs. § 32.04(3)(g), are not counted as points and fees, legal fees generally are included in the definition of points and fees. Cf. Official Staff Interpretations to 12 C.F.R. § 226.4(c)(7), 12 C.F.R. Pt. 226, Supp. I (explaining that for the purpose of calculating a loan’s finance charge under the federal Truth in Lending Act, if a settlement statement includes a single line item representing attorney’s fees where only a portion of the services rendered were real-estate related fees as defined by § 226.4(c)(7), the portion of the fees not covered by § 226.4(c)(7) must be included in the finance charge.). In addition to the $460 attorney’s fee, the settlement statement includes charges for “Document preparation” and “Title examination,” both of which are clearly real-estate related fees that are excluded from the points and fees calculation. The fact that these charges have been listed separately on the settlement statement is evidence that the generic attorney’s fee charge is not a real-estate related fee. The defendants argue unconvincingly that because attorneys are officers of the court, their fees fall under the statutory exclusion for “fees paid to or to be paid to a public official for determining the existence of or for perfecting, releasing or satisfying a security interest.” 12 C.F.R. § 226.4(e)(1). While attorneys are officers of the court, they are not public officials nor are the fees paid to them for legal services merely for perfecting, releasing or satisfying a security interest. Thus I find that the entire $460 charge for attorney’s fees constitutes points and fees.

Line 1205 of the settlement statement includes a $65 charge to “Record Municipal Lien Certif[icate] to Commonwealth of MA.” The complaint alleges that no municipal lien certificate was ever recorded with respect to this transaction. Thus, at this stage of the proceeding, this charge too must be included in points and fees.

The sum of the loan discount charge, the attorney’s fees and lien certificate recording fee is $2780.22. Adding this to the undisputed charges of $4879 brings the total points and fees to $7659.22, which is more than five percent of the total loan amount. Thus, I need not determine whether any of the remaining charges alleged by the plaintiff qualify as points and fees. The plaintiff has stated a prima facie claim that her loan is a high cost loan made in violation of Chapter 183C, and, therefore, I must deny the motion for judgment on the pleadings with respect to Counts I and II of the complaint.

Count III of the Complaint

In Count III of the complaint, the plaintiff alleges that her promissory note payable to Allied was never properly transferred to CitiMortgage, and as a result, CitiMortgage has no valid secured claim against her bankruptcy estate. The allegation is based on the fact that the copy of the note attached to CitiMortgage’s motion for relief from stay in the main bankruptcy case includes no indorsement transferring the note CitiMortgage. CitiMortgage attached a different version of the note to its motion for judgment on the pleadings, which includes an additional page containing the “pay to the order” language quoted at the outset of this memorandum. CitiMortgage and Flagstar claim that the last page is an “allonge” by which Flagstar indorsed the note in blank and then transferred the note to CitiMortgage, giving CitiMortgage the right to enforce it. The Plaintiff argues that the existence of this second copy of the note raises the question as to whether the allonge effectively transferred Flagstar’s rights in the note to CitiMortgage.

Under Mass. Gen. Laws ch. 106, the Massachusetts version of the Uniform Commercial Code (the “UCC”), for a negotiable instrument to be transferred by indorsement, the indorsement must be on the instrument itself. UCC § 3-204(a). A “paper affixed to the instrument” is considered to be part of the instrument for purposes of § 3-204(a). Id.affixed to a promissory note. See, e.g., In re Shapoval, 2010 WL 4811786, *2 (Bankr. D. Mass. 2010). If the purported allonge signed by Flagstar is not affixed to the note, then despite having possession of the note, CitiMortgage lacks the status of “holder” as defined by UCC § 1-201(20).[8] Given that CitiMortgage has produced two different copies of the note—one with and one without the purported allonge—the plaintiff argues that there is a question of fact as to whether the allonge is affixed to the note, and therefore whether CitiMortgage has a valid claim in her bankruptcy case. To be effective, therefore, an allonge must be

Even if it is not the “holder” of the note, however, CitiMortgage may be entitled to enforce the note. UCC § 3-203(2) provides that the transfer of a negotiable instrument, “whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument.” The official commentary to this section explains that while the transferee of an instrument may enforce the instrument without being its holder, the transferee, unlike a holder, is not entitled to the presumption of the right of enforcement, and must prove the transaction through which the instrument was acquired. UCC § 3-203, § 2, cmt. 1 (1999).[9]

In its answer, CitiMortgage asserts that it has physical possession of the note indorsed in blank by Flagstar. If the allonge is not effective because it was not affixed to the note, CitiMortgage must then prove the transaction through which it acquired the note from Flagstar. It did not plead any facts about this transaction in its answer, however. With no allegation in the pleadings to support how CitiMortgage acquired the note, I must rely on the plaintiff’s well-pleaded allegations that the note was not properly transferred to CitiMortgage.[10]

Furthermore, CitiMortgage may not rely on the recorded assignment of the plaintiff’s mortgage from MERS to CitiMortgage as evidence that the note was transferred to it. While the assignment purports to assign both the mortgage and the note, MERS, which is a registry system that tracks the beneficial ownership and servicing of mortgages, was never the holder of the note, and therefore lacked the right to assign it. While MERS was the mortgagee of record, it was acting only as nominee for Allied, its successors and assigns. MERS is never the owner of the obligation secured by the mortgage for which it is the mortgagee of record. See, e.g., Landmark Nat. Bank v. Kesler, 289 Kan. 528, 536, 216 P.3d 158, 164 (2009) (providing a profile of MERS).

The plaintiff’s claim that CitiMortgage lacks a valid secured claim, therefore, survives the motion for judgment on the pleadings.

Conclusion

Based on the foregoing, I will deny the motion to compel arbitration, the motion to dismiss and the motion for judgment on the pleadings. Separate orders shall enter.

[1] This copy differs from the copy attached to CitiMortgage’s motion for relief from stay. See discussion below.

[2] The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203 (2010) considerably reduced the degree to which HOLA and its regulations may preempt state consumer financial protection laws. See Dodd-Frank §§ 1044, 1046 (providing that HOLA preemption no longer occupies the field of banking regulation, and limiting preemption to specific conflicts between state and federal law). Because the plaintiff’s loan was consummated before Dodd-Frank was enacted, the new preemption standard is inapplicable to this case.

[3] See generally Legal Opinions, Office of Thrift Supervision, available at http://www.ots.treas.gov/?p=LegalOpinions.

[4] National banks are established by the National Bank Act, 12 U.S.C. §§ 21-216d (2009), which has a similar preemption regime to that of HOLA, which applies to federal thrifts. See, e.g., Aguayo v. U.S. Bank, 658 F.Supp.2d 1226, 1234 (S.D. Cal. 2009) (quoting the Office of the Comptroller of the Currency’s view that the similarity between the preemption regimes of the National Bank Act and HOLA “warrants similar conclusions about the applicability of state laws to the conduct of the Federally authorized activities of both types of entities.” 69 Fed. Reg. at 1912 n. 62). In light of the OTS’ policy of maximizing the preemptive effect of its regulations, it follows that the OTS, like the Comptroller of the Currency, would conclude that a federal thrift in a table-funded transaction is considered to be the lender for purposes of preemption analysis.

[5] In doing so, I will address Flagstar’s arguments from its motion to dismiss with respect to Count III of the complaint together with those of CitiMortgage.

