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AURORA v. TOLEDO | NJ SC  “We question whether Lehman’s designation of MERS as its nominee remained in effect after Lehman filed its bankruptcy”

AURORA v. TOLEDO | NJ SC “We question whether Lehman’s designation of MERS as its nominee remained in effect after Lehman filed its bankruptcy”


NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0804-10T3

AURORA LOAN SERVICES, LLC,
Plaintiff-Respondent,

v.

BERNICE TOLEDO,
Defendant-Appellant,

and

MR. TOLEDO, Husband of
BERNICE TOLEDO, MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC., As Nominee
For LEHMAN BROTHERS BANK FSB;
MORTGAGE ELECTRONIC REGISTRATION
SYSTEMS, INC., As Nominee For
AURORA LOAN SERVICES LLC,
Defendants.
_________________________________________________________

Submitted September 26, 2011 – Decided October 18, 2011

Before Judges Alvarez and Skillman.

On appeal from Superior Court of New Jersey,
Chancery Division, Passaic County, Docket
No. F-10005-09.

Kenneth C. Marano, attorney for appellant.

Victoria E. Edwards (Akerman Senterfitt),
attorney for respondent.

PER CURIAM

Defendant appeals from an order entered on August 31, 2010,
which granted a summary judgment in this mortgage foreclosure
action declaring that defendant’s answer “sets forth no genuine
issue as to any material fact challenged and that [plaintiff] is
entitled to a judgment as a matter of law.” There is no
indication in the record before us that plaintiff ever secured a
final judgment of foreclosure. Therefore, the appeal appears
interlocutory. See Wells Fargo Bank, N.A. v. Garner, 416 N.J.
Super. 520, 523-24 (App. Div. 2010). However, because defendant
did not move to dismiss on that basis and the appeal has been
pending for a substantial period of time, we grant leave to
appeal as within time and address the merits. See R. 2:4-
4(b)(2).

The record before us is rather sparse and disjointed.
However, the following facts may be gleaned from that record.
Defendant owns a home in the Borough of Prospect Park. On
July 24, 2006, defendant executed two promissory notes payable
to Lehman Brothers Bank, the first for $320,000, which was
payable on August 1, 2036, and the second for $60,000, which was
payable on August 1, 2021. Both notes were secured by mortgages
on defendant’s home.

On September 1, 2006, plaintiff began servicing the notes
on behalf of Lehman.

Sometime in 2008, defendant went into default in the
payment of her obligations under the notes.

On January 30, 2009, plaintiff purportedly obtained an
assignment of the $320,000 note from Lehman and the mortgage
securing that note.1 This assignment was signed by a person
named Joann Rein, with the title of Vice-President of Mortgage
Electronic Systems, Inc. (MERS). MERS was described in the
assignment document as a “nominee for Lehman Brothers Bank.”

This document is discussed in greater detail later in the
opinion.

On February 23, 2009, plaintiff filed this mortgage
foreclosure action. The parties subsequently engaged in
negotiations to resolve the matter. Those negotiations were
unsuccessful and are not relevant to our disposition of this
appeal.

Plaintiff filed a motion for summary judgment to strike
defendant’s answer on the ground there was no contested issue of
fact material to plaintiff’s right to foreclose upon defendant’s
property. In support of this motion, plaintiff relied primarily
on an affidavit by Laura McCann, one of its vice-presidents,
and exhibits attached to that affidavit, which are discussed
later in this opinion. Defendant submitted an answering
certification.

After hearing oral argument, the trial court issued a brief
written opinion and order granting plaintiff’s motion. This
appeal followed.

To have standing to foreclose a mortgage, a party generally
must “own or control the underlying debt.” Wells Fargo Bank,
N.A. v. Ford, 418 N.J. Super. 592, 597 (App. Div. 2011) (quoting
Bank of N.Y. v. Raftogianis, 418 N.J. Super. 323, 327-28 (Ch.
Div. 2010)). If the debt is evidenced by a negotiable
instrument, such as the promissory notes executed by defendant,
the determination whether a party owns or controls the
underlying debt “is governed by Article III of the Uniform
Commercial Code (UCC), N.J.S.A. 12:3-101 to -605, in particular
N.J.S.A. 12A:3-301.” Ibid. Under this section of the UCC, the
only parties entitled to enforce a negotiable instrument are
“[1] the holder of the instrument, [2] a nonholder in possession
of the instrument who has the rights of the holder, or [3] a
person not in possession of the instrument who is entitled to
enforce the instrument pursuant to [N.J.S.A.] 12A-3-309 or
subsection d. of [N.J.S.A.] 12A:3-418.” N.J.S.A. 12A:3-301
(brackets added).

In this case, it is clear for the same reasons as in Ford,
418 N.J. Super. at 598, that plaintiff is neither a “holder” of
the promissory notes executed by defendant nor a “person not in
possession” of those notes who is entitled to enforce them
pursuant to N.J.S.A. 12A:3-309 or N.J.S.A. 12A:3-418(d).

Therefore, as in Ford, plaintiff’s right to foreclose upon the
mortgages defendant executed to secure those notes depends upon
whether plaintiff established that it is “a nonholder in
possession of the instrument[s] who has the rights of a holder.”
N.J.S.A. 12A:3-301; see Ford, supra, 418 N.J. Super. at 498-99.

To establish its right to foreclose upon the mortgage
defendant executed to secure her $320,000 note to Lehman,
plaintiff relied upon an affidavit by Laura McCann, a vicepresident
of plaintiff. McCann’s affidavit states that she has
“custody and control of the business records of [plaintiff] as
they relate to [defendant’s] loans.” Regarding each of the
copies of defendant’s notes and mortgages attached to her
certifications, McCann asserts that it is a “true and correct
copy.” However, McCann does not state that she personally
confirmed that those attachments were copies of originals in
plaintiff’s files.

McCann’s affidavit also has attached a copy of a document
that purports to be a “Corporate Assignment of Mortgage” from
MERS, as Lehman’s nominee, to plaintiff. Again, McCann’s
affidavit asserts that this document “is a true and correct copy
of the instrument assigning the Mortgage and Note to
[plaintiff],” but does not state that she personally confirmed
that it was a copy of the original.

A certification in support of a motion for summary judgment
must be based on “personal knowledge.” Ford, supra, 418 N.J.
Super. at 599 (quoting R. 1:6-6); see also Deutsche Bank Nat’l
Trust Co. v. Mitchell, ___ N.J. Super. ___, ___ (App. Div. 2011)
(slip op. at 17-19). Our Supreme Court has recently reaffirmed
the need for strict compliance with this requirement in mortgage
foreclosure actions by adopting, effective December 20, 2010, a
new court rule which specifically states that an affidavit in
support of a judgment in a mortgage foreclosure action must be
“based on a personal review of business records of the plaintiff
or the plaintiff’s mortgage loan servicer.” R. 4:64-2(c)(2).
McCann’s affidavit does not state that she conducted such a
“personal review of [plaintiff’s] business records” relating to
defendant’s notes and mortgages.

