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Ohio Supreme Court Oral Arguments: Federal Home Loan Mortgage Corp. v. Duane Schwartzwald et al.

Ohio Supreme Court Oral Arguments: Federal Home Loan Mortgage Corp. v. Duane Schwartzwald et al.


How can you commence an action if you don’t have the proof you’re entitled to to enforce the action in the first place?

Must Lender Have Current Ownership Interest in Promissory Note or Mortgage at the Time Foreclosure Action Is Filed?

Or May Lack of Standing Be ‘Cured’ Through Mortgage Assignment Before Judgment?

Federal Home Loan Mortgage Corp. v. Duane Schwartzwald et al., Case nos. 2011-1201 and 2011-1362
Second District Court of Appeals (Greene County)

ISSUE: If a party files a lawsuit to foreclose on a mortgage and it is later shown that party did not have a current ownership interest in the mortgage or the underlying promissory note on the date the foreclosure action was filed, is the court required to dismiss the suit based on the plaintiff’s lack of standing to bring it? Or may the plaintiff “cure” a defect in standing or in naming the actual party in interest under Civil Rule 17(A) by obtaining an assignment of the mortgage prior to the court’s entry of a judgment in the case?

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Certification battle in Ohio MERS class action heats up

Certification battle in Ohio MERS class action heats up


Lexology-

On April 23, 2012, the plaintiff in State of Ohio ex rel. David P. Joyce, Prosecuting Attorney of Geauga County Ohio v. MERSCORP, Inc., et al., N.D. Ohio Case No. 1:11-cv-02474, filed its motion seeking an order certifying the action as a class action, appointing Geauga County as class representative, and appointing plaintiff’s counsel, the New York law firm of Bernstein Liebhard LLP, as class counsel. The plaintiff argues that the case, which the plaintiff is attempting to bring on behalf of all 88 Ohio counties for relief relating to the allegedly unlawful failure of MERS and its member institutions to record millions of mortgages and mortgage assignments throughout Ohio, meets all requirements of Rule 23(a) and that certification is proper under any one of the 3 subsections of Rule 23(b). The plaintiff hopes to persuade the court that the MERS/member institution policy concerning recordation of mortgages and assignments is a “common scheme or course of conduct” that has given rise to claims “ideally suited for class certification.”

[LEXOLOGY]

[ipaper docId=94254592 access_key=key-2nn3qssi6kdpdxy704up height=600 width=600 /]

 

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A Foreclosure Film in the Making Awaits Final Scene

A Foreclosure Film in the Making Awaits Final Scene


American Banker-

What do an insurance agent in Tennessee, a homemaker in Ohio, a private investigator from Wisconsin and a helicopter stunt pilot in Hollywood have in common?  Well, for one thing, they’ve all participated in some fashion in “Foreclosure Diaries,” the documentary that my company, Pacific Street Films, has been producing, in fits and starts, since 2006.

When work first started on the film, the original tag was “Follow the Money,” and the road seemed to lead towards a dark and confusing destination. There was all this talk in the industry about scads of money to be made in servicing “subprime” loans.  There were seminars, conferences, it seemed all the rage. 

[AMERICAN BANKER]

image: macgasm.net

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BRANNAN v. WELLS FARGO – Is Fraud and Forgery Destructive To The Federal Bankruptcy Process?

BRANNAN v. WELLS FARGO – Is Fraud and Forgery Destructive To The Federal Bankruptcy Process?


Thanks to  Matt Weidner for flagging this one down, and a must read

In Re: MARK JOSEPH BRANNAN, KELLY ANN BRANNAN, Debtors.
MARK JOSEPH BRANNAN, KELLY ANN BRANNAN, Plaintiffs,
v.
WELLS FARGO HOME MORTGAGE, INC. f/k/a NORWEST MORTGAGE, INC., Defendant.

 

 

Case No. 02-16647, Adv. Proc. No. 04-01037.
United States Bankruptcy Court, S.D. Alabama. 

November 7, 2011.
Steve Olen, Attorney for Plaintiffs, Mobile, AL.Benjamin T. Rowe, Attorney for Plaintiffs, Mobile, AL.Ian David Rosenthal, Attorney for Plaintiffs, Mobile, AL.Henry A. Callaway, III, Attorney for Defendant, Mobile, AL.Jennifer S. Morgan, Attorney for Defendant, Mobile, AL.

ORDER DENYING PLAINTIFF’S MOTION TO CERTIFY THE PROPOSED CLASS BUT ALLOWING LEAVE TO AMEND

MARGARET A. MAHONEY, Bankruptcy Judge

This case involves the affidavit preparation, signing and filing practices of Wells Fargo, its employees, and the law firms representing it over a period from 1996 through 2008 in the Southern District of Alabama Bankruptcy Court. The debtor asserts that the practices were so pervasively improper and/or fraudulent as to require relief for all debtors in this district even if the information contained in each debtor’s particular affidavit was true. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2) and the Court has authority to enter a final order. The case is presently before the court at the class certification stage. For the reasons indicated below, the Court is denying the plaintiff’s motion to certify the class proposed by her, but will allow 30 days for plaintiff to amend the proposed class, if appropriate.

FACTS

A.