[6] Section 2 provides as follows:

“Points and fees”, (i) items required to be disclosed pursuant to sections 226.4 (a) and 226.4 (b) of Title 12 of the Code of Federal Regulations or 209 CMR 32.04(1) and 209 CMR 32.04(2) of the Code of Massachusetts Regulations, as amended from time to time, except interest or the time-price differential; (ii) charges for items listed under sections 226.4 (c) (7) of Title 12 of the Code of Federal Regulations or 209 CMR 32.04(3)(g) of the Code of Massachusetts Regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge, otherwise, the charges are not included within the meaning of the term “points and fees”; (iii) the maximum prepayment fees and penalties that may be charged or collected under the terms of the loan documents; (iv) all prepayment fees of [sic] penalties that are incurred by the borrower if the loan refinances a previous loan made or currently held by the same lender; (v) all compensation paid directly or indirectly to a mortgage broker, including a broker that originates a home loan in its own name in a table-funded transaction, not otherwise included in clauses (i) or (ii); (vi) the cost of all premiums financed by the creditor, directly or indirectly for any credit life, credit disability, credit unemployment or credit property insurance, or any other life or health insurance, or any payments financed by the creditor directly or indirectly for any debt cancellation or suspension agreement or contract, except that insurance premiums or debt cancellation or suspension fees calculated and paid on a monthly basis shall not be considered financed by the creditor. Points and fees shall not include the following: (1) taxes, filing fees, recording and other charges and fees paid to or to be paid to a public official for determining the existence of or for perfecting, releasing or satisfying a security interest; and, (2) fees paid to a person other than a lender or to the mortgage broker for the following: fees for flood certification; fees for pest infestation; fees for flood determination; appraisal fees; fees for inspections performed before closing; credit reports; surveys; notary fees; escrow charges so long as not otherwise included under clause (i); title insurance premiums; and fire insurance and flood insurance premiums, if the conditions in sections 226.4 (d) (2) of Title 12 of the Code of Federal Regulations or 209 CMR 32.04(4)(b) of the Code of Massachusetts Regulations, as amended from time to time, are met. For open-end loans, the points and fees shall be calculated by adding the total points and fees known at or before closing, including the maximum prepayment penalties that may be charged or collected under the terms of the loan documents, plus the minimum additional fees the borrower would be required to pay to draw down an amount equal to the total credit line.

[7] In her complaint, the plaintiff incorrectly calculated that five percent of the loan amount is $7950.

[8] The “holder” of a negotiable instrument is “the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession. UCC § 1-201(20).

[9] The commentary states:

Subsection (b) states that transfer vests in the transferee any right of the transferor to enforce the instrument “including any right as a holder in due course.” If the transferee is not a holder because the transferor did not indorse, the transferee is nevertheless a person entitled to enforce the instrument under Section 3-301 if the transferor was a holder at the time of transfer. Although the transferee is not a holder, under subsection (b) the transferee obtained the rights of the transferor as holder. Because the transferee’s rights are derivative of the transferor’s rights, those rights must be proved. Because the transferee is not a holder, there is no presumption under Section 3-308 that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the transferee and the transferee must account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired. it. Proof of a transfer to the transferee by a holder is proof that the transferee has acquired the rights of a holder. At that point the transferee is entitled to the presumption under Section 3-308.

[10] Flagstar filed the affidavit of Sharon Morgan, its assistant vice president, in support of its motion to dismiss. In the affidavit, Ms. Morgan claims that the plaintiff’s loan was sold to CitiMortgage on September 16, 2006. I note that Fed. R. Civ. P. 12(d), made applicable by Fed. R. Bankr. P. 7012, provides that when matters outside the pleadings are presented to the court, and not excluded, a motion for judgment on the pleadings is to be treated as a motion for summary judgment. CitiMortgage waived this right, however, at the hearing on the motion for judgment on the pleadings by declining my offer to treat the motion as one for summary judgment. Given that I am limited on a motion for judgment on the pleadings to reviewing the pleadings and documents attached thereto, I have not considered Ms. Morgan’s affidavit in this analysis.

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NJ CLASS ACTION  Silva v. Citimortgage ; Loan Servicer Allegedly Grabbed TARP Cash, Stiffed Loan Mod-Seeking Homeowners Hamp

NJ CLASS ACTION Silva v. Citimortgage ; Loan Servicer Allegedly Grabbed TARP Cash, Stiffed Loan Mod-Seeking Homeowners Hamp


via The Home Equity Theft Reporter a fantastic site!

  • The Complaint alleges that CitiMortgage accepted billions in government bailout money under the Troubled Asset Relief Program (“TARP”) earmarked to help struggling homeowners avoid foreclosure. CitiMortgage, like other TARP-funded financial institutions, is contractually obligated to modify mortgage loans it services for homeowners who qualify under HAMP, a federal program designed to abate the foreclosure crisis by providing mortgage loan modifications to eligible homeowners.
  • According to the lawsuit, CitiMortgage systematically slows or thwarts homeowners’ requests to modify mortgages, depriving borrowers of federal bailout funds that could save them from foreclosure. The bank ends up reaping the financial benefits provided by TARP-funds and also collects higher fees and interest rates associated with stressed home loans.

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IOWA Appeals Court Declares RE Mortgage VOID Under IA Code Sec. 561.13 CITIMORTGAGE, INC. v. Danielson

IOWA Appeals Court Declares RE Mortgage VOID Under IA Code Sec. 561.13 CITIMORTGAGE, INC. v. Danielson


Read about this more HERE. Thanks for the Tip

CITIMORTGAGE, INC., Plaintiff-Appellant,

v.

MATTHEW D. DANIELSON a/k/a MATTHEW DANIELSON and JAMIE DANIELSON, Defendants-Appellees.

No. 9-194/08-1473

Court of Appeals of Iowa.

Filed May 29, 2009.

Mollie Pawlosky and Jon P. Sullivan of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines; Theodore R. Boecker of Petosa, Petosa & Boecker, L.L.P., Clive; and Thomas J. Miller, Attorney General, and Grant Dugdale, Assistant Attorney General, for appellant.

Jerrold Wanek of Garten & Wanek, Des Moines, for appellee.

Heard by Vaitheswaran, P.J., and Potterfield and Doyle, JJ.

DOYLE, J.

Citimortgage, Inc. appeals from a district court ruling declaring the real estate mortgage it held on property owned by Matthew Danielson to be void under Iowa Code section 561.13 (2007). We affirm the judgment of the district court.

I. Background Facts and Proceedings.

In late April 2007, Matthew Danielson entered into an agreement to purchase a newly constructed home in Ankeny for $320,228. Matthew and his wife, Jamie, met with their real estate agent, the builder, and the builder’s real estate agent on several occasions and walked through the home together multiple times before deciding to purchase it. The purchase agreement was contingent upon Matthew obtaining financing for one hundred percent of the purchase price at or below seven percent interest. A closing date of May 10, 2007, was set.

Because Jamie’s credit was poor, Matthew decided to apply for a loan on his own. He contacted mortgage broker Jason Larson, who was employed by One Source Mortgage, Inc., for assistance in securing a loan. Matthew knew Larson because their children attended the same daycare. Larson arranged for Matthew to obtain a loan through Citimortgage and retained attorney David Pulliam to act as the closing agent. In anticipation of the closing, an attorney for the builder’s real estate agent prepared a warranty deed conveying title in the property to Matthew as “a married person.” The deed was later changed by someone else to refer to Matthew as “an unmarried person.”

The closing date was pushed back several times. Finally, on May 24, 2007, Larson called Matthew and asked him to meet in “about 45 to 50 minutes” at a food court in a shopping mall for the closing. Matthew asked Larson if his wife needed to be present. Larson said no. Matthew attempted to call Jamie anyway because she handled the couple’s finances and was employed as a loan originator for a mortgage banker. He was unable to reach Jamie and attended the closing alone with Larson.[1]

At the closing, which Matthew described as “rushed,” Larson had Matthew sign a large packet of documents. Included in that packet were two uniform residential loan applications. One application appears to have been generated by One Source Mortgage while the other was apparently generated by Citimortgage. Both loan applications identify Larson as the interviewer and indicate the application was taken by telephone. Matthew and Larson signed both applications at the closing on May 24, 2007.[2] The applications refer to Matthew as “unmarried” and as a “[s]ingle man.” Matthew also signed a promissory note in the amount of $320,228 at the May 24 closing. The note is payable to Citimortgage and secured by a purchase money mortgage on Matthew’s home. The mortgage, which contains a homestead exemption waiver clause, identifies the borrower as “Matthew D. Danielson, a single man.”

