Consolidated | FORECLOSURE FRAUD | by DinSFLA

Tag Archive | "Consolidated"

Critics call Michigan Supreme Court ruling on foreclosures ‘intellectually dishonest’

Critics call Michigan Supreme Court ruling on foreclosures ‘intellectually dishonest’


I think we all can agree with this post… but those who benefit from real estate.

Where is Bill Hultman these days?

MLive-

A ruling this week by the Michigan Supreme Court put an end to some uncertainty in the real estate market, but it was a disappointment to local housing advocates.

The high court reversed an April state Court of Appeals decision that prevented the Mortgage Electronic Registration System, or MERS, from bringing foreclosures against Michigan homeowners.

The system was widely used by the lending industry to streamline the packaging and selling of mortgages as securities without recording the deeds at county offices. In that role, it also started countless foreclosure proceedings.

The appeals court ruled that MERS did not own legal title to the properties and could not be the foreclosing party. That decision called into question the validity of thousands of foreclosures across the state, wreaking havoc in the housing market. Closings were canceled and homeowners who had purchased foreclosed houses wondered whether they had clear title to the property.

[MLIVE]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

Adam Levitin | Soured on Saurman

Adam Levitin | Soured on Saurman


Credit Slips -

Elected justice moves swiftly. The Michigan Supreme Court handed down its opinion in Residential Funding Co. v. Saurman on Wednesday, a couple of weeks after oral argument. They were in a rush to get the opinion out, it seems. Unfortunately, it’s a terrible opinion. The Michigan Supreme Court reversed the appellate court to hold that MERS has the power to conduct non-judicial foreclosures (foreclosure by advertisement) in Michigan.

To reach this conclusion, the Michigan Supreme Court had to conclude that MERS had an interest in the indebtedness–that is an interest in the note.  MERS, however, expressly disclaims any interest in the note. So it took some acrobatics and legerdemain and outright tautology to get no to mean yes. Here’s how they did it:

[CREDIT SLIPS]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

Ingham County Register of Deeds, Curtis Hertel Jr. statement on Michigan Supreme Court’s MERS decision

Ingham County Register of Deeds, Curtis Hertel Jr. statement on Michigan Supreme Court’s MERS decision


“The Michigan Supreme Court decision on Mers is an embarrassment, to those of us who care about the property records of this state, and more importantly the citizens who are affected by these foreclosures. Mers created a shadow registry system that makes it impossible for individual citizens and their government officials to track who owns a mortgage. At the Michigan Chambers request, they now have the right to masquerade as a bank and take a citizen’s home . It is unfortunate that Justices Young, Markman, Zahra and Mary Beth Kelly decided to side with special interest groups instead of Michigan citizens.“

- Curtis Hertel Jr.

[ipaper docId=72963398 access_key=key-2b58c6526telk0hyzu3p height=600 width=600 /]

 

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

IN RE JOHNSON: BK Court, ED Arkansas “J.P. Morgan was not qualified to use Non-judicial foreclosure process when it initiated against these Debtors”

IN RE JOHNSON: BK Court, ED Arkansas “J.P. Morgan was not qualified to use Non-judicial foreclosure process when it initiated against these Debtors”


In re DANIEL L. JOHNSON and SUSAN D. JOHNSON, Chapter 13 Debtors.
In re TAMMY R. PEEKS, Chapter 13 Debtor.
In re TRACY L. ESTES, Chapter 13 Debtor.

Case Nos. 3:10-bk-19119, 3:11-bk-10602, 3:10-bk-16541

 

 

United States Bankruptcy Court, E.D. Arkansas, Jonesboro Division. 
September 28, 2011.

MEMORANDUM OPINION AND ORDER OVERRULING OBJECTIONS TO CONFIRMATION

AUDREY R. EVANS, Bankruptcy Judge

In a consolidated hearing on July 14, 2011, the Court heard the Objection to Confirmation of Plan filed by Chase Home Finance, L.L.C. (“Chase”) in the case of Daniel and Susan Johnson, Case No. 3:10-bk-19119 (the “Johnson Objection to Confirmation”); the Objection to Confirmation of Plan filed by J.P. Morgan Chase Bank, N.A. (“J.P. Morgan”) in the case of Tammy Renae Peeks, Case No. 3:11-bk-10602 (the “Peeks Objection to Confirmation”); and the Objection to Confirmation of Plan filed by Chase in the case of Tracy L. Estes, Case No. 3:10-bk-16541 (the “Estes Objection to Confirmation”) (collectively the “Objections to Confirmation”). J.P. Morgan appeared through its counsel, Kimberly Burnette of Wilson & Associates, P.L.L.C.[1] The Debtors in all three cases were represented at the hearing by Joel Hargis of Crawley & DeLoache, P.L.L.C. Kathy A. Cruz of The Cruz Law Firm, P.L.L.C., also appeared as co-counsel for the Debtor, Tracy L. Estes. At the outset of the hearing, the parties agreed that the facts of the cases were not in dispute, and that the same underlying issue of law was present in each case. For that reason, the hearings were consolidated. The Court accepted evidence and heard the arguments of counsel.[2] At the close of the hearing, the Court took the matter under advisement.

This is a core proceeding under 28 U.S.C. § 157(b)(2)(L). This Order shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule of Procedure 7052. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such; to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. As explained herein, the Court overrules the Objections to Confirmation.

FACTS

The parties stipulated that at the time of the foreclosure proceedings at issue in these cases, neither Chase nor J.P. Morgan was “authorized to do business” in the state of Arkansas as required by § 18-50-117 of the Arkansas Statutory Foreclosure Act of 1987, Ark. Code Ann. §§ 18-50-101, et seq. (the “Statutory Foreclosure Act”). Additionally, the Court finds the following to be the facts of each case:

The Johnson Case

Chase initiated non-judicial foreclosure proceedings, through Arkansas’ Statutory Foreclosure Act, against a property owned by Daniel and Susan Johnson. On December 20, 2010, the Johnsons filed a Chapter 13 bankruptcy bringing that non-judicial foreclosure to a halt. In their bankruptcy case, the Johnsons filed a Chapter 13 plan listing Chase as a long-term secured creditor that was owed an arrearage of $7,485. On March 2, 2011, Chase filed the Johnson Objection to Confirmation claiming that the correct arrearage amount was $14,072.81. Chase filed a proof of claim in the case (the “Johnson Proof of Claim”) claiming a secured debt of $187,468.21, which included the $14,072.81 arrearage, and explained that $1,380 of the arrearage was for foreclosure fees and costs. On July 4, 2011, Chase transferred the Johnson Proof of Claim to J.P. Morgan.

The Peeks Case

J.P. Morgan initiated a non-judicial foreclosure proceeding, through Arkansas’ Statutory Foreclosure Act, against property owned by Tammy Renae Peeks. To initiate the foreclosure process, J.P. Morgan granted Wilson & Associates, P.L.L.C. (“Wilson & Associates”) a limited power of attorney authorizing Wilson & Associates to conduct the foreclosure.[3] On January 31, 2011, Ms. Peeks filed a Chapter 13 bankruptcy bringing the non-judicial foreclosure to a halt. On February 10, 2011, Ms. Peeks filed a proposed Chapter 13 plan that listed J.P. Morgan as a long-term secured creditor that was owed an arrearage of $7,500. On March 21, 2011, J.P. Morgan filed the Peeks Objection to Confirmation asserting that the correct arrearage amount was $10,089.19. J.P. Morgan filed a proof of claim in the Peeks case on July 13, 2011 (the “Peeks Proof of Claim”) claiming a secured debt of $133,172.09, which included an arrearage of $9,516.72, and explained that $2,400.02 of the arrearage was for foreclosure fees and costs.

The Estes Case

Chase initiated non-judicial foreclosure proceedings, through Arkansas’ Statutory Foreclosure Act, against a property owned by Tracy L. Estes. On September 8, 2010, Ms. Estes filed a voluntary petition for bankruptcy under Chapter 13, bringing that non-judicial foreclosure to a halt. On September 21, 2010, Ms. Estes filed a proposed Chapter 13 plan listing Chase as a long-term secured creditor that was owed an arrearage of $8,000. Chase filed the Estes Objection to Confirmation on October 20, 2010, asserting that the correct arrearage amount was $10,537.36. Chase filed a proof of claim in the Estes case on October 28, 2010 (the “Estes Proof of Claim”), claiming a secured debt of $37,041.96, which included an arrearage of $10,509.36, and explained that $2,706.56 of the arrearage was for to foreclosure fees and costs. On May 25, 2011, Chase filed an amended proof of claim adjusting the arrearage from $10,509.36 to $10,502.22. On July 14, 2011, Chase transferred the Estes Proof of Claim to J.P. Morgan.

DISCUSSION

The question before the Court is whether the Debtors owe J.P. Morgan the foreclosure fees and costs listed on its proofs of claims. The Bankruptcy Code allows a debtor in a Chapter 13 bankruptcy case to cure a default on a debt for its home mortgage through the plan. 11 U.S.C. §§ 1322(b)(3), (5). In order for that plan to be confirmed, a debtor must pay the default arrearage amount in full. The amount owed in order to cure a default is “determined in accordance with the underlying agreement and applicable nonbankruptcy law.” 11 U.S.C. § 1322(e). This determination poses two separate inquires: first, what fees and costs are allowed by the agreement between the parties, and second, what fees and costs are allowed by the applicable law. See In re Bumgarner, 225 B.R. 327, 328 (Bankr. D.S.C. 1998).

In these cases, there is no dispute that the foreclosure fees and costs are owed under the parties’ agreements because the instrument used to create each debt gives J.P. Morgan “the right to be paid back by me for all of its costs and expenses in enforcing this Note . . . .” The only question in each of these three cases is whether the foreclosure fees and costs are allowed by the controlling law. The controlling law is Arkansas’ Statutory Foreclosure Act (i.e., Arkansas’ non-judicial foreclosure procedure), and the issue is whether J.P. Morgan was qualified to use Arkansas’ non-judicial foreclosure procedure when it initiated the foreclosure proceedings against these Debtors.