Furthermore, even if plaintiff had presented adequate
evidence that the purported assignment of the mortgages and
notes attached to McCann’s affidavit was a copy of the original
in plaintiff’s files, this would not have been sufficient to
establish the effectiveness of the alleged assignment. This
document was signed by a JoAnn Rein, who identifies herself as a
vice-president of MERS, as nominee for Lehman Brothers, and was
notarized in Nebraska. Plaintiff’s submission in support of its
motion for summary judgment did not include a certification by
Rein or any other representative of MERS regarding her authority
to execute the assignment or the circumstances of the
assignment. In the absence of such further evidence, we do not
view the purported assignment of the mortgages and notes to be a
self-authenticating document that can support the summary
judgment in plaintiff’s favor. N.J.R.E. 901; see 2 McCormick on
Evidence § 221 (6th ed. 2006).

There is an additional potential problem with this
purported assignment. The assignment was not made by Lehman, as
payee of the promissory notes secured by the mortgage, but
rather by MERS, “as nominee for Lehman.” Although the notes and
mortgages appointed MERS as Lehman’s nominee, Lehman filed a
petition for bankruptcy protection in September 2008, see Andrew
Ross Sorkin, Lehman Files for Bankruptcy; Merrill is Sold, N.Y.
Times (Sept. 14, 2008), which was before the purported
assignment of defendant’s mortgage and note on January 30, 2009.

Therefore, we question whether Lehman’s designation of MERS as
its nominee remained in effect after Lehman filed its bankruptcy
petition, absent ratification of that designation by the
bankruptcy trustee. On remand, the trial court should address
the question whether MERS was still Lehman’s nominee as of the
date of its purported assignment of defendant’s note and
mortgage to plaintiff.

Accordingly, we reverse the August 31, 2010 order granting
plaintiff’s motion for summary judgment and remand to the trial
court for further proceedings in conformity with this opinion.

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REWIND: “MERS DOUBLE ASSIGNMENT” IN RE MORENO, Bankruptcy Court, D. Massachusetts, Eastern Div. 2010

REWIND: “MERS DOUBLE ASSIGNMENT” IN RE MORENO, Bankruptcy Court, D. Massachusetts, Eastern Div. 2010


In re: SIMEON MORENO, Chapter 13, Debtor

Case No. 08-17715-FJB.

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

May 24, 2010.

MEMORANDUM OF DECISION ON MOTION OF PROPERTY ASSET MANAGEMENT, INC. FOR RELIEF FROM THE AUTOMATIC STAY

FRANK J. BAILEY, Bankruptcy Judge

In the Chapter 13 case of debtor Simeon Moreno, Property Asset Management, Inc. (“PAM”), claiming to be the assignee of a mortgage originally given by the debtor to Mortgage Electronic Registration Systems, Inc. (“MERS”) as nominee for lender GE Money Bank, moved for relief from the automatic stay to foreclose the mortgage. Moreno initially opposed the motion but then withdrew his objection, whereupon the Court granted the relief requested. Months later, at Moreno’s request, the Court vacated the order granting relief from stay and scheduled an evidentiary hearing on the Motion for Relief from Stay for the limited purpose of reconsidering whether PAM had an interest in the mortgage it sought to foreclose and, to that extent, standing to seek relief from stay.[1] Having held the evidentiary hearing and received proposed findings and conclusions, the Court now enters the following findings of fact and conclusions of law.

Findings of Fact and Procedural History

On January 23, 2007, Moreno executed a promissory note in the principal amount of $492,000, payable to lender GE Money Bank. GE subsequently endorsed the note in blank, whereupon possession of the note was transferred through a series of holders and ultimately to Lehman Brothers Holdings, Inc. (“LBHI”), who held the note when PAM filed its Motion for Relief from Stay and continues to hold it now.[2] LBHI, through one of its employees and through LBHI’s attorney, who not coincidentally also is PAM’s attorney in the present matter, produced the original note at the evidentiary hearing. PAM is not now a holder of the note or an entity for whose benefit another has held the note.

To secure the promissory note, Moreno gave a mortgage on the real property at 5 Maple Street, West Roxbury, Massachusetts (the “Property”) to MERS as nominee for GE (the “Mortgage”). The Mortgage specifies that MERS “is a separate corporation that is acting solely as a nominee for [GE] and [GE’s] successors and assigns. MERS is the mortgagee under this security instrument.” The Mortgage further provides that Moreno does hereby mortgage, grant and convey to MERS (solely as nominee for [GE] and [GE’s] successors and assigns) and to the successors and assigns of MERS, with power of sale, the [Property]. . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for [GE] and [GE’s] successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of [GE] including, but not limited to, releasing and canceling this Security Instrument.

The Mortgage was duly recorded.

MERS administers an electronic registry to track the transfer of ownership interest and servicing rights in mortgage loans. With respect to certain loans of which its members are the beneficial owners, MERS also serves as mortgagee of record and holds legal title to the mortgages in a nominee capacity. MERS remains the mortgagee of record when beneficial ownership interests or servicing rights are sold from one member of the MERS system to another. When the beneficial interest in a mortgage loan is transferred from one member of the MERS system to another, MERS tracks the transfer through its internal records. When rights are transferred from a member of the MERS system to a non-member, MERS executes and records an assignment from MERS to the non-member.

To facilitate the execution of the assignments from MERS, MERS designates “certifying officers,” who are typically employees of MERS member firms. MERS authorizes these employees, through formal corporate resolutions, to execute assignments on behalf of MERS. On or about January 6, 2005, MERS, through a document entitled Corporate Resolution and issued by its board of directors, authorized Denise Bailey, an employee of Litton Loan Servicing L.P. (“Litton”), a member of MERS, to execute such assignments on behalf of MERS. In the language of the authorizing document (the “MERS Authorization”),[3] Ms. Bailey was authorized to, among other things, “assign the lien of any mortgage loan naming MERS as the mortgagee when the Member [Litton] is also the current promissory note-holder, or if the mortgage loan is registered on the MERS System, is shown [sic] to be registered to the Member”[4]; and Ms. Bailey was further authorized to “take any such actions and execute such documents as may be necessary to fulfill the Member’s servicing obligations to the beneficial owner of such mortgage loan (including mortgage loans that are removed from the MERS System as a result of the transfer thereof to a non-member of MERS).” In each instance, Bailey’s authority to act is dependent on the existence of a specified relationship of Litton, the MERS member for whom she is employed, to the loan in question.

