IN THE COURT OF COMMON PLEAS
GEAUGA COUNTY, OHIO

STATE OF OHIO, ex.rel.
DAVID P. JOYCE
PROSECUTING ATTORNEY OF GEAUGA
COUNTY, OHIO
Courthouse Annex, 231 Main St. Suite 3A
Chardon, Ohio 44024

On behalf of Geauga County and all others similarly
situated,

Plaintiff,

v.

MERSCORP, INC.
1818 Library Street, Suite 300
Reston, Virginia 20190

and

MORTGAGE ELECTRONIC REGISTRATION
SYSTEMS, INC.
1818 Library Street, Suite 300
Reston, Virginia 20190

[…]

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KCSG-

US District Judge Dee Benson ruled Tuesday that a class action lawsuit can proceed against ReconTrust and Bank of America (NYSE: “BAC”).

IN THE UNITED STATES DISTRICT COURT, DISTRICT OF UTAH,

CENTRAL DIVISION

JEREMY COLEMAN, DWAYNE WATSON, SAMUEL ADAMSON, ETHNA LYNCH,

Plaintiffs,

vs.

RECONTRUST COMPANY, N.A.,

[…]

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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

HSBC BANK USA, N.A., as Trustee,
etc.,
Plaintiff,

v.

ROBERT GRAD, et al.,
Defendants.

MEMORANDUM OPINION AND ORDER

This action is part of the current cottage industry of
mortgage foreclosures that have been flooding this District Court
(like other courts around the country, no doubt). This Complaint
To Foreclose Mortgage adheres to the kind of pattern consistently
followed by the mortgagee’s counsel in the numerous cases filed
by that counsel’s office–but one glitch in the current filing
has triggered the sua sponte issuance of this memorandum opinion
and order.

As with all complaints that seek to invoke federal subject
matter jurisdiction on diversity of citizenship grounds,
Complaint ¶¶3 through 5 address the citizenship of the parties.
Those allegations are unexceptionable except as to the party
defendant referred to in this fashion in Complaint ¶5:

MORTGAGE ELECTRONIC REGISTRATION SYSTEM INC., AS A
NOMINEE FOR DHI MORTGAGE COMPANY, LTD.-is a limited
partnership organized under the laws of Texas and
having its principal place of business in Texas. The
listed partner for DHI Mortgage Company, Ltd. Is DHI
Mortgage Company GP, Inc. which is a corporation
incorporated in Texas and having its principal place of
business in Texas. MERS is its Nominee.

That clearly does not do the job, for it has been firmly
established for more than two decades (see Carden v. Arkoma
Assocs., 494 U.S. 185, 192-96 (1990)) that where a partnership
(even a limited partnership) is named as a “party” to a lawsuit,
the relevant citizenship for federal diversity purposes is that
of all partners and not merely the “listed partner” (whatever
that means). That principle has been reiterated time and again
(see such cases as Smart v. Local 702 Int’l Bhd. of Elec.
Workers, 562 F.3d 798, 803 (7th Cir. 2009), citing Carden and
Cosgrove v. Bartolotta, 150 F.3d 729, 731 (7th Cir. 1998)).

For a good many years this Court was content simply to
identify such failures to the lawyers representing plaintiffs in
pursuance of its mandated obligation to “police subject matter
jurisdiction sua sponte” (Wernsing v. Thompson, 423 F.3d 732, 743
(7 Cir. 2005)). But there is really no excuse for counsel’s
present lack of knowledge of such a long-established principle.
Hence it seems entirely appropriate to impose a reasonable cost
by reason of counsel’s failing.

Accordingly not only the current Complaint but also this
action are dismissed (cf. Held v. Held, 137 F.3d 998, 1000 (7th
Cir. 1998)), with plaintiff and its counsel jointly obligated to
pay a fine of $350 to the District Court Clerk if an appropriate
Fed. R. Civ. P. 59(e) motion were hereafter to provide the
missing information that leads to a vacatur of this judgment of
dismissal. Because this dismissal is attributable to the lack 1
of establishment of federal subject matter jurisdiction, by
definition it is a dismissal without prejudice.

___________________________
Milton I. Shadur
Senior United States District Judge

Date: September 28, 2011

Footnote
________________________________________
1 That fine is equivalent to the cost of a second filing
fee, because a new action would have to be brought if the defect
identified here turns out to be curable.

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MAINE SUPREME JUDICIAL COURT

HSBC BANK USA, N.A., AS TRUSTEE UNDER THE POOLING AND
SERVICING AGREEMENT DATED AS OF DECEMBER 1, 2005, FREMONT
HOME LOAN TRUST 2005-E

v.

JANELLE GABAY

EXCERPT:

[¶1] Janelle Gabay appeals from a summary judgment entered in the District
Court (Bridgton, Powers, J.) in favor of HSBC Bank USA, N.A., as Trustee under
the Pooling and Servicing Agreement dated as of December 1, 2005, Fremont
Home Loan Trust 2005-E, on HSBC’s complaint for foreclosure and sale pursuant
to 14 M.R.S. §§ 6321-6325 (2010).1 Gabay argues that HSBC’s motion for
summary judgment should have been denied because HSBC’s statement of
material facts left unresolved genuine issues of material fact as to (1) whether
HSBC is the owner and holder, pursuant to a valid endorsement, of the promissory
note due to HSBC’s failure to present adequate evidence of such; (2) the order of
priority among creditors; (3) the sufficiency of identification of the court costs that
HSBC sought to collect; and (4) the identification of the premises to be foreclosed
upon. Because genuine issues of material fact exist, we vacate the judgment and
remand for further proceedings.

[…]

II. LEGAL ANALYSIS

[¶8] We review a grant of summary judgment de novo, viewing the
evidence in the light most favorable to the nonmoving party to determine “whether
the parties’ statements of material facts and the referenced record evidence reveal a
genuine issue of material fact.” JPMorgan Chase Bank v. Harp, 2011 ME 5, ¶ 15,
10 A.3d 718. In so doing, we consider only the material facts set forth, and the
portions of the record referred to, in the statements of material facts. Salem
Capital Grp., LLC v. Litchfield, 2010 ME 49, ¶ 4, 997 A.2d 720. In summary
judgment practice, the court “is neither required nor permitted to independently
search a record to find support for facts offered by a party.” Levine v. R.B.K. Caly
Corp., 2001 ME 77, ¶ 9, 770 A.2d 653. A party’s motion for summary judgment
may not be granted if that party fails to properly put the material facts before the
court, “regardless of the adequacy, or inadequacy, of the nonmoving party’s
response.” Id. ¶ 5.

[¶9] HSBC contends that it need not properly identify which paragraph of a
supporting record reference is the basis for a particular statement of material fact
when (i) the supporting record is included in its entirety in the summary judgment
record, or (ii) the critical paragraph in the record has been cited to support a
different material fact. However, our rules require that each statement of material
fact must directly refer the court to “the specific portions of the record from which
each fact is drawn.” Id. ¶ 9; M.R. Civ. P. 56(h)(1), (4). We have repeatedly noted
the importance of applying the summary judgment rules strictly in the context of
mortgage foreclosures. See HSBC Mortg. Servs., Inc. v. Murphy, 2011 ME 59, ¶ 9,
19 A.3d 815; JPMorgan Chase Bank, 2011 ME 5, ¶ 15, 10 A.3d 718.

[¶10] “In residential mortgage foreclosure actions, certain minimum facts
must be included in a mortgage holder’s statement of material facts on summary
judgment.” HSBC Mortg. Servs., 2011 ME 59, ¶ 9, 19 A.3d 815; see also M.R.
Civ. P. 56(j). To support a summary judgment motion in a residential mortgage
foreclosure action, the mortgage holder must include, at a minimum, the following
facts in its statement of material facts, each supported by evidence of a quality that
could be admissible at trial:

(1) The existence of the mortgage, including the book and page
number of the mortgage, and an adequate description of the
mortgaged premises, including the street address, if any;

(2) Properly presented proof of ownership of the mortgage note and
the mortgage, including all assignments and endorsements of the note
and the mortgage;

(3) A breach of condition in the mortgage;

(4) The amount due on the mortgage note, including any reasonable
attorney fees and court costs;

(5) The order of priority and any amounts that may be due to other
parties in interest, including any public utility easements;

(6) Evidence of properly served notice of default and mortgagor’s
right to cure in compliance with statutory requirements;

(7) After January 1, 2010, proof of completed mediation (or waiver or
default of mediation), when required, pursuant to the statewide
foreclosure mediation program rules; and

(8) If the homeowner has not appeared in the proceeding, a statement,
with a supporting affidavit, of whether or not the defendant is in
military service in accordance with the Servicemembers Civil Relief
Act.

HSBC Mortg. Servs., 2011 ME 59, ¶ 9 n.6, 19 A.3d 815; Chase Home Fin. LLC v.
Higgins, 2009 ME 136, ¶ 11, 985 A.2d 508; see also M.R. Civ. P. 56(j) (providing,
among other things, that a summary judgment may not be entered in a foreclosure
action unless it is determined that “the plaintiff has properly certified proof of
ownership of the mortgage note and produced evidence of the mortgage note, the
mortgage, and all assignments and endorsements of the mortgage note and the
mortgage”).

[¶11] Our analysis focuses on the first, second, fourth, and fifth
requirements listed above. We begin our discussion with the second requirement.
A. Ownership and Endorsement of the Note

[¶12] As noted above, HSBC is required to include the following
properly-supported facts in its statement of material facts: “properly presented
proof of ownership of the mortgage note . . . , including all assignments and
endorsements of the note . . . .” HSBC Mortg. Servs., 2011 ME 59, ¶ 9 n.6, 19
A.3d 815; Chase Home Fin., 2009 ME 136, ¶ 11, 985 A.2d 508.

[¶13] In its statement of material facts, HSBC asserts that it is the “current
holder of the Note,” citing to paragraph seven of its complaint and to paragraph
four of the Lender affidavit. There are multiple deficiencies in this statement of
material fact as it concerns proof of ownership of the note.

[¶14] First, neither of the citations included to support the bare factual
statement that HSBC is the current holder of the note properly supports that factual
statement. The cited paragraph of the Lender’s affidavit refers only to HSBC’s
being the current holder of the mortgage. The cited paragraph of the complaint
asserts that “[HSBC] is the current holder of the Note and Mortgage by virtue of an
assignment dated on or about December 22, 2008.” However, the assignment
expressly referred to in that averment, which assignment was not attached to the
complaint but which is included in the summary judgment record, did not assign
the note to HSBC. The December 22, 2008, assignment, entitled “ASSIGNMENT
OF MORTGAGE,” assigned MERS’s interest in the mortgage, but not the note, to
HSBC.8

[¶15] While an averment in a complaint that a defendant has failed to deny
is generally deemed admitted, see M.R. Civ. P. 8(d), the statement in HSBC’s
complaint that it is the current holder of the note pursuant to the December 22,
2008, assignment is not sufficiently supported in the context of a residential
mortgage foreclosure proceeding. When, as here, the mortgage-holder must
strictly comply with the requirements of 14 M.R.S. §§ 6321-6325 and M.R. Civ. P.
56(j), the paragraph of HSBC’s complaint cited in support of HSBC’s statement of
material facts providing that it is the current holder of the note does not properly
support that fact.