The Debtors argue that J.P. Morgan was not qualified to use the non-judicial foreclosure process because § 18-50-117 of the Statutory Foreclosure Act requires an entity to be authorized to do business in Arkansas, and that J.P. Morgan was not in compliance with that requirement.

J.P. Morgan stipulated that it was not authorized to do business as is required Ark. Code Ann. § 18-50-117. Nonetheless, it maintains that it was qualified to use Arkansas’ non-judicial foreclosure process. J.P. Morgan makes three arguments in support of its position. First, J.P. Morgan argues that its compliance with § 18-50-102 of the Statutory Foreclosure Act enabled it to legitimately employ the non-judicial foreclosure process without being authorized to do business in the state as required by Ark. Code Ann. § 18-50-117. Second, J.P. Morgan argues that the authorized-to-do-business requirement is superseded by a conflicting provision in Arkansas’ Wingo Act, Ark. Code Ann. § 4-27-1501, and finally, that it is preempted by federal law through the provisions of the National Banking Act.

For the reasons discussed below, the Court finds that J.P. Morgan was not qualified to use the Arkansas non-judicial foreclosure process when it initiated the foreclosures against these Debtors. J.P. Morgan failed to comply with the authorized-to-do-business requirement of Ark. Code Ann. § 18-50-117, and nothing in Ark. Code Ann. § 18-50-102, the Wingo Act, or the National Banking Act allowed it to conduct those proceedings without meeting that requirement. Absent compliance with Ark. Code Ann. § 18-50-117, J.P. Morgan’s avenue for foreclosing on these properties was that of judicial foreclosure through the courts, not through Arkansas’ non-judicial foreclosure process. As a result, the foreclosure fees and costs incurred by Chase and J.P. Morgan are not owed by the Debtors, and need not be included in the Debtors’ repayment plans in order for those plans to be confirmed.

Finally, both parties request their attorney fees for pursuing or defending these matters. The Court finds that an award of attorney fees to the Debtors is warranted.

The Statutory Foreclosure Act

In 1987, the Arkansas legislature enacted the Statutory Foreclosure Act, which authorized the use of non-judicial foreclosure proceedings as an alternative to judicial foreclosure proceedings. Ark. Code Ann. §§ 18-50-101, et seq. See also Union Nat’l Bank v. Nichols, 305 Ark. 274, 278, 807 S.W.2d 36, 38 (1991) (“The procedure is designed to be effectuated without resorting to the state’s court system . . . .”). These statutory provisions must be strictly construed. See Robbins v. M.E.R.S., 2006 WL 3507464, at *1 (Ark. Ct. App. 2006) (“It is also true that the Arkansas Statutory Foreclosure Act, being in derogation of common law, must be strictly construed.”).[4]

The parties’ arguments are based on two provisions of the Statutory Foreclosure Act; Ark. Code Ann. § 18-50-117 and Ark. Code Ann. § 18-50-102. Each of these two provisions places a restriction on who can use Arkansas’ non-judicial foreclosure process. The first provision, Ark. Code Ann. § 18-50-117, requires a creditor to be authorized to do business in Arkansas before employing the state’s non-judicial foreclosure process. Ark. Code Ann. § 18-50-117 (“No person, firm, company, association, fiduciary, or partnership, either domestic or foreign shall avail themselves of the procedures under this chapter unless authorized to do business in this state.”) (emphasis added).[5] The second provision, Ark. Code Ann. § 18-50-102, limits who can be a party to a non-judicial foreclosure proceeding to three categories of persons or entities: (1) trustees or attorneys-in-fact, (2) financial institutions, and (3) Arkansas state agencies. See Ark. Code Ann. § 18-50-102.[6] Further, this provision requires that in order to qualify, a “trustee or attorney-in-fact” must be a licensed member of the Arkansas bar, or a law firm who employs a licensed member of the Arkansas bar. Ark. Code Ann. § 18-50-102(a)(1).

The Debtors argued that J.P. Morgan was not qualified to use the non-judicial foreclosure process because § 18-50-117 of the Statutory Foreclosure Act requires an entity to be authorized to do business in Arkansas, and J.P. Morgan stipulated that it was not in compliance with that provision. J.P. Morgan argued that it was not required to comply with Ark. Code Ann. § 18-50-117 because it authorized Wilson & Associates to conduct the foreclosures as its attorney-in-fact, pursuant to Ark. Code Ann. § 18-50-102(a)(1). This argument extends in two directions.[7]

Specifically, one extension of J.P. Morgan’s argument is that when the attorney-in-fact category of § 18-50-102 is used, the authorized-to-do-business requirement of § 18-50-117 does not apply. The Court finds no support for this argument. The language of Ark. Code Ann. § 18-50-117 is broad, specifically stating that it is applicable to every “person, firm, company, association, fiduciary, or partnership, either domestic or foreign . . . .” An emergency clause recorded in the sessions laws of Ark. Code Ann. § 18-50-117 explains the reason that the provision was enacted:

It is found and determined by the General Assembly of the State of Arkansas that foreign entities not authorized to do business in the State of Arkansas are availing themselves to [sic] the provisions of the Statutory Foreclosure Act of 1987; that often times it is to the detriment of Arkansas citizens; and that this act is immediately necessary because these entities should be authorized to do business in the State of Arkansas before being able to use the Statutory Foreclosure Act of 1987.

2003 Ark. Acts 1303, § 3, effective Apr. 14, 2003. The broad language of this provision, and the clear concerns set out in the legislative history, indicate that Ark. Code Ann. § 18-50-117 was meant to apply without regard to which category of person or entity is conducting the foreclosure under Ark. Code Ann. § 18-50-102.

Further, the Court finds nothing in the language of Ark. Code Ann. § 18-50-102 to indicate that it eliminates the need to comply with the authorized-to-do-business requirement of Ark. Code Ann. § 18-50-117, or that the attorney-in-fact party should be treated in any way different from the other categories of persons or entities allowed to conduct a non-judicial foreclosure proceeding. Further, the most recent enactment of Ark. Code Ann. § 18-50-102, now in effect, places several additional requirements on an attorney-in-fact before he can qualify as a party to a non-judicial foreclosure proceeding. In addition to the requirement that the attorney-in-fact be licensed in Arkansas (which was the law at the time of these foreclosure proceedings), an attorney-in-fact must now also have an office located in Arkansas, be accessible during business hours, and be able to accept funds as payment on the subject mortgage. See 2011 Ark. Acts 901, § 2, effective July 27, 2011. These recent additional restrictions to the attorney-in-fact qualification provide further evidence of the Arkansas legislature’s intent to limit access to the Statutory Foreclosure Act, not to further broaden access to that process as J.P. Morgan’s argument would necessarily require.

A second extension of J.P. Morgan’s argument is that, even if Ark. Code Ann. § 18-50-117 applies, J.P. Morgan satisfied the authorized-to-do-business requirement because its attorney-in-fact, Wilson & Associates, satisfied that requirement. This argument also fails. The procedures for appointing an attorney-in-fact to conduct the foreclosure are self-contained within the § 18-50-102 of the Statutory Foreclosure Act. This appointment is accomplished through the use of a power of attorney. Ark. Code Ann. § 18-50-102(e) (“The appointment of an attorney-in-fact by a mortgagee shall be made by a duly executed, acknowledged, and recorded power of attorney . . . .”). That power of attorney provides the attorney-in-fact only with those powers held by the appointing mortgagee. Ark. Code Ann. 18-50-102(d) (“A mortgagee may delegate his or her powers and duties under this chapter to an attorney-in-fact, whose acts shall be done in the name of and on behalf of the mortgagee.”) (emphasis added).

J.P. Morgan appointed Wilson & Associates as its attorney-in-fact through a limited power of attorney. Wilson & Associates did not initiate the foreclosure proceedings on its own behalf, but initiated those proceedings “in the name of and on behalf of” J.P. Morgan. It is J.P. Morgan’s compliance with the authorized-to-do-business requirement that is relevant, not that of Wilson & Associates. Thus, the Court finds that J.P. Morgan’s compliance with Ark. Code Ann. § 18-50-102 by electing to use an attorney-in-fact did not, by substitute, afford it compliance with the authorized-to-do-business requirement in Ark. Code Ann. § 18-50-117.

Therefore, J.P. Morgan has failed to show that its compliance with § 18-50-102 of the Statutory Foreclosure Act enabled it to legitimately employ the non-judicial foreclosure process without being authorized to do business in the state.

The Wingo Act

J.P. Morgan argues that a conflict between the Wingo Act (Ark. Code Ann. §§ 4-27-1501, et seq.), and the Statutory Foreclosure Act (Ark. Code Ann. §§ 18-50-101, et. seq.), allows J.P. Morgan to conduct non-judicial foreclosures without complying with the authorized-to-do-business requirement found in § 18-50-117 of the Statutory Foreclosure Act.

The Wingo Act is a sub-provision of the Arkansas Business Corporation Act, found at Ark. Code Ann. §§ 4-27-101, et seq. The Wingo Act states that “[a] foreign corporation may not transact business in this state until it obtains a certificate of authority from the Secretary of State.” Ark. Code Ann. § 4-27-1501(a). However, the Wingo Act also contains a non-exhaustive list of actions that do not constitute transacting business. Ark. Code Ann. § 4-27-1501(b). This list includes, among other things, the acts of “[m]aintaining, defending, or settling any proceeding[,]” and “[s]ecuring or collecting debts or enforcing mortgages and security interests in property securing the debts[.]” Ark. Code Ann. §§ 4-27-1501(b)(1), (8).