Matthew, Jamie, and their son have resided in the house since the closing. They failed, however, to make payments on the mortgage. Citimortgage consequently initiated foreclosure proceedings in December 2007 against Matthew. Matthew filed an answer and raised Citimortgage’s failure to secure Jamie’s signature on the mortgage as required by Iowa Code section 561.13 as an affirmative defense. Citimortgage amended its petition to add Jamie as a defendant. The Danielsons then filed a counterclaim to quiet title to the property, seeking an order from the court that Matthew’s mortgage with Citimortgage is void under section 561.13.

The district court denied summary judgment motions filed by Citimortgage and the Danielsons, and the matter proceeded to trial before the court. At the close of the evidence, the court ruled from the bench that the mortgage was void under section 561.13 and denied Citimortgage’s claim that Matthew fraudulently misrepresented his marital status. Citimortgage appeals.

II. Scope and Standards of Review.

“Review of an equitable claim to foreclose a mortgage is de novo.” Iowa State Bank & Trust Co. v. Michel, 683 N.W.2d 95, 98 (Iowa 2004). We give weight to the fact findings of the district court, especially when considering the credibility of witnesses, but are not bound by them. Iowa R. App. P. 6.14(6)(g).

III. Discussion.

“Homestead rights are jealously guarded by the law.” Michel, 683 N.W.2d at 101; see also Merchants Mut. Bonding Co. v. Underberg, 291 N.W.2d 19, 21 (Iowa 1980) (“Homestead laws are creatures of public policy, designed to promote the stability and welfare of the state by preserving a home where the family may be sheltered and live beyond the reach of economic misfortune.”). One way in which the legislature has sought to protect homesteads is through Iowa Code section 561.13, which invalidates encumbrances of the homestead not signed by both spouses “unless and until the spouse of the owner executes the same or a like instrument.” See Thayer v. Sherman, 218 Iowa 451, 458, 255 N.W. 506, 509 (1934) (“The provisions of this section are for the benefit of all who are interested in the homestead. It is designed as a protection to the wife, the children, and the husband himself.”). If section 561.13 is not satisfied, the transaction is invalid as to both the husband and the wife. See Martin v. Martin, 720 N.W.2d 732, 736 (Iowa 2006)Beal Bank v. Siems, 670 N.W.2d 119, 124 (Iowa 2003) (holding mortgage on homestead void because not signed by owner’s spouse as required by section 561.13). (finding deed attempting to convey a homestead invalid where it was not signed by the owner’s spouse);

Section 561.13 was not satisfied in this case because the mortgage encumbering the parties’ homestead was signed only by Matthew, who was married to Jamie at the time of the encumbrance. The mortgage is therefore invalid and void as to both Matthew and Jamie. See Martin, 720 N.W.2d at 738 (emphasizing section 561.13 makes a conveyance or encumbrance of the homestead “invalid—that is, void—without the signature of both spouses, not merely voidable by the spouse who did not sign”).

Citimortgage attempts to avoid the harsh effect of section 561.13 in this case by asserting Matthew procured the mortgage by fraudulently misrepresenting his marital status, which it contends should result in the imposition of an equitable mortgage. The district court denied this claim, finding there was “not one piece of evidence to indicate Mr. Danielson knowingly or with any intent to defraud gave false information to anyone throughout this transaction.” Citimortgage claims the district court erred in so concluding.[3] We do not agree.

Our supreme court has recognized in “other circumstances that `courts of equity are bound by statutes and follow the law in [the] absence of fraud or mistake.'” Michel, 683 N.W.2d at 107 (quoting Mensch v. Netty, 408 N.W.2d 383, 386 (Iowa 1987)). It is a well-settled principle of equity that misrepresentations amounting to fraud in the inducement of a contract, whether innocent or not, give rise to a right of avoidance on the part of the defrauded party. First Nat’l Bank v. Brown, 181 N.W.2d 178, 182 (Iowa 1970). Here, however, Citimortgage attempts to use the Danielsons’ supposed fraud in procuring their mortgage to enforce that mortgage rather than avoid it. In any event, to prevail on such a claim, Citimortgage must prove “(1) a representation, (2) falsity, (3) materiality, (4) an intent to induce the other to act or refrain from acting, and (5) justifiable reliance.” City of Ottumwa v. Poole, 687 N.W.2d 266, 269 (Iowa 2004). We believe this case fails on the last two elements.

The evidence presented at trial establishes, as the district court found, that “everyone involved who actually had a role in this actual transaction . . . knew that Mr. Danielson was married.” Matthew and Jamie toured the home together with their real estate agent, the builder, and the builder’s real estate agent before Matthew agreed to purchase it. They also met with those individuals on several other occasions to discuss matters related to the purchase of the home. The warranty deed prepared by the attorney for the builder’s real estate agent originally referred to Matthew as “a married person,” though someone later changed that deed to identify him as “an unmarried person.” Matthew, whom the district court found to be credible, see Iowa R. App. 6.14(6)(g) (stating we give weight to the district court’s credibility determinations in equity cases), testified that Larson “absolutely” knew he was married. He specifically asked Larson before the closing if his wife needed to be present, and Larson said no. Matthew nevertheless attempted to contact her on his way to the closing. In light of the foregoing, we do not believe the record reveals any intent on Matthew’s part to induce Citimortgage to act on the basis of the representations in the closing documents regarding his marital status.

Indeed, it appears Citimortgage approved Matthew for the loan before receiving a signed copy of his loan application. Matthew did not sign the loan applications prepared by Larson until the closing on May 24, 2007. Yet Citimortgage issued a commitment letter to Matthew on May 16 advising him that his application for a mortgage had been approved. No evidence was presented as to what information Citimortgage relied on in approving the loan to Matthew and preparing the mortgage that identified him as a “single man.” We cannot see how Citimortgage could have justifiably relied on the representations contained in the loan applications and the mortgage itself regarding Matthew’s marital status in agreeing to loan him $320,228 on May 16 when those documents were not executed until May 24. See Lockard v. Carson, 287 N.W.2d 871, 878 (Iowa 1980) (stating the recipient of a fraudulent representation cannot recover “if he blindly relies on a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation”). Finally, even if we were to assume for the sake of argument that Matthew fraudulently induced Citimortgage to enter into the mortgage by representing that he was not married, there is no evidence present in the record from which we could conclude that Jamie had any part in that supposed fraud.

It is clear from our review of cases applying section 561.13 that the statute is intended to protect “the whole family unit.” Martin, 720 N.W.2d at 736, 739 (“If the statute is not satisfied, the deed is invalid as to both the husband and the wife.”); see also Beal Bank, 670 N.W.2d at 124 (voiding mortgage in favor of spouse whose signature was omitted); Hostetler v. Eddy, 128 Iowa 401, 406, 104 N.W. 485, 487 (1905) (holding contract not signed by wife “was void in favor of both husband and wife”). As we alluded to earlier, “[o]ur law has chosen to provide special procedures to protect homestead rights, and has defined this protection in a comprehensive manner.” Martin, 720 N.W.2d at 738.

[T]he purpose of the homestead laws is to provide a margin of safety to the family, not only for the benefit of the family, but for the public welfare and social benefit which accrues to the State by having families secure in their homes.