Wells Fargo was the mortgage and note holder for an unknown but substantial number of homes of people who filed bankruptcy in the Southern District of Alabama from 1996 through 2008. In order to be able to foreclose on the home of any debtor who was delinquent in his or her payments, Wells Fargo needed relief from the automatic stay that was imposed in every bankruptcy case at filing. This relief was necessary until the debtor obtained a discharge or had his or her case dismissed. Kelly Brannan, with her then husband, filed a Chapter 13 bankruptcy case in the Southern District of Alabama on November 21, 2002. Kelly and Mark Brannan owned a home at 1309 Mixon Avenue in Bay Minette, Alabama. They became delinquent in their payments to Norwest Mortgage, Inc., n/k/a Wells Fargo Home Mortgage, Inc., their mortgagee. In order to foreclose on the house, Wells Fargo sought relief from the automatic stay by motion filed pursuant to 11 U.S.C. § 362. The motion was filed on March 31, 2003. In conjunction with the motion, Wells Fargo filed an affidavit supporting the motion.

The affidavit was filed on March 31, 2003. The affiant was Teresa Diaz-Cochran and the notary public was Marian W. Hudson. The affidavit and notary public acknowledgment were dated March 28, 2003. The affiant signature and notary signature were on a page separate from the other two pages of the affidavit. The affiant attested to the financial data surrounding the loan such as the amount owed and the amount in arrears, and stated facts about the mortgage and note. The affidavit also stated that copies of the note and mortgage were attached to the affidavit. The affidavit had only one attachment—the mortgage. From testimony offered at the certification hearing, it is clear that the Brice Vander Linden firm prepared and filed the Motion for Relief from the Stay and it prepared the affidavit that Theresa Diaz-Cochran signed. The testimony also shows that the affidavit was “presigned.” The Wells Fargo employees had sent to Brice Vander Linden multiple signature pages with the affiant’s signature and the notary’s signature on the page as well as the notary seal, with the dates of signing blank. The employee reviewed the affidavit online when it was sent to the employee’s email. If the financial data was correct, the employee emailed approval to the Brice firm and it attached a presigned signature page to the approved wording. The Brice firm also apparently filled in the dates of the affiant’s and notary’s signatures.

The Brannans and Wells Fargo agreed to a conditional denial of the motion for relief from the stay at a hearing held on April 23, 2003. The court signed an order on April 25, 2003 stating, in general terms, that the arrears of the Brannans on their mortgage would be paid through their Chapter 13 plan together with attorney’s fees of $350 and a filing fee of $75. Ms. Brannan never personally paid the mortgage payments after that date. She deeded the home to Wells Fargo in a deed-in-lieu of foreclosure arrangement.

Debtor offered into evidence 631 affidavits with a variety of alleged flaws. Wells Fargo listed the defects in its brief.

1. A person other than the affiant mistakenly named in the body of the affidavit

2. Misdescription of the affiant’s job (i.e., called “bankruptcy representative or “bankruptcy specialist” as opposed to “bankruptcy supervisor”)

3. Notarization undated

4. Missing page

5. Affidavit refers to an exhibit containing an indication that it was printed or faxed later

6. Affidavit refers to an exhibit attached to a motion for relief from stay which had not been filed at the time of the affidavit’s execution

7. First page of the affidavit appears to have been “updated” after the affidavit’s signature to reflect a missed payment subsequent to the date of the affidavit (without the knowledge or consent of any Wells Fargo employee)

8. Handwriting of the date on the notarization appears to be different from that of the notary

9. Affidavit exhibit(s) missing

10. Affidavit refers to a note as an exhibit but instead there is a Lost Note Affidavit

11. Different font for some part of the affidavit

12. Affiant date blank

13. Notarization state or county incorrect

14. McCalla Raymer attorney signed as Assistant Secretary of Wells Fargo

15. Blanks in affidavit not filled in

16. Affiant’s name misspelled

17. Affiant and notary dates are different

18. Affiant’s name wrong in body of affidavit

19. Affiant was allegedly not assistant secretary of MERS

20. Handwritten changes on affidavit

21. Affidavit refers to delinquent payment for month after affidavit filed

22. Missing affiant signature

23. Debtor’s name wrong in some places in affidavit

24. Affiant did not sign in presence of notary

25. Affidavit refers to property value in debtor’s bankruptcy schedules, but affiant does not know whether she/he personally reviewed the schedules[1]

B.

The evidence shows that two law firms handled all or substantially all of the bankruptcy cases in this district from 1996-2008 for Wells Fargo — the Brice Vander Linden firm and the McCalla Raymer firm. The Brice Vander Linden firm has admitted it filed “presigned” affidavits and has provided a list of many of them. Those affidavits are included in plaintiff’s list of 631 affidavits. The affidavits it handled also included affidavits that exhibited most if not all of the other infirmities listed. The McCalla Raymer firm does not admit to filing any presigned affidavits. However, all of the other infirmities appeared in its affidavits.

1.

The Brice Vander Linden firm commenced its representation of Wells Fargo no later than 1996. From 1996-2003, it used (at least part of the time) presigned affidavits from Wells Fargo representatives which it filed in conjunction with relief from stay motions. These presigned affidavits were provided by Wells Fargo and were sanctioned by Wells Fargo’s own Guidelines dated May 27, 2003[2] which authorized the procedure. It is not clear how long the presigned affidavit process was used except that Hillary Bonial, the lawyer from Brice in charge of bankruptcy operations, knows it ended on April 15, 2003 when the Brice Vander Linden firm sent an email to Wells Fargo stating that the firm was terminating the procedure. The Brice firm itself terminated the process, at least in part, because a bankruptcy judge in California called the process into question. Another Brice client, Mitsubishi, had been providing presigned signature pages to Brice and an affidavit with a presigned signature page was discovered to have been filed in Judge Klein’s court. Wells Fargo never told Brice Vander Linden to stop using the procedure. After terminating the policy, the Brice firm provided full affidavits to Wells Fargo by email, using what it called the “corrected execution” procedure. Wells Fargo employees were responsible for reviewing, signing and notarizing the affidavits and returning them by overnight mail to the Brice firm. The Brice firm did not attach any documents that an affidavit stated were attached unless it determined it was not a document available on Wells Fargo’s computer system. If a document came from a third party, some evidence indicated that the Brice firm forwarded it to Wells Fargo.