The Moreno loan was entered into the MERS tracking database in the ordinary course of business. Thereafter, MERS tracked the beneficial interest in the loan. The beneficial interest was transferred from G.E. Money Bank to WMC Mortgage Corporation; then, on September 19, 2007, from WMC Mortgage Corporation to Aurora Bank FSB (formerly known as Lehman Brothers Bank FSB), and then, on July 30, 2008, from Aurora Bank FSB to LBHI. Aurora Bank was at all relevant times a wholly-owned subsidiary of LBHI.

With respect to the Moreno Mortgage, MERS remained the mortgagee of record until, on or about April 30, 2008, MERS, acting through Denise Bailey, assigned the Mortgage to PAM. At the time, Aurora Bank FSB was the beneficial owner of the loan. In executing the MERS assignment to PAM, Ms. Bailey purported to be acting under her MERS Authorization.

The MERS Authorization limited Ms. Bailey’s authority to act for MERS to matters with respect to which Litton was involved in at least one of the ways specified in the above-quoted language from the MERS Authorization. There is evidence, and I find, that Aurora Bank FSB had requested that Litton transfer the loan from MERS to PAM in anticipation of foreclosure. However, PAM has adduced no evidence that Litton had any specified connection to this loan at the time it executed this assignment. There is no evidence that Litton was then (or at any time) the servicer of the loan for Aurora Bank or that Litton was registered as servicer of the loan in the MERS system.[5] (PAM does not contend that Litton was the holder of the promissory note or the owner of the beneficial interest in the loan.)

Scott Drosdick, a vice-president of LBHI and witness for PAM at the evidentiary hearing, testified that Aurora Bank’s instruction to Litton to transfer the mortgage to PAM was later “ratified by LBHI.” Drosdick did not explain what he meant by this, precisely how and when this ratification occurred. Absent such evidence and clarification, this testimony is too vague to have any definite meaning; accordingly I give it no weight.

By a master servicing agreement dated February 1, 1999, LBHI engaged Aurora Loan Services, Inc., now known as Aurora Loan Services LLC (“ALS”), as master servicer of certain loans, including eventually the present Moreno loan. In turn, ALS engaged Litton to service certain loans, including eventually this same loan.

After Bailey executed the MERS assignment to PAM, Bailey executed another assignment of the same mortgage from MERS to LBHI. This second assignment was never recorded; nor is there evidence that it was ever delivered by MERS to LBHI.

Moreno filed a petition for relief under Chapter 13 of the Bankruptcy Code on October 13, 2008, commencing the present bankruptcy case. On November 13, 2008, LBHI, acting through its servicer Litton Loan Servicing, LP, filed a proof of claim in this case; the proof of claim asserts a claim, secured by real estate, in the total amount of $530,168.04, the same secured claim as PAM now seeks relief from stay to enforce by foreclosure. On the proof of claim form itself, Litton actually identifies the creditor claimant as simply “Litton,” but on an explanatory document attached to the proof of claim form, Litton states that the claim is filed by “Litton Loan Servicing, LP, as Servicing Agent for Lehman Brothers Holdings Inc.” The proof of claim does not mention PAM or indicate in any way that the mortgage securing the claim is held by anyone other than LBHI.

On March 31, 2009, and at LBHI’s direction, PAM filed the present motion for relief from the automatic stay, seeking relief from the automatic stay to foreclose and to preserve its rights as to a potential deficiency. PAM intends and is obligated to remit the proceeds of the intended foreclosure sale to Aurora Loan Services LLC, as servicer for LBHI. Regarding ownership of the note and Mortgage, PAM stated in the motion only that it was the holder of a mortgage originally given by Moreno to MERS, that the mortgage secured a note given by Moreno to GE, and that MERS had assigned the mortgage to PAM. PAM did not indicate that LBHI was the current holder of the note or that it held the mortgage as nominee for the benefit of LBHI or of any other entity. The motion did not mention LBHI.

Moreno filed a response to the motion, in essence an objection, in which he expressly admitted PAM’s allegation that his prepetition arrearage was $39,442.49 and, by lack of denial, tacitly admitted that Moreno was some four months in arrears on his postpetition payments under the mortgage. By these allegations and admissions, PAM has established that Moreno is in default on his mortgage loan obligations; the Court rejects Moreno’s request for a finding that PAM has not established a default. The response made no issue of PAM’s standing to foreclose or to seek relief from stay and did not dispute PAM’s allegations regarding ownership of the note and Mortgage. In any event, before a hearing was held on the motion, Moreno, through counsel, withdrew his objection. Consequently, on April 28, 2009, and without a hearing or any review of apparent inconsistencies in the bankruptcy record concerning ownership of the mortgage and note, the court granted PAM relief from the automatic stay to foreclose and to preserve its rights as to a potential deficiency.

PAM had not yet foreclosed when, on December 2, 2009 and by new counsel, Moreno filed an adversary complaint against PAM and, with it, a motion for preliminary injunction. The complaint sought among other things (i) an order invalidating the mortgage on account of irregularities in its origination and (ii) a declaration that PAM was not the holder of the mortgage and note. In the motion for preliminary injunction, Moreno asked that the foreclosure be stayed, or that the automatic stay be reimposed, pending disposition of the adversary proceeding. On December 7, 2009, after a hearing on the motion for preliminary injunction, the Court found that the motion was, in part, essentially one to vacate the order granting relief from the automatic stay, vacated that order, and scheduled an evidentiary hearing on the motion for relief. The order specified that the sole issue at the evidentiary hearing would be PAM’s standing to seek relief from the automatic stay, all other issues under 11 U.S.C. § 362(d) being deemed established. After discovery, the evidentiary hearing was held on April 8, 2010, and, with the submission of proposed findings and conclusions, the matter was then taken under advisement.

Discussion

As the party seeking relief from stay to foreclose a mortgage on the debtor’s property, PAM bears the burden of proving that it has authority under applicable state law to foreclose the mortgage in question and, by virtue of that authority, standing to move for relief from the automatic stay to foreclose. PAM contends that it has such authority and standing because, although it does not hold the promissory note that the mortgage secures, it does have title to the mortgage itself; and it holds that title as nominee of and for the benefit of the note holder, LBHI, and is foreclosing for LBHI. In these circumstances, PAM contends, a mortgagee has a right under Massachusetts law to foreclose for the benefit of the note holder and therefore standing to move for relief from stay to foreclose. The Debtor objects, arguing (among other things) that Massachusetts law prohibits foreclosure by one who holds only the mortgage and not the note it secures. I need not address the merits of this and other objections because, even if the theory is a valid one, it requires proof that PAM is the present title holder of the mortgage, and PAM has not carried its burden in this regard.

To show that it presently holds the mortgage, PAM must show a valid assignment of the mortgage from MERS to itself. PAM contends that it holds the mortgage by assignment from MERS. Accordingly, PAM must show that the assignment, which was executed for MERS by Denise Bailey, was within the scope of Bailey’s limited authority to act for MERS.