Id. (citation omitted). We therefore construe homestead laws “broadly and liberally” in favor of the beneficiaries of the legislation, which include “the wife, the children, and the husband himself,” Thayer, 218 Iowa at 458, 255 N.W. at 509,See Martin, 720 N.W.2d at 738. to secure its benevolent purposes.

While it may be tempting for courts to fashion remedies deemed to be fair and just under the particular circumstances of a case, “the law has defined those concepts and must dominate the decision making process.” Id. “[I]t is not for courts to overlook the language of a statute to reach a particular result deemed unjust under the particular circumstances of a case.” Id. “This rule protects the integrity of the legislature’s judgment that certain transactions will be given effect only if they comply with the requirements set out in the statute.” Michel, 683 N.W.2d at 107 (refusing to apply equitable mortgage where bank did not comply with the disclosure requirements of section 561.22 even though debtors knew they were mortgaging their homestead); see also Thayer, 218 Iowa at 458, 255 N.W. at 509 (“The homestead right is created by statute, and this can only be alienated in the manner provided by statute.”). We are thus bound to apply section 561.13 to invalidate the mortgage in this case as it did not contain the signatures of both spouses and Citimortgage did not establish any fraud on the part of either spouse in obtaining the mortgage. See Michel, 683 N.W.2d at 109 n.6 (“[A] creditor is bound by statutory requirements in the absence of fraud or mistake.”).[4]

IV. Conclusion.

We conclude the mortgage was entered into while Matthew was married, and his wife did not execute the same or a like instrument joining in the encumbrance. It was therefore void under Iowa Code section 561.13. Citimortgage has not established any fraud on the part of either spouse that would avoid the effect of section 561.13. We therefore affirm the judgment of the district court dismissing Citimortgage’s petition to foreclose its mortgage on the property and declaring that mortgage to be void under section 561.13.

AFFIRMED.

[1] It appears Larson handled the closing himself. Pulliam testified that he had no recollection of the closing or Matthew. Matthew likewise testified that he had never met Pulliam prior to the trial and that Larson had conducted the closing on his own.

[2] Although Larson’s signature appears on both loan applications, Pulliam testified that he actually signed Larson’s name for him on the Citimortgage loan application as indicated by Pulliam’s initials that appear after Larson’s name.

[3] Citimortgage raises a variety of alternative theories on appeal seeking to preclude the application of section 561.13, including mutual mistake, equitable estoppel, and ratification. It additionally challenges the status of the property as a homestead at the time the property was encumbered, arguing,

With . . . a purchase money mortgage, the party that is purchasing the property is not using the property as a homestead at the time that the mortgage is executed, because the purchase money mortgage is necessary for the party to acquire the initial ownership in the property.

Although it appears some of these theories were raised in the district court proceedings, the only issue decided by the district court was Citimortgage’s claim of fraud. See Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002) (“It is a fundamental doctrine of appellate review that issues must ordinarily be both raised and decided by the district court before we will decide them on appeal.”). “When a district court fails to rule on an issue properly raised by a party, the party who raised the issue must file a motion requesting a ruling in order to preserve error for appeal.” Id. No such motion was filed in this case. We therefore confine our analysis to Citimortgage’s claim of fraud.

[4] We note, as did the court in Michel, that our decision does not leave Citimortgage without remedies. See Michel, 683 N.W.2d at 107 n.5 (observing the bank could pursue a personal judgment against the debtors).
[ipaper docId=51064613 access_key=key-gau16fvjlnqe2ys0jda height=600 width=600 /]

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Oregon foreclosures stopped by judges’ rulings

Oregon foreclosures stopped by judges’ rulings


Published: Saturday, March 05, 2011, 7:34 PM     Updated: Saturday, March 05, 2011, 7:47 PM

By Brent Hunsberger, The Oregonian

The sales of hundreds of foreclosed homes in Oregon have been halted or withdrawn in recent weeks after federal judges repeatedly questioned their legality, according to a number of real estate attorneys in the state.

Lenders have withdrawn more than 300 foreclosure sales since February in Deschutes County alone, one of the state’s hardest hit by the housing collapse. About 130 of those notices were filed in the past week, attorneys say.

Dozens of foreclosure listings by ReconTrust Co., the foreclosure arm of Bank of America Corp., have disappeared from its website, attorneys say. A BofA spokeswoman declined comment late Friday.

Continue reading … Oregon Live

  1. Brown Order -Barnett v.BAC Home Loan Servicing LP, Federal National Mortgage Association fka Fannie Mae, ReconTrust Co.
  2. Burgett Case -Burgett v. MERS, et al.
  3. EkersonTRO -Ekerson v. MERS, CitiMortgage Inc., et al
  4. King_ruling -Rinegard-Guirma v. Bank of America, et al
  5. McCoy -McCoy v. BNC Mortgage Inc., MERS, U.S. Bank, Finance America LLC, et al.
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NYSC Orders All Witnesses To Be Present, All Documents Demonstrating Exactly When Bank Acquired Possession of the Note and Mortgage

NYSC Orders All Witnesses To Be Present, All Documents Demonstrating Exactly When Bank Acquired Possession of the Note and Mortgage


Bayview Loan Servicing, LLC

v

Bozymowski

00296-2010

Rosicki, Rosicki & Associates
Attorneys for Plaintiff
26 Harvester Avenue
Batavia, New York 14020

Lydia Bozymowski
Defendant Pro Se
8 Hofstra Drive
Greenlawn, New York 11740-1908

Peter H. Mayer, J.

Upon the reading and filing of the following papers in this matter: (1) Notice of Motion by the plaintiff, dated May 21, 2010, and supporting papers; and (2) prior Order of this Court, dated November 1, 2010; and now

UPON DUE DELIBERATION AND CONSIDERATION BY THE COURT of the foregoing papers, the motion is decided as follows: it is

ORDERED that the plaintiff’s application (seq. #001) in this foreclosure action is hereby denied for the reasons set forth herein; and it is further

ORDERED that plaintiff shall appear for a hearing on May 13, 2011, 10:00 a.m., at which time the Court will conduct an inquiry of the plaintiff’s witnesses concerning the information and documents submitted by the plaintiff in connection with this foreclosure action, and will determine what, if any, sanction to impose upon the plaintiff and/or the plaintiff’s attorney; and it is further

ORDERED that at the time of the hearing, the plaintiff shall produce the following witnesses to provide testimony under oath in response to all inquiries by the Court: (1) Margaret Burke Tarab, Esq., the attorney from plaintiff’s counsel’s firm who executed the December 13, 2010 attorney affirmation, which is purportedly compliant with the October 20, 2010 Order of the Chief Administrative Judge of the State of New York; (2) Karen Griffith, Vice President of plaintiff Bayview Loan Servicing, LLC, the individual who executed the February 2, 2010 affidavit in support of plaintiff’s application for an order of reference; and (3) Robert D. Repass, plaintiff’s Senior Vice President, identified in Ms. Tarab’s December 13, 2010 affirmation as the plaintiff’s representative with whom she communicated for purposes of executing her said affirmation; and it is further

ORDERED that at the time of the hearing, the plaintiff shall produce for Court inspection all of the documents and records reviewed by plaintiff’s counsel and plaintiff’s other representatives for purposes of submitting its application for an order of reference, including but not limited to the original note and mortgage, and all documents demonstrating exactly when the plaintiff acquired possession of the note and ownership of the mortgage in this case; and it is further

ORDERED that the plaintiff shall promptly serve, via first class mail, a copy of this Order upon the homeowner-defendant(s) at all known addresses, as well as upon all appearing parties (or upon their attorney[s] if represented by counsel), and shall promptly thereafter file the affidavit(s) of such service with the County Clerk; and it is further

ORDERED that failure to comply with any of the directives set forth herein shall result in [*2]the Court issuing any sanction the Court deems appropriate under the CPLR and/or Court Rules, including but not limited to waiver of any interest, attorneys fees and costs to which the plaintiff claims entitlement, as well as dismissal of the plaintiff’s complaint with prejudice.