The evidence is repetitiously substantial that the Brice firm filed the affidavits returned to them by Wells Fargo regardless of condition. Many affidavits bore no date for an affiant’s signature and/or a notary’s signature; many had mistakes as to the names of affiants or job titles; many had statements that documents were attached that were not.

2.

The McCalla Raymer law firm did a substantial amount of Wells Fargo’s work in the Southern District of Alabama over the period 2004-2008. There is no evidence that McCalla Raymer used presigned affidavits. However, the McCalla Raymer affidavits had many of the same defects as the Brice firm affidavits. Many had undated affiant or notary signatures. Many had wrong affiant names or job titles.

In addition, McCalla Raymer affidavits had three other defects. Some McCalla affidavits had attachments added to affidavits after they were signed. This is clear because some affidavits stated that a note was attached, but a lost note affidavit was attached instead. Most troubling was the fact that there were numerous affidavits which stated that payments were in default for periods of time in the future, i.e., an affidavit dated August 25, 2004 stated that the September 2004 payment was in default.

3.

Wells Fargo had guidelines for attorneys working on its bankruptcy cases. In the 2003 version of the guidelines, attorneys were advised that Wells Fargo would supply presigned affidavit signature pages for bankruptcy cases if requested. It is unclear if that was in the guidelines before that date. After the 2003 version, the presigned affidavit signature language was deleted. The guidelines said nothing else about procedures to be followed in regard to affidavit preparation by law firms. Wells Fargo employees repeatedly stated that they relied on their attorneys to tell them what to do. Wells Fargo had no organized training for affidavit signing employees or notary signing employees. When hired, they were told how to do their jobs by their predecessors or supervisors.

Employees signed numerous affidavits every day. One employee described receiving and handling 80-100 affidavits before lunch each day. She averaged about 2 ½-3 minutes per affidavit for collating, stapling, checking content and signing. One employee admitted she didn’t read any of the affidavits she signed. Others testified they read the financial information. When confronted with affidavits with wrong names, wrong job titles, missing or incorrect attachments, they expressed surprise. If the affidavit stated that the debtors’ bankruptcy schedules indicated a property value of a certain amount, the employees testified that they did not verify that fact because they had no access to PACER.

Many affidavits had mortgage and note attachments which appeared to be attached after the preparation and signing of the affidavit. Many affidavits had Lost Note affidavits attached that said a copy of the mortgage and note were attached. Other affidavits stated that the Mortgage and Note were attached to the motion for relief from stay but were not.

The employees signing affidavits testified in numerous instances that the date of their signing of the affidavit was not filled in by them. Notary employees also often testified that they did not fill in the dates on their notarizations. Someone else had done it. Employees signing affidavits did not always sign the affidavits in front of a notary. The affidavits were placed in a file folder and delivered to the notary by the affiant or another employee.

Some notarizations were not dated the same date as the affiant’s signature date. Some affidavits stated that a debtor was in default as to payments which were not yet due. The Wells Fargo employees stated that they did whatever their attorneys told them to do.

4.

Wells Fargo employees, high and low, and its attorneys testified that they saw nothing wrong with their affidavit preparation, signature and notarization procedures. If the financial data in the affidavit was correct, they testified that the affidavit was okay. Their focus was solely on the financial data. The rest was “technicalities.”

LAW

The issue to be decided is whether a class of debtors can be certified pursuant to Fed. R. Bankr. P. 7023. Rule 7023 incorporates Fed.R.Civ.P. 23 into adversary proceedings. The requirements for a class are set forth in the rule.

(a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:

(1) The class is so numerous that joinder of all members is impracticable;

(2) There are questions of law or fact common to the class

(3) The claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) The representative parties will fairly and adequately protect the interests of the class.

Brannan seeks to certify a class that includes every debtor that had a case in the Southern District of Alabama from 1996 through 2008 in whose case an affidavit was filed by Wells Fargo. Brannan asserts that, based upon the facts outlined above, every affidavit is improper or fraudulent due to the policies and procedures followed by Wells Fargo and its agents and employees in preparing, executing and filing affidavits in debtors’ cases. The Court concludes that a class defined as proposed cannot be certified. However, the Court concludes that Brannan’s case can serve as a vehicle for sanctioning Wells Fargo for its behavior, and/or, perhaps the class can be redefined to include those who have suffered actual harm.