Ms. Bailey’s authority to act for MERS is defined in the MERS Authorization in seven enumerated paragraphs. In each, Ms. Bailey’s authority to act is dependent on the existence of a specified relationship of Litton, the MERS member by whom she is employed, to the loan in question. PAM has submitted no evidence of the existence of any such relationship. The beneficial owner of the loan at the time of the assignment was Aurora Bank FSB, but there is no evidence that Litton was at the time the servicer of the loan for Aurora Bank FSB or was registered with MERS as such. The Court does not find that Aurora Bank FSB had not retained Litton as its servicer; there is simply no evidence on the issue. But the burden is on PAM to prove that it had, and PAM has not adduced evidence to that effect.

Accordingly, by a separate order, the Court will deny PAM’s motion for relief from the automatic stay without prejudice to renewal upon proper proof.

[1] All other issues were resolved upon entry of the original order granting relief from stay. No cause has been adduced to revisit any but the narrow issue of standing.

[2] Moreno contends that LBHI, which is in bankruptcy proceedings of its own, may have sold its interest in the note through a court-approved sale in its bankruptcy case. However, Moreno does not contend that possession of the note has passed from LBHI to the alleged purchaser (or any nominee of the purchaser), and therefore the alleged possible sale is irrelevant, as possession undisputedly remains in LBHI. In any event, Moreno attempted to establish the fact of the alleged sale by designating certain documents on the docket of the LBHI case and asking the Court to take judicial notice of these and then to find them on its own and to determine from them whether the promissory note in question was among the assets transferred. Having found the alleged sale to be irrelevant, the Court declined to take judicial notice of the bankruptcy documents. However, the proffer also failed for two additional reasons: first, that Moreno did not take a position as to whether a sale did occur, only that the Moreno note may have been among those transferred in the sale; and second, even if the court had taken judicial notice as requested, it remained Moreno’s obligation, which he has not fulfilled, to produce the documents in question and to explain in the first instance how one would conclude from them that the asset in question was among those transferred.

[3] MERS Corporate Resolution, attached to Bailey Affidavit as Exhibit 1.

[4] The grammatical difficulty in this second clause is native to the authorizing document.

[5] The original affidavit of Scott Drosdick includes the following two sentences:

By Master Servicing Agreement dated February 1, 1999, LBHI engaged Aurora Bank FSB (f/k/a Lehman Brothers Bank FSB), to master service, among other things, the Loan [the Moreno loan]. In turn, Aurora Bank FSB engaged Litton pursuant to a Flow Subservicing Agreement dated October 1, 2007, to service the loan.”

By an amendment to the affidavit and in testimony, Drosdick later amended his affidavit to correct this passage by striking Aurora Bank FSB from the first sentence and in its place inserting Aurora Loan Services LLC. Drosdick did not expressly change the second sentence, but that sentence, which begins with the critical words “in turn,” would be nonsensical unless the same substitution—Aurora Loan Services LLC for Aurora Bank FSB—were also made in the second sentence. Therefore, though the second sentence might perhaps be read in isolation as evidence that Litton was servicing the loan for Aurora Bank FSB at the time when Bailey executed the assignment, that sentence cannot credibly be so construed.

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NEVADA is on a ROLL! ALOUA v. AURORA LOAN SERVICES, LLC, Dist. Court, D. Nevada 2010

NEVADA is on a ROLL! ALOUA v. AURORA LOAN SERVICES, LLC, Dist. Court, D. Nevada 2010


PIA MARIE T. CORDERO ALOUA, Plaintiff,
v.
AURORA LOAN SERVICES, LLC; LEHMAN BROTHERS BANK, FSB; QUALITY LOAN SERVICE CORPORATION; Does I-X, inclusive, Defendants.

Case No. 2:09-CV-00207-KJD-RJJ.

United States District Court, D. Nevada.

June 23, 2010.

ORDER

KENT J. DAWSON, District Judge. Currently before the Court is Defendants Aurora Loan Services, LLC, and Lehman Brothers Bank, FSB’s Motion to Dismiss (#15).[1] Plaintiff Pia Marie T. Cordero Aloua filed a Response and Opposition (#18) to Defendants’ Motion on October 5, 2009, to which Defendants filed a Reply (#19) on October 20, 2009.

I. Background

Plaintiff financed the real property located at 116 Peachy Court in Las Vegas, Nevada (“subject property”) on or about the 5th day of July, 2007. At that time, Plaintiff executed an adjustable rate loan (“first loan”) in the principal amount of $768,987.00 and a fixed-rate balloon loan (“second loan”) in the principal amount of $144,185.00. Lehman Brothers, which changed its name to Aurora Bank on April 24, 2009, was the original lender, and Aurora Loan Services (“ALS”) was appointed as the loan servicer on August 16, 2007. Plaintiff’s first loan, which was placed in the sub-prime category, was financed based upon a yearly adjustable interest rate of 9.375% and was to be paid to Lehman Brothers by monthly payments beginning in September 2007. Plaintiff avers that the sub-prime designation of her loan, which led to higher fees and interest, was in error because Plaintiff had verifiable income and a credit score sufficient to qualify for the traditional prime rate. Defendants aver that Plaintiff defaulted on her loans in December 2007, leading to foreclosure proceedings which were ultimately completed on July 14, 2008 through Quality Loan Service Corporation (“QLS”), the appointed substitute trustee. ALS claims to have acquired title to the subject property through said foreclosure proceedings. Plaintiff avers, however, that she did not default on her loans and that the foreclosure sale was carried out without serving the required notices and without giving Plaintiff the appropriate opportunity to avert the sale. On January 7, 2009, Plaintiff commenced this action in the District Court for Clark County, Nevada. The action was removed to this Court on February 2, 2009 on the basis of federal question and diversity jurisdiction. (See #1.) On September 2, 2009, Plaintiff filed an Amended Complaint against all Defendants, alleging the following causes of action: (1) intentional misrepresentation; (2) negligence per se under the federal Real Estate Settlement Procedures Act (“RESPA”) and the federal Truth in Lending Act (“TILA”); (3) negligence; (4) rescission under TILA; (5) wrongful foreclosure; and (6) quiet title. On September 21, 2009, Defendants filed a Motion to Dismiss the First Amended Complaint (#15). For the reasons discussed below, the Court grants the Motion to Dismiss in part and denies it in part.