In this foreclosure action, the plaintiff filed a summons and complaint on January 12, 2010. The complaint essentially alleges that the defendant-homeowner, Lydia Bozymowski, defaulted in payments with regard to the subject mortgage, dated April 22, 2004, in the principal amount of $225,000.00, for the premises located at 8 Hofstra Drive, Greenlawn, New York 11740. The original lender, Florida Bank, N.A. d/b/a Florida Bank Mortgage (“Florida Bank”), is alleged to have had the mortgage assigned to the plaintiff, Bayview Loan Servicing, LLC (“Bayview Loan”), by assignment dated November 25, 2009. The assignment was purportedly executed by Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for Florida Bank. In its application (001), the plaintiff requested a default order of reference and amendment of the caption to remove the “Doe” defendants as parties.

By Order dated November 1, 2010, this Court referred the plaintiff’s application to a conference with the Court on December 15, 2010. As part of that Order, the plaintiff’s counsel was instructed to review the pending application prior to the conference “to determine whether or not such application is fully compliant with all foreclosure-related statutes, case law and Court Rules.” If so, counsel was to then “execute and submit to the Court at the conference the requisite attorney affirmation mandated by the October 20, 2010 Administrative Order of the Chief Administrative Judge for the State of New York.” With regard to such attorney affirmation, this Court’s November 1, 2010 Order stated that, “[i]f plaintiff’s counsel is unable for personal or professional reasons to execute the necessary affirmation, the pending application may be withdrawn without prejudice and with leave to resubmit upon proper papers, including the mandatory attorney affirmation.” The November 1, 2010 Order also warned counsel that “with regard to any scheduled court conferences or future applications, if the Court determines that such conferences have been attended, or such applications have been submitted, without proper regard for the applicable statutes, case law and Court Rules, or without regard for the required proofs delineated herein, the Court may, in its discretion, strike the non-compliant party’s pleadings or deny such applications with prejudice and/or impose sanctions pursuant to 22 NYCRR §130-1, and may deny those costs and attorneys fees attendant with the filing of such future applications.”

On December 15, 2010, a conference was held and plaintiff’s counsel submitted an attorney affirmation. Initially, the Court notes the plaintiff’s failure to submit proof of compliance with RPAPL §1304. For those actions commenced on or after September 1, 2008 and prior to January 14, 2010, RPAPL §1304 requires that, with regard to a “high-cost home loan” (as defined in Banking Law §6-l), or a “subprime home loan” or a “non-traditional home loan” (as defined in RPAPL §1304), at least 90 days before a lender or mortgage loan servicer commences a foreclosure action against the borrower, the lender or mortgage loan servicer must give the borrower a specific, statutorily prescribed notice. In essence, the notice warns the borrower that he or she may lose his or her home because of the loan default, and provides [*3]information regarding available assistance for homeowners who are facing financial difficulty. The specific language and type-size requirements of the notice are set forth in RPAPL §1304(1).

Pursuant to RPAPL §1304(2), the requisite 90-day notice must be “sent by the lender or mortgage loan servicer to the borrower, by registered or certified mail and also by first-class mail to the last known address of the borrower, and if different, to the residence which is the subject of the mortgage. Notice is considered given as of the date it is mailed.” The notice must also contain a list of at least five housing counseling agencies approved by the U.S. Department of Housing and Urban Development, or those designated by the Division of Housing and Community Renewal, that serve the region where the borrower resides, as well as the counseling agencies’ last known addresses and telephone numbers.

This action was commenced on January 12, 2010. Therefore, barring any statutorily stated exceptions, if the subject loan being foreclosed upon qualifies as a “high-cost home loan,” a “subprime home loan,” or “non-traditional home loan,” the pre-commencement notice requirements of RPAPL §1304 will apply. Plaintiff, however, has failed to submit evidentiary proof, including an affidavit from one with personal knowledge, as to whether or not this action involves such a loan and, if so, proof of compliance with the applicable pre-commencement requirements of RPAPL §1304 or, in the alternative, an affidavit sufficient to show why such requirements do not apply. Such failure requires denial of plaintiff’s application for an order of reference. The boilerplate language in paragraph 4(c) of the complaint regarding compliance with RPAPL §1304 “if the underlying mortgage qualifies,” is ambiguous and is, therefore, insufficient to affirmatively show such compliance, particularly where, as here, the complaint is not verified by the plaintiff.

Plaintiff has also failed to submit a properly sworn affidavit in support of the requested relief. In this regard, CPLR §2309(b) requires that an “oath or affirmation shall be administered in a form calculated to awaken the conscience and impress the mind of the person taking it in accordance with his religious or ethical beliefs.” Accordingly, for affidavits to have sufficient validity, a notary public witnessing signatures must take the oaths of the signatories or obtain statements from them as to the truth of the statements to which they subscribe their names (see, Matter of Helfand v Meisser, 22 NY2d 762, 292 NYS2d 467 [1968]; Matter of Imre v Johnson, 54 AD3d 427, 863 NYS2d 473 [2d Dept 2008]; Matter of Leahy v O’Rourke, 307 AD2d 1008, 763 NYS2d 508 [2d Dept 2003]).

In support of its application for an order of reference, the plaintiff submits an affidavit from Karen Griffith, Vice President of plaintiff Bayview Loan; however, there is no showing that the notary who witnessed Ms. Griffith’s signature took an oath from Ms. Griffith, and no statement by Ms. Griffith attesting to the truth of the statements contained in her affidavit. Instead, there is a statement disguised to appear as a proper oath. Rather than swearing to the truth of the statements contained in her affidavit, Ms. Griffith merely attests in paragraph 12 to the truth of the contents of “the [plaintiff’s] complaint” (emphasis added). Such statement is insufficient to satisfy the form of oath required by CPLR §2309(b) with regard to Ms. Griffith’s [*4]affidavit. This is particularly pertinent here because additional submissions by the plaintiff raise questions as to the reliability of Ms. Griffith’s affidavit, as well as the plaintiff’s standing to bring this action.

A plaintiff has standing to maintain the action only where the plaintiff is the proper assignee of the mortgage and the underlying note at the time the foreclosure action was commenced (U.S. Bank, N.A. v Collymore, 68 AD3d 752, 890 NYS2d 578 [2d Dept 2009]; Federal Natl. Mtge. Assn. v Youkelsone, 303 AD2d 546, 755 NYS2d 730 [2d Dept 2003]; Wells Fargo Bank, N.A. v Marchione, 69 AD3d 204, 887 NYS2d 615 [2d Dept 2009]; First Trust Natl. Assn. v Meisels, 234 AD2d 414, 651 N.Y.S.2d 121 [2d Dept 1996]). It remains settled that foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity (U.S. Bank, N.A. v Collymore, supra; Kluge v Fugazy, 145 AD2d 537, 536 NYS2d 92 [2d Dept 1988]). Furthermore, a plaintiff has no foundation in law or fact to foreclose upon a mortgage in which the plaintiff has no legal or equitable interest (Wells Fargo Bank, N.A. v Marchione, supra; Katz v East-Ville Realty Co., 249 AD2d 243, 672 NYS2d 308 [1st Dept 1998]). Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident (U.S. Bank, N.A. v Collymore, supra).