There are three reasons the Court concludes that the proposed class cannot be certified. First, abuse of the bankruptcy process or fraud on the court is a remedy that is based upon injury to the court system as a whole rather than an injury to individual debtors. Therefore, to the extent this case is about punishment of Wells Fargo for all debtors, regardless of actual injury, the relief given must necessarily be to the system—not individuals. Second, no other court that has dealt with similar practices has done more than sanction creditors who use improper practices. Although not determinative of the right to a class wide remedy, it is evidence that such abuses, involving numerous debtors, have been dealt with by courts in a more summary fashion. Third, although the proposed class of debtors was “harmed” in a way by the practices of Wells Fargo, the harm cannot be quantified meaningfully for each debtor. A class that specifically focused on debtors who actually paid an attorneys’ fee or filing fee for Wells Fargo’s shoddy filings might be able to be certified because such debtors suffered actual monetary damages. What the debtors received was actually worth less than the $350-$500 charged and paid by them.

A.

Abuse of the bankruptcy process and/or rules and fraud on the court are complaints which go to the heart of the bankruptcy system—not to any particular debtor. In fact, as Wells Fargo has pointed out, Ms. Brannan can point to no actual monetary harm suffered by her. What is the harm in Wells Fargo’s practices? That Wells Fargo “took the law into its own hands.” It decided unilaterally to disregard South Carolina notary public requirements, this Court’s local practices, and the ages old law of signature or declaration under oath or penalty of perjury. Testimony under oath may not be foolproof, but it is the lifeblood of the courts. If parties have no regard for what it means, those parties’ testimony is suspect and unreliable. The only reason this Court allows evidence to be presented by Wells Fargo and other parties by affidavit is to make the process more convenient and streamlined for the Court and litigants. If the testimony is not trustworthy because the safeguards of the process are not observed, this Court (and one would suspect others too) will have to require parties to appear in person. Disregard of court procedures and rules, notary law and signatures under oath is a courtwide concern.

In Travelers Indemnity Company v. Gore, 761 F.2d 1549, 1552 (11th Cir. 1985) the Eleventh Circuit defined fraud on the court as “that species of fraud which does or attempts to, defile the court itself, or is a fraud perpetrated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudicating cases that are presented for adjudication.” It is an abuse that must be corrected regardless of harm to any individual debtor or creditor. To the extent Brannan seeks to correct or address this courtwide concern, the remedy is not one for damages to be awarded to specific debtors.

Several cases similar to this case are pending in the Middle District of Alabama Bankruptcy Court. Judge Sawyer concluded that a single false affidavit might not be a fraud on the court but an intra-party fraud. However, five factors made the facts alleged in Judge Sawyer’s cases and this Court’s cases fraud on the court. Woodruff v. Chase Home Finance, LLC, 2010 WL 386209 (Bankr. M.D.Ala. 2010).

(1) Large numbers of motions for relief from the automatic stay are filed.

(2) There is only a short period of time to dispose of these motions.

(3) There is a huge economic disparity between the resources available to the parties.

(4) The subject matter is critical to the debtor’s survival.

(5) These matters are only rarely litigated to a final order after a hearing on evidence.

Woodruff, 2010 WL 386209, at *6.

These factors make the actions of Wells Fargo, if proven, a fraud on the court. The sheer numbers, the reliance of the court on the affidavits, and the subject matter of the Wells Fargo motions (debtors’ homeplaces) make even careless, negligent procedures inexcusable.

The facts also can be seen as a ground for this Court to exercise its inherent authority to impose sanctions “to enforce court . . . rules, or to prevent an abuse of process.” 11 U.S.C. § 105(a). Franken v. Mukamal, 2011 WL 4584767 (11th Cir. 2011) (citing to In re Walker, 532 F.3d 1304, 1309 (11th Cir. 2008) and In re Sunshine Jr. Stores, Inc., 456 F.3d 1291, 1304 (11th Cir. 2006)); Hardy v. U.S., 97 F.3d 1384 (11th Cir. 1996); In re Mroz, 65 F.3d 1567 (11th Cir. 1995). “The power to punish for contempts is inherent in all courts.” Chambers v. NASCO, Inc., 501 U.S. 32, 44, 111 S.Ct. 2123 (1991) (citing Ex parte Robinson, 19 Wall. 505, 510, 22 L.Ed. 205 (1874)). The Chambers court indicated that one type of contempt the courts may sanction under their inherent powers is “tampering with the administration of justice . . . [which] involves far more than an injury to a single litigant. It is a wrong against the institutions set up to protect and safeguard the public.” Id. (citing Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 246, 64 S.Ct. 997, 88 L.Ed.1250 (1944)). This is precisely the type of wrong allegedly committed in this case as it pertains to all debtors in this district.

B.

The Court has found no cases that have certified a class like this one. That alone is not sufficient reason not to certify a class, but it is some support for this ruling. This is particularly true when there is another remedy, a sanction, which is clearly within this Court’s authority.

C.

To have standing to sue, a plaintiff must have “suffered . . . injury in fact,’. . . the injury[] . . . [must be] `fairly traceable’ to the actions of the defendant, and . . . the injury[] . . . [must] likely be redressed by a favorable decision.” Bennett v. Spear, 520 U.S. 154, 162, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). An “injury in fact” must be “(a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical.” Lujan, 504 U.S. at 560-61, 112 S.Ct. 2130; Griffin v. Dugger, 823 F.2d 1476, 1482 (11th Cir. 1987) (stating that “[u]nder elementary principles of standing, a plaintiff must allege and show that he personally suffered injury”). Although plaintiff characterizes the harm to plaintiff as the order of this Court requiring payment of attorney’s fees and expenses and the posting of the same to plaintiff’s account, Brannan can offer no proof that any information in her tainted affidavit was untrue, nor can she prove she paid Wells Fargo anything for production of the shoddy document. This will be true of many of the proposed class members. Only debtors who actually paid fees for the offending affidavits had an “injury in fact.” The injury was overpayment for improper document preparation. The cause of action of abuse of the rules and process under 11 U.S.C. § 105 is a sufficient basis for this claim coupled with 11 U.S.C. § 506 allowing a creditor to recover only “reasonable costs or charges” from a debtor. If plaintiff can redefine the class to encompass only those debtors who actually paid a fee to Wells Fargo, the class may be able to be certified.