II. Discussion

A. Motion to Dismiss

A court may dismiss a plaintiff’s complaint for “failure to state a claim upon which relief can be granted.” FED. R. CIV. P. 12(b)(6). A properly pled complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not require detailed factual allegations, it demands “more than labels and conclusions” or a “formulaic recitation of the elements of a cause of action.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). “Factual allegations must be enough to rise above the speculative level.” Twombly, 550 U.S. at 555. Thus, to survive a motion to dismiss, a complaint must contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Iqbal, 129 S. Ct. at 1949 (internal citation omitted). In Iqbal, the Supreme Court recently clarified the two-step approach district courts are to apply when considering motions to dismiss. First, the Court must accept as true all well-pled factual allegations in the complaint; however, legal conclusions are not entitled to the assumption of truth. Id. at 1950. Mere recitals of the elements of a cause of action, supported only by conclusory statements, do not suffice. Id. at 1949. Second, the Court must consider whether the factual allegations in the complaint allege a plausible claim for relief. Id. at 1950. A claim is facially plausible when the plaintiff’s complaint alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. at 1949. Where the complaint does not permit the court to infer more than the mere possibility of misconduct, the complaint has “alleged—but not shown—that the pleader is entitled to relief.” Id. (internal quotation marks omitted). When the claims in a complaint have not crossed the line from conceivable to plausible, plaintiff’s complaint must be dismissed. Twombly, 550 U.S. at 570.

III. Analysis

A. Intentional Misrepresentation

Plaintiff alleges Defendants knowingly made false misrepresentations to Plaintiff, upon which Plaintiff justifiably relied to her detriment. To state a claim for fraudulent misrepresentation in Nevada, a plaintiff must allege that (1) defendant made a false representation; (2) defendant knew or believed the representation to be false; (3) defendant intended to induce plaintiff to rely on the misrepresentation; and (4) plaintiff suffered damages as a result of his reliance. Bartmettler v. Reno Air, Inc., 956 P.2d 1382, 1386 (Nev. 1998). Misrepresentation is a form of fraud where a false representation is relied on in fact. See Pacific Maxon, Inc. v. Wilson, 96 Nev. 867, 871 (Nev. 1980). Fraud has a stricter pleading standard under Rule 9, which requires a party to “state with particularity the circumstances constituting fraud.” FED. R. CIV. P. 9(b). Pleading fraud with particularity requires “an account of the time, place, and specific content of the false representations, as well as the identities of the parties of the misrepresentations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007); see also Morris v. Bank of Nev., 886 P.2d 454, 456 n.1 (Nev. 1994). The Ninth Circuit has held, however, that the stricter pleading requirements of Rule 9(b) “may be relaxed with respect to matters within the opposing party’s knowledge,” reasoning that “[i]n such situations, plaintiffs can not (sic) be expected to have personal knowledge of the relevant facts.” Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (citing Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987); Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989). Even under this relaxed version of Rule 9(b), however, “a plaintiff who makes allegations on information and belief must state the factual basis for the belief.” Id. Here, Plaintiff alleges that Defendants knowingly concealed the true nature of her credit score and defrauded her by placing her loan in the sub-prime category to charge higher commissions. Plaintiff also alleges, among other things, that Defendants misrepresented the fees charged and paid in association with her loan, as well as her eligibility to participate in a loan modification program. Taking these assertions as true, the Court finds Plaintiff has sufficiently stated a claim for fraud: Plaintiff alleges that Defendants intentionally misrepresented information to her, that she relied on these representations, and that she was damaged as a result.

B. Negligence per se

To state a claim for negligence per se, a plaintiff must allege that (1) he or she belongs to a class of persons that a statute was intended to protect; (2) defendant violated the relevant statute; (3) plaintiff’s injuries are the type against which the statute was intended to protect; (4) the violation was the legal cause of plaintiff’s injury; and (5) plaintiff suffered damages. See Anderson v. Baltrusaitus, 944 P.2d 797, 799 (Nev. 1997). Whether a particular statute establishes a standard of care in a negligence action is a question of law. Vega v. E. Courtyard Assocs., 24 P.3d 219, 221 (Nev. 2001). Plaintiff claims Defendants violated provisions of TILA, 15 U.S.C. § 1601, et seq., and RESPA, 12 U.S.C. § 2601, et seq., dealing with a lender’s disclosure duties. Defendants argue that the TILA claim is time barred because the statute of limitations has run. Section 1640(e) of TILA requires that claims be brought within one year of the date of the loan transaction. Interpreting this provision, the Ninth Circuit has held that while as a general rule the limitations period runs from the date the transaction is consummated, the doctrine of equitable tolling may, when appropriate, toll the limitations period until the borrower has had a reasonable opportunity to discover the facts giving rise to a TILA claim. King v. California, 784 F.2d 910, 915 (9th Cir. 1986). The Ninth Circuit has also held that the equitable tolling analysis is a factual one: the finder of fact must determine whether equitable tolling will prevent unjust results or maintain the integrity of the relevant statute. Id. Because these factual questions are yet to be resolved, the Court is unable to say at this stage in the litigation whether the statute of limitations has run. Therefore, Defendants’ Motion to Dismiss Plaintiff’s TILA claim on statute of limitations grounds is denied. Moreover, after reviewing the Complaint, the Court finds Plaintiff has adequately stated a TILA claim against Defendants. Plaintiff alleges Defendants (1) failed to disclose the identity of persons and entities who share the service fees and other charges for her loans; (2) failed to disclose the percentage of the loan amount paid to the nominal lender; and (3) failed to disclose relevant credit terms to enable Plaintiff to compare market rates and prevent unfair credit practices. (Dkt. #14, Compl. ¶ 26-28.) Taking these assertions as true, Plaintiff has stated a viable claim for relief under TILA. Plaintiff has failed, however, to sufficiently state a claim for negligence per se under RESPA. 12 U.S.C. § 2601, et seq. As a general rule, RESPA does not create an express or implied private right of action. Collins v. FMHA-USDA, 105 F.3d 1366, 1367-68 (11th Cir. 1997); Bamba v. Resource Bank, 568 F. Supp. 2d 32, 34-35 (D.D.C. 2008); Morrison v. Brookstone, 415 F. Supp. 2d 801, 806 (S.D. Ohio 2005); McWhorter v. Ford Consumer Fin. Co., 33 F. Supp. 2d 1059, 1064 (N.D. Ga. 1997). A limited exception to this rule exists: a private right of action exists under RESPA when a specific statutory provision mentions such a right. See Bloom v. Martin, 865 F. Supp. 1377, 1384-85 (N.D. Cal. 1994). Although Plaintiff alleges Defendants violated several provisions of RESPA, the only section she references with any specificity is § 2605. Accordingly, because this section of the statute does not provide a private right of action, Plaintiff’s claim for negligence per se under RESPA fails.