To support its contention that Bayview had proper standing to commence this action, Ms. Griffith’s alleges in paragraph 6 of her affidavit that “[t]he loan was acquired by and in the possession of the Plaintiff on April 22, 2004″ (emphasis added). Notably, this is the same date the mortgage documents were executed by the defendant-borrower to the original lender, Florida Bank. Even if this nebulous statement by Ms. Griffith were construed to mean that Bayview was in possession of the “note and mortgage” on April 22, 2004, such statement fails to show that the plaintiff was the holder of the note and mortgage when the action was commenced, nearly six years later (see U.S. Bank, N.A. v Collymore, supra; Federal Natl. Mtge. Assn. v Youkelsone, supra; Wells Fargo Bank, N.A. v Marchione, supra; First Trust Natl. Assn. v Meisels, supra). On the one hand, Ms. Griffith alleges in paragraph 6 of her affidavit that the loan was in the possession of the plaintiff on April 22, 2004. On the other hand, in the same paragraph of her affidavit she states that the mortgage “instruments were assigned to [the Plaintiff] by [assignment] dated November 25, 2009.” Compounding this confusion is the handwritten statement on the assignment, asserting that it was “effective as of: 7/1/09.”

Despite these inconsistent statements of fact in support of ownership, there is an additional submission that suggests the true owner is or may be CitiMortgage, Inc. (“CitiMortgage”), a non-party to this action. In this regard, affixed to the last page of the note is an undated indorsement from Florida Bank to CitiMortgage. This indorsement, which was executed by Jacqueline Ring as Florida Bank’s Vice President, specifically states, “WITHOUT RECOURSE PAY TO THE ORDER OF CITIMORTGAGE, INC.” Thus, the plaintiff’s assertion that it possessed “the loan” on the same date it was executed by the borrower, and the inconsistent assertion that plaintiff obtained the mortgage instruments by assignment dated [*5]November 25, 2009, is rebutted by the fact that when the note was indorsed to CitiMortgage, the mortgage passed to CitiMortgage as an inseparable incident (U.S. Bank, N.A. v Collymore, 68 AD3d 752, 890 NYS2d 578 [2d Dept 2009]. Therefore, without the valid transfer of the note to the plaintiff, the assignment of the mortgage to the plaintiff was a nullity (id.; Kluge v Fugazy, 145 AD2d 537, 536 NYS2d 92 [2d Dept 1988]). Curiously, evidence of the indorsement to CitiMortgage by Florida Bank was not in the plaintiff’s affidavit or attorney affirmation.

The plaintiff has also failed to comply with this Court’s November 1, 2010 Order regarding submission of an attorney affirmation in the form and with the language required by the October 20, 2010 Administrative Order of Hon. Ann Pfau, New York’s Chief Administrative Judge. As explained in this Court’s November 1, 2010 Order, “[p]ursuant to the Administrative Order of the Chief Administrative Judge for the State of New York, dated and effective October 20, 2010, plaintiff’s counsel in foreclosure actions must file with the court in all such actions an affirmation in a form prescribed by the Order.” It remains clear from the language of Judge Pfau’s October 20, 2010 Order, as well from the language of the official mandatory affirmation and its preamble, that the intent of the new Rule is to assure accountability for and accuracy of all court filings in foreclosure actions.

With the intent of the new Rule in mind, this Court requires that after October 20, 2010, the mandatory affirmation must accompany all applications made at any and all stages of foreclosure proceedings. Obviously, a mere single filing at only one phase of the case would not comport with the intent of Judge Pfau’s Order. Indeed, if compliance were sufficient by filing the requisite affirmation at only one phase, improper or untruthful papers could be filed at other phases with virtual impunity. Therefore, plaintiff’s failure to submit the official mandatory affirmation in the form and with the language prescribed by Judge Pfau’s October 20, 2010 Order must result in denial of the requested relief.

In relevant part, the Court’s November 1, 2010 Order also included, with italicized emphasis, the warning set forth in the last sentence of the preamble paragraph of the official mandatory affirmation, which states: “The wrongful filing and prosecution of foreclosure proceedings which are discovered to suffer from these defects may be cause for disciplinary and other sanctions upon participating counsel” (emphasis added). Despite this language required by the official mandatory affirmation, and despite this Court’s emphasis of that language in its November 1, 2010 Order, the December 13, 2010 affirmation signed by plaintiff’s attorney, Margaret Burke Tarab, Esq., does not include such language. Also, as required by paragraph 3 of the official mandatory affirmation, the plaintiff’s attorney must affirm that “[b]ased upon my communication with [plaintiff’s representative], as well as upon my own inspection of the papers filed with the Court and other diligent inquiry, I certify that, to the best of my knowledge, information, and belief, the Summons and Complaint and all other documents filed in support of this action for foreclosure are complete and accurate in all relevant respects . . .” (emphasis added). In counsel’s December 13, 2010 affirmation, the word “diligent” was omitted and replaced with the word “reasonable.” In addition, as required by paragraph 4 of the official mandatory affirmation, the plaintiff’s attorney must acknowledge that he or she understands “that [*6]the Court will rely on this Affirmation in considering the [plaintiff’s] application.” In paragraph 4 of counsel’s affirmation, however, she omitted the specific mandatory language and replaced it with a generic acknowledgment, that “I am aware of my obligations under New York Rules of Professional Conduct (22 NYCRR Part 1200) and 22 NYCRR Part 130.”

Although the Court has heard several attorneys for plaintiff banks informally question Judge Pfau’s authority to have issued the October 20, 2010 Order in the first instance, this Court gives full deference to her Honor’s Order (see NY Const, art VI, § 28). Counsel for plaintiff banks have also claimed that the attorney affirmation required by Judge Pfau’s Order was unofficially amended on November 18, 2010 and posted on the internet in amended form. Counsel, however, has failed to submit an order by Judge Pfau executed after her October 20, 2010 Order, or any other legitimate legal authority, in which the language of the official mandatory affirmation was modified. Therefore, this Court requires counsel to submit an attorney affirmation in the specific form and with the specific language originally mandated by her Honor’s Order of October 20, 2010.

In this Court’s November 1, 2010 Order, the Court warned of potential sanctions, pursuant to 22 NYCRR §130-1, if a party submits an application “without proper regard for the applicable statutes, case law and Court Rules.” Indeed, although the plaintiff’s December 13, 2010 attorney affirmation does not include certain language mandated by Judge Pfau’s October 2010 Order, the affirmation does, nevertheless, state at paragraph 4 that counsel is “aware of [her] obligations under New York Rules of Professional Conduct (22 NYCRR Part 1200) and 22 NYCRR Part 130.” With regard to sanctions, 22 NYCRR §130-1.1 states, in pertinent part that:

(a) . . . [T]he court, in its discretion may impose financial sanctions upon any party or attorney in a civil action or proceeding who engages in frivolous conduct as defined in this Part, which shall be payable as provided in section 130-1.3 of this Part. . . .

(b) The court, as appropriate, may . . . impose such financial sanctions against either an attorney or a party to the litigation or against both. Where the . . . sanction is against an attorney, it may be against the attorney personally or upon a partnership, [or] firm . . . that has appeared as attorney of record. The . . . sanctions may be imposed upon any attorney appearing in the action or upon a partnership, firm or corporation with which the attorney is associated.

(c) For purposes of this Part, conduct is frivolous if:

(1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law;

(2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or

(3) it asserts material factual statements that are false. [*7]

. . . In determining whether the conduct undertaken was frivolous, the court shall consider, among other issues the circumstances under which the conduct took place, including the time available for investigating the legal or factual basis of the conduct, and whether or not the conduct was continued when its lack of legal or factual basis was apparent, or should have been apparent, or was brought to the attention of counsel or the party.