J.P. Morgan asserts that a conflict exists between the Wingo Act and the Statutory Foreclosure Act because the Wingo Act does not require a creditor to be authorized to do business in order to collect on its debt; the Statutory Foreclosure Act does. J.P. Morgan argues that the Wingo Act controls this conflict, and thus, the authorized-to-do-business requirement of the Statutory Foreclosure Act does not apply.

It is a well-settled principle of construction that where two statutes conflict, the more specific statutory provision controls. See Ozark Gas Pipeline Corp. v. Arkansas Public Service Comm’n, 342 Ark. 591, 602, 29 S.W.3d 730, 736 (2000) (“The rule is well settled that a general statute must yield when there is a specific statute involving the particular matter.”). The exclusions afforded in the Wingo Act address the broad category of “[s]ecuring or collecting debts or enforcing mortgages and security interests . . . .” Ark. Code Ann. § 18-27-1501(b)(8). The Statutory Foreclosure Act, on the other hand, deals with a specific type of collection activity — foreclosure — and an even more specific type of foreclosure — non-judicial foreclosure. Given the greater specificity of Ark. Code Ann. § 18-50-117, the Court finds that the Statutory Foreclosure Act provision carves out the specific statutory procedure of non-judicial foreclosure from the broad category of collecting debts, and as a result, controls any conflict between the two provisions.

Further, J.P. Morgan’s argument ignores the other provisions of the Wingo Act . The provision immediately following the exclusionary provision states that the consequence of transacting business without a certificate of authority is: (1) the foreign corporation is prohibited from maintaining a cause of action in the state courts, and (2) the foreign corporation must pay a monetary penalty. Ark. Code Ann. §§ 4-27-1502(a), (d)(1)(A).[8] As such, the exclusions allowed by § 4-27-1501(b) of the Wingo Act enable a foreign corporation to conduct some activities (including collection activities) without being subject to the consequences found in § 4-27-1502. In other words, under the Wingo Act, a foreign corporation can bring a cause of action in the Arkansas courts in furtherance of its collection activities, without a certificate of authority and without being subject to monetary penalty. This, however, is the full effect of the Wingo Act’s exclusionary provision. While it is true that J.P. Morgan was not required to obtain a certificate of authority in order to collect on its debts in Arkansas under the Wingo Act, it was required to do so if it wanted to employ Arkansas’ non-judicial foreclosure process. J.P. Morgan’s extension of the Wingo Act exclusions to the Statutory Foreclosure Act is far too broad.

Finally, during the hearing, J.P. Morgan argued that Omni Holding and Development Corp. v. C.A.G. Investments, Inc., 370 Ark. 220, 258 S.W.3d 374 (2007), establishes authority for its position. In Omni, a creditor filed a lawsuit against Omni seeking a judgment on its promissory note and claiming that Omni had committed an unlawful detainer of its property. In response, Omni claimed the creditor lacked standing because it did not have a certificate of authority. The Arkansas Supreme Court held that the creditor did not need a certificate of authority because its actions fell within the Wingo Act exclusion for collection activities. See Omni Holding and Development Corp., 370 Ark. at 226. Consistent with the Court’s determination above, the holding in Omni only stands for the proposition that a creditor can file a lawsuit in furtherance of collection activities without a certificate of authority. Id. (“Thus, C.A.G. was not `transacting business’ in Arkansas and its failure to obtain a certificate of authority did not prevent C.A.G. from filing suit in the state.“) (emphasis added). Under the Wingo Act exclusions, J.P. Morgan was allowed to foreclose on these properties through a judicial foreclosure action in the state court, but it was prohibited from using the state’s non-judicial foreclosure process. Omni does not support J.P. Morgan’s argument.

Therefore, the Court finds that no conflict exists between the Wingo Act and the Statutory Foreclosure Act, and to the extent that any conflict is present the more precise provision of the Statutory Foreclosure Act controls.

The National Banking Act

Finally, J.P. Morgan maintains that federal legislation preempts the requirement in Arkansas’ Statutory Foreclosure Act that a bank be authorized to do business in Arkansas before it employs the state’s non-judicial foreclosure process.

The federal law presented as having preemptive authority in this case is the National Banking Act (“NBA”). A brief review of the text, history, and purpose of the NBA is essential to the task of analyzing its preemptive effect. In 1864, Congress placed into law an act that established a national banking system. An Act to Provide a National Currency Secured by a Pledge of United States Bonds, and to Provide for the Circulation and Redemption Thereof, ch. 106, 13 Stat. 99 (1864) (codified as amended at 12 U.S.C. §§ 1 et seq.). Today, that system of laws remains largely intact, and has been renamed the National Banking Act. 12 U.S.C. § 38. See also Watters v. Wachovia Bank, N.A., 550 U.S. 1, 10-11, 127 S.Ct. 1559, 1566, 167 L.Ed.2d 389 (2007). The purpose of the national banking act is to prevent the “[d]iverse and duplicative superintendence of national banks” by the differing laws of the individual states. Watters, 550 U.S. at 13-14. See also Easton v. State of Iowa, 188 U.S. 220, 229, 23 S.Ct. 288, 290, 47 L.Ed. 452 (1903) (describing the goal of the NBA as “the erection of a system extending throughout the country, and independent, so far as powers conferred are concerned, of state legislation which, if permitted to be applicable, might impose limitations and restrictions as various and as numerous as the states.”).

Preemption occurs under Article VI of the Constitution, the Supremacy Clause, which provides that the laws of the United States “shall be the supreme Law of the Land; . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. A determination of whether a state law is preempted by federal law “start[s] with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.” Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947). A determination as to the congressional purpose of a law is the “ultimate touchstone” of any preemption analysis. Retail Clerks v. Schermerhorn, 375 U.S. 96, 103, 84 S.Ct. 219, 222, 11 L.Ed.2d 179 (1963); Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 30, 116 S.Ct. 1103, 1107 (1996) (“This question is basically one of congressional intent. Did Congress, in enacting the Federal Statute, intend to exercise its constitutionally delegated authority to set aside the laws of a State? If so, the Supremacy Clause requires courts to follow federal, not state, law.”).

Congressional intent to preempt a state law is typically derived from the language, structure, or purpose of the federal statute. See Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977). Accordingly, preemption is classified into three different categories: express preemption, field preemption, and conflict preemption. See Pacific Gas & Elec. Co. v. State Energy Resources Conservation and Dev. Comm’n, 461 U.S. 190, 203-04, 103 S.Ct. 1713, 1721-22, 75 L.Ed.2d 752 (1983). See also Altria Group, Inc. v. Good, 555 U.S. 70, 76, 129 S.Ct. 538, 543, 172 L.Ed.2d 398 (2008).

Express preemption exists where Congress’s intent to preempt the state law is clearly stated in the language of the federal statute. See Pacific Gas & Elec. Co., 461 U.S. at 203. However, more often than not, Congress does not make such an explicit manifestation of its intent. See Watters v. Wachovia Bank, N.A., 550 U.S. 1, 33, 127 S.Ct. 1559, 1579, 167 L.Ed.2d 389 (2007) (Stevens, J., dissenting). In the absence of such an explicit expression, the courts must determine whether the statutory provision implies a preemptive intent by evaluating the structure and purpose of the statute. See Barnett Bank of Marion County, N.A., v. Nelson, 517 U.S. 25, 32, 116 S.Ct. 1103, 1108, 134 L.Ed.2d 237 (1996). These implied forms of preemption are referred to as field preemption and conflict preemption, respectively. Id. Field preemption exists if the structure of the statute represents a “scheme of federal regulation . . . so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.” Rice v. Santa Fe Elevator Corp., 331 U.S. at 230. Alternatively, conflict preemption exists where the purpose of the federal law conflicts with the state law. See Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 2128-29, 68 L.Ed.2d 576 (1981) (“It is basic to this constitutional command that all conflicting state provisions be without effect.”). Conflict preemption arises under two different scenarios. The first scenario, referred to as physical impossibility preemption, is when it is physically impossible to comply with both the federal law and the state law at the same time. See Pacific Gas & Elec. Co., 461 U.S. at 204; In re Bate, 2011 WL 2473493, at *2-4 (Bankr. M.D. Fla. June 22, 2011). The second scenario, referred to as obstacle preemption, is when the “state law stands as an obstacle to achieving the objectives of Congress.” Id.

In these cases, there is no real question that express preemption does not apply. There is no specific provision in the NBA clearly stating a congressional intent to preempt state laws regarding non-judicial foreclosure, or moreover, state laws requiring a person or entity to be authorized to do business in the state before employing the non-judicial foreclosure process. Thus, the NBA does not expressly preempt the authorized-to-do-business requirement of the Statutory Foreclosure Act.

Field preemption is also inapplicable. The Supreme Court has specifically identified the activities of the “acquisition and transfer of property,” and the “right to collect their debts,” as areas where banks are generally subject to state law. Watters, 550 U.S. at 11; McClellan, 164 U.S. at 357. Additionally, regulations promulgated by the Office of the Comptroller of Currency (the “OCC”) save certain areas of state law from general preemption by the NBA.[9] See Monroe Retail, Inc. v. RBS Citizens, N.A., 589 F.3d 274, 282 (6th Cir. 2009). Those regulations state that state laws on the subjects of the “rights to collect debts[,]” and the “[a]cquisition and transfer of property[,]” are not inconsistent with the national bank’s real estate lending powers, provided those state laws only “incidentally affect” the bank’s exercise of its powers. 12 C.F.R. §§ 34.4, 7.4007(c), 7.4008(e). The collection of debts and transfers of property are the specific types of activities dealt with by the state law in question, the Statutory Foreclosure Act. Thus, the Court is not persuaded that the NBA’s occupation of these areas is “so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.” As a result, field preemption does not apply.