IT IS ORDERED that:

1. The motion of the plaintiff to certify her proposed class is DENIED;

2. The plaintiff shall have 30 days from the date of this order to amend the proposed class, if she desires to do so;

3. A hearing on any amended class proposal shall be held on January 10, 2012, at 1:00 p.m. in Courtroom 2, U.S. Bankruptcy Court, 201 St. Louis Street, Mobile, AL 36602;

4. The plaintiff may file a brief in support of any amended class by December 12, 2012 and the defendant may file any responsive brief by December 23, 2012; and

5. At the hearing on January 10, 2012, the Court will discuss with counsel how to proceed with any sanction hearing in regard to Wells Fargo’s actions as the Court indicated might be appropriate in this ruling.

[1] Defendant’s Brief in Opposition to Plaintiffs’ Motion for Class Certification, Docket Entry #200, pages 4-5.

[2] “If our (Wells Fargo’s) signature is necessary, please send us a supply of the last page of the document and we will pre-sign them (sic) for future use by your firm.” Home Mortgage Default Management Guidelines, May 27, 2003, page 23.

Down Load PDF of This Case

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The Bankers’ Subversion of the Rule of Law, Notary and Land Records edition

The Bankers’ Subversion of the Rule of Law, Notary and Land Records edition


Abigail C. Filed-

Hi

For the next couple of weeks, I’m one of the David Dayen subs at FireDogLake–no one person could fill his shoes–and this post ran there earlier today. This version is slightly updated but essentially the same.

One way to see the double standard at the heart of the foreclosure fraud—one set of laws for the bailed out banks, one for the rest of us—is to focus on the role of notaries public, and then consider that role in light of what our Supreme Court said about notaries in 1984, in a case called Bernal v. Fainter, Secretary of State of Texas.

First, let’s recap the role of notaries in the foreclosure fraud crisis: Notaries are the people who verify that someone actually is who they say they are when that person signs a document. Because banks and their agents industrialized “Document Execution” as part of their foreclosure business model, notaries did not do their jobs. Notaries’ failure to verify identities has been so complete that many people will sign as one person, say, “Linda Green.” Notaries have also been told to sign documents using one name, and then notarize their own “surrogate” signature. “Well, what’s the big deal?” bank defenders say. Beyond the fact that there’s no “business convenience” exception to following the rule of law, consider Bernal.

Bernal involved Texas’s requirement that all notaries be citizens; lawful permanent resident aliens need not apply. Bernal challenged the Constitutionality for the citizenship requirement. To rule on the question, the Court had to consider what notaries did, and whether or not what notaries did was so political, so central to representative democracy, that limiting being a notary to citizens was rational. In finding that notaries were important but not political officers of the state, the Court made some observations of note.

[REALITY CHECK]

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PNMAC Mtge. CO, L.L.C. v Friedman | NYSC ‘endorsement “was erroneous”, subsequently endorsed “en blanc by allonge” and physically delivered to nonparty’

PNMAC Mtge. CO, L.L.C. v Friedman | NYSC ‘endorsement “was erroneous”, subsequently endorsed “en blanc by allonge” and physically delivered to nonparty’


Decided on March 21, 2012

Supreme Court, Richmond County

PNMAC Mortgage CO, L.L.C., Plaintiff,

against

Eva Friedman, JACOB FRANKFURTER, NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, and “JOHN DOE”and “JANE DOE”, the last two names being fictitious, said parties intended being tenants or occupants, if any, having or claiming an interest in, or lien upon the premises described in the complaint, Defendants.

130486/11

Thomas P. Aliotta, J.

The following papers were marked fully submitted on the 19th day of January, 2012:

Pages

Numbered

Notice of Motion to Dismiss

by Defendants Eva Friedman and Jacob Frankfurter,

with Supporting Papers, Exhibits and Memorandum of Law

(dated September 1, 2011)………………………………………………………………………….1

Affirmation in Opposition

by Plaintiff, with Supporting Papers and Exhibits

(dated November 8, 2011)………………………………………………………………………….2

Affirmation in Reply

(dated December 12, 2011)…………………………………………………………………………3

Upon the foregoing papers, the motion is granted and the complaint is dismissed.

This is an action to foreclose a mortgage in which plaintiff PNMAC Mortgage Co., LLC. (hereinafter “plaintiff”) alleges that defendants Eva Friedman and Jacob Frankfurter (hereinafter “defendants”) are in default as a result of their having failed to make the required payments since June 1, 2008. To the extent relevant, defendants executed a mortgage in favor of nonparty Mortgage Electronic Registration Systems, Inc (hereinafter “MERS”) as nominee for American Brokers Conduit (hereinafter “ABC”) as security for a note in the principal sum of $440,000 given to fund their purchase of the premises known as 502 Weser Avenue on Staten Island (see Defendants’ Exhibit “C”). Both the mortgage and an “Interest First Adjustable Rate Note” (hereinafter “note”) in favor of ABC were executed on August 29, 2005 (id.).