(d) An . . . imposition of sanctions may be made . . . upon the court’s own initiative, after a reasonable opportunity to be heard. The form of the hearing shall depend upon the nature of the conduct and the circumstances of the case.

At the December 15, 2010 conference, plaintiff’s counsel represented to the Court that the plaintiff’s submitted application was, in fact, fully compliant with all applicable statutes, case law and Court Rules. Counsel then tendered to the Court Ms. Burke Tarab’s December 13, 2010 affirmation, which is purported to be compliant with the requirements of Judge Pfau’s Order of October 20, 2010. In counsel’s affirmation, she identifies Robert D. Repass, plaintiff’s Senior Vice President, as the representative with whom she communicated on December 10, 2010 for purposes of executing her affirmation.

According to paragraph 2 of the affirmation, Mr. Repass reportedly informed Ms. Tarab that he “personally reviewed plaintiff’s documents and records relating to this case for factual accuracy.” He also allegedly “confirmed the factual allegations set forth in the Complaint and any supporting affirmations filed with the court, as well as the accuracy of the notarizations contained in the supporting documents (Plaintiff’s Affidavit[s]) filed therewith.” Neither the proofs submitted in support of the order of reference, nor the mandatory attorney affirmation are sufficient to grant an order of reference.

Based on the foregoing, the plaintiff’s application for an order of reference is denied. The nature of the proofs provided by the plaintiff, from all sources, compels the Court to order hearing in accordance with 22 NYCRR §130-1 to determine if the conduct undertaken by the plaintiff and/or plaintiff’s counsel was “frivolous” as defined in 22 NYCRR §130-1.1(c) and what, if any, sanction should be imposed.

This constitutes the Order of the Court.

Dated:February 17, 2011

PETER H. MAYER, J.S.C.

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Oregon Dist. Court Grants T.R.O. For “Failure To Record Assignments, TILA Violation” EKERSON v. Mortgage Electronic Registration System (MERS)

Oregon Dist. Court Grants T.R.O. For “Failure To Record Assignments, TILA Violation” EKERSON v. Mortgage Electronic Registration System (MERS)


IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION

DAVID EKERSON,
Plaintiff,
v.
MORTGAGE ELECTRONIC
REGISTRATION SYSTEM
, a
foreign corporation;
CITIMORTGAGE, INC., a foreign
corporation; and CAL-WESTERN
RECONVEYANCE
, a foreign
conrporation,
Defendants.

11-CV-178-HU

TEMPORARY RESTRAINING ORDER


ALEX GOLUBITSKY
Case Dusterhoff LLP
9800 S.W. Beavterton-Hillsdale Hwy
Suite 200
Beaverton, OR 97005
(503) 641-7222
Attorneys for Plaintiff

BROWN, Judge.

This matter comes before the Court on Plaintiff’s Motion (#3) for a Temporary Restraining Order Pursuant to FRCP 65. For the reasons that follow, the Court GRANTS Plaintiff’s Motion and temporarily RESTRAINS Defendants from proceeding with the February 16, 2011, foreclosure sale of Plaintiff’s property.

BACKGROUND

The following facts are taken from Plaintiff’s Complaint:
On November 21, 2006, Plaintiff David Ekerson entered into a promissory note secured by property located at 622 S.E. 71st Street, Hillsboro, Oregon, pursuant to one or more deeds of trust recorded December 5, 2006. According to title records, Citibank was the original mortgagee.

At some point, it appears Defendant Mortgage Electronic Resolution System (MERS) became an assignee of the original lender under the Notes, and on October 12, 2010, MERS “grant[ed], assign[ed], and transfer[red]” to Defendant Citimortgage, Inc., “all beneficial interest under” the November 21, 2006, deed of trust. Decl. of Alex Golubitsky, Ex. D. Also on October 12, 2010, MERS evidently issued a Notice of Default to Plaintiff. MERS’s assignment to Citimortgage, however, was not recorded in Washington County’s records until two days later on October 14, 2010.

In his Complaint, Plaintiff alleges he believes Citimortgage is the “current servicer or owner of the loan, having been assigned the loan by Freddie Mac.” Plaintiff also believes Defendant Cal-Western Reconveyance (CWR) is the trustee in charge of the foreclosure sale.

Plaintiff’s property is scheduled to be sold at public auction on February 16, 2011, based on the Notice of Default that Plaintiff contends was improperly issued by MERS.

On February 10, 2011, Plaintiff filed a Complaint in this Court alleging Defendants violated Oregon’s Unfair Trade Practices Act, Or. Rev. Stat. §§ 646.608(1)(k) and 646.608(2)(n). Plaintiff seeks damages and a declaration as to (1) whether Defendants have standing to foreclose; (2) whether MERS “duly and appropriately recorded all assignments of the beneficial interest in the trust deeds” pursuant to Oregon Revised Statute § 86.735 and whether a nonjudicial foreclosure is allowed by statute; and (3) whether the right of the lender to impose a delinquency charge was properly disclosed in the initial loan agreement pursuant to the Truth in Lending Act (TILA), 15 U.S.C. § 1601, Regulation Z, Part 266.18.

On February 10, 2011, Plaintiff also filed a Motion for Temporary Restraining Order in which Plaintiff moves for the entry of an order preventing Defendants from proceeding with the proposed foreclosure sale of Plaintiff’s property on February 16, 2011.

STANDARDS

A party seeking a temporary restraining order or preliminary injunction must demonstrate (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in its favor, and (4) an injunction is in the public interest.  Winter v. Natural Res. Def. Council, 129 S. Ct. 365, 374 (2008). “The elements of [this] test are balanced, so that a stronger showing of one element may offset a weaker showing of another. For example, a stronger showing of irreparable harm to plaintiff might offset a lesser showing of likelihood of success on the merits.” Alliance For The Wild Rockies v. Cottrell, No. 09-35756, 2011 WL 208360, at *4 (9th Cir. Jan. 25, 2011)(citing Winter, 129 S. Ct. at 392). Accordingly, the Ninth Circuit has held “‘serious questions going to the merits’ and a balance of hardships that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so long as the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the public interest.” Id., at *7.

“An injunction is a matter of equitable discretion” and is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter, 129 S. Ct. at 376, 381.

DISCUSSION

I. Merits

Plaintiff seeks an order preventing Defendants from proceeding with the proposed foreclosure sale of Plaintiff’s property as scheduled because, among other things, Defendants “have not followed the appropriate procedures for recording all the deeds and assignments for this property, and therefore lack standing to foreclosure [sic] this property.” Specifically, Plaintiff contends MERS assigned its apparent beneficial interest in the property “to other parties who were not recorded in violation” of Oregon Revised Statute § 86.735.

In Burgett v. Mortgage Electronic Registration Systems, District Judge Michael Hogan explained the mortgage practice engaged in by MERS as follows:

“In 1993, the Mortgage Bankers Association, Fannie Mae, Freddie Mac, the Government National Mortgage Association (Ginnie Mae), the Federal Housing Administration, and the Department of Veterans Affairs created MERS. MERS  provides ‘electronic processing and tracking of [mortgage] ownership and transfers.’ Mortgage lenders, banks, insurance companies, and title companies become members of MERS and pay an annual fee. They appoint MERS as their agent to act on all mortgages that they register on the system. A MERS mortgage is recorded with the particular county’s office of the recorder with ‘Mortgage Electronic Registration System, Inc.’ named as the lender’s nominee or mortgagee of record’ on the mortgage. The MERS member who owns the beneficial interest may assign those beneficial ownership rights or servicing rights to another MERS member.  These assignments are not part of the public record, but are tracked electronically on MERS’s private records. Mortgagors are notified of transfers of servicing rights, but not of transfers of beneficial ownership.”