As previously mentioned, conflict preemption is found in two different forms: physical impossibility preemption and obstacle preemption. The first of these types, physical impossibility preemption, is not present in this case. It is not “physically impossible” for J.P. Morgan to comply with the requirements of both the NBA and the authorized-to-do-business requirement of the Statutory Foreclosure Act. Such a scenario might exist if, for example, a provision of the NBA prohibited national banks from being certified to transact business within a state. It might then be physically impossible for J.P. Morgan to comply with both the NBA’s requirement and the authorized-to-do-business requirement of the Statutory Foreclosure Act. However, no such provision is found in the NBA, and as a result, physical impossibility preemption does not apply.

The remaining determination is whether obstacle preemption applies. This determination turns on whether the authorized-to-do-business requirement of the Statutory Foreclosure Act “stands as an obstacle to achieving the objectives of Congress.” Pacific Gas & Elec. Co., 461 U.S. at 204. A state law stands as an obstacle to a federal law when it significantly interferes with the objectives of that federal law. Barnett, 517 U.S. at 33; Watters, 550 U.S. at 12. As previously stated, Congress’s objective in creating the NBA was to prevent the”[d]iverse and duplicative superintendence of national banks” by the differing laws of the individual states. In order to accomplish that objective, the NBA vests national banks with certain enumerated powers. 12 U.S.C. § 24.[10] Those enumerated provisions provide national banks with “all such incidental powers as shall be necessary to carry on the business of banking . . . .” 12 U.S.C. § 24 (Seventh). Additionally, Congress has given national banks the authority to “make, arrange, purchase or sell loans or extensions of credit secured by liens on interest in real estate . . . .” 12 U.S.C. § 371. See also Watters, 550 U.S. at 18 (stating that mortgage lending is one aspect of the “business of banking”).

The question is whether the burden of the requirement that a bank be authorized to do business in Arkansas before using the non-judicial foreclosure process significantly impairs the bank’s ability to conduct its business of banking, which includes its rights to hold and enforce mortgage liens. The Court finds that it does not. Obviously, the Statutory Foreclosure Act requirement places some measure of burden on a national bank holding a mortgage on property in Arkansas if it wants to foreclose on that property through the state’s non-judicial foreclosure process. However, a bank’s failure (or refusal) to comply with the Statutory Foreclosure Act requirement leaves the bank with the option of foreclosing on a property through the state’s judicial process. On that point, the Statutory Foreclosure Act specifically states that “[t]he procedures set forth in this chapter for the foreclosure of a mortgage or deed of trust shall not impair or otherwise affect the right to bring a judicial action to foreclose a mortgage or deed of trust.” Ark. Code Ann. § 18-50-116(a). While this alternative method of collection (judicial foreclosure) may not be as efficient as the non-judicial foreclosure process, the Court finds that it does not significantly impair the bank’s ability to collect on its debt.[11]

Moreover, the process of judicial foreclosure is available in all states, while only approximately 60 percent of the states allow non-judicial foreclosures. See Grant S. Nelson, Reforming Foreclosure: The Uniform Nonjudicial Foreclosure Act, 53 Duke L.J. 1399, 1403 (2004).[12] J.P. Morgan’s contention that the provisions of the NBA are significantly impaired by the authorized-to-do-business requirement is undermined by the fact that only slightly more than half of the states authorize such a procedure at all. The Court finds that the powers conferred to J.P. Morgan under the NBA are not significantly impaired by the Statutory Foreclosure Act’s requirement that J.P. Morgan be authorized to do business in Arkansas, and as a result, conflict preemption does not apply.

For the foregoing reasons, the Court finds that the Statutory Foreclosure Act’s requirement that a person or entity be authorized to do business in the state is not preempted by the NBA. As a result, the Court finds that J.P. Morgan was not in compliance with the Statutory Foreclosure Act, and that the Debtors do not owe, nor must they pay, J.P. Morgan for any fees and costs incurred through the non-judicial foreclosure proceedings conducted against these Debtors.

Attorney Fees

Both parties have asked for an award of attorney fees. As a general rule, known as the “American rule,” the parties to litigation must pay their own attorney fees. In re Hunter, 203 B.R. 150, 151 (Bankr. W.D. Ark. 1996). However, certain exceptions to this rule exist, one of which is found in Ark. Code Ann. § 16-22-308, which states,

In any civil action to recover on an open account, statement of account, account stated, promissory note, negotiable instrument, or contract relating to the purchase or sale of goods, wares, or merchandise, or for labor or services, or breach of contract, unless otherwise provided by law or the contract which is the subject matter of the action, the prevailing party may be allowed a reasonable attorney’s fee to be assessed by the court and collected as costs.

Ark. Code Ann. § 16-22-308. Under Arkansas law, an award of prevailing party attorney fees under this statute are permissive and discretionary. In re Cameron, No. 4:10-bk-14987, 2011 WL 1979503, at *6 (Bankr. E.D. Ark. May 17, 2011).

This action was brought by the Debtors to determine whether they owed the foreclosure fees and costs incurred by J.P. Morgan in conducting non-judicial foreclosure proceedings on its promissory notes. The Debtors are the prevailing party in these matters, and as such, the Court awards the Debtors a reasonable amount for their attorney fees. Counsel for the Debtors shall submit a separate application for those fees to the Court, as further ordered below.

CONCLUSION

For the foregoing reasons, the Court concludes that J.P. Morgan was not in compliance with the authorized-to-do-business requirement of the Statutory Foreclosure Act when it conducted the foreclosures against these Debtors. Additionally, the Court has determined that J.P. Morgan’s failure to comply with Ark. Code Ann. § 18-50-117 was not cured by empowering an attorney-in-fact under Ark. Code Ann. § 18-50-102, was not superceded by the Wingo Act, and was not preempted by the National Banking Act. As a result, the foreclosure fees and costs incurred by Chase and J.P. Morgan are not owed by the Debtors, and need not be included in the Debtors’ repayment plans in order for those plans to be confirmed.

Further, the Court has determined that the Debtors should be awarded their attorney fees incurred in pursuing these actions.

Therefore, it is hereby

ORDERED that the Objections to Confirmation are OVERRULED; it is further,

ORDERED that the Defendant shall pay the reasonable attorney fees incurred by the Debtors in pursuing these actions. The Court will determine the amount of this award on further application by Debtors’ Counsel, which shall include an itemization of the attorney fees incurred in these actions. This application must be filed with the Court within 14 days of the entry of this Order, and shall be served on Counsel for J.P. Morgan. J.P. Morgan shall have 14 days from the date that fee application is filed with the Court in which to file a response, should it wish to do so.

IT IS SO ORDERED.

[1] Although the objections to confirmation were filed by two separate creditors, J.P. Morgan and Chase, as of the date of the hearing all of the claims at issue in this matter had been transferred to J.P. Morgan.

[2] The Court also takes judicial notice of all filings and records in these cases, including the proofs of claim. See Fed. R. Evid. 201; In re Henderson, 197 B.R. 147, 156 (Bankr. N.D. Ala. 1996) (“The court may take judicial notice of its own orders and of records in a case before the court, and of documents filed in another court.”) (citations omitted); see also In re Penny, 243 B.R. 720, 723 n.2 (Bankr. W.D. Ark. 2000).

[3] J.P. Morgan only presented the limited power of attorney filed in the property records for the Peeks case, but J.P. Morgan’s counsel represented to the Court that a similar limited power of attorney was granted and recorded in the property records for each of the three cases.

[4] The Court notes that counsel for the Debtors argued that a determination that the statute had been violated would make any sale under the Statutory Foreclosure Act void ab initio. No property sales actually resulted from the foreclosure proceedings in these cases. The sole dispute in these cases is whether the foreclosure fees and costs incurred through use of Arkansas’ non-judicial foreclosure process are owed.

[5] The Court notes that no explanation is provided by the statute regarding what action is required in order to be authorized to do business under Ark. Code Ann. § 18-50-117. Following a review of other provisions within the Arkansas Code, it appears that this requirement generally demands that a party obtain a certificate of authority from the secretary of state. See Ark. Code Ann. § 23-48-1003 (“A certificate of authority authorizes the out-of-state bank to which it is issued to transact business in the state . . . .”); Ark. Code Ann. § 4-27-1501 (“A foreign corporation may not transact business in this state until it obtains a certificate of authority from the Secretary of State.”). However, no such determination is necessary in these cases because J.P. Morgan stipulated that it was not so authorized.

[6] J.P. Morgan did not argue that it met the requirements of the Statutory Foreclosure Act because it was a “financial institution.” Nonetheless, the Court notes that even if J.P. Morgan qualified as a financial institution under Ark. Code Ann. § 102, it would still be required to comply with the fundamental statutory requirement of Ark. Code Ann. § 18-50-117 for the same reasons discussed herein with regard to its use of an attorney-in-fact.

[7] J.P. Morgan did not provide the Court with the analytical extensions needed to support its argument. As a result, the Court has analyzed all possible extensions of that argument, which include (1) that because J.P. Morgan authorized an attorney-in-fact to conduct the foreclosure, Ark. Code Ann. § 18-50-117 did not apply, or (2) that because J.P. Morgan authorized Wilson & Associates to conduct the foreclosure it satisfied the requirement of Ark. Code Ann. § 18-50-117.

[8] Ark. Code Ann. § 04-27-1502 is titled the “[c]onsequences of transacting business without authority,” and states that:

(a) A foreign corporation transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.

. . .

(d)(1)(A) A foreign corporation that transacts business in this state without a certificate of authority shall pay a civil penalty to the state for each year and partial year during which it transacts business in this state without a certificate of authority.

Ark. Code Ann. § 4-27-1502.