[¶16] An additional deficiency in HSBC’s statement of material facts is that
HSBC failed to include any facts relating to “properly presented proof of . . . all
assignments and endorsements of the note.” Chase Home Fin., 2009 ME 136,
¶ 11, 985 A.2d 508. HSBC was required to provide such proof, as it is undisputed
that the note was originally executed and delivered to Fremont Investment. HSBC
suggests in its brief, but does not specify in its statement of material facts, that the
summary judgment record contains evidence of a valid endorsement of the note to
HSBC including (1) paragraph two of the Lender’s affidavit, which states that
HSBC holds the note pursuant to a special endorsement, and (2) a copy of the
purported endorsement itself, included in the record as a separate page
accompanying, but not discernably affixed to, a photocopy of the note. Because
the statement of material facts contains no fact concerning properly presented
proof as to any endorsement of the note, however, much less a statement supported
by proper record references, we will not independently search the record to find
such evidence, see id. ¶ 12 n.4; Levine, 2001 ME 77, ¶ 9, 770 A.2d 653, and HSBC
would not be entitled to judgment as a matter of law.

[¶17] Our statement that we will not, and trial courts should not,
independently search a record to find evidence to support a party’s claim when that
claim is insufficiently referenced in that party’s statement of material facts is no
mere technicality to make summary judgment practice more difficult. Certainly in
each individual case it can be argued, as HSBC argues here, that review of the
entire record, with the specific facts now identified in the brief on appeal,
demonstrates that there really is no material fact in dispute. Such arguments
illustrate the need to identify material facts with specific citations to the record in
the statement of material facts filed in the trial court. If an essential fact can be
stated, with a proper record reference, in a brief on appeal, that fact could have and
should have been stated, with a proper record reference, in the statement of
material facts filed in the trial court. Before easy identification by brief on appeal,
the information to make an inadequate statement of material facts complete may
have been locatable only by a search of a record of fifty, one hundred, or more
pages. Placing every material fact in the statement of material facts, with a proper
record citation, as the rules require, avoids the necessity for such a time-consuming
search. Trial courts, who may have to consider multiple motions for summary judgment
at a time, could be considerably burdened searching for facts through
hundreds of pages of records, if the rules requiring complete, properly supported
statements of material facts are not enforced on appeal.

[¶18] Because HSBC’s statement of material facts fails to properly present
proof of ownership of the mortgage note, including all assignments and
endorsements of the note, genuine issues of material fact regarding HSBC’s
ownership of the note exist, precluding entry of judgment as a matter of law.

[…]

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Banks blow up mortgage settlement talks, despite Iowa AG Tom Miller’s begging and whimpering!!

TIME-

The five biggest mortgage servicers have cancelled a planned negotiating session with representatives of the 50 State Attorneys General in apparent protest over a federal regulator filing suit against them, a source familiar with the matter tells TIME.

The banks canceled the meeting on Tuesday afternoon in protest over the announcement last Friday that the Federal Housing Finance Agency would bring a broad case against 17 firms, including those in talks with the State AGs. The FHFA, which oversees mortgage giants Fannie Mae and Freddie Mac, alleges the firms violated securities law by misrepresenting the value of bundles of high-risk mortgages they sold. FHFA did not say how much the case might be worth, but outside analysts have said it could potentially produce billions of dollars in compensatory damages from the firms.

TIME-

Long before the banks started evicting delinquent homeowners, Wall Street, it appears, used robo-signers to ink mortgage deals that would eventually cost investors tens of billions of dollars and in part led to the financial crisis.

According to lawsuits filed last week by the U.S.’s Federal Housing Financing Agency, one individual was used by three different banks to sign off on 36 different mortgage bond deals in 2006 alone. Many of the deals contained as many as 4,000 home loans. Yet, according to the lawsuits, the individual Evelyn Echevarria signed documents attesting to the fact that all the loans – well over 100,o00 in 2006 alone

Read more: [Curious Capitalist.blogs.time.com]

This is a great article written by Kevin Villani who was senior vice president and chief economist at Freddie Mac from 1982 to 1985.

American Banker-

In the 1980s Freddie Mac had a marketing campaign “The Gnomes Know,” touting their expertise in mortgage markets. Now the Federal Housing Finance Agency has filed a $200 billion lawsuit against 17 of the nation’s largest mortgage lenders arguing that during the subprime lending debacle of the last decade the gnomes didn’t know!

…

[AMERICAN BANKER]

Business Insider-

Last Friday the U.S. regulator, the Federal Housing Finance Agency (FHFA), which has the oversight responsibility of Fannie Mae and Freddie Mac, sued 17 large banks and financial institutions relating to losses on approximately $200 billion of Fannie Mae and Freddie Mac subprime bonds.

Now, let me be clear right from the start.  I am no apologist for the banks.  And historically my tendency has been to support better financial regulation and even the Democratic Party through my voting preference.

However, enough is enough.  At this point in time the Government and the FHFA have no right to sue the banking industry on behalf of Fannie Mae and Freddie Mac.  That is a joke.

…

Read more: [BUSINESS INSIDER]

If William K. Black and Janet would only team up to write a book?

HuffPO-

There were many factors that contributed to our recent financial bubble: deregulation, cheap money from the Fed, failure to enforce remaining regulations, crony capitalism, hubris, speculation, leverage, and fraud among other problems. While fraud wasn’t the only issue, it was and is a significant contributor to the credit bubble. Restraining fraud is a necessary but not sufficient condition for a sound financial system. Congressional investigations in recent years have put ample evidence of fraud in the public domain.

To illustrate just one type of malicious mischief, Senator Carl Levin (D. Mich.), Chairman of a senate investigative panel, issued a memo stating that Goldman ” magnified the impact of toxic mortgages.” The Wall Street Journal reviewed data showing that a $38 million subprime-mortgage bond created in June 2006 was referenced in more than 30 debt pool causing around$280 million in losses to investors by 2008. In other words, Goldman kept repackaging, reselling or protecting (buying credit default protection on) losers. It took the wrong kind of nerve for Goldman’s CEO to say he was doing “God’s work.”

[HUFFINGTON POST]

For Immediate Release Contact:

Corinne Russell (202) 414-6921
Stefanie Johnson (202) 414-6376

September 6, 2011

Federal Housing Finance Agency Statement on Recent Lawsuits Filed Upon

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REUTERS-

Big U.S. banks in talks with state prosecutors to settle claims of improper mortgage practices have been offered a deal that is proposed to limit part of their legal liability, the Financial Times reported on Tuesday.

The FT said state prosecutors have proposed a deal to limit part of the banks’ liability in return for a multibillion-dollar payment.

The talks aim to settle allegations that banks including Bank of America (BAC.N), JPMorgan Chase (JPM.N), Wells Fargo (WFC.N), Citigroup (C.N) and Ally Financial (GKM.N). seized the homes of delinquent borrowers and broke state laws by employing so-called “robosigners”, workers who signed off on foreclosure documents en masse without reviewing the paperwork.

[REUTERS]

William K. Black-

Reading the FHFA complaints against many of the world’s largest banks is a fascinating and troubling process for anyone that understands “accounting control fraud.” The FHFA, a federal regulatory agency, sued in its capacity as conservator for Fannie and Freddie. Its complaints are primarily based on fraud. The FHFA alleges that the fraud came from the top, i.e., it alleges that many of the world’s largest banks were control frauds and that they committed hundreds of thousands of fraudulent acts. The FHFA complaints emphasize that other governmental investigations have repeatedly confirmed that the defendant banks were engaged in endemic fraud. The failure of the Department of Justice to convict any senior official of a major bank, and the almost total failure to indict any senior official of a major bank has moved from scandal to farce.

The FHFA complaints are distressing, however, in their failure to explain why the frauds occurred and how an accounting control fraud works. The FHFA complaint against Countrywide is particularly disappointing because …

[BENZINGA]

Lets NOT forget both Fannie and Freddie, like most of the named banks they are suing, each are shareholders of MERS.

Again, who gave the green light to eliminate the need for assignments and to realize the greatest savings, lenders should close loans using standard security instruments containing “MOM” language back in April 26, 1999?

This was approved by Fannie Mae and Freddie Mac which named MERS as Original Mortgagee (MOM)!

Open Market-

“U.S. is set to sue dozen big banks over mortgages,” reads the front-page headline in today’s New York Times. The “deck” below the headline explains that that the Federal Housing Finance Agency, which oversees the government-sponsored enterprises Fannie Mae and Freddie Mac, is “seen as arguing that lenders lacked due diligence” in the loans they made.

A more apt description would probably be that Fannie and Freddie are suing the banks for selling them the very loans the GSEs helped designed and that government mandates encourage — and are still encouraging them to make. These conflicted actions are just one more of the government’s contributions to the uncertainty that is helping to keep unemployment at 9 percent.

Strangely the author of the Times piece, Nelson Schwartz, ignores the findings of a recent blockbuster

…

[OPEN MARKET]

UPDATE :

FHFA suit stops short of going nuclear, ignores the biggest flaw in securitization/REMICs – failure to properly convey the notes….instead, FHFA sez loans were xferred properly to trust, to prevent 100% taxation 4 failure 2 comply w/ IRC’s REMIC requirements. Cute…I worry that this is an attempt to fix / limit total bank exposure by getting uncontested ruling that REMIC provisions were followed…

via @Thad Bartholow

What? Why is “WELLS FARGO” not listed? Let me know when they get to “W”.

FHFA Sues 17 Firms to Recover Losses to Fannie Mae and Freddie Mac

Washington, DC — The Federal Housing Finance Agency (FHFA), as conservator for Fannie Mae and Freddie Mac (the Enterprises), today filed lawsuits against 17 financial institutions, certain of their officers and various unaffiliated lead underwriters. The suits allege violations of federal securities laws and common law in the sale of residential private-label mortgage-backed securities (PLS) to the Enterprises.