C. Rescission

Plaintiff also alleges she is entitled to a rescission of the mortgage contract under TILA, 15 U.S.C. § 1635. Plaintiff is incorrect. Section 1635 of TILA establishes that lenders must notify borrowers of their right to rescind and outlines the penalties for failure to comply with this requirement. Nonetheless, § 1635 expressly states that these provisions do not apply to “residential mortgage transactions.” A residential mortgage transaction is defined in 15 U.S.C. § 1602(w) as a “transaction in which a mortgage . . . interest is created or retained against the consumer’s principal dwelling.” See also 12 C.F.R. § 226.2(a)(24). This is precisely what Plaintiff’s mortgage contract entailed: the parties entered into a transaction in which Plaintiff attained financing from Defendants to acquire residential property. Because Plaintiff is not entitled to rescind the mortgage contract, her rescission claim under § 1635 fails as a matter of law and Defendant’s Motion to Dismiss is granted as to Plaintiff’s rescission claims.

D. Wrongful Foreclosure

Plaintiff also alleges wrongful foreclosure. “An action for the tort of wrongful foreclosure will lie if the trustor or mortgagor can establish that at the time the power of sale was exercised or the foreclosure occurred, no breach of condition or failure of performance existed on the mortgagor’s or trustor’s part which would have authorized the foreclosure or exercise of the power of sale.” Collins v. Union Federal Sav. & Loan Ass’n, 662 P.2d 610, 623 (Nev. 1983). “The material issue of fact in a wrongful foreclosure claim is whether the trustor was in default when the power of sale was exercised.” Id. Here, Plaintiff affirmatively alleges that she was not in default of payment to the lender at the time the foreclosure occurred, and therefore, the representations as stated on the Notice of Default were false.[2] Taking these assertions as true, the Court finds that Plaintiff has adequately stated a claim for wrongful foreclosure against Defendants. Therefore, Defendants’ Motion to Dismiss is denied as to Plaintiff’s wrongful foreclosure claim.

E. Negligence against QLS

To bring a negligence claim in Nevada, a plaintiff must show that (1) defendant owed a duty of care to plaintiff; (2) defendant breached that duty; (3) defendant’s breach was the actual and proximate cause of plaintiff’s injuries; and (4) plaintiff was injured. Scialabba v. Brandise Constr., 921 P.2d 928, 930 (Nev. 1996). Liability based on negligence does not exist without a breach of duty. Bradshaw v. Blystone Equip. Co. of Nev., 386 P.2d 396, 397 (Nev. 1963). Plaintiff claims that Defendant QLS, “as trustee under the deed of trust, had a duty to Plaintiff to ensure that any party instructing it to conduct a foreclosure sale of the property actually owned and had rights under the note and deed of trust.” (See #14, Compl. ¶ 32.) Plaintiff also alleges that Defendant QLS’s failure to take the appropriate steps to comply with this duty was the actual and proximate cause of damages to Plaintiff. Id. at ¶ 33-39.) At this point, because Plaintiff’s claim for wrongful foreclosure remains, the Court also finds that Plaintiff has sufficiently pled a claim for negligence.

F. Quiet Title

Finally, Plaintiff brings a claim of quiet title, arguing that because foreclosure was wrongful, Plaintiff remains the rightful owner of the subject property. Taking these assertions as true, Plaintiff has stated a claim for wrongful foreclosure against Defendants. Therefore, Defendants’ Motion to Dismiss is denied as to Plaintiff’s quiet title claim.

IV. Conclusion

Accordingly, IT IS HEREBY ORDERED that Defendants’ Motion to Dismiss (#15) is GRANTED in part and DENIED in part as follows:

Defendants’ Motion to Dismiss Plaintiff’s claim for intentional misrepresentation is DENIED.

Defendants’ Motion to Dismiss Plaintiff’s claim for negligence per se under TILA is DENIED.

Defendants’ Motion to Dismiss Plaintiff’s claim for negligence per se under RESPA is GRANTED.

Defendants’ Motion to Dismiss Plaintiff’s claim for negligence against QLS is DENIED.

Defendants’ Motion to Dismiss Plaintiff’s claim for rescission under TILA is GRANTED.

Defendants’ Motion to Dismiss Plaintiff’s claim for wrongful foreclosure is DENIED.

Defendants’ Motion to Dismiss Plaintiff’s claim for quiet title in DENIED.

[1] Defendant Quality Loan Service Corporation filed a Joinder (#22) to Defendant’s Motion to Dismiss that is considered together with Defendant’s Motion herein. [2] If matters outside of the pleadings are submitted in conjunction with a motion to dismiss, Rule 12(b) grants courts discretion to either accept and consider, or to disregard such materials. See Isquith v. Middle S. Utils., Inc., 847 F.2d 186, 193 n.3 (5th Cir.1988). A court exercises this discretion by examining whether the submitted material, and the resulting conversion from the Rule 12(b)(6) to the Rule 56 procedure, may facilitate disposing of the action. Id. at 193 n.3. If the court elects to convert the motion, “[a]ll parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.” Fed. R. Civ. P. 12(d). Here, Defendants have attempted to provide evidence refuting Plaintiff’s no default claim, Plaintiff however, has not had an adequate opportunity to fully brief this issue. Accordingly, without opining whether Plaintiff’s claims may survive a summary judgment motion, the Court elects not to convert Defendants’ immediate Motion into one for summary judgment.

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Posted in aurora loan servicing, breach of contract, concealment, conspiracy, foreclosure, foreclosure fraud, lehman brothers, respa, tila, truth in lending act, ViolationsComments (0)

MERS DOUBLE ASSIGNMENT AMNESIA? Oh MS. BAILEY!! IN RE MORENO, Bankruptcy Court, D. Massachusetts, Eastern Div. 2010

MERS DOUBLE ASSIGNMENT AMNESIA? Oh MS. BAILEY!! IN RE MORENO, Bankruptcy Court, D. Massachusetts, Eastern Div. 2010


In re: SIMEON MORENO, Chapter 13, Debtor

Case No. 08-17715-FJB.

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

May 24, 2010.

MEMORANDUM OF DECISION ON MOTION OF PROPERTY ASSET MANAGEMENT, INC. FOR RELIEF FROM THE AUTOMATIC STAY

FRANK J. BAILEY, Bankruptcy Judge

In the Chapter 13 case of debtor Simeon Moreno, Property Asset Management, Inc. (“PAM”), claiming to be the assignee of a mortgage originally given by the debtor to Mortgage Electronic Registration Systems, Inc. (“MERS”) as nominee for lender GE Money Bank, moved for relief from the automatic stay to foreclose the mortgage. Moreno initially opposed the motion but then withdrew his objection, whereupon the Court granted the relief requested. Months later, at Moreno’s request, the Court vacated the order granting relief from stay and scheduled an evidentiary hearing on the Motion for Relief from Stay for the limited purpose of reconsidering whether PAM had an interest in the mortgage it sought to foreclose and, to that extent, standing to seek relief from stay.[1] Having held the evidentiary hearing and received proposed findings and conclusions, the Court now enters the following findings of fact and conclusions of law.