It is undisputed that the above note was thereafter endorsed to nonparty Wells Fargo Bank, NA (hereinafter “Wells Fargo”). However, plaintiff contends that this endorsement “was erroneous”, and that the note in question either was never delivered or was returned to ABC (see Affirmation of Daniel H. Richland, Esq., para 10). Insofar as it appears, the note was subsequently endorsed “en [*2]blanc by allonge” and physically delivered to nonparty CitiMortgages, Inc. (id. at 11), which acquired ABC’s interest in the subject mortgage via assignment by MERS on behalf of ABC on January 27, 2009 (id. at 12; see Plaintiff’s Exhibit “B”). Following these transfers, MERS sought to foreclose on the subject mortgage, but its action was dismissed with prejudice, as it was the holder of neither the note or mortgage at the time the action was commenced.[FN1] The ensuing order of dismissal, entered on August 4, 2010, also directed the County Clerk to cancel the notice of pendency (see Plaintiff’s Exhibit “C”). CitiMortgage, Inc. subsequently assigned its rights under the above mortgage to plaintiff on March 15, 2011 (see Plaintiff’s Exhibit “B”), which commenced the instant foreclosure action on or about June 21, 2011 (see Defendants’ Exhibit “A”).

In a pre-answer motion to dismiss the complaint, defendants maintain, inter alia, (1) that plaintiff lacks standing; (2) the action is barred under the doctrines of collateral estoppel and/or res judicata; and (3) the complaint fails to state a cause of action (see CPLR 3211[a][3], [5], [7]). In addition, defendants seek an order directing the County Clerk to cancel the notice of pendency and to enter an order pursuant to CPLR 6514(a) declaring the mortgage to be unenforceable because “it has become bifurcated from the note”.

A prima facie case in foreclosure is established by the mortgagee’s production of the mortgage, the unpaid note and evidence of the mortgagor’s default. However, where, as here, a plaintiff’s standing has been placed in issue, it bears the initial burden of proving same before it is entitled to any relief (see Citimortgage, Inc. v. Stosel, 89 AD3d 887 [2nd Dept 2011]).

A plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that it is the holder or assignee of both the mortgage and underlying note, “either by physical delivery or execution of a written assignment prior to the commencement of the action” (id. at 888 [internal quotation marks omitted]). While the mortgage passes with the debt as an inseparable incident thereof (see US Bank NA v. Sharif, 89 AD3d 723, 725 [2nd Dept 2011), the reverse is not true, i.e., an assignment of the mortgage without the underlying note is a nullity (id., see Citimortgage, Inc. v. Stosel, 89 AD3d at 888).

In the instant case, plaintiff asserts its ownership of the note by claiming that the erroneous endorsement to nonparty Wells Fargo was properly voided when the endorser, ABC, subsequently added an “allonge endorsed en blanc” while in possession of the note (see Affirmation of Daniel H. Richland, Esq., paras 23-25).[FN2] The “allonge” submitted by plaintiff provides that “[t]his Note Allonge is attached to and made a part of the Note, for the purpose of Noteholder Endorsement to evidence a transfer of Interest”. It names “American Brokers Conduit” as the originator and is made payable to “to the Order of Without Recourse American Brokers Conduit by: Roger Kistler, Assistant Treasurer” (see Plaintiff’s Exhibit “A”). The document is undated, but must have been added after the erroneous endorsement to Wells Fargo. According to plaintiff, this endorsement was sufficient under Uniform Commercial Code (“UCC”) §3-208, which provides, in relevant part, that “[w]here an instrument is returned to or reacquired by a prior party he may cancel any indorsement which is not necessary to his title and reissue or further negotiate the instrument”.

Nevertheless, there is no proof in the papers presently before the Court as to when the subject note was negotiated or transferred to plaintiff. As a result of this failure to establish that it was the [*3]lawful holder of both the note (whether by delivery or assignment) and mortgage prior to the commencement of this action, plaintiff has failed to sustain its burden of demonstrating its standing to commence this foreclosure action (see US Bank NA v. Sharif, 89 AD3d at 725; Deutsche Bank Natl Trust Co v. Barnett, 88 AD3d 636, 637-638 [2nd Dept 2011]). Accordingly, defendants’ motion to dismiss is granted.

So, too, is that branch of defendants’ motion seeking to cancel the notice of pendency. In this regard, since the matter does not appear to involve issues of faulty service of a summons, bad faith, or any of the other grounds enumerated in CPLR 6514(a), (b) (see generally Lessard Architectural Group, Inc., PC v. X & Y Dev Group, LLC, 88 AD3d 768 [2nd Dept 2011]; Deans v. Sorid, 56 AD3d 417 [2nd Dept 2008]), the notice of pendency will be cancelled in the exercise of the inherent power of the Court (see generally Ewart v. Ewart, 78 AD3d 992 [2nd Dept 2010]; Coleman v. Coker, 66 AD3d 812 [2nd Dept 2009]); Congel v. Malfitano, 61 AD3d 807 [2nd Dept 2009]).

The action being dismissed for lack of standing, there is no occasion for the Court to consider any further issue.

Accordingly, it is

ORDERED that the motion to dismiss is granted, without prejudice; and it is further

ORDERED that the complaint and any cross claims are dismissed; and it is further

ORDERED that the Clerk is directed to cancel the Notice of Pendency filed in connection herewith and mark his records accordingly.