Complaints have been filed against the following lead defendants, in alphabetical order:

LITIGATION

Federal Housing Finance Agency

• FEDERAL HOUSING FINANCE AGENCY v. CITY OF CHICAGO, December 12, 2011 Complaint [PDF]
• FHFA PLS Cases

• FEDERAL HOUSING FINANCE AGENCY v. UBS AMERICAS INC., UBS REAL ESTATE SECURITIES INC., UBS SECURITIES, LLC, MORTGAGE ASSET SECURITIZATION TRANSACTIONS, INC. DAVID MARTIN, PER DYRVIK, HUGH CORCORAN, and PETER SLAGOWITZ, July 27 2011 Complaint  [PDF]

FANNIE MAE

• United States of America and Federal Housing Finance Agency In Re Conservatorship of: Federal National Mortgage Association
  • Notice Regarding Determination and Appointment of Conservator, September 18, 2008 [PDF]
• United States of America and Office of Federal Housing Enterprise Oversight Notice Number 2006-1 In the Matter of Franklin D. Raines, J. Timothy Howard and Leanne G. Spencer

FREDDIE MAC

• United States of America and Federal Housing Finance Agency In Re Conservatorship of: Federal Home Loan Mortgage Corporation
  • Notice Regarding Determination and Appointment of Conservator, September 19, 2008 [PDF]
• OFHEO’s Statement of Case [PDF] and OFHEO’s Third Revised Notice of Changes in Enforcement Action [PDF] Against Former Freddie Mac CEO Leland C. Brendsel
• United States of America and Office of Federal Housing Enterprise Oversight, Petitioners v. Leland Brendsel, Respondent
• United States of America and Office of Federal Housing Enterprise Oversight, Petitioners v. Vaughn A. Clarke, Respondent

The cases are Federal Housing Finance Agency v. Bank of America Corp. (BAC), 11-CV-6195; FHFA v. Barclays Bank Plc., 11-CV- 6190; FHFA v. Citigroup, 11-CV-6196; FHFA v. Credit Suisse Holdings (USA) Inc., 11-CV-6200; FHFA v. Deutsche Bank AG, 11- CV-6192; FHFA v. First Horizon National Corp., 11-CV-6193; FHFA v. Goldman, Sachs & Co., 11-CV-6198; FHFA v. HSBC North America Holdings Inc., 11-CV-6189; FHFA v. JPMorgan Chase & Co., 11-CV- 6188; FHFA v. Merrill Lynch & Co., 11-CV-6202; FHFA v. Nomura Holding America Inc., 11-CV-6201; FHFA v. SG Americas Inc., 11- CV-6203, U.S. District Court, Southern District of New York

HSBC FORECLOSURES AND THE NEWTRAK SYSTEM
OF LENDER PROCESSING SERVICES

By Lynn E. Szymoniak, Esq., Ed. Fraud Digest,
August 26, 2011

On August 24, 2011, Circuit Judge Fuentes of the United States Third Circuit Court of Appeals, issued an opinion in a case appealing the reversal by the District Court of sanctions originally imposed in the bankruptcy court on attorneys Mark J. Urden and Lorraine Doyle, the Udren Law Firm, and HSBC for violations of Federal Rule of Bankruptcy Procedure 9011. Highlights from that opinion, particularly regarding Lender Processing Services and HSBC, are set forth below. In this decision, the Third Circuit reversed the District Court and affirmed the bankruptcy court’s imposition of sanctions with respect to Lorraine Doyle, the Udren Law Firm, and HSBC. The District Court’s decision reversing the bankruptcy court’s sanctions against attorney Mark Udren was affirmed. The appeal was taken by Acting United States Trustee Roberta A. DeAngelis, In re Nile C. Taylor, et al., Case No. 10- 2154, 3d Cir. 2011. Ultimately, the Taylors lost their home. The sanctions imposed by the Bankruptcy Court, reversed by the District Court and finally affirmed by the Circuit Court, were minimal. Doyle  was ordered to take 3 CLE credits in professional responsibility; Udren himself to be trained in the use of NewTrak and to spend a day observing his employees handling NewTrak; and both Doyle and Udren to conduct a training session for the firm’s relevant lawyers in the requirements of Rule 9011 and procedures for escalating inquiries on NewTrak. The court also required HSBC to send a copy of its opinion to
all the law firms it uses in bankruptcy proceedings, along with a letter explaining that direct contact with HSBC concerning matters relating to HSBC’s case was permissible.

The Court made the following findings:

• • HSBC does not deign to communicate directly with the firms it
  employs in its high-volume foreclosure work; rather, it uses a
  computerized system called NewTrak (provided by a third party, LPS)
  to assign individual firms discrete assignments and provide the limited
  data the system deems relevant to each assignment. The firms are
  selected and the instructions generated without any direct human
  involvement. The firms so chosen generally do not have the capacity
  to check the data (such as the amount of mortgage payment or time
  in arrears) provided to them by NewTrak and are not expected to
  communicate with other firms that may have done related work on the
  matter. Although it is technically possible for a firm hired through
  NewTrak to contact HSBC to discuss the matter on which it has been
  retained, it is clear from the record that this was discouraged and that
  some attorneys, including at least one Udren Firm attorney, did not
  believe it to be permitted. [The Udren Firm represented HSBC in this
  bankruptcy foreclosure.](Page 6-7)
  

• • LPS is also not involved in the present appeal, as the bankruptcy
  court found that it had not engaged in wrongdoing in this case.
  However, both the accuracy of its data and the ethics of its practices
  have been repeatedly called into question elsewhere. See, e.g., In re
  Wilson, 2011 WL 1337240 at 9 (Bankr. E.D.La. Apr. 7, 2011)
  (imposing sanctions after finding that LPS had issued “sham” affidavits
  and perpetrated fraud on the court); In re Thorne, 2011 WL 2470114
  (Bankr. N.D. Miss. June 16, 2011); In re Doble, 2011 WL 1465559
  (Bankr. S.D. Cal. Apr. 14, 2011). (Footnote 5, Page 6)
  

• • Doyle [the attorney from the Udren Firm representing HSBC] did
  nothing to verify the information in the motion for relief from stay
  besides check it against “screen prints” of the NewTrak information.
  She did not even access NewTrak herself. In effect, she simply
  proofread the document. It does not appear that NewTrak provided
  the Udren Firm with any information concerning the Taylors’ equity in
  their home, so Doyle could not have verified her statement in the
  motion concerning the lack of equity in any way, even against a
  “screen print.” (Page 8 )
  

• • In May 2008, the bankruptcy court held a hearing on both the motion
  for relief and the claim objection. HSBC was represented at the
  hearing by a junior associate at the Udren Firm, Mr. Fitzgibbon. At that
  hearing, Fitzgibbon ultimately admitted that, at the time the motion
  for relief from the stay was filed, HSBC had received a mortgage
  payment for November 2007, even though both the motion for stay
  and the response to the Taylors’ objection to the proof of claim stated
  otherwise.8 Despite this, Fitzgibbon urged the court to grant the relief
  from stay, because the Taylors had not responded to HSBC’s RFAs
  (which included the “admission” that the Taylors had not made
  payments from November 2007 to January 2008). It appears from the
  record that Fitzgibbon initially sought to have the RFAs admitted as
  evidence even though he knew they contained falsehoods. (Page 10)
  

• • The bankruptcy court denied the request to enter the RFAs as
  evidence, noting that the firm “closed their eyes to the fact that there
  was evidence that . . . conflicted with the very admissions that they
  asked me [to deem admitted]. They . . . had that evidence [that the
  assertions in its motion were not accurate] in [their] possession and
  [they] went ahead like [they] never saw it.” (App. 108-109.) (Page
  11)
  

• • At the next hearing, in June 2008, Fitzgibbon stated that he could
  not obtain an accounting from HSBC, though he had repeatedly placed
  requests via NewTrak. He told the court that he was literally unable to
  contact HSBC—his firm’s client—directly to verify information which
  his firm had already represented to the court that it believed to be
  true. (Page 11)
  

• • The bankruptcy court held four hearings over several days, making
  in-depth inquiries into the communications between HSBC and its
  lawyers in this case, as well as the general capabilities and limitations
  of a system like NewTrak. Ultimately, it found that the following had
  violated Rule 9011: Fitzgibbon, for pressing the motion for relief based
  on claims he knew to be untrue; Doyle, for failing to make reasonable
  inquiry concerning the representations she made in the motion for
  relief from stay and the response to the claim objection; Udren and
  the Udren Firm itself, for the conduct of its attorneys; and HSBC, for
  practices which caused the failure to adhere to Rule 9011.
  

• • Rule 9011 of the Federal Rules of Bankruptcy Procedure, the
  equivalent of Rule 11 of the Federal Rules of Civil Procedure, requires
  that parties making representations to the court certify that “the
  allegations and other factual contentions have evidentiary support or,
  if specifically so identified, are likely to have evidentiary support.” Fed.
  R. Bank. P. 9011(b)(3). A party must reach this conclusion based on
  “inquiry reasonable under the circumstances.” Fed. R. Bank. P.
  9011(b). The concern of Rule 9011 is not the truth or falsity of the
  representation in itself, but rather whether the party making the
  representation reasonably believed it at the time to have evidentiary
  support.
  

• • As an initial matter, the appellees’ insistence that Doyle’s and
  Fitzgibbon’s statements were “literally true” should not exculpate
  them from Rule 9011 sanctions. First, it should be noted that several of
  these claims were not, in fact, accurate. There was no literal truth to
  the statement in the request for relief from stay that the Taylors had
  no equity in their home. Doyle admitted that she made that statement
  simply as “part of the form pleading,” and “acknowledged having no
  knowledge of the value of the property and having made no inquiry on
  this subject.” (App. 215.) Similarly, the statement in the claim
  objection response that the figures in the original proof of claim were
  correct was false. (Page 16)
  

• • In particular, even assuming that Doyle’s and Fitzgibbon’s
  statements as to the payments made by the Taylors were literally
  accurate, they were misleading. In attempting to evaluate whether
  HSBC was justified in seeking a relief from the stay on foreclosure, the
  court needed to know that at least partial payments had been made
  and that the failure to make some of the rest of the payments was due
  to a bona fide dispute over the amount due, not simple default.
  Instead, the court was told only that the Taylors had “failed to make
  regular mortgage payments” from November 1, 2007 to January 15,
  2008, with a mysterious notation concerning a “suspense balance”
  following. (App. 214-15.) A court could only reasonably interpret this
  to mean that the Taylors simply had not made payments for the period
  specified. As the bankruptcy court found, “[f]or at best a $540 dispute,
  the Udren Firm mechanically prosecuted a motion averring a $4,367
  post-petition obligation, the aim of which was to allow HSBC to
  foreclose on [the Taylors] “house.” (App. 215.) Therefore, Doyle’s and
  Fitzgibbon’s statements in question were either false or misleading.
  (Pages 16-17)
  

• • With respect to the Taylors case in particular, Doyle ignored clear
  warning signs as to the accuracy of the data that she did receive. In
  responding to the motion for relief from stay, the Taylors submitted
  documentation indicating that they had already made at least partial
  payments for some of the months in question. In objecting to the
  proof of claim, the Taylors pointed out the inaccuracy of the mortgage
  payment listed and explained the circumstances surrounding the flood
  insurance dispute. Although Doyle certainly was not obliged to accept
  the Taylors’ claims at face value, they indisputably put her on notice
  that the matter was not as simple as it might have appeared from the
  NewTrak file. At that point, any reasonable attorney would have
  sought clarification and further documentation from her client, in order
  to correct any prior inadvertent misstatements to the court and to
  avoid any further errors. Instead, Doyle mechanically affirmed facts
  (the monthly mortgage payment) that her own prior filing with the
  court had already contradicted. (Page 20)
  