[9] In many cases, the OCC regulatory interpretations are entitled to substantial deference, commonly known as Chevron deference. Investment Co. Institute v. Camp, 401 U.S. 617, 626-27, 91 S.Ct. 1091, 28 L.Ed.2d 367 (1971) (“It is settled that courts should give great weight to any reasonable construction of a regulatory statute adopted by the agency charged with the enforcement of that statute.”).

[10] J.P. Morgan did not direct the Court to any specific provision of the NBA to support its argument that the authorized-to-do-business requirement creates an obstacle to achieving Congress’s objectives. Nonetheless, the Court’s review of the NBA has identified several powers granted to national banks that extend to such an argument.

[11] The Court also notes that all a national bank must do in order to meet the requirements of Ark. Code Ann. § 18-50-117 is become authorized to do business in the state.

[12] A list of the types of foreclosure allowed by each state is available at http://www.realty trac.com/foreclosure-laws/foreclosure-laws-comparisons.asp (last visited Sept. 12, 2011).

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

MI Supreme Court “Persons or Groups may move the Court for permission to file briefs amicus curiae, to be filed no later than October 21, 2011 for RESIDENTIAL FUNDING CO. LLC v. SAURMAN

MI Supreme Court “Persons or Groups may move the Court for permission to file briefs amicus curiae, to be filed no later than October 21, 2011 for RESIDENTIAL FUNDING CO. LLC v. SAURMAN


RESIDENTIAL FUNDING CO., L.L.C., f/k/a RESIDENTIAL FUNDING CORPORATION, Plaintiff-Appellant,
v.
GERALD SAURMAN, Defendant-Appellee.
BANK OF NEW YORK TRUST COMPANY, Plaintiff-Appellant,
v.
COREY MESSNER, Defendant-Appellee.

.

No. 143178-9 & (104)(108)(109)(111)(112)(113)(114).

Supreme Court of Michigan.

September 28, 2011.

Robert P. Young, Jr., Chief Justice, Michael F. Cavanagh, Marilyn Kelly, Stephen J. Markman, Diane M. Hathaway, Mary Beth Kelly, Brian K. Zahra, Justices.

Order

On order of the Court, the motion for expedited consideration of the application for leave to appeal is GRANTED. The application for leave to appeal the April 21, 2011 judgment of the Court of Appeals is considered, and we direct the Clerk to schedule oral argument, during the November 2011 session, on whether to grant the application or take other action. MCR 7.302(H)(1). At oral argument, the parties shall address whether Mortgage Electronic Registration Systems, Inc. (MERS) as the mortgagee and nominee of the note holder is an “owner … of an interest in the indebtedness secured by the mortgage” within the meaning of MCL 600.3204(1)(d), such that it was permitted to foreclose by advertisement. The parties may file supplemental briefs no later than October 21, 2011. They should not submit mere restatements of their application papers.

The motions of the Michigan Association of Realtors, Legal Services Association of Michigan/Michigan Poverty Law Program/State Bar of Michigan Consumer Law Section Council/National Consumer Law Center, State Bar of Michigan Real Property Law Section, Mortgage Electronic Registration Systems, Inc./Mortgage Bankers Association, Michigan Bankers Association/Michigan Mortgage Lenders Association, and the American Land Title Association for leave to file brief amicus curiae are GRANTED. Other persons or groups interested in the determination of the issues presented in this case may move the Court for permission to file briefs amicus curiae, to be filed no later than October 21, 2011.

[ipaper docId=67389997 access_key=key-1uay0hbactivs2vbqniz height=600 width=600 /]

 

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

U.S. Bank Natl. Assn. v Mayala | NY Appeals Court 2nd Jud. Dept. Affirms, Consolidated Case “That certain mortgages held by MERS on the subject real property are invalid in their entirety”

U.S. Bank Natl. Assn. v Mayala | NY Appeals Court 2nd Jud. Dept. Affirms, Consolidated Case “That certain mortgages held by MERS on the subject real property are invalid in their entirety”


Decided on August 23, 2011

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE DIVISION : SECOND JUDICIAL DEPARTMENT

REINALDO E. RIVERA, J.P.
JOSEPH COVELLO
ANITA R. FLORIO
PLUMMER E. LOTT, JJ.
2010-00422
2010-00454
2010-08578
(Index Nos. 12884/06, 13809/07)

[*1]U.S. Bank National Association, etc., appellant,

v

Wentz Mayala, et al., defendants, Juan Vega, et al., respondents. (Action No. 1)

Juan Vega, et al., respondents,

v

Wentz Mayala, et al., defendants, MERS, etc., et al., appellants (and a third-party action). (Action No. 2)

Moss & Kalish, PLLC, New York, N.Y. (Mark L. Kalish, Gary
N. Moss, and James Schwartzman of counsel), for appellants.
Simon & Gilman, LLP, Elmhurst, N.Y. (Barry Simon of
counsel), for respondents.

DECISION & ORDER

In an action to foreclose mortgages on certain real property (Action No. 1), and a related action, inter alia, for declaratory relief and the partition and sale of that real property (Action No. 2), which have been consolidated for appeal, (1) the plaintiff in Action No. 1 appeals, as limited by the appellants’ brief, from so much of an order and judgment (one paper) of the Supreme Court, Kings County (Schmidt, J.), dated September 25, 2009, as granted those branches of the motion of the defendants Juan Vega and Sonia Martinez which were for summary judgment on their counterclaim to quiet title to the extent of declaring that they are the owners of a two-thirds interest in the subject real property and that the subject mortgages are invalid in their entirety, and to dismiss the complaint in Action No. 1, and, thereupon, in effect, declared that those defendants are the owners of a two-thirds interest in the subject real property and that the subject mortgage is invalid, and dismissed the complaint in Action No. 1, and (2) MERS and First Central Savings Bank, defendants in Action No. 2 appeal, as limited by the appellants’ brief, from (a) so much of an order and judgment (one paper) of the same court, also dated September 25, 2009, as granted the motion of the plaintiffs in Action No. 2, in effect, for summary judgment on the complaint to the extent of, in effect, declaring that the plaintiffs in Action No. 2 are the owners of a two-thirds interest in the subject real property and that certain mortgages held by MERS on the subject real property are invalid in their entirety, and, thereupon, declared that the plaintiffs in Action No. 2 are the owners of a two-thirds interest in the subject real property and that the mortgages are invalid in its entirety, and (b) so much of an order of the same court dated July 7, 2010, as directed the sale of the subject real property and that two-thirds of the net proceeds of such sale be distributed to the plaintiffs. [*2]

ORDERED that the orders and judgments, and the order, are affirmed insofar as appealed from, with one bill of costs.

Contrary to the appellants’ contention, in opposition to the respondents’ prima facie showing in both Action No. 1 and Action No. 2 that they are and have been the owners of a two-thirds interest in the subject real property since September 1991, the appellants, in their respective opposition papers, failed to raise a triable issue of fact as to the affirmative defenses of adverse possession (see RPAPL 541; Myers v Bartholomew, 91 NY2d 630, 633-635; Culver v Rhodes, 87 NY 348, 355; Perez v Perez, 228 AD2d 161, 162; Perkins v Volpe, 146 AD2d 617, 617-618; Knowlton Bros. v New York Air Brake Co., 169 App Div 324, 334) or laches (see Kraker v Roll, 100 AD2d 424, 432-435). Also contrary to the appellants’ contention, under the circumstances, the Supreme Court properly declared the subject mortgages invalid in their entirety (see Cruz v Cruz, 37 AD3d 754, 754; see also First Natl. Bank of Nev. v Williams, 74 AD3d 740, 742; Johnson v Melnikoff, 65 AD3d 519, 520-521; see generally Filowick v Long, 201 AD2d 893, 893).
RIVERA, J.P., COVELLO, FLORIO and LOTT, JJ., concur.

ENTER:

Matthew G. Kiernan

Clerk of the Court

[ipaper docId=63162663 access_key=key-1m37f4pei6uzmh3dzi8f height=600 width=600 /]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (1)

MERS legal case delaying home sales in Jackson, Possibly headed to State Supreme Court

MERS legal case delaying home sales in Jackson, Possibly headed to State Supreme Court


Michigan law states that whoever forecloses on a property must own the debt, and MERS did not.

MLive-

A family was expecting to close on a house on a Friday. On Thursday night, the sale had to be scuttled.

Fifteen to 20 pending home sales fell apart that one Jackson title company was preparing to handle. Banks started pulling homes for sale off the market.

First, Jackson County’s real estate market suffered from the foreclosure crisis. Lately, it has been going through another convulsion due to a little-known company that has its name all over mortgage documents in Jackson and around the state.

Continue reading [MLIVE]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

WHOA! MERS Ruling Forces HUD to Reforeclose on Michigan REO

WHOA! MERS Ruling Forces HUD to Reforeclose on Michigan REO


What about those already sold?


Mortgage National News-

The Department of Housing and Urban Development will re-foreclose on all its REO properties in Michigan where the original foreclosure was conducted in the name of MERS using the state’s nonjudicial process.

read the ruling below…

Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

[VIDEO] MI Rep. Hansen Clarke Discusses Making Lenders Prove Ownership to Foreclose, Supports $100M Class Action Against MERS

[VIDEO] MI Rep. Hansen Clarke Discusses Making Lenders Prove Ownership to Foreclose, Supports $100M Class Action Against MERS


Make this go VIRAL!!

Contact: https://hansenclarke.house.gov/contact-me

Uploaded by on May 16, 2011

Rep. Hansen Clarke discusses home foreclosures on WJR’s The Law Show

[image: VoiceofDetroit.net]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (3)

MICHIGAN CLASS ACTION | DEPAUW v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. “MERS”

MICHIGAN CLASS ACTION | DEPAUW v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. “MERS”


UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

* * * * * * * *

MARLYA DEPAUW and SHARON & TERRANCE LAFRANCE, Individually and as Representatives of a Class of Individuals Similarly Situated,
Plaintiffs,

v.

MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.
c/o The Corporation Trust Company,
as Statutory Agent
Corporation Trust Center
1209 Orange Street
New Castle, DE 19801,
Defendant.

Case Number: 2:11-cv-12032

JUDGE:
Magistrate Judge:


______________________________________________________________________________

CLASS ACTION COMPLAINT WITH DEMAND FOR JURY
TRIAL ENDORSED HEREON

EXCERPT:

16. In many of the actions filed by MERS, mortgagor homeowners responded by filing pleadings arguing that MERS did not have the capacity to foreclose by advertisement as they did not own or have any interest in the underlying indebtedness.

17. In response to these challenges, MERS would normally answer by providing confusing loan documents and claiming an interest in the underlying debt, even though they knew this was not true and that they were not complying with the requirements of MCL 600.3201, et seq.

18. Even in the face of these challenges, MERS did, and continued for a period of years, to knowingly, fraudulently and illegally foreclose using a State law upon which they had no authority or right to utilize.

19. In these cases, MERS lacked the authority to foreclose by advertisement pursuant to MCL 600.3201, et seq., as MERS was never either the owner of the underlying indebtedness or loan and was not the servicing agent of the mortgage.

20. On April 21, 2011, the State of Michigan, Court of Appeals in the consolidated case of Residential Funding Co., LLC v. Gerald Saurman, (Residential Funding Co, LLC v. Saurman, 290248, 291443 (MICA)), issued a ruling stating in pertinent part that in cases where MERS did not own the underlying indebtedness, did not own an interest in the indebtedness secured by the mortgage, or did not service the mortgage, MERS was therefore unable to comply with the statutory requirements of MCL 600.3201(1)(d), and subsequently had no right to foreclose by advertisement.

21. The Court of Appeals continued, and ruled that in those such cases where MERS did foreclose by advertisement upon the foregoing conditions rendered those foreclosure proceedings void ab initio.

Continue below…

[ipaper docId=55154803 access_key=key-bpb1wcaawkzt44d8izs height=600 width=600 /]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

Merscorp Mortgage Registry Sued Over Non-Judicial Foreclosures in Michigan

Merscorp Mortgage Registry Sued Over Non-Judicial Foreclosures in Michigan


Now we SAW this baby coming across miles away, and this will not be the last. Just yesterday, Fannie said MERS poses a significant risk…no DOUBT!

BLOOMBERG-

Mortgage Electronic Registration Systems Inc. “illegally prosecuted” non-judicial foreclosures in Michigan and owes more than $100 million to people who lost their homes, lawyers for three homeowners said in a lawsuit.

The homeowners said Merscorp Inc.’s MERS, which runs an electronic registry of mortgages, used Michigan’s so-called foreclosure by advertisement process illegally and “misappropriated” their homes. Any foreclosures by MERS using this process in Michigan should be voided, they said in their complaint filed in federal court in Detroit.

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

Title agencies running scared, canceling closings after Michigan Appeals Court rules against MERS

Title agencies running scared, canceling closings after Michigan Appeals Court rules against MERS


DETROIT FREE PRESS-

Local Realtors say title companies are canceling closings on some bank-owned homes after a recent Michigan Court of Appeals decision made it more risky to insure them.

Late last month, the court ruled the Mortgage Electronic Registration System lacks authority to foreclose by advertisement in Michigan. The system is an electronic record-keeper of mortgages.

read the ruling below…

Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

[VIDEO] Michigan Court of Appeals ruling could halt some foreclosures due to MERS

[VIDEO] Michigan Court of Appeals ruling could halt some foreclosures due to MERS


See link below for appeal ruling of 2 consolidated cases…

Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose

.

.

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (0)

Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose

Michigan Court Of Appeals Rules, Consolidates (2) Cases MERS “STRAWMAN” Has No Authority To Foreclose


H/T to MFI-Miami


S T A T E  O F  M I C H I G A N

C O U R T  O F  A P P E A L S

RESIDENTIAL FUNDING CO, LLC, f/k/a

RESIDENTIAL FUNDING CORPORATION,

Plaintiff-Appellee,

v.

GERALD SAURMAN, LC

_______________________________

BANK OF NEW YORK TRUST COMPANY,

v.

COREY MESSNER, LC

Before: WILDER, P.J., and SERVITTO and SHAPIRO, JJ.

SHAPIRO, J.

These consolidated cases each involve a foreclosure instituted by Mortgage Electronic Registration System (MERS), the mortgagee in both cases. The sole question presented is whether MERS is an entity that qualifies under MCL 600.3204(1)(d) to foreclose by advertisement on the subject properties, or if it must instead seek to foreclose by judicial process. We hold that MERS does not meet the requirements of MCL 600.3204(1)(d) and, therefore, may
not foreclose by advertisement.

I. BASIC FACTS AND PROCEDURAL HISTORY

In these cases, each defendant purchased property and obtained financing for their respective properties from a financial institution. The financing transactions involved loan documentation (“the note”) and a mortgage security instrument (the “mortgage instrument”). The original lender in both cases was Homecoming Financial, LLC.

Each note provided for the amount of the loan, the interest rate, methods and requirements of repayment, the identity of the lender and borrower and the like. The mortgage instrument provided for rights of foreclosure of the property by the mortgagee in the event of default on the loan. The lender, though named as the lender in the mortgage security instrument, was not designated therein as the mortgagee. Instead, the mortgage stated that the Mortgage Electronic Registration Systems, Inc (“MERS”) “is the mortgagee under this Security Instrument” and it contained several provisions addressing the relationship between MERS and the lender including:

“MERS” is Mortgage Electronic Registration Systems Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the mortgagee under this Security Instrument.

* * *

This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, warrant, grant and convey to MERS (solely as nominee for Lender and Lender’s successors and assigns) and to the successors and assigns of MERS, with the power of sale, the following described property . . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

Defendants defaulted on their respective notes. Thereafter, MERS began non-judicial foreclosures by advertisement as permitted under MCL 600.3201, et seq., purchased the property at the subsequent sheriff’s sales and then quit-claimed the property to plaintiffs as respective successor lenders. When plaintiffs subsequently began eviction actions, defendants challenged the respective foreclosures as invalid, asserting, inter alia, that MERS did not have authority under MCL 600.3204(1)(d) to foreclose by advertisement because it did not fall within any of the three categories of mortgagees permitted to do so under that statute. The district courts denied defendants’ assertions that MERS lacked authority to foreclose by statute and their conclusions were affirmed by the respective circuit courts on appeal. We granted leave to appeal in both cases.1

II. ANALYSIS
A. STANDARD OF REVIEW

We review de novo decisions made on motions for summary disposition,2 Coblentz v Novi, 475 Mich 558, 567; 719 NW2d 73 (2006), as well as a circuit court’s affirmance of a district court’s decision on a motion for summary disposition. First of America Bank v Thompson, 217 Mich App 581, 583; 552 NW2d 516 (1996). We review all affidavits, pleadings, depositions, admissions and other evidence submitted by the parties in the light most favorable to the party opposing the motion, in this case, defendants. Coblentz, 475 Mich at 567-568.

We also review de novo questions of statutory interpretation and application. Id. at 567. The primary goal of statutory interpretation is to give effect to the intent of the Legislature. This determination is accomplished by examining the plain language of the statute. Although a statute may contain separate provisions, it should be read as a consistent whole, if possible, with effect given to each provision. If the statutory language is unambiguous, appellate courts presume that the Legislature intended the meaning plainly expressed and further judicial construction is neither permitted nor required. Statutory language should be reasonably construed, keeping in mind the purpose of the statute. If reasonable minds could differ regarding the meaning of a statute, judicial construction is appropriate. When construing a statute, a court must look at the object of the statute in light of the harm it is designed to remedy and apply a reasonable construction that will best accomplish the purpose of the Legislature. [ISB Sales Co v Dave’s Cakes, 258 Mich App 520, 526-527; 672 NW2d 181 (2003) (citations omitted).]

B. MERS BACKGROUND

The parties, in their briefs and at oral argument, explained that MERS was developed as a mechanism to provide for the faster and lower cost buying and selling of mortgage debt. Apparently, over the last two decades, the buying and selling of loans backed by mortgages after their initial issuance had accelerated to the point that those operating in that market concluded that the statutory requirement that mortgage transfers be recorded was interfering with their ability to conduct sales as rapidly as the market demanded. By operating through MERS, these financial entities could buy and sell loans without having to record a mortgage transfer for each transaction because the named mortgagee would never change; it would always be MERS even though the loans were changing hands. MERS would purportedly track the mortgage sales internally so as to know for which entity it was holding the mortgage at any given time and, if foreclosure was necessary, after foreclosing on the property, would quit claim the property to whatever lender owned the loan at the time of foreclosure.

As described by the Court of Appeals of New York, in MERSCORP, Inc v Romaine, 8 NY3d 90, 96; 861 NE2d 81(2006):

In 1993, the MERS system was created by several large participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system.

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

The sole issue in this case is whether MERS, as mortgagee, but not noteholder, could exercise its contractual right to foreclose by means of advertisement.

C. MCL 600.3204(1)(d)

Foreclosure by advertisement is governed by MCL 600.3204(1)(d), which provides, in pertinent part:

[A] party may foreclose a mortgage by advertisement if all of the following circumstances exist:

* * *

(d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.


The parties agree that MERS is neither the owner of the indebtedness, nor the servicing agent of the mortgage. Therefore, MERS lacked the authority to foreclose by advertisement on defendants’ properties unless it was “the owner . . . of an interest in the indebtedness secured by the mortgage.” MCL 600.3204(1)(d).