2010 WL 4282105, at *2 (D. Or. Oct. 20, 2010)(quoting Gerald Korngold, Legal and Policy Choices in the Aftermath of the Subprime and Mortgage Financing Crisis, 60 S.C. L.Rev. 727, 741-42 (2009)). In Burgett, the plaintiff, a mortgagee, brought an action against MERS and the servicer of the plaintiff’s mortgage loan alleging, among other things, a claim for breach of contract and seeking declaratory relief to prevent a foreclosure sale of his property. The plaintiff contended the MERS practice set out above was not permitted under Oregon trust-deed law because it allowed assignment of beneficial interests without recording. Id. The defendants moved for summary judgment. Judge Hogan noted the plaintiff’s contention did not “necessarily mean that the arrangement violates the Oregon Trust Deed Act such that foreclosure proceedings could not be initiated by MERS or its substitute trustee.” Id. Judge Hogan, however, denied the defendants’ motion for summary judgment as to the plaintiff’s request for declaratory relief and claim for breach of contract on the ground that the defendants failed to “record assignments necessary for the foreclosure.” Id., at *3. Judge Hogan reasoned:

Under ORS 86.705(1) a “‘Beneficiary’ means the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or the person’s successor in interest, and who shall not be the trustee unless the beneficiary is qualified to be a trustee under ORS 86.790(1)(d).” Plaintiff contends that MERS cannot meet this definition because there is no evidence that the trust deed was made to benefit MERS. However, the trust deed  specifically designates MERS as the beneficiary. Judge Henry C. Breithaupt provides a persuasive discussion related to this issue:


[T]he interest of MERS, and those for whom it was a nominee, in question here was recorded and known to Plaintiff when it received the litigation guarantee document prior to starting this action.

The Statutes do not prohibit liens to be recorded in the deed of records of counties under an agreement where an agent will appear as a lienholder for the benefit of the initial lender and subsequent assignees of that lender-even where the assignments of the beneficial interest in the record lien are not recorded. It is clear that such unrecorded assignments of rights are permissible under Oregon’s trust deed statute because ORS 86.735 provides if foreclosure by sale is pursued all prior unrecorded assignments must be filed in connection with the foreclosure. The trust deed statutes therefore clearly contemplate that assignments of the beneficial interests in obligations and security rights will occur and may, in fact, not have been recorded prior to foreclosure. The legislature was clearly aware such assignments occurred and nowhere provided that assignments needed to be recorded to maintain rights under the lien statutes except where foreclosure by sale was pursued.


Letter Decision in Parkin Electric, Inc. v. Saftencu, No. LV08040727, dated March 12, 2009 (attached as Exhibit C to the second declaration of David Weibel (# 60)).

The problem that defendants run into in this case is an apparent failure to record assignments necessary for the foreclosure. As Judge Breithaupt notes, ORS § 86.735 provides that if foreclosure by sale is pursued, all prior unrecorded assignments must be filed in connection with the foreclosure. ORS § 86.735(1) specifically provides The trustee may foreclose a trust deed by advertisement and sale in the manner provided in ORS 86.740 to 86.755 if:

(1) The trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee are recorded in the mortgage records in the counties in which the property described in the deed is situated.


Id., at *2-*3. Judge Hogan noted Oregon Revised Statute § 86.735 requires any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee to be recorded. The record in Burgett, however, did not reflect all transfers to the subsequent lenders/servicers had been recorded.
Id.
Similarly, in Rinegard-Guirma v. Bank of America, District Judge Garr M. King granted the plaintiff, a mortgagee, a temporary restraining order against the defendants, MERS and others, prohibiting the defendants from conducting a foreclosure sale of the plaintiff’s home because the plaintiff established “nothing [was] recorded with Multnomah County [that] demonstrates that LSI Title Company of Oregon, LLC is the successor trustee. No. 10-CV-1065-PK, 2010 WL 3655970, at *2 (D. Or. Sept. 15, 2010). Judge King reasoned:

Pursuant to ORS 86.790, the beneficiary may appoint a successor trustee. However, only “[i]f the appointment of the successor trustee is recorded in the mortgage records of the county or counties in which the trust deed is recorded” is the successor trustee “vested with all the powers of the original trustee.” ORS 86.790(3). Accordingly, unless the appointment of LSI Title Company of Oregon, LLC was recorded, the purported successor trustee has no “power of sale” authorizing it to foreclose Rinegard-Guirma’s property. See ORS 86.710 (describing trustee’s power of sale); ORS 86.735 (permitting foreclosure by advertisement and sale but only if “any appointment of a successor trustee [is] recorded in the mortgage records in the counties in which the property described in the deed is situated”).

Similarly, she is likely to experience irreparable harm if her home is foreclosed upon.

Id.

Plaintiff also contends this foreclosure proceeding is defective because there has not been established any basis in law for Defendants to have assessed a $77,000.00 delinquency charge which far exceeds the actual loan balance. Plaintiff contends this is a violation of TILA.

The Court finds persuasive the reasoning in Burgett and Rinegard-Guirma as to MERS status in the case on this record. The Court, therefore, concludes Plaintiff has established he is likely to succeed at least as to his request for declaratory judgment related to Defendants’ failure to comply with Oregon Revised Statute § 86.735. Plaintiff also has established MERS, who was the recorded beneficiary of the trust deed, assigned successor trustees to the trust deed but failed to record the appointment of any successor trustee as required before a nonjudicial foreclosure sale may be conducted under Oregon law.

The Court also finds there is a legitimate basis to be concerned that the alleged $77,000.00 delinquency has been assessed improperly. Plaintiff also has established he is likely to experience irreparable harm if the scheduled foreclosure proceeds unabated. The Court, therefore, concludes the balance of hardships tips sharply in Plaintiff’s favor, and there are at least serious questions as to the merits of Plaintiff’s request for declaratory judgment.

Accordingly, the Court GRANTS Plaintiff’s Motion for a Temporary Restraining Order and hereby RESTRAINS
Defendants from proceeding with the February 16, 2011, foreclosure sale of Plaintiff’s property.

II. Notice under Federal Rule of Civil Procedure 65

Federal Rule of Civil Procedure 65(b) provides in pertinent part:


(1) Issuing Without Notice. The court may issue a temporary restraining order without written or
oral notice to the adverse party or its attorney only if:

(A) specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition; and

(B) the movant’s attorney certifies in writing any efforts made to give notice and the reasons why it should not be required.

Here the Court issues the order temporarily restraining Defendants from proceeding with the proposed foreclosure sale of Plaintiff’s property without notice to Defendants because there is insufficient time before the scheduled foreclosure sale to compel Defendants to appear and to respond to the Motion. In addition, Plaintiff’s counsel has made reasonable efforts to  notify Defendants and has been unsuccessful in securing the presence of a responsive party.

Finally, the Court concludes the risk of irreparable harm to Plaintiff is significant when weighed against the temporary delay authorized by this Order.

III. Security

Pursuant to Rule 65(c), the Court requires Plaintiff to post a $500.00 bond by 4 p.m., Monday, February 14, 2011, as a reasonable security for any costs or damages sustained by any party found to have been wrongfully restrained.

CONCLUSION

For these reasons, the Court GRANTS Plaintiff’s Motion (#3) for a Temporary Restraining Order and hereby RESTRAINS Defendants from proceeding with the February 16, 2011, foreclosure sale of Plaintiff’s property. The Court DIRECTS Plaintiff to post a $500.00 bond by 4 p.m., Monday, February 14, 2011.

IT IS SO ORDERED.

DATED this 11th day of February, 2011.

This order is issued on February 11, 2011, at 5:00 p.m., and expired on February 25, 2011, at 5:00 p.m., unless extended by order of the Court.

/s/ Anna J. Brown
ANNA J. BROWN
United States District

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