• • Doyle’s reliance on HSBC was particularly problematic because she
  was not, in fact, relying directly on HSBC. Instead, she relied on a
  computer system run by a third-party vendor. She did not know where
  the data provided by NewTrak came from. She had no capacity to
  check the data against the original documents if any of it seemed
  implausible. (Page 20)
  

• • Although the initial data the Udren Firm received was not, in itself,
  wildly implausible, it was facially inadequate. In short, then, we find
  that Doyle’s inquiry before making her representations to the
  bankruptcy court was unreasonable.
  In making this finding, we, of course, do not mean to suggest that the
  use of computerized databases is inherently inappropriate. However,
  the NewTrak system, as it was being used at the time of this case,
  permits parties at every level of the filing process to disclaim
  responsibility for inaccuracies. HSBC has handed off responsibility to a
  third- party maintainer, LPS, which, judging from the results in this
  case, has not generated particularly accurate records. LPS apparently
  regards itself as a mere conduit of information. Appellees, the
  attorneys and final link in the chain of transmission of this information
  to the court, claim reliance on NewTrak’s records. Who, precisely, can
  be held accountable if HSBC’s records are inadequately maintained,
  LPS transfers those records inaccurately into NewTrak, or a law firm
  relies on the NewTrak data without further investigation, thus leading
  to material misrepresentations to the court? It cannot be that all the
  parties involved can insulate themselves from responsibility by the use
  of such a system. (Page 21)
  

• • We also find that it was appropriate to extend sanctions to the Udren
  Firm itself. Rule 11 explicitly allows the imposition of sanctions against
  law firms…In this instance, the bankruptcy court found that the
  misrepresentations in the case arose not simply from the
  irresponsibility of individual attorneys, but from the system put in
  place at the Udren Firm, which emphasized high-volume, high-speed
  processing of foreclosures to such an extent that it led to violations of
  Rule 9011. (citations omitted)(Page 24)
  

• • We appreciate that the use of technology can save both litigants and
  attorneys time and money, and we do not, of course, mean to suggest
  that the use of databases or even certain automated communications
  between counsel and client are presumptively unreasonable. However,
  Rule 11 requires more than a rubber-stamping of the results of an
  automated process by a person who happens to be a lawyer. Where a
  lawyer systematically fails to take any responsibility for seeking
  adequate information from her client, makes representations without
  any factual basis because they are included in a “form pleading” she
  has been trained to fill out, and ignores obvious indications that her
  information may be incorrect, she cannot be said to have made
  reasonable inquiry. (Page 26)

[ipaper docId=63229856 access_key=key-7ik7ga710cir1yvmbl4 height=600 width=600 /]

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________

[ipaper docId=63127059 access_key=key-2ki51goybcvd7k5rv5hl height=600 width=600 /]

CHRISTOPHER MORGAN AND SHARON TAKVAM, Appellants,

v.

HSBC BANK USA, NA, Appellee.

No. 2009-CA-000597-MR.

Court of Appeals of Kentucky.

July 29, 2011.

J. Hays Lawson, Louisville, Kentucky, Brief for Appellants.

Kimberlee S. Rohr, Cincinnati, Ohio, Brief for Appellee.

BEFORE: LAMBERT AND MOORE, JUDGES; ISAAC,^[1] SENIOR JUDGE.

NOT TO BE PUBLISHED

OPINION

LAMBERT, JUDGE.

Christopher Morgan and Sharon Takvam appeal from the Shelby Circuit Court’s entry of summary judgment in favor of HSBC Bank USA, NA in a foreclosure action. After a careful review of the record and the parties’ briefs, we reverse and remand for proceedings consistent with this opinion.

On August 22, 2005, Morgan and Takvam executed a note in the amount of $101,200.00 to Ownit Mortgage Solutions, Inc. (Ownit). That same day, Morgan and Takvam granted a mortgage to Mortgage Electronic Registration Systems, Inc., (MERS) as nominee for Ownit. The mortgage encumbered the property located at 12233 Mount Eden Road, Mount Eden, Kentucky 40046. After executing the note and mortgage, Morgan and Takvam defaulted on their payments and currently owe for their March 1, 2008, payment. At the time of this appeal, they owed $101,066.87, plus interest at 9.875% per year from February 1, 2008, in addition to court costs, advances, and other charges, including a reasonable attorney fee, as allowed by law.

On July 31, 2008, HSBC Bank USA, National Association, as Trustee for Ownit Mortgage Loan Trust, Mortgage Loan Asset Backed Certificates, Series 2005-5 (HSBC) instituted foreclosure proceedings by filing a complaint against Morgan and Takvam, based on their alleged default under the note and mortgage. In the complaint, HSBC claimed to be the holder of the note on Morgan and Takvam’s home, but stated that a copy of the note was unavailable at the time the complaint was filed. Rather than filing an answer, Morgan^[2] moved to dismiss the complaint, arguing that HSBC did not have standing to sue and that the complaint failed to state a claim for which relief may be granted. The basis for Morgan’s motion to dismiss was that HSBC did not attach a copy of the note to its complaint, and thus there was no proof that they had standing to enforce the note.

HSBC responded to the motion to dismiss on September 11, 2008, and in its response attached a copy of an adjustable rate note between Ownit, as lender, and Morgan and Takvam, as borrowers. HSBC was not a party to this note. On August 11, 2008, an assignment of mortgage from Ownit to HSBC dated August 4, 2008, was recorded in Shelby County, Kentucky. While Morgan’s motion to dismiss was still pending, HSBC filed for summary judgment on December 3, 2008. The copy of the note HSBC attached to the motion for summary judgment included an undated “Note Allonge” signed by Richard Williams as Vice President of Litton Loan Servicing, LP and as Attorney in Fact of Ownit. This document purported to negotiate the note to HSBC.

On January 7, 2009, the trial court held a hearing on Morgan’s motion to dismiss and HSBC’s motion for summary judgment. Subsequently, on February 25, 2009, the trial court denied Morgan’s motion to dismiss and entered summary judgment in HSBC’s favor. Morgan filed a timely motion to vacate under Kentucky Rules of Civil Procedure (CR) 59.05 on March 6, 2009, and on March 18, 2009, the trial court orally denied Morgan’s motion and noted the same on the docket sheet.

Morgan filed a notice of appeal on April 2, 2009. On April 8, 2009, this Court, sua sponte, raised the issue of jurisdiction and ordered Morgan to show why the appeal should not be dismissed as being interlocutory because no order appeared in the record denying Morgan’s CR 59.05 motion. After considering Morgan’s response, this Court entered another order on June 8, 2009, ordering that the appeal be held in abeyance for thirty days to allow the circuit court to enter an order in accordance with its March 18, 2009, docket sheet notation overruling Morgan’s motion to vacate.

Although the case was returned to this Court’s active docket automatically at the expiration of that thirty-day period per the Court’s order, the record did not reflect that the trial court ever entered an order denying the motion to vacate. On March 16, 2011, this court again held the matter in abeyance for thirty days to permit the parties to petition the trial court to enter a proper order denying the CR 59.05 motion. On March 31, 2011, the parties tendered an order from the trial court denying the CR 59.05 motion, and this case was returned to our active docket for consideration of the merits on appeal.

On appeal, Morgan raises two arguments; namely, 1) that HSBC was not entitled to a judgment as a matter of law because it did not have authority to enforce the note and 2) that summary judgment was premature because discovery was incomplete and because he did not have time to conduct discovery to determine whether HSBC breached an assumed duty.

In Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001), this Court set forth the standard of review in an appeal from the entry of a summary judgment:

The standard of review on appeal when a trial court grants a motion for summary judgment is “whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law.” The trial court must view the evidence in the light most favorable to the nonmoving party, and summary judgment should be granted only if it appears impossible that the nonmoving party will be able to produce evidence at trial warranting a judgment in his favor. The moving party bears the initial burden of showing that no genuine issue of material fact exists, and then the burden shifts to the party opposing summary judgment to present “at least some affirmative evidence showing that there is a genuine issue of material fact for trial.” The trial court “must examine the evidence, not to decide any issue of fact, but to discover if a real issue exists.” While the Court in Steelvest[, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991),] used the word “impossible” in describing the strict standard for summary judgment, the Supreme Court later stated that that word was “used in a practical sense, not in an absolute sense.” Because summary judgment involves only legal questions and the existence of any disputed material issues of fact, an appellate court need not defer to the trial court’s decision and will review the issue de novo. [Citations in footnotes omitted.]

Morgan’s first argument addresses whether HSBC was entitled to judgment as a matter of law based upon the argument that HSBC lacked standing to enforce the note. Initially, we note that the particular facts of this case, in particular the sequence of events that unfolded, is troubling. In its complaint, HSBC alleged that it was the holder of the note on Morgan’s home but claimed that a copy of the note was unavailable. Morgan moved to dismiss on grounds that HSBC failed to produce the note and thus had no proof that, as the holder of the note, it was entitled to proceed in foreclosure against Morgan and Takvam.

KRS 355.1-201(2)(u) defines a “holder” as “[t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” Morgan argues that at the time it filed suit, HSBC was not a holder of the note and accordingly could not enforce the note. In support of this argument, Morgan points out that the note was payable to a specific, identified entity: Ownit. Morgan argues that Ownit could have transferred or negotiated its rights to HSBC by endorsement, which requires a signature by an authorized representative of Ownit in the signator’s official capacity, see KRS 355.3-402, but that it failed to properly do so.

Initially, HSBC produced a note between Ownit, Morgan, and Takvam, and subsequently, at summary judgment stage, produced another note with the aforementioned note allonge purporting to assign the note to HSBC. In its order granting summary judgment, the trial court held that the endorsement in the note allonge by Richard Williams, as president of Litton Loan Servicing LP and attorney- in- fact for Ownit, was sufficient proof that HSBC was a holder of the note. In support of this holding, the trial court explained that as an attorney- in-fact for Ownit, Williams was authorized to transact business for Ownit. However, we find it troubling that when HSBC initially filed suit, a copy of this note was not attached and that later, this undated note allonge purporting to indorse the note to HSBC appeared in the record.

Further, HSBC argues that under KRS 355.3-203(2), it has the power to enforce the note. That statute states that “[t]he transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument.” The Official comment to Section 203(2) states: “If the transferee is not a holder because the transferor did not indorse; the transferee is nevertheless a person entitled to enforce the instrument under Section 3-301 if the transferor was a holder at the time of transfer.”

Thus, according to HSBC, even if Ownit did not properly indorse the note, as Morgan claims on appeal, it can enforce the note if Ownit was a holder at the time of the transfer, or at the time the note allonge was signed. The difficulty in determining the applicability of the note allonge is the fact that it is not dated, and thus there is nothing in the record to determine whether the transferor, Ownit, was a holder at the time it allegedly transferred its interest in the note to HSBC.

This case is further complicated by the fact that the mortgage was not assigned to HSBC until August 4, 2008, and was subsequently recorded on August 11, 2008. HSBC filed suit on July 31, 2008, and the parties were served on August 2, 2008. Morgan argues that because HSBC did not have possession of the note and the mortgage when it filed suit, and thus had no standing, it cannot cure its lack of standing by subsequently acquiring an interest in the mortgage.