The question, then, is what being the “owner . . . of an interest in the indebtedness secured by the mortgage” requires. According to Black’s Law Dictionary, to “own” means “[t]o have good legal title; to hold as property; to have a legal or rightful title to.” Black’s Law Dictionary (6th ed). That text defines an “interest” as “the most general term that can be employed to denote a right, claim, title or legal share in something”. “Indebtedness” is defined as “[t]he state of being in debt . . . the owing of a sum of money upon a certain and express agreement.”

In these cases, a promissory note was exchanged for loans of $229,950 and $207,575, respectively. Thus, reasonably construing the statute according to its common legal meaning, ISB Sales Co, 258 Mich App at 526-527, the defendants’ indebtedness is solely based upon the notes because defendants owed monies pursuant to the terms of the notes. Consequently, in order for a party to own an interest in the indebtedness, it must have a legal share, title, or right in the note.

Plaintiffs’ suggestion that an “interest in the mortgage” is sufficient under MCL 600.3204(d)(1) is without merit. This is necessarily so, as the indebtedness, i.e., the note, and the mortgage are two different legal transactions providing two different sets of rights, even though they are typically employed together. A “mortgage” is “[a] conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms.” The mortgagee has an interest in the property. See Citizens Mtg Corp v Mich Basic Prop Ins Assoc, 111 Mich App 393, 397; 314 NW2d 635 (1981) (referencing the “mortgagee’s interests in the property”). The mortgagor covenants, pursuant to the mortgage, that if the money borrowed under the note is not repaid, the mortgagee will retain an interest in the property. Thus, unlike a note, which evidences a debt and represents the obligation to repay, a mortgage represents an interest in real property contingent on the failure of the borrower to repay the lender. The indebtedness, i.e., the note, and the mortgage are two different things.

Applying these considerations to the present case, it becomes obvious that MERS did not have the authority to foreclose by advertisement on defendants’ properties. Pursuant to the mortgages, defendants were the mortgagors and MERS was the mortgagee. However, it was the plaintiff lenders that lent defendants money pursuant to the terms of the notes. MERS, as mortgagee, only held an interest in the property as security for the note, not an interest in the note itself. MERS could not attempt to enforce the notes nor could it obtain any payment on the loans on its own behalf or on behalf of the lender. Moreover, the mortgage specifically clarified that, although MERS was the mortgagee, MERS held “only legal title to the interest granted” by defendants in the mortgage.3 Consequently, the interest in the mortgage represented, at most, an interest in defendants’ properties. MERS was not referred to in any way in the notes and only Homecomings held the notes. The record evidence establishes that MERS owned neither the notes, nor an interest, legal share, or right in the notes. The only interest MERS possessed was in the properties through the mortgages. Given that the notes and mortgages are separate documents, evidencing separate obligations and interests, MERS’ interest in the mortgage did not give it an interest in the debt.

Moreover, plaintiffs’ analysis ignores the fact that the statute does not merely require an “interest” in the debt, but rather that the foreclosing party own that interest. As noted above, to own means “to have good legal title; to hold as property; to have a legal or rightful title to.” None of these terms describes MERS’ relationship to the note. Plaintiffs’ claim that MERS was a contractual owner of an interest in the notes based on the agreement between MERS and the lenders misstates the interests created by that agreement. Although MERS stood to benefit if the debt was not paid—it stood to become the owner of the property—it received no benefit if the debt was paid. MERS had no right to possess the debt, or the money paid on it. Likewise, it had no right to use or convey the note. Its only “right to possess” was to possess the property if and when foreclosure occurred. Had the lender decided to forgive the debt in the note, MERS would have had no recourse; it could not have sued the lender for some financial loss. Accordingly, it owned no financial interest in the notes. Indeed, it is uncontested that MERS is wholly without legal or rightful title to the debt and that there are no circumstances under which it is entitled to receive any payments on the notes.

The dissent relies on the language in the mortgage instrument to suggest a contractual basis to find that MERS has an ownership interest in the loan. However, the fact that Homecomings gave MERS authority to take “any action required of the Lender” did not transform MERS into an owner of an interest in the notes. Trustees have the authority to take action on behalf of a trust; they can even be authorized to take “any” action. Nevertheless, such authority does not give them an ownership interest in the trust. Moreover, the provision on which the dissent relies (but does not fully quote) contains language limiting MERS to taking action on behalf of the lender’s equitable interest in the mortgage instrument.4 The relevant language provides that the borrower “understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument” (emphasis added) and gives MERS “the right: to exercise any or all of those interests . . . and to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument . . . .” (emphasis added). Thus, the contract language expressly limits the interests MERS owns to those granted in the mortgage instrument and limits MERS’ right to take action to those actions related to the mortgage instrument. Nothing in this language permits MERS to take any action with respect to the debt, or provides it any interest therein.

Finally, even assuming that the contract language did create such a right, Homecomings cannot grant MERS the authority to take action where the statute prohibits it. Regardless of whether Homecomings would like MERS to be able to take such action, it can only grant MERS the authority to take actions that our Legislature has statutorily permitted. Where the Legislature has limited the availability to take action to a specified group of individuals, parties cannot grant an entity that falls outside that group the authority to take such actions. Here, the Legislature specifically requires ownership of an interest in the note before permitting foreclosure by advertisement.

The contention that the contract between MERS and Homecomings provided MERS with an ownership interest in the note stretches the concept of legal ownership past the breaking point. While the term may be used very loosely in some popular contexts, such as the expression to “own a feeling,” such use refers to some subjective quality or experience. We are confident that such a loose and uncertain meaning is not what the Legislature intended. Rather, the Legislature used the word “owner” because it meant to invoke a legal or equitable right of ownership. Viewed in that context, although MERS owns the mortgage, it owns neither the debt nor an interest in any portion of the debt, and is not a secondary beneficiary of the payment of the debt.5

The dissent’s conclusion, that MERS owns an interest in the note because whether it ultimately receives the property depends on whether the note is paid, similarly distorts the term “interest” from a legal term of art to a generalized popular understanding of the word. It may be that MERS is concerned with (i.e., interested in) whether the loans are paid because that will define its actions vis-à-vis the properties, but being concerned about whether someone pays his loan is not the same as having a legal right, or even a contingent legal right, to those payments.

Plaintiffs are mistaken in their suggestion that our conclusion that MERS does not have “an interest in the indebtedness” renders that category in the statute nugatory. We need not determine the precise scope of that category, but, by way of example, any party to whom the note has been pledged as security by the lender has “an interest in the indebtedness” because, under appropriate circumstances, it owns the right to the repayment of that loan.

Plaintiffs also argue that MERS had the authority to foreclose by advertisement as the agent or nominee for Homecomings, who held the note and an equitable interest in the mortgage. However, this argument must also fail under the statute because the statute explicitly requires that, in order to foreclose by advertisement, the foreclosing party must possess an interest in the indebtedness. MCL 600.3204(1)(d). It simply does not permit foreclosure in the name of an agent or a nominee. If the Legislature intended to permit such actions, it could have easily included “agents or nominees of the noteholder” as parties that could foreclose by advertisement.Indeed, had the Legislature intended the result suggested by plaintiffs, it would have merely had to delete the word “servicing.” The law is clear that this Court must “avoid construction that would render any part of the statute surplusage or nugatory.” Wickens v Oakwood Healthcare Sys, 465 Mich 53, 60; 631 NW2d 686 (2001). Thus, the Legislature’s choice to permit only servicing agents and not all agents to foreclose by advertisement must be given effect.

Similarly, we reject plaintiffs’ reliance on Jackson v Mortgage Electronic Registration Sys, Inc, 770 NW2d 487 (Minn, 2009). Jackson, a Minnesota case, is inapplicable because it interprets a statute that is substantially different from MCL 600.3204. The statute at issue in Jackson specifically permits foreclosure by advertisement if “a mortgage is granted to a mortgagee as nominee or agent for a third party identified in the mortgage, and the third party’s successors and assigns.” Id. at 491. Thus, the Minnesota statute specifically provides for foreclosure by advertisement by entities that stand in the exact position that MERS does here. Indeed, the Minnesota statute is “frequently called ‘the MERS statute.’” Id. at 491. Our statute, MCL 600.3204(1)(d) makes no references to nominees or agents. Rather, it requires that the party foreclosing be either the mortgage servicer or have an ownership interest in the indebtedness. The Jackson statute also revolves around the mortgage, unlike MCL 600.3204(1)(d), which uses the term indebtedness, which, as discussed previously, is a reference to the note, not the mortgage. Thus, Jackson has no application to the case at bar. Moreover, the Minnesota statute demonstrates that if our Legislature had intended to allow MERS to foreclose by advertisement, they could readily have passed a statute including language like that included in Minnesota.

D. ANALYSIS BEYOND THE LANGUAGE OF THE STATUTE

Plaintiffs suggest that, despite the plain language of the statute, the Legislature did not create three discrete categories of entities that could foreclose by advertisement. Instead, plaintiffs assert that the Legislature envisioned a continuum of entities: those that actually own the loan, those that service the loan, and some ill-defined category which might be called “everything in between.” However, courts may not “rewrite the plain statutory language and substitute our own policy decisions for those already made by the Legislature.” DiBenedetto v West Shore Hosp, 461 Mich 394, 405; 605 NW2d 300 (2000). Thus, without any language in the statute providing for a “continuum,” let alone an analysis of what it constitutes, we find no merit in this position.