ENTER,

_/s/ Hon. Thomas P. Aliotta_________

J.S.C.

DATED:March 21, 2012

Footnotes

Footnote 1:See Mortgage Electronic Registration Systems, Inc. as Nominee for American Brokers Conduit v. Eva Friedman, Jacob Frankfurther, et al., Index No. 131345/2009.

Footnote 2:UCC §3-204(2) provides that “An indorsement in blank specifies no particular indorsee and may consist of a mere signature. An instrument payable to order and indorsed in blank becomes payable to bearer and may be negotiated by delivery alone until specially indorsed.”

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Wells Fargo Smacked With $3.2 Million in Damages Over Mortgage Fees [VIDEO]

Wells Fargo Smacked With $3.2 Million in Damages Over Mortgage Fees [VIDEO]


Read the case as first posted on SFF: In re Jones (ED La. 4-5-12) Wells Fargo sanctioned over $3M in punitives for mortgage accounting stay violation

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In RE: BAILEY | MA BK Court “the Court cannot determine whether Washington Mutual owned the Mortgage at the time it executed the Assignment to Wells Fargo”

In RE: BAILEY | MA BK Court “the Court cannot determine whether Washington Mutual owned the Mortgage at the time it executed the Assignment to Wells Fargo”


via- Leagle

IN RE BAILEY

In re: CARMEN M. BAILEY, Chapter 13, Debtor, CARMEN M. BAILEY, Plaintiff,

v.

WELLS FARGO BANK, NA, Defendant.

Case No. 09-44760-HJB, Adversary Proceeding No. 09-4190.

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

April 10, 2012.