Because this is an issue of first impression in the state of Kentucky, Morgan cites to Wells Fargo Bank, N.A. v. Marchione, 887 N.Y.S.2d 615 (N.Y.A.D. 2 Dept. 2009), in support of this argument. In that case, the parties executed a mortgage with Option One Mortgage Corporation on September 2, 2005. Id. at 616. The parties allegedly failed to make payments beginning on April 1, 2007, and Wells Fargo initiated suit by filing a summons and complaint on November 30, 2007. Id. Option One assigned its “right, title and interest” in the aforementioned mortgage to Wells Fargo in an assignment dated December 4, 2007. Id. The assignment contained a provision stating that it became effective on October 28, 2007. Id. The Appellate Court held that because Wells Fargo did not have an interest in the note and mortgage before they filed suit and only acquired such an interest after filing suit, the bank lacked standing to bring the suit. Id. at 617. Specifically, the trial court held, “[i]n order to commence a foreclosure action, the plaintiff must have a legal or equitable interest in the mortgage. . . . Here, Wells Fargo lacked standing to bring this foreclosure action because it was not the assignee of the mortgage on November 30, 2007, the day the action was commenced.” Id. Ohio also requires that banks have an interest in the mortgage when suit is filed. See Wells Fargo Bank, N.A. v. Byrd, 897 N.E.2d 722 (Ohio App. 1 Dist. 2008) (“bank that was not the mortgagee when suit was filed cannot cure its lack of standing by subsequently obtaining an interest in the mortgage.”).

Because it is impossible to determine from the record when Ownit transferred its interest in the note to HSBC and because the mortgage was not assigned to HSBC until August 4, 2008, after HSBC filed suit against Morgan, we simply cannot say that HSBC had standing to bring the instant action. CR 17.01 provides that “every action shall be prosecuted in the name of the real party in interest, but…an assignee for the benefit of creditors…may bring an action…” It follows that, where a cause of action has been assigned, the assignee becomes the real party in interest. See CR 17.01. However, “[i]n no event may an assignee maintain an action for any part of a claim which has not been assigned to him.” Works v. Winkle, 234 S.W.2d 312, 315 (Ky. App. 1950). A mere expectancy is not enough to establish standing, a party must prove a “present or substantial interest.” Plaza B.V. v. Stephens, 913 S.W2d 319, 322 (Ky. 1996) (quoting Ashland v. Ashland F.O.P. No.3, Inc., 888 S.W.2d 667 (Ky. 1994)). In the instant case, HSBC cannot prove when it obtained a present or substantial interest in the note and it did not receive an interest in the mortgage until after it filed suit. Accordingly, the trial court’s judgment as a matter of law that HSBC had standing to pursue its claims was in error.

For the foregoing reasons, we reverse the Shelby Circuit Court’s summary judgment and remand this matter for further proceedings consistent with this opinion.

ISAAC, SENIOR JUDGE, CONCURS.

MOORE, JUDGE, CONCURS IN RESULT BY SEPARATE OPINION.

Respectfully, I concur with the result that HSBC Bank did not establish that it had standing to file a complaint at the time it commenced this action. Although a bankruptcy action, I agree with the analysis and detailed explanation set forth in In re Veal, ___ B.R. ___, 2011 WL 2304200 (9th Cir. BAP, June 20, 2011) and find it to be persuasive and an excellent explanation relevant to the issue presently before the Court.

[1] Senior Judge Sheila R. Isaac sitting as Special Judge by assignment of the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes (KRS) 21.580.

[2] We note that while Takvam was named on the Notice of Appeal, she does not appear to have actively participated at the trial court level below, and she has not filed a separate brief on appeal. Thus we refer only to Morgan throughout the opinion.

[ipaper docId=61901445 access_key=key-rvpjr78h5lui22v5isn height=600 width=600 /]

MAINE SUPREME JUDICIAL COURT

BENEFICIAL MAINE INC.

v.

TIMOTHY G. CARTER et al.

[…]

[¶3] After the parties were unable to resolve the case through mediation, Beneficial moved for summary judgment and submitted a statement of material facts. See M.R. Civ. P. 56(h)(1). In support of its statement of material facts, Beneficial referred to two affidavits—one from Beneficial’s attorney, which clarified the priority of the Carters’ creditors, and one from Shana Richmond, Vice President of Administrative Services for HSBC Consumer Lending Mortgage Servicing, described in the affidavit as Beneficial’s “servicer.” Beneficial cited to Richmond’s affidavit, with its attached exhibits, as the sole evidentiary support for its allegations of its ownership of the note and mortgage, the Carters’ obligation on the note, the Carters’ default, and the amount that the Carters owed. Richmond’s affidavit states the following as the foundation for her factual assertions:

[…]

[ipaper docId=59836524 access_key=key-272ijous2ldzihvw2sfh height=600 width=600 /]

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

Credit Slips-

Both cases arise from Nevada’s foreclosure mediation program. In one case, Pasillas v. HSBC Bank USA, the Nevada Supreme Court ordered sanctions against HSBC for failing to mediate in good faith. What was the failure? HSBC failed to show up at the mediation with the required loan documentation, namely two pages of the mortgage note were missing, the assignment to HSBC was incomplete, a BPO rather than an appraisal was provided.  Moreover, HSBC didn’t show up at the mediation with authority to settle because it still required “investor approval.” The foreclosure mediator refused on these ground to authorize the foreclosure. The district court ordered the foreclosure to proceed, but the Nevada Supreme Court reversed the ruling and remanded with instructions for the district court to determine appropriate sanctions.

Continue reading [CREDIT SLIPS]

Cite as: Leyva v. National Default Servicing Corp.

127 Nev. Adv. Op. No. 40

July 7, 2011

IN THE SUPREME COURT OF THE STATE OF NEVADA

No. 55216

MOISES LEYVA,

Appellant,

vs.

NATIONAL DEFAULT SERVICING CORP.; AMERICA’S SERVICING COMPANY; AND WELLS FARGO,

Respondents.

Appeal from a district court order denying a petition for judicial review in a foreclosure mediation action.  Eighth Judicial District Court, Clark County; Donald M. Mosley, Judge.

Reversed and remanded.

Crosby & Associates and David M. Crosby and Troy S. Fox, Las Vegas, for Appellant.

Snell & Wilmer, LLP, and Gregory A. Brower and Cynthia Lynn Alexander, Las Vegas, for Respondents America’s Servicing Company and Wells Fargo.

Wilde & Associates and Gregory L. Wilde, Las Vegas, for Respondent National Default Servicing Corp.

BEFORE THE COURT EN BANC.

OPINION

By the Court, HARDESTY, J.:

In this appeal, we consider issues arising out of Nevada’s Foreclosure Mediation Program.  First, we must determine whether a homeowner who is not the original mortgagor is a proper party to participate in the program.  We conclude that the Foreclosure Mediation statute, NRS 107.086, and the Foreclosure Mediation Rules (FMRs) dictate that a homeowner, even if he or she is not the named mortgagor, is a proper party entitled to request mediation following a notice of default.

Second, we must determine if a party is considered to have complied with the applicable statute and FMRs governing document production in a mediation proceeding by producing what the district court referred to as “essential documents.”  In this, we address whether substantial compliance satisfies the mandates of the statute and FMRs.  Because we conclude that strict compliance is compelled by NRS 107.086(4) and (5), that the assignment offered was defective, and that no endorsement of the mortgage note was provided according to Article 3 of the Uniform Commercial Code, we conclude that Wells Fargo failed to produce the documents required under NRS 107.086(4).  Additionally, we recently concluded in Pasillas v. HSBC Bank USA, 127 Nev. ___, ___ P.3d ___ (Adv. Op. No. 39, July 7, 2011), that a party’s failure to produce the enumerated documents required by NRS 107.086 and the FMRs prohibits the district court from directing the program administrator to certify the mediation so that the foreclosure process can proceed.  Here, we again conclude that, due to the statute’s and the FMRs’ mandatory language regarding document production, a party is considered to have fully complied with the statute and rules only upon production of all documents required.  Failure to do so is a sanctionable offense, and the district court is prohibited from allowing the foreclosure process to proceed.  Therefore, we must reverse and remand this case to the district court for it to determine appropriate sanctions against respondents.[1]

FACTS AND PROCEDURAL HISTORY

Appellant Moises Leyva received and recorded a quitclaim deed in 2007 in exchange for taking over monthly mortgage payments on a residence in Las Vegas.  Leyva did not expressly assume the mortgage note, however, and it remained in the original mortgagor’s name, Michael Curtis Ramos.  Nonetheless, Leyva made the mortgage payments in Leyva’s name to respondent Wells Fargo’s servicing company for 25 months.  Thereafter, Leyva defaulted on the mortgage and, upon receiving a notice of election to sell, decided to pursue mediation through the Foreclosure Mediation Program.  Both he and Ramos signed the form electing to mediate.  The mediation occurred on September 23, 2009,[2] and Leyva, Ramos, and Wells Fargo were represented by counsel at the mediation.  Leyva was present at the mediation, while Ramos was available by telephone.  At the mediation, Wells Fargo produced a certified copy of the original deed of trust and mortgage note, on both of which MortgageIT, Inc., not Wells Fargo, was named as the lender, as well as a notarized statement from a Wells Fargo employee asserting that Wells Fargo was in possession of the deed of trust and mortgage note, as well as any assignments thereto.  Wells Fargo did not submit copies of any assignments.  The parties failed to resolve the foreclosure at the mediation, and the mediator’s statement indicated that Wells Fargo failed to bring the statutorily required documents to the mediation.  The mediator did not, however, indicate that Wells Fargo participated in the mediation in bad faith.

Leyva then filed a petition for judicial review in district court, claiming that Wells Fargo mediated in bad faith and that it should be sanctioned.  After conducting hearings on the petition, the district court found that

there is a lack of showing of bad faith on the part of [Wells Fargo] in that all essential documents were provided, contrary to the indication of the mediator, and that [Wells Fargo] otherwise negotiated in good faith notwithstanding the fact that an agreement was not reached.

Absent timely appeal, a Letter of Certification shall enter.

(Emphasis added.)  This appeal followed.[3]

DISCUSSION

In resolving this appeal, as a preliminary matter, we must determine whether Leyva could properly elect to mediate and participate in the mediation even though he was not a named party on the mortgage note and did not assume the note in his purchase of the residence.  Determining that he could participate as the title holder of record, we next consider whether the district court erred in finding that Wells Fargo brought “all essential documents” to the mediation.  In doing so, we address Wells Fargo’s argument that possessing the original mortgage note and deed of trust is sufficient to demonstrate ownership of the same.  We conclude that Wells Fargo failed to produce the documents required under the applicable statute and FMRs and to otherwise show that it had an enforceable interest in the property subject of the mediation.  Accordingly, the district court abused its discretion, and sanctions are warranted pursuant to our holding in Pasillas, 127 Nev. at ___, ___ P.3d at ___.