Plaintiffs also raise a straw man argument by citing this Court’s decision in Davenport v HSBC Bank USA, 275 Mich App 344; 739 NW2d 383 (2007) where we observed that “[o]ur Supreme Court has explicitly held that ‘[o]nly the record holder of the mortgage has the power to foreclose’ under MCL 600.3204.” Davenport, 275 Mich App at 347, quoting Arnold v DMR Financial Services, Inc (After Remand), 448 Mich 671, 678; 532 NW2d 852 (1995). However, the facts in Davenport do not reflect that the party who held the note was a different party than the party who was the mortgagee. Davenport, 275 Mich App at 345. Indeed, the fact that the Court used the term “mortgage”  interchangeably with “indebtedness,” id. at 345-347, rather than distinguishing the two terms, indicates that the same party held both the note and the mortgage. Because the instant cases involve a situation where the noteholder and mortgage holder are separate entities, the general proposition set forth in Davenport does not apply. There is nothing in Davenport holding that a party that owns only the mortgage and not the note has an ownership interest in the debt. 6
We also note that Arnold, the Supreme Court case relied upon in Davenport, was interpreting a previous version of MCL 600.3204, which was substantially revised when the Legislature adopted the version we must apply in this case. The statute as it existed when Arnold was decided included a provision stating:

To entitle any party to give a notice as hereinafter prescribed, and to make such a foreclosure, it shall be requisite:

* * *

(3) That the mortgage containing such power of sale has been duly recorded; and if it shall have been assigned that all the assignments thereof shall have been recorded. [Arnold, 448 Mich at 676.]

This requirement, that a noteholder could only foreclose by advertisement if the mortgage they hold is duly recorded, is no longer part of the statute and does not apply in this case. The version of the statute interpreted in Arnold also lacked the language, later adopted, and operative in this case, specifically permitting foreclosure by advertisement of the owner of the note. Moreover, the language the Legislature chose to adopt in the amended language appears to reflect an intent to protect borrowers from having their mortgages foreclosed upon by advertisement by those who did not own the note because it would put them at risk of being foreclosed but still owing the noteholder the full amount of the loan.

Under MCL 440.3602, an instrument is only discharged when payment is made “to a person entitled to enforce the instrument.” Those parties listed in MCL 600.3204(1)(d)—the servicer, the owner of the debt, or someone owning an interest in the debt—would all be persons entitled to enforce the instrument that reflects the indebtedness. As previously noted, MERS is not entitled to enforce the note. Thus, if MERS were permitted to foreclose on the properties, the borrowers obligated under the note would potentially be subject to double-exposure for the debt.
That is, having lost their property to MERS, they could still be sued by the noteholder for the amount of the debt because MERS does not have the authority to discharge the note. MERS members may agree to relinquish the right of collection once foreclosure occurs, but even if they were to do so within MERS, that would not necessarily protect the borrower in the event a lender violated that policy or the note was subsequently transferred to someone other than the lender.7

These risks are, however, not present in a judicial foreclosure. MCL 600.3105(2) provides:

After a complaint has been filed to foreclose a mortgage on real estate or land contract, while it is pending and after a judgment has been rendered upon it, no separate proceeding shall be had for the recovery of the debt secured by the mortgage, or any part of it, unless authorized by the court.

Thus, once a judicial foreclosure proceeding on the mortgage has begun, a subsequent action on the note is prohibited, absent court authorization, thereby protecting the mortgagor from double recovery. See Church & Church Inc v A-1 Carpentry, 281 Mich App 330, 341-342; 766 NW2d 30 (2008), aff’d in part, vacated in part, and aff’d on other grounds in part, 483 Mich 885 (2009); United States v Leslie, 421 F2d 763, 766 (CA6, 1970) (“[I]t is the purpose of the statute to force an election of remedies which if not made would create the possibility that the mortgagee could foreclose the mortgage and at the same time hold the maker of the note personally liable for the debt.”).

Given that this risk of double-exposure only occurs where the mortgage holder and the noteholder are separate, the Legislature limited foreclosure by advertisement to those parties that were entitled to enforce the debt instrument, resulting in an automatic credit toward payment on the instrument in the event of foreclosure.8

While MERS seeks to blur the lines between itself and the lenders in this case in order to position itself as a party that may take advantage of the restricted tool of foreclosure by advertisement, it has, in other cases, sought to clearly define those lines in order to avoid the responsibilities that come with being a lender. For example, in MERS v Neb Dep’t of Banking and Fin, 270 Neb 529; 704 NW2d 784 (2005), the Nebraska Department of Banking and Finance asserted that MERS was a mortgage banker and, therefore, subject to licensing and registration requirements. Id. at 530. MERS successfully maintained that it had nothing to do with the loans and did not even have an equitable interest in the property, holding only “legal title to the interests granted by Borrower.” Id. at 534. The court accepted MERS argument that it is not a lender, but merely a shell designed to make buying and selling of loans easier and faster by disconnecting the mortgage from the loan. Id. at 535. Having separated the mortgage from the loan, and disclaimed any interest in the loan in order to avoid the legal responsibilities of a lender, MERS nevertheless claims in the instant case that it can employ the rights of a lender by foreclosing in a manner that the statute affords only to those mortgagees who also own an interest in the loan. But as the Nebraska court stated in adopting MERS argument, “MERS has no independent right to collect on any debt because MERS itself has not extended any credit, and none of the mortgage debtors owe MERS any money.” Id. at 535

The separation of the note from the mortgage in order to speed the sale of mortgage debt without having to deal with all the “paper work” of mortgage transfers appears to be the sole reason for MERS’ existence. The flip side of separating the note from the mortgage is that it can slow the mechanism of foreclosure by requiring judicial action rather than allowing foreclosure by advertisement. To the degree there were expediencies and potential economic benefits in separating the mortgagee from the noteholder so as to speed the sale of mortgagebased debt, those lenders that participated were entitled to reap those benefits. However, it is no less true that, to the degree that this separation created risks and potential costs, those same lenders must be responsible for absorbing the costs.

III. CONCLUSION

Defendants were entitled to judgment as a matter of law because, pursuant to MCL 600.3204(1)(d), MERS did not own the indebtedness, own an interest in the indebtedness secured by the mortgage, or service the mortgage. MERS’ inability to comply with the statutory requirements rendered the foreclosure proceedings in both cases void ab initio. Thus, the circuit courts improperly affirmed the district courts’ decisions to proceed with eviction based upon the
foreclosures of defendants’ properties.

In both Docket No. 290248 and 291443, we reverse the circuit court’s affirmance of the district court’s orders, vacate the foreclosure proceedings, and remand for further proceedings consistent with this opinion. We do not retain jurisdiction. Defendants, as the prevailing parties, may tax costs. MCR 7.219(A).

/s/ Douglas B. Shapiro
/s/ Deborah A. Servitto

Footnotes

1 Residential Funding Co, LLC v Saurman, unpublished order of the Court of Appeals, entered May 15, 2009 (Docket No. 290248); Bank of New York Trust Co v Messner, unpublished order of the Court of Appeals, entered July 29, 2009 (Docket No. 291443).

2 In Docket No. 290248, the district court granted summary disposition under MCR 2.116(C)(10). In Docket No. 291443, the district court granted summary disposition under MCR 2.116(I)(2) (“If it appears to the court that the opposing party, rather than the moving party, is entitled to judgment, the court may render judgment in favor of the opposing party.”).

3 We note that, in these cases, MERS disclaims any interest in the properties other than the legal right to foreclose and immediately quitclaim the properties to the true owner, i.e., the lender.

4 Though the lenders do not hold legal title to the mortgage instrument, they do have an equitable interest therein. See Alton v Slater, 298 Mich 469, 480; 299 NW 149 (1941); Atwood v Schlee, 269 Mich 322; 257 NW 712 (1934). The lender’s equitable interest in the mortgage does not, however, translate into an equitable interest for MERS in the loan.

5 The dissent’s analogy between MERS’ ability to “own an interest” in the note and an easementholder’s ownership of an interest in land without owning the land is unavailing. An easement holder owns rights to the land that even the landholder cannot infringe upon or divest him of, see Dobie v Morrison, 227 Mich App 536, 541; 575 NW2d 817 (1998) (noting that a fee owner cannot use the burdened land in any manner that would interfere with the easement holders’ rights), while the interest the dissent contends MERS “owns” would be equal to or less than that of the noteholder and the noteholder could completely divest MERS of the alleged interest by forgiving the note without MERS having any recourse. Accordingly, the analogy fails.

6 In addition, while we reject plaintiffs’ overly broad reading of Davenport for the reasons just stated, we note that even under that reading, plaintiffs would merely have to obtain assignment of the mortgage from MERS prior to initiating foreclosure proceedings.

7 The dissent’s observation that, had Homecomings remained the mortgagee, it would have had the right to foreclose by advertisement does not change the outcome because the statutory language provides that it is Homecomings’ additional status as the noteholder that would give it that right. The question before us is whether a mortgagee that is not a noteholder has the right to foreclose by advertisement.

8 The dissent’s assertion that MCL 600.3105(2) provides for an election of remedies that prevents this double recovery is erroneous, because that statute governs only judicial foreclosures, not foreclosures by advertisement. MCL 600.3105(2) requires the filing of a complaint, something that does not occur in foreclosure by advertisement. Absent the complaint, there is no time during which a complaint would be “pending” or any judgment that could be “rendered upon it” that would prohibit the filing of any “separate proceeding . . . for the recovery of the debt secured by the mortgage.” See also Cheff v Edwards, 203 Mich App 557, 560; 513 NW2d 439 (1994) (holding that “foreclosure by advertisement is not a judicial action”).  Consequently, the prohibitions expressed in MCL 600.3105(2) would not apply to foreclosure by advertisement and, therefore, would not protect borrowers from double recovery is MERS were permitted to foreclose by advertisement.

[ipaper docId=53661328 access_key=key-17eltfk9srl2ydxp86r6 height=600 width=600 /]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in STOP FORECLOSURE FRAUDComments (1)


GARY DUBIN LAW OFFICES FORECLOSURE DEFENSE HAWAII and CALIFORNIA
Chip Parker, www.jaxlawcenter.com
Kenneth Eric Trent, www.ForeclosureDestroyer.com
Advertise your business on StopForeclosureFraud.com

Archives