Findings of Fact and Procedural History

On January 23, 2007, Moreno executed a promissory note in the principal amount of $492,000, payable to lender GE Money Bank. GE subsequently endorsed the note in blank, whereupon possession of the note was transferred through a series of holders and ultimately to Lehman Brothers Holdings, Inc. (“LBHI”), who held the note when PAM filed its Motion for Relief from Stay and continues to hold it now.[2] LBHI, through one of its employees and through LBHI’s attorney, who not coincidentally also is PAM’s attorney in the present matter, produced the original note at the evidentiary hearing. PAM is not now a holder of the note or an entity for whose benefit another has held the note.

To secure the promissory note, Moreno gave a mortgage on the real property at 5 Maple Street, West Roxbury, Massachusetts (the “Property”) to MERS as nominee for GE (the “Mortgage”). The Mortgage specifies that MERS “is a separate corporation that is acting solely as a nominee for [GE] and [GE’s] successors and assigns. MERS is the mortgagee under this security instrument.” The Mortgage further provides that Moreno does hereby mortgage, grant and convey to MERS (solely as nominee for [GE] and [GE’s] successors and assigns) and to the successors and assigns of MERS, with power of sale, the [Property]. . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for [GE] and [GE’s] successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of [GE] including, but not limited to, releasing and canceling this Security Instrument.

The Mortgage was duly recorded.

MERS administers an electronic registry to track the transfer of ownership interest and servicing rights in mortgage loans. With respect to certain loans of which its members are the beneficial owners, MERS also serves as mortgagee of record and holds legal title to the mortgages in a nominee capacity. MERS remains the mortgagee of record when beneficial ownership interests or servicing rights are sold from one member of the MERS system to another. When the beneficial interest in a mortgage loan is transferred from one member of the MERS system to another, MERS tracks the transfer through its internal records. When rights are transferred from a member of the MERS system to a non-member, MERS executes and records an assignment from MERS to the non-member.

To facilitate the execution of the assignments from MERS, MERS designates “certifying officers,” who are typically employees of MERS member firms. MERS authorizes these employees, through formal corporate resolutions, to execute assignments on behalf of MERS. On or about January 6, 2005, MERS, through a document entitled Corporate Resolution and issued by its board of directors, authorized Denise Bailey, an employee of Litton Loan Servicing L.P. (“Litton”), a member of MERS, to execute such assignments on behalf of MERS. In the language of the authorizing document (the “MERS Authorization”),[3] Ms. Bailey was authorized to, among other things, “assign the lien of any mortgage loan naming MERS as the mortgagee when the Member [Litton] is also the current promissory note-holder, or if the mortgage loan is registered on the MERS System, is shown [sic] to be registered to the Member”[4]; and Ms. Bailey was further authorized to “take any such actions and execute such documents as may be necessary to fulfill the Member’s servicing obligations to the beneficial owner of such mortgage loan (including mortgage loans that are removed from the MERS System as a result of the transfer thereof to a non-member of MERS).” In each instance, Bailey’s authority to act is dependent on the existence of a specified relationship of Litton, the MERS member for whom she is employed, to the loan in question.

The Moreno loan was entered into the MERS tracking database in the ordinary course of business. Thereafter, MERS tracked the beneficial interest in the loan. The beneficial interest was transferred from G.E. Money Bank to WMC Mortgage Corporation; then, on September 19, 2007, from WMC Mortgage Corporation to Aurora Bank FSB (formerly known as Lehman Brothers Bank FSB), and then, on July 30, 2008, from Aurora Bank FSB to LBHI. Aurora Bank was at all relevant times a wholly-owned subsidiary of LBHI.

With respect to the Moreno Mortgage, MERS remained the mortgagee of record until, on or about April 30, 2008, MERS, acting through Denise Bailey, assigned the Mortgage to PAM. At the time, Aurora Bank FSB was the beneficial owner of the loan. In executing the MERS assignment to PAM, Ms. Bailey purported to be acting under her MERS Authorization.

The MERS Authorization limited Ms. Bailey’s authority to act for MERS to matters with respect to which Litton was involved in at least one of the ways specified in the above-quoted language from the MERS Authorization. There is evidence, and I find, that Aurora Bank FSB had requested that Litton transfer the loan from MERS to PAM in anticipation of foreclosure. However, PAM has adduced no evidence that Litton had any specified connection to this loan at the time it executed this assignment. There is no evidence that Litton was then (or at any time) the servicer of the loan for Aurora Bank or that Litton was registered as servicer of the loan in the MERS system.[5] (PAM does not contend that Litton was the holder of the promissory note or the owner of the beneficial interest in the loan.)

Scott Drosdick, a vice-president of LBHI and witness for PAM at the evidentiary hearing, testified that Aurora Bank’s instruction to Litton to transfer the mortgage to PAM was later “ratified by LBHI.” Drosdick did not explain what he meant by this, precisely how and when this ratification occurred. Absent such evidence and clarification, this testimony is too vague to have any definite meaning; accordingly I give it no weight.

By a master servicing agreement dated February 1, 1999, LBHI engaged Aurora Loan Services, Inc., now known as Aurora Loan Services LLC (“ALS”), as master servicer of certain loans, including eventually the present Moreno loan. In turn, ALS engaged Litton to service certain loans, including eventually this same loan.

After Bailey executed the MERS assignment to PAM, Bailey executed another assignment of the same mortgage from MERS to LBHI. This second assignment was never recorded; nor is there evidence that it was ever delivered by MERS to LBHI.

Moreno filed a petition for relief under Chapter 13 of the Bankruptcy Code on October 13, 2008, commencing the present bankruptcy case. On November 13, 2008, LBHI, acting through its servicer Litton Loan Servicing, LP, filed a proof of claim in this case; the proof of claim asserts a claim, secured by real estate, in the total amount of $530,168.04, the same secured claim as PAM now seeks relief from stay to enforce by foreclosure. On the proof of claim form itself, Litton actually identifies the creditor claimant as simply “Litton,” but on an explanatory document attached to the proof of claim form, Litton states that the claim is filed by “Litton Loan Servicing, LP, as Servicing Agent for Lehman Brothers Holdings Inc.” The proof of claim does not mention PAM or indicate in any way that the mortgage securing the claim is held by anyone other than LBHI.

On March 31, 2009, and at LBHI’s direction, PAM filed the present motion for relief from the automatic stay, seeking relief from the automatic stay to foreclose and to preserve its rights as to a potential deficiency. PAM intends and is obligated to remit the proceeds of the intended foreclosure sale to Aurora Loan Services LLC, as servicer for LBHI. Regarding ownership of the note and Mortgage, PAM stated in the motion only that it was the holder of a mortgage originally given by Moreno to MERS, that the mortgage secured a note given by Moreno to GE, and that MERS had assigned the mortgage to PAM. PAM did not indicate that LBHI was the current holder of the note or that it held the mortgage as nominee for the benefit of LBHI or of any other entity. The motion did not mention LBHI.