Leyva was a proper party to the mediation

Wells Fargo first argues that because Leyva was neither the grantor on the deed of trust nor the obligor on the note, he was not a proper party to the mediation.  We disagree.

NRS 107.086(3) allows “[t]he grantor or the person who holds the title of record” to elect to mediate.  (Emphasis added.)  Similarly, FMR 5(1) states that “any grantor or person who holds the title of record and is the owner-occupant of a residence” is eligible to participate in the Foreclosure Mediation Program.  (Emphasis added.)  Leyva recorded his ownership of the subject property in March 2007 and is therefore clearly the title holder of record eligible to participate in the Foreclosure Mediation Program.

Even though the mortgage note remained in Ramos’s name, this bifurcation of title ownership and liability on the note served only to potentially limit the foreclosure solutions available to Leyva at the mediation, not to exclude all possible remedies.  And while Wells Fargo argues that modification was not an option because Leyva lacked authority over the loan, the record reflects that Ramos, the person with such authority, signed the election-of-mediation form, was represented by counsel at the mediation, and was available by telephone during the mediation.  Therefore, Wells Fargo’s argument lacks merit.  Regardless, because both NRS 107.086(3) and FMR 5(1) permit the person holding the title of record to mediate, and Wells Fargo does not dispute that Leyva possessed a valid, recorded quitclaim deed, we conclude that Leyva could properly elect to mediate and was eligible to participate in the Foreclosure Mediation Program.

Wells Fargo failed to meet the mediation program’s documentation requirements, compelling consideration of sanctions

In Pasillas, we held that if a party fails to (1) provide the required documents, or (2) either attend the mediation in person or, if the beneficiary attends through a representative, that person fails to have authority to modify the loan or access to such a person, the district court is required to impose appropriate sanctions.  127 Nev. at ___, ___ P.3d at ___. Here, despite Wells Fargo’s failure to bring the assignments for the mortgage note and deed of trust, the district court refused to impose sanctions.[4]  “[W]e . . . review a district court’s decision regarding the imposition of sanctions for a party’s participation in the Foreclosure Mediation Program under an abuse of discretion standard.”  Id.

Wells Fargo concedes that it did not provide written assignments of the deed of trust and mortgage note as required by NRS 107.086(4) and FMR 5(6).  Nevertheless, it argues that it fulfilled the purpose of the statute and rule, and thus, its failure to bring actual copies of any assignments was harmless.  In essence, Wells Fargo asserts that its failure to strictly comply with the statute’s and FMRs’ requirements should not subject it to sanctions, because it substantially complied with those requirements.

“Substantial compliance may be sufficient ‘to avoid harsh, unfair or absurd consequences.’  Under certain procedural statutes and rules, however, failure to strictly comply . . . can be fatal to a case.”  Leven v. Frey, 123 Nev. 399, 407, 168 P.3d 712, 717 (2007) (quoting 3 Norman J. Singer, Statutes and Statutory Construction § 57:19, at 58 (6th ed. 2001)).  To determine whether a statute and rule require strict compliance or substantial compliance, this court looks at the language used and policy and equity considerations.  Id. at 406-07, 168 P.3d at 717.  In so doing, we examine whether the purpose of the statute or rule can be adequately served in a manner other than by technical compliance with the statutory or rule language.  See id. at 407 n.27, 168 P.3d at 717 n.27 (citing White v. Prince George’s County, 877 A.2d 1129, 1137 (Md. Ct. Spec. App. 2005) (“Where the purpose of the notice requirements is fulfilled, but not necessarily in a manner technically compliant with all of the terms of the statute, this Court has found such substantial compliance to satisfy the statute.” (internal quotation omitted))).

Here, both the statutory language and that of the FMRs provide that the beneficiary “shall” bring the enumerated documents, and we have previously recognized that “‘shall’ is mandatory unless the statute demands a different construction to carry out the clear intent of the legislature.”  S.N.E.A. v. Daines, 108 Nev. 15, 19, 824 P.2d 276, 278 (1992); see also Pasillas, 127 Nev. at ___, ___ P.3d at ___.  The legislative intent behind requiring a party to produce the assignments of the deed of trust and mortgage note is to ensure that whoever is foreclosing “actually owns the note” and has authority to modify the loan.  See Hearing on A.B. 149 Before the Joint Comm. on Commerce and Labor, 75th Leg. (Nev., February 11, 2009) (testimony of Assemblywoman Barbara Buckley).  Thus, we determine that NRS 107.086 and the FMRs necessitate strict compliance.

Because we conclude that strict compliance is necessary, we must discuss what constitutes a valid assignment of deeds of trust and mortgage notes.  Transfers of deeds of trust and mortgage notes are distinctly separate, thus we discuss each one in turn.

The deed of trust, with any assignments, identifies the person who is foreclosing

In this case, Wells Fargo was not the original named beneficiary on the deed of trust, but it contends on appeal that it has the right to foreclose as the assignee of the original beneficiary, MortgageIT.  Although Wells Fargo conceded during oral argument that it did not provide the written assignment, it claims that because it provided a certified copy of the deed of trust and a notarized statement from its employee claiming that it was the rightful owner of the deed of trust, no written assignment was necessary.  We disagree.

A deed of trust is an instrument that “secure[s] the performance of an obligation or the payment of any debt.”  NRS 107.020.  This court has previously held that a deed of trust “constitutes a conveyance of land as defined by NRS 111.010.”[5]  Ray v. Hawkins, 76 Nev. 164, 166, 350 P.2d 998, 999 (1960).  The statute of frauds governs when a conveyance creates or assigns an interest in land:

No estate or interest in lands, . . . nor any trust or power over or concerning lands, or in any manner relating thereto, shall be created, granted, assigned, surrendered or declared . . . , unless . . . by deed or conveyance, in writing, subscribed by the party creating, granting, assigning, surrendering or declaring the same, or by the party’s lawful agent thereunto authorized in writing.

NRS 111.205(1) (emphases added).  Thus, to prove that MortgageIT properly assigned its interest in land via the deed of trust to Wells Fargo, Wells Fargo needed to provide a signed writing from MortgageIT demonstrating that transfer of interest.  No such assignment was provided at the mediation or to the district court, and the statement from Wells Fargo itself is insufficient proof of assignment.  Absent a proper assignment of a deed of trust, Wells Fargo lacks standing to pursue foreclosure proceedings against Leyva.

Mortgage note

The proper method of transferring the right to payment under a mortgage note is governed by Article 3 of the Uniform Commercial Code- Negotiable Instruments, because a mortgage note is a negotiable instrument.[6]  Birkland v. Silver State Financial Services, Inc., No. 2:10-CV-00035-KJD-LRL, 2010 WL 3419372, at *4 (D. Nev. Aug. 25, 2010).  The obligor on the note has the right to know the identity of the entity that is “entitled to enforce” the mortgage note under Article 3, see NRS 104.3301, “[o]therwise, the [homeowner] may pay funds to a stranger in the case.”  In re Veal, No. 09-14808, 2011 WL 2304200, at *16 (B.A.P. 9th Cir. June 10, 2011) (holding, in a bankruptcy case, that AHMSI did not prove that it was the party entitled to enforce, and receive payments from, a mortgage note because it “presented no evidence as to who possessed the original Note.  It also presented no evidence showing [e]ndorsement of the note either in its favor or in favor of Wells Fargo, for whom AHMSI allegedly was servicing the [bankrupt party’s] Loan.”).  If the homeowner pays funds to a “stranger in the case,” then his or her obligation on the note would not be reduced by the payments made. See id. at *7 (“if a[n obligor on a mortgage note] makes a payment to a ‘person entitled to enforce,’ the obligation is satisfied on a dollar for dollar basis, and the [obligor] never has to pay that amount again”).

Wells Fargo argues that, under Nevada law, possession of the original note allowed it to enforce the note.  We disagree and take this opportunity to clarify the applicability of Article 3 to mortgage notes, as we anticipate increasing participation in the Foreclosure Mediation Program, as well as a corresponding increase in the number of foreclosure appeals in this state.  As discussed below, we conclude that Article 3 clearly requires Wells Fargo to demonstrate more than mere possession of the original note to be able to enforce a negotiable instrument under the facts of this case.

Pursuant to NRS 104.3102(1), Article 3 applies to negotiable instruments.  Negotiable instruments are defined as

an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(a) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(b) Is payable on demand or at a definite time; and

(c) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money.

NRS 104.3104(1).  Thus, a mortgage note is a negotiable instrument, and any negotiation of a mortgage note must be done in accordance with Article 3.

A note can be made payable to bearer or payable to order.  NRS 104.3109.  If the note is payable to bearer, that “indicates that the person in possession of the promise or order is entitled to payment.”  NRS 104.3109(1)(a).  However, “[a] promise or order that is not payable to bearer is payable to order if it is payable to the order of an identified person . . . . A promise or order that is payable to order is payable to the identified person.”  NRS 104.3109(2).

For a note in order form to be enforceable by a party other than to whom the note is originally payable, the note must be either negotiated or transferred.[7]  A “‘[n]egotiation’ means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.”  NRS 104.3201(1).  “[I]f an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its endorsement by the holder.”[8]  NRS 104.3201(2) (emphasis added).  An “endorsement” is a signature that is “made on an instrument for the purpose of negotiating the instrument.”  NRS 104.3204(1).  Thus, if the note is payable to the order of an identifiable party, but is then sold or otherwise assigned to a new party, it must be endorsed by the party to whom it was originally payable for the note to be considered properly negotiated to the new party.  Once a proper negotiation occurs, the new party, or “note holder,” with possession is entitled to enforce the note.  NRS 104.1201(2)(u)(1) (“Holder means . . . [t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”).

If a party cannot attain “holder” status by showing a valid negotiation, the party may establish its right to enforce the note by showing that the note has been validly transferred.  NRS 104.3203(2).  The only distinction between a negotiation and a transfer is that, in the case of a transfer, the note need not be endorsed by the party who is relinquishing enforcement rights.  Because a transferred note is not endorsed, however, the party seeking to establish its right to enforce the note “must account for possession of the unendorsed instrument by proving the transaction through which the transferee acquired it.”  U.C.C. § 3-203 cmt. 2 (explaining the effect of § 3-203(b), codified in Nevada as NRS 104.3203(2)).  In other words, because the party seeking to enforce the note cannot “prove” its right to enforce through the use of a valid endorsement, the party must “prove” by some other means that it was given possession of the note for the purpose of enforcing it.[9]

In this case, the adjustable rate mortgage note provides:  “In return for a loan that I have received, I promise to pay U.S. $192,000.00 . . . plus interest, to the order of Lender.  Lender is [MortgageIT, Inc.]” (emphasis added).  Because the mortgage note is payable to the order of a specific party, MortgageIT, to negotiate the note to a new party, in this case Wells Fargo, Wells Fargo must have possession of the note and the note must be properly endorsed by MortgageIT.  See NRS 104.3201(2).  No such endorsement was included in the documents produced at mediation or in the documents filed with the district court, nor was a valid assignment produced as proof of the note’s transfer, and mere possession does not entitle Wells Fargo to enforce the note.  Therefore, because the mortgage note is payable to MortgageIT, unless Wells Fargo can prove that the note was properly endorsed or validly transferred, thereby making it the party entitled to enforce the note, it has not demonstrated authority to mediate the note.