MEMORANDUM OF DECISION
HENRY J. BOROFF, Bankruptcy Judge.
Before the Court are the parties’ cross-motions for summary judgment on the debtor’s claim that the defendant’s prepetition foreclosure of her residence was void under Massachusetts law because the defendant did not provide proper notice of the foreclosure and did not hold the mortgage on the property at either the time it sent notice of the foreclosure or at the time of the foreclosure sale. Although many of the discrete arguments raised in the motions are determinable on summary judgment, for the reasons that follow, remaining issues of material fact preclude the entry of summary judgment for either party.
I. FACTS AND POSITIONS OF THE PARTIES
Most of the facts relevant to this case are not disputed.1 In 1992, the Debtor obtained a loan from Shawmut Mortgage Company (“Shawmut Mortgage”) in the amount of $104,000, secured by a mortgage (the “Mortgage”) on her condominium located in Hudson, Massachusetts (the “Property”).2 In 2008, the Debtor fell behind on her mortgage payments, and Wells Fargo Bank, NA (“Wells Fargo”), representing itself as the holder of the Mortgage, commenced its foreclosure process against the Property by filing a petition under the Servicemembers Civil Relief Act with the Land Court Department of the Massachusetts Trial Court (the “Land Court”) on August 26, 2009. See Bailey I, 437 B.R. at 724.3
On September 22, 2009, Harmon Law Offices, P.C. (“Harmon”), the law office retained by Wells Fargo to foreclose on the Mortgage, mailed both a Notice of Foreclosure Sale and a Notice of Intention to Foreclose Mortgage and of Deficiency After Foreclosure of Mortgage (the “Foreclosure Notices”) to the Debtor by both certified mail, return receipt requested, and by first class mail. Aff. of Kristin A. Hedvig in Supp. of Wells Fargo Bank, NA’s Mot. for Summ. J. 2 ¶¶ 9, 10 & Exs. A, B, Oct. 6, 2011, ECF No. 63. The certified mailings were returned to Harmon as “unclaimed,” but the first class mailings were not returned as undeliverable. Id. at 2 ¶¶ 9, 10.
The Debtor says that she received none of the Foreclosure Notices until well after the foreclosure sale was concluded. She did not find the slip left by the post office indicating that a certified letter was waiting to be claimed until some weeks after the sale, as the notice had been attached to her seldom-used front door and not left in the condominium complex’s common mailbox area. Pl.’s Aff. in Supp. of Cross-Mot. for Summ. J. 1-2 ¶¶ 3, 4, 6, Nov. 7, 2011, ECF No. 68. She claims not to have received the first class mailings due to an illness that prevented her from walking to the common mailbox area. Id. at 2 ¶ 7.
On October 23, 2009, Wells Fargo conducted a foreclosure sale at which the Property was sold to a third-party buyer (the “Foreclosure Sale”). Prior to the recording of the foreclosure deed, however, the Debtor filed a petition under Chapter 13 of the Bankruptcy Code.4 And on November 23, 2009, the Debtor filed this adversary proceeding, seeking, inter alia, a declaratory judgment that the Foreclosure Sale is void. Id. The Court has previously disposed of several other claims contained in the complaint, see Bailey I, 437 B.R. 721, and the only issue remaining is the validity of the Foreclosure Sale.
A. Notice of the Foreclosure Sale
The Debtor argues that the Foreclosure Sale should be declared void because she did not receive notice of the Foreclosure Sale as required by Massachusetts General Laws (“MGL”) ch. 244, § 14.5 The Debtor does not dispute Wells Fargo’s contention that the required notices were sent to the Debtor’s address by both certified and first-class mail.6 Rather, the Debtor says she did not receive the certified mailings because the postal worker left the notice of certified mail at her rarely-used front door instead of at the common mailbox station. According to the Debtor, due to the importance of the rights lost through foreclosure, Wells Fargo simply should have done a better job of insuring that the Debtor actually received the notices.
In response, Wells Fargo argues that Massachusetts law requires only that advance notice of a foreclosure sale be properly mailed, and that the foreclosing entity is not required to prove actual receipt of the notice. It was the Debtor’s responsibility, says Wells Fargo, to provide an address where certified mailings and other notices could be received, and her failure to do so cannot now invalidate the foreclosure.
B. Whether Wells Fargo Held the Mortgage at the Time of the Foreclosure Sale
1. Travel of the Mortgage
With one notable exception discussed below, the parties are substantially in agreement as to the travel of the Mortgage through various entities from execution through foreclosure. On February 24, 1992, the Debtor granted the Mortgage to Shawmut Mortgage. Sherri E. Russell Aff. in Supp. of Wells Fargo’s Mot. for Summ. J. Ex. B, Oct. 6, 2011, ECF No. 61. The Mortgage then passed to Fleet Mortgage Corp. (“Fleet Mortgage”) when Fleet Mortgage merged with Shawmut Mortgage on May 31, 1996, as confirmed by an assignment of the Mortgage from “Fleet Mortgage Corp. Successor by Merger to Shawmut Mortgage Co.” to “Fleet Mortgage Corp.” dated May 31, 1996. Russell Aff. Exs. C, D. On June 1, 2001, the Mortgage became an asset of Washington Mutual Home Loans, Inc. (“WaMu HLI”), when Fleet Mortgage and WaMu HLI merged. Russell Aff. Ex. F.
What happened next is the subject of some dispute between the parties, although that dispute turns largely on their different legal interpretations of the events, rather than a true factual dispute. After the merger between Fleet Mortgage and WaMu HLI, Washington Mutual Bank, FA (“WaMu FA”) and one of its wholly-owned subsidiaries,7 Washington Mutual Mortgage Securities Corp. (“WaMu Securities”), formed WMHLI Transfer Interim LP (the “Limited Partnership”), a limited partnership organized under the laws of Ohio. WaMu FA was the sole general partner and WaMu Securities the sole limited partner of the partnership. WaMu HLI (the holder of the Mortgage) then merged with and into the Limited Partnership, and the Mortgage presumably became an asset of the Limited Partnership. WaMu FA (the general partner) thereafter purchased all of WaMu Securities’ (the limited partner) interest in the Limited Partnership, and the Limited Partnership was canceled. WaMu FA then changed its name to “Washington Mutual Bank,” Russell Aff. Ex. H, which in turn assigned the Mortgage to Wells Fargo through an “Assignment of Mortgage” dated March 22, 2007 (the “Assignment”), Russell Aff. Ex. E.
2. Standing
The Debtor argues that Wells Fargo is not the holder of the Mortgage, because WaMu FA did not acquire the assets of the Limited Partnership, which assets included the Mortgage, and thus had no rights in the Mortgage to assign to Wells Fargo. Wells Fargo maintains that this Court need not consider the Debtor’s argument, because the Debtor does not have standing to pursue it.8 Characterizing the Debtor’s argument as “based upon the premise that the foreclosure sale is void because the assignment to Wells Fargo was invalid,” Wells Fargo argues that the Debtor “does not have standing to challenge an assignment,” and that only “Shawmut Mortgage, or its assigns, have standing to challenge the assignment.” Wells Fargo Mem. 8. Wells Fargo further contends that the “injury” — i.e., the Foreclosure Sale — did not result from the Assignment, but occurred as a consequence of the Debtor’s default, and therefore the Debtor’s challenge to the Assignment is not directed at the cause of her injury. Finally, Wells Fargo argues, the Debtor cannot attack the Assignment because, under the Mortgage contract, the “mortgagee has the right . . . to assign the mortgage to whomever it chooses. The assignment merely affects to whom the borrower owes the obligation.” Wells Fargo’s Post-Hr’g Mem. in Supp. of Mot. for Summ. J. 4, Dec. 16, 2011, ECF No. 79.9
The Debtor first asserts that Wells Fargo mischaracterizes the nature of her injury and its causes. According to the Debtor, “[i]t is not the foreclosure per se that caused harm . . . . It is the fact that Wells Fargo lacked record title as the holder of the mortgage and thereby lacked authority to foreclose.” Pl.’s Mem. in Opp’n to Def.’s Mot. for Summ. J. 5, Nov. 7, 2011, ECF No. 67. Thus, the Debtor concludes that she has standing to challenge Wells Fargo’s right to foreclose. Furthermore, the Debtor contends, the Debtor’s position as a Chapter 13 debtor gives her standing as the estate’s representative to seek a determination of her property rights, to object to claims, and to pursue causes of action that would benefit the estate.
3. The Land Court Order
Even if the Debtor were found to have standing to prosecute the declaratory judgment claim, Wells Fargo maintains that it held the Mortgage at the time it initiated foreclosure proceedings and thus the Foreclosure Sale was valid. While Wells Fargo generally asserts that WaMu FA’s purchase of WaMu Securities’ interest in the Limited Partnership caused the assets of the Limited Partnership (including the Mortgage) to become assets of WaMu FA, Wells Fargo does not rely on documentary evidence of these various transactions to support its contention that the Mortgage traveled from WaMu HLI to Washington Mutual (and ultimately to Wells Fargo). Instead, Wells Fargo relies on an order issued by the Land Court dated June 28, 2002, see Russell Aff. Ex. G, as establishing Washington Mutual’s