Moreno filed a response to the motion, in essence an objection, in which he expressly admitted PAM’s allegation that his prepetition arrearage was $39,442.49 and, by lack of denial, tacitly admitted that Moreno was some four months in arrears on his postpetition payments under the mortgage. By these allegations and admissions, PAM has established that Moreno is in default on his mortgage loan obligations; the Court rejects Moreno’s request for a finding that PAM has not established a default. The response made no issue of PAM’s standing to foreclose or to seek relief from stay and did not dispute PAM’s allegations regarding ownership of the note and Mortgage. In any event, before a hearing was held on the motion, Moreno, through counsel, withdrew his objection. Consequently, on April 28, 2009, and without a hearing or any review of apparent inconsistencies in the bankruptcy record concerning ownership of the mortgage and note, the court granted PAM relief from the automatic stay to foreclose and to preserve its rights as to a potential deficiency.

PAM had not yet foreclosed when, on December 2, 2009 and by new counsel, Moreno filed an adversary complaint against PAM and, with it, a motion for preliminary injunction. The complaint sought among other things (i) an order invalidating the mortgage on account of irregularities in its origination and (ii) a declaration that PAM was not the holder of the mortgage and note. In the motion for preliminary injunction, Moreno asked that the foreclosure be stayed, or that the automatic stay be reimposed, pending disposition of the adversary proceeding. On December 7, 2009, after a hearing on the motion for preliminary injunction, the Court found that the motion was, in part, essentially one to vacate the order granting relief from the automatic stay, vacated that order, and scheduled an evidentiary hearing on the motion for relief. The order specified that the sole issue at the evidentiary hearing would be PAM’s standing to seek relief from the automatic stay, all other issues under 11 U.S.C. § 362(d) being deemed established. After discovery, the evidentiary hearing was held on April 8, 2010, and, with the submission of proposed findings and conclusions, the matter was then taken under advisement.

Discussion

As the party seeking relief from stay to foreclose a mortgage on the debtor’s property, PAM bears the burden of proving that it has authority under applicable state law to foreclose the mortgage in question and, by virtue of that authority, standing to move for relief from the automatic stay to foreclose. PAM contends that it has such authority and standing because, although it does not hold the promissory note that the mortgage secures, it does have title to the mortgage itself; and it holds that title as nominee of and for the benefit of the note holder, LBHI, and is foreclosing for LBHI. In these circumstances, PAM contends, a mortgagee has a right under Massachusetts law to foreclose for the benefit of the note holder and therefore standing to move for relief from stay to foreclose. The Debtor objects, arguing (among other things) that Massachusetts law prohibits foreclosure by one who holds only the mortgage and not the note it secures. I need not address the merits of this and other objections because, even if the theory is a valid one, it requires proof that PAM is the present title holder of the mortgage, and PAM has not carried its burden in this regard.

To show that it presently holds the mortgage, PAM must show a valid assignment of the mortgage from MERS to itself. PAM contends that it holds the mortgage by assignment from MERS. Accordingly, PAM must show that the assignment, which was executed for MERS by Denise Bailey, was within the scope of Bailey’s limited authority to act for MERS.

Ms. Bailey’s authority to act for MERS is defined in the MERS Authorization in seven enumerated paragraphs. In each, Ms. Bailey’s authority to act is dependent on the existence of a specified relationship of Litton, the MERS member by whom she is employed, to the loan in question. PAM has submitted no evidence of the existence of any such relationship. The beneficial owner of the loan at the time of the assignment was Aurora Bank FSB, but there is no evidence that Litton was at the time the servicer of the loan for Aurora Bank FSB or was registered with MERS as such. The Court does not find that Aurora Bank FSB had not retained Litton as its servicer; there is simply no evidence on the issue. But the burden is on PAM to prove that it had, and PAM has not adduced evidence to that effect.

Accordingly, by a separate order, the Court will deny PAM’s motion for relief from the automatic stay without prejudice to renewal upon proper proof.

[1] All other issues were resolved upon entry of the original order granting relief from stay. No cause has been adduced to revisit any but the narrow issue of standing.

[2] Moreno contends that LBHI, which is in bankruptcy proceedings of its own, may have sold its interest in the note through a court-approved sale in its bankruptcy case. However, Moreno does not contend that possession of the note has passed from LBHI to the alleged purchaser (or any nominee of the purchaser), and therefore the alleged possible sale is irrelevant, as possession undisputedly remains in LBHI. In any event, Moreno attempted to establish the fact of the alleged sale by designating certain documents on the docket of the LBHI case and asking the Court to take judicial notice of these and then to find them on its own and to determine from them whether the promissory note in question was among the assets transferred. Having found the alleged sale to be irrelevant, the Court declined to take judicial notice of the bankruptcy documents. However, the proffer also failed for two additional reasons: first, that Moreno did not take a position as to whether a sale did occur, only that the Moreno note may have been among those transferred in the sale; and second, even if the court had taken judicial notice as requested, it remained Moreno’s obligation, which he has not fulfilled, to produce the documents in question and to explain in the first instance how one would conclude from them that the asset in question was among those transferred.

[3] MERS Corporate Resolution, attached to Bailey Affidavit as Exhibit 1.

[4] The grammatical difficulty in this second clause is native to the authorizing document.

[5] The original affidavit of Scott Drosdick includes the following two sentences:

By Master Servicing Agreement dated February 1, 1999, LBHI engaged Aurora Bank FSB (f/k/a Lehman Brothers Bank FSB), to master service, among other things, the Loan [the Moreno loan]. In turn, Aurora Bank FSB engaged Litton pursuant to a Flow Subservicing Agreement dated October 1, 2007, to service the loan.”

By an amendment to the affidavit and in testimony, Drosdick later amended his affidavit to correct this passage by striking Aurora Bank FSB from the first sentence and in its place inserting Aurora Loan Services LLC. Drosdick did not expressly change the second sentence, but that sentence, which begins with the critical words “in turn,” would be nonsensical unless the same substitution—Aurora Loan Services LLC for Aurora Bank FSB—were also made in the second sentence. Therefore, though the second sentence might perhaps be read in isolation as evidence that Litton was servicing the loan for Aurora Bank FSB at the time when Bailey executed the assignment, that sentence cannot credibly be so construed.

Posted in bankruptcy, case, concealment, conspiracy, corruption, foreclosure, foreclosure fraud, forensic loan audit, lehman brothers, MERS, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., Mortgage Foreclosure Fraud, note, reversed court decision, robo signer, robo signersComments (0)


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