As we concluded in Pasillas, a foreclosing party’s failure to bring the required documents to the mediation is a sanctionable offense under NRS 107.086 and the FMRs.  Therefore, we conclude that the district court abused its discretion when it denied Leyva’s petition for judicial review.  Accordingly, we reverse the district court’s order and remand this matter to the district court with instructions to determine the appropriate sanctions for Wells Fargo’s violation of the statutory and rule-based requirement.  In doing so, the district court should consider the factors discussed in Pasillas.[10]

DOUGLAS, C.J., and CHERRY, SAITTA, GIBBONS, PICKERING, and PARRAGUIRRE, JJ., concur.

**********FOOTNOTES**********

[1]        Because we reverse on other grounds, we do not reach Leyva’s contention that respondent Wells Fargo also participated in the mediation in bad faith because it refused to offer anything other than a cash-for-keys option to avoiding foreclosure.

[2]        Therefore, this mediation was governed by the Foreclosure Mediation Rules in effect from July 31, 2009, until September 28, 2009, at which time the rules were amended.  See In the Matter of the Adoption of Rules for Foreclosure Mediation, ADKT 435 (Order Adopting Foreclosure Mediation Rules, June 30, 2009, and Order Amending Foreclosure Mediation Rules and Adopting Forms, September 28, 2009).  Although the changes required some renumbering of the rules, the language of the rules important to this case, namely, those specifying who can participate in the mediation and the documents that must be provided, remain essentially the same.

[3]        This court has jurisdiction over the appeal from the district court’s final order in the judicial review proceeding.  Nev. Const. art. 6, § 4; NRAP 3A(b)(1).

[4]        At the time the district court entered its order, the Pasillas opinion had not been published.

[5]        “‘Conveyance’ shall be construed to embrace every instrument in writing, except a last will and testament, whatever may be its form, and by whatever name it may be known in law, by which any estate or interest in lands is created, aliened, assigned or surrendered.”  NRS 111.010(1).

[6]        Article 3 is codified in NRS 104.3101-.3605.

[7]        Since the documents provided at the mediation did not establish transfer of either the mortgage or the note, we express no opinion on the issue addressed in the Restatement (Third) of Property section 5.4 concerning the effect on the mortgage of the note having been transferred or the reverse.

[8]        Under NRS 104.3301(1)(a), a person entitled to enforce an instrument is “[t]he holder of the instrument.”

[9]        To “prove” a transaction under NRS 104.3203(2), a party must present evidence sufficient to establish that it is more likely than not that the transaction took place.  NRS 104.3103(1)(i) (defining “prove”); NRS 104.1201(h) (defining “burden of establishing”).

[10]      In Pasillas, we concluded that the following nonexhaustive list of factors would aid district courts in determining what sanctions are appropriate: “whether the violations were intentional, the amount of prejudice to the nonviolating party, and the violating party’s willingness to mitigate any harm by continuing meaningful negotiation.”  Pasillas v. HSBC Bank USA, 127 Nev. ___, ___, ___ P.3d ___, ___ (Adv. Op. No. 39, July 7, 2011).

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[ipaper docId=59629180 access_key=key-1rxuzowvxn02h09lwmc9 height=600 width=600 /]

Cite as: Pasillas v. HSBC Bank USA

127 Nev. Adv. Op. 39

EMILIANO PASILLAS AND YVETTE PASILLAS, Appellants,
v.
HSBC BANK USA, AS TRUSTEE FOR LUMINENT MORTGAGE TRUST; POWER DEFAULT SERVICES, TRUSTEE; AND AMERICAN HOME MORTGAGE SERVICING, INC., Respondents.

No. 56393.

Supreme Court of Nevada.

July 7, 2011.

Terry J. Thomas, Reno, for Appellants.

Pite Duncan, LLP, and Gregg A. Hubley, Laurel I. Handley, and Cuong M. Nguyen, Las Vegas, for Respondents.

BEFORE THE COURT EN BANC.

OPINION

By the Court, HARDESTY, J.:

In this appeal, we consider issues arising out of Nevada’s Foreclosure Mediation Program and address whether a lender commits sanctionable offenses when it does not produce documents and does not have someone present at the mediation with the authority to modify the loan, as set forth in the applicable statute, NRS 107.086, and the Foreclosure Mediation Rules (FMRs).

Because NRS 107.086 and the FMRs expressly require that certain documents be produced during foreclosure mediation and that someone with authority to modify the loan must be present or accessible during the mediation, we conclude that a party’s failure to comply with these requirements is an offense subject to sanctions by the district court. In such an event, the district court shall not direct the program administrator to certify the mediation to allow the foreclosure process to proceed until the parties have fully complied with the statute and rules governing foreclosure mediation.

Here, because respondents HSBC Bank USA, Power Default Services, and American Home Mortgage Servicing, Inc. (AHMSI), did not bring the required documents to the mediation and did not have access to someone authorized to modify the loan during the mediation, we conclude that the district court erred in denying appellants Emiliano and Yvette Pasillas’s petition for judicial review. Therefore, we reverse the district court’s order and remand this matter to the district court so that the court may determine sanctions.

FACTS AND PROCEDURAL HISTORY

The Pasillases purchased a home in Reno in 2006 with a loan from American Brokers Conduit. The note and deed of trust were allegedly assigned to HSBC.^[1] Near the end of 2009, Power Default Services became a substitute trustee, removing HSBC from that role. Allegedly, the servicer for the Pasillases’ loan is AHMSI.^[2]

When the Pasillases defaulted on their mortgage and received a notice of election to sell, they elected to mediate pursuant to the Foreclosure Mediation Program provided for in NRS 107.086. Two separate mediations occurred, one on February 18, 2010, and one on March 8, 2010,^[3] but neither mediation resulted in a resolution.

While a representative of AHMSI was available by phone at both mediations, it is unclear whether HSBC was present or represented by counsel. There is some disagreement between the parties regarding who the respondents’ attorneys represented at the mediations and at the hearing on the petition for judicial review. In the addendum to the mediator’s statement, the mediator stated that “HSBC . . . was identified as Beneficiary . . . and represented by Cuong Nguyen, Esq. of Pite Duncan, LLP.” In the second mediation, the mediator indicated that “HSBC . . . was again identified as Beneficiary . . . and represented by Heather Hudson, Esq. of Pite Duncan, LLP.” However, in responding to the Pasillases’ petition for judicial review, the Pite Duncan law firm indicated that it was not counsel for HSBC. Specifically, the response opened with the following statement: “Respondents AMERICAN HOME MORTGAGE SERVICING, INC. (`AHMSI’), erroneously named herein as HSBC BANK USA AS TRUSTEE FOR LUMINENT MORTGAGE TRUST.” Respondents also claimed that the Pasillases were “incorrect that Pite Duncan, LLP attended [the mediations] on behalf of HSBC.” At oral argument before this court, respondents’ counsel stated that they represented all of the respondents named in this case at the mediations, but they did not dispute the mediator’s finding that respondents needed additional authority from investors to agree to a loan modification.

After both mediations were completed, the mediator filed a statement indicating that (1) “[t]he parties participated but were unable to agree to a loan modification or make other arrangements,” (2) “[t]he beneficiary or his representative failed to participate in good faith,” and (3) “[t]he beneficiary failed to bring to the mediation each document required.” The mediator also filed an addendum to his statement, wherein he stated that two pages of the mortgage note were missing, that the assignment purportedly assigning the mortgage note and deed of trust to HSBC was incomplete, that instead of an appraisal HSBC provided a broker’s price opinion,^[4] and that respondents stated they would need additional investor approval before agreeing to a loan modification. The mediator concluded that he would not recommend that the administrator issue a certificate authorizing further foreclosure proceedings because HSBC “failed to participate in [the] mediation in good faith as evidenced by its failure to produce required documents and information initially, or subsequently to cure its failures.” The Pasillases subsequently filed a petition for judicial review in the district court. In the petition, the Pasillases requested sanctions in the form of a modification of their mortgage and attorney fees.

The district court conducted a short hearing, during which the only issue addressed was the parties’ failure to come to an agreement. The district court did not address whether respondents failed to provide the required documents at the mediation or whether respondents lacked the requisite authority at the mediation to modify the loan. After the hearing, the district court entered an order finding that “Respondents] [have] met the burden to show cause why sanctions should not lie,” and directed the Foreclosure Mediation Program administrator to issue a certification authorizing the foreclosure to proceed. The Pasillases appealed.

DISCUSSION

In resolving this appeal, we must determine whether the district court abused its discretion when it refused to enter sanctions against respondents for failing to satisfy express statutory requirements and allowed respondents to continue with the foreclosure process. We begin our discussion with a brief background of the Foreclosure Mediation Program.

The Foreclosure Mediation Program

The Nevada Legislature enacted the Foreclosure Mediation Program in 2009 in response to the increasing number of foreclosures in this state. Hearing on A.B. 149 Before the Joint Comm. on Commerce and Labor, 75th Leg. (Nev., February 11, 2009) (testimony of Assemblywoman Barbara Buckley). The program requires that a trustee seeking to foreclose on an owner-occupied residence provide an election-of-mediation form along with the notice of default and election to sell. NRS 107.086(2)(a)(3). If the homeowner elects to mediate, both the homeowner and the deed of trust beneficiary must attend, must mediate in good faith, provide certain enumerated documents,^[5] and, if the beneficiary attends through a representative, that person must have authority to modify the loan or have “access at all times during the mediation to a person with such authority.” NRS 107.086(4), (5); FMR 5(7)(a). After the conclusion of the mediation, the mediator must file a mediator’s statement with the program administrator, indicating whether all parties complied with the statute and rules governing the program. FMR 12(2). If the beneficiary does not (1) attend the mediation; (2) mediate in good faith; (3) provide the required documents; or (4) if attending through a representative, have a person present with authority to modify the loan or access to such a person, the mediator is required to “submit … a petition and recommendation concerning the imposition of sanctions.”^[6] NRS 107.086(5). The homeowner may then file a petition for judicial review with the district court,^[7] and the court “may issue an order imposing such sanctions against the beneficiary of the deed of trust or the representative as the court determines appropriate.” See FMR 5(7)(f).^[8] But if the district court finds that the parties met the four program requirements, it will direct the program administrator to certify the mediation, allowing the foreclosure process to proceed. See NRS 107.086(2)(c)(2), (3), (6), (7).

Respondents failed to meet the mediation program’s statutory requirements

The Pasillases argue that respondents failed to meet the program’s requirements—the document requirement because respondents failed to bring a complete mortgage note and failed to provide assignments of the note and deed of trust, and the loan modification authority requirement because they failed to have someone present at the mediation with the authority to modify the loan. We agree.

The scope and meaning of a statute is a question of law, which we review de novo. Arguello v. Sunset Station, Inc., 127 Nev. ___, ___ P.3d ___. (Adv. Op. No. 29, June 2, 2011). Court rules are also subject to de novo review. Moon v. McDonald Carano Wilson LLP, 126 Nev. ___, ___, 245 P.3d 1138, 1139 (2010). “When the language in a provision is clear and unambiguous, this court gives `effect to that meaning and will not consider outside sources beyond that statute.'” City of Reno v. Citizens for Cold Springs, 126 Nev. ___, ___, 236 P.3d 10, 16 (2010) (quoting NAIW v. Nevada Self-Insurers Association, 126 Nev. ___, ___, 225 P.3d 1265, 1271 (2010)).

Both NRS 107.086 and the FMRs use the word “shall” or “must” when listing the actions required of parties to a foreclosure mediation. Use of the word “shall” in both the statutory language and the FMRs indicates a duty on the part of the beneficiary, and this court has stated that “`shall’ is mandatory unless the statute demands a different construction to carry out the clear intent of the legislature.” S.N.E.A. v. Daines, 108 Nev. 15, 19, 824 P.2d 276, 278 (1992). Additionally, Black’s Law Dictionary defines “shall” as meaning “imperative or mandatory. . . . inconsistent with a concept of discretion.” 1375 (6th ed. 1990). And as it is used here, “must” is a synonym of “shall.” We conclude that NRS 107.086(4) and (5) and FMR 5(7)(a) clearly and unambiguously mandate that the beneficiary of the deed of trust or its representative (1) attend the mediation, (2) mediate in good faith, (3) provide the required documents, and (4) have a person present with authority to modify the loan or access to such a person.

Here, the mediator’s statement and his addendum to that statement, which were provided to the district court in the Pasillases’ petition for judicial review, clearly set out respondents’ failure to bring the required documents to the mediation and to have someone present with authority to modify the loan. Additionally, respondents do not dispute that they failed to bring all the required documents to the mediation.^[9] Although respondents argue on appeal that their counsel at the mediation “had the requisite authority and/or access to a person with the authority to modify the loan,” they do not controvert the mediator’s statement that their counsel claimed at the mediation that additional investor approval was needed in order to modify the loan. The record before the district court demonstrates that respondents failed to meet the statutory requirements. Nonetheless, respondents argue that the district court’s conclusion that sanctions were unwarranted did not constitute an abuse of discretion because, despite the failures noted above, they mediated to resolve the foreclosure in good faith. We disagree.

Standard of review

At the outset, we establish that we will review a district court’s decision regarding the imposition of sanctions for a party’s participation in the Foreclosure Mediation Program under an abuse of discretion standard. See Arnold v. Kip, 123 Nev. 410, 414, 168 P.3d 1050, 1052 (2007) (abuse of discretion standard used to review district court’s imposition of sanctions on a party for discovery abuses); Banks v. Sunrise Hospital, 120 Nev. 822, 830, 102 P.3d 52, 58 (2004) (reviewing sanctions imposed for spoliation of evidence under an abuse of discretion standard). When determining whether the district court has abused its discretion in such cases, we do not focus on whether the court committed manifest error, but rather we focus on whether the district court made any errors of law.

Failure to satisfy statutory mandates is a sanctionable offense

As discussed above, under NRS 107.086(5), there are four distinct violations a party to a foreclosure mediation can make: (1) “fail[ure] to attend the mediation,” (2) “fail[ure] to participate in the mediation in good faith,” (3) failure to “bring to the mediation each document required,” and (4) failure to demonstrate “the authority or access to a person with the authority [to modify the loan].” If any one of these violations occurs, the mediator must recommend sanctions. Id. If the homeowner petitions for judicial review, “[t]he court may issue an order imposing such sanctions against the beneficiary of the deed of trust or the representative as the court determines appropriate.” Id. We interpret NRS 107.086(5) to mean that the commission of any one of these four statutory violations prohibits the program administrator from certifying the foreclosure process to proceed and may also be sanctionable. See Tarango v. SIIS, 117 Nev. 444, 451 n.20, 25 P.3d 175, 180 n.20 (2001) (explaining that “may” can be interpreted as “shall” in order to carry out the Legislature’s intent, which in the instant case was to make mandatory the requirements set forth in NRS 107.086(5)).

In this case, despite the mediator’s opinion that respondents did not participate in the mediation in good faith based on their failure to comply with the FMRs, the district court did not impose sanctions and instead entered a Letter of Certification that allowed respondents to proceed with the foreclosure process on the Pasillases’ property. The district court essentially ignored the fact that respondents failed to bring “to the mediation each document required” and did “not have the authority or access to a person with the authority” to modify the loan, failures which we determine constitute sanctionable offenses. Thus, the district court’s order directing the program administrator to enter a letter of certification and its failure to consider sanctions was an abuse of discretion because respondents clearly violated NRS 107.086 and the FMRs.^[10] This abuse requires us to remand the case for the district court to consider appropriate sanctions.

The nature of the sanctions imposed on the beneficiary or its representative is within the discretion of the district court. We have previously listed factors to aid district courts when considering sanctions as punishment for litigation abuses. See Young v. Johnny Ribeiro Building, 106 Nev. 88, 93, 787 P.2d 777, 780 (1990); see also Bahena v. Goodyear Tire & Rubber Co., 126 Nev. ___, ___, 235 P.3d 592, 598-99 (2010); Arnold, 123 Nev. at 415-16, 168 P.3d at 1053. However, we conclude that other factors, more specific to the foreclosure mediation context, apply when a district court is considering sanctions in such a case. When determining the sanctions to be imposed in a case brought pursuant to NRS 107.086 and the FMRs, district courts should consider the following nonexhaustive list of factors: whether the violations were intentional, the amount of prejudice to the nonviolating party, and the violating party’s willingness to mitigate any harm by continuing meaningful negotiation.

Because, in this case, the foreclosing party’s failure to bring the required documents to the mediation and to have someone present at the mediation with the authority to modify the loan were sanctionable offenses under the Foreclosure Mediation Program, the district court abused its discretion when it denied the Pasillases’ petition for judicial review and ordered the program administrator to enter a letter of certification authorizing the foreclosure process to proceed. Therefore, we reverse the district court’s order and remand this matter to the district court with instructions to determine the appropriate sanctions for respondents’ violations of the statutory and rule-based requirements.

DOUGLAS, C.J., CHERRY, SAITTA, GIBBONS, PICKERING and PARRAGUIRRE, JJ., concur.

[1] The Pasillases claim that HSBC failed to provide a valid assignment; the one it provided during the mediation was signed by American Brokers Conduit but did not state who the assignee was.

[2] The parties do not argue and we do not reach the question of whether AHMSI is a valid agent for HSBC or the real party in interest, or the “person entitled to enforce” the promissory note in this case. See In re Veal, No. 09-14808, 2011 WL 2304200, at *12-14 (B.A.P. 9th Cir. June 10, 2011).

[3] These mediations were governed by the Foreclosure Mediation Rules (FMRs) as amended on November 4, 2009.

[4] We note that while FMR 11(7)(b) currently allows for a broker’s price opinion in lieu of an appraisal, the rules applicable to this matter called for an appraisal without mention of a broker’s price opinion. In the Matter of the Adoption of Rules for Foreclosure Mediation, ADKT 435 (Order Adopting Foreclosure Mediation Rules, June 30, 2009, and Order Amending Foreclosure Mediation Rules and Adopting Forms, November 4, 2009).

[5] With regard to the documents required, NRS 107.086(4) provides that “[t]he beneficiary of the deed of trust shall bring to the mediation the original or a certified copy of the deed of trust, the mortgage note[,] and each assignment of the deed of trust or mortgage note.” The FMRs echo this documentation requirement nearly word for word. FMR 5(7)(a). FMR 7(2) also provides that “[t]he beneficiary of the deed of trust or its representatives shall produce an appraisal. . . and shall prepare an estimate of the `short sale’ value of the residence.”

[6] If the homeowner fails to attend the mediation, the administrator will certify that no mediation is required. NRS 107.086(6).

[7] Generally, if the parties fail to reach an agreement and neither party files a petition for judicial review, the program administrator will certify the mediation, which allows the foreclosure process to proceed. NRS 107.086(3), (6), (7).

[8] The current version of the FMRs requires the district court to review a case de novo when a party files a petition for judicial review. FMR 21(5) (rules including amendments through March 1, 2011). De novo review may include an evidentiary hearing concerning what transpired at the mediation. See Black’s Law Dictionary 924 (9th ed. 2009) (defining “de novo judicial review” as “[a] court’s nondeferential review of an administrative decision, usu[ally] through a review of the administrative record plus any additional evidence the parties present”).

[9] At oral argument, respondents’ counsel argued that an assignment for the mortgage note was provided, but the name of the assignee was missing. We determine that an assignment provided without the name of the assignee is defective for the purposes of the Foreclosure Mediation Program because it does not identify the relevant parties.

The Supreme Judicial Court of Massachusetts recently reached the same conclusion regarding the production of assignments to mortgage notes and deeds of trust, albeit in a slightly different context. In U.S. Bank National Ass’n v. Ibanez, 941 N.E.2d 40 (Mass. 2011), two separate banks foreclosed on the mortgages of two homeowners whose properties the banks then bought at the foreclosure sales. Id. at 44. The banks later filed complaints in the lower court seeking a declaration that they had clear title to the properties. Id. Because the banks failed to show an interest in the mortgages at the time of the foreclosure sales, the sales were invalid, and the lower court entered judgment against the banks. Id. at 45. On appeal, the court determined that, similar to this case, the banks were not the original mortgagees and, therefore, they had to show that the mortgages were properly assigned to them in writings signed by the grantors before they could notice the sales and foreclosures of the properties. Id. at 51. In an attempt to prove that they had the authority to foreclose on the properties, the banks provided contracts purporting to assign to them bundles of mortgages; however, the attachments that identified what mortgages were being assigned were not included in the documents provided. Id. at 52. The court concluded that the banks demonstrated no authority to foreclose on the properties because they did not have the assignments. Id. at 53 (“We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment.”). The court additionally stated that “[a] plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title.” Id. at 52. We agree with the rationale that valid assignments are needed when a beneficiary of a deed of trust seeks to foreclose on a property.

[10] Respondents argue that this court should decline to address the Pasillases’ argument that respondents failed to provide someone at the mediation with the authority to modify the loan because it was not raised in the petition for judicial review. First, we note that our decision here would require the district court to impose sanctions even if respondents’ only omission was the failure to provide the required documents. However, we determine that the Pasillases adequately raised this issue in their petition for judicial review by alleging that respondents’ counsel at the mediations did not accurately state who they were representing. Therefore, our decision of the issue is appropriate.

[ipaper docId=59602935 access_key=key-rckck71ucb7lsl18mx6 height=600 width=600 /]

Excerpt:

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

It is, therefore,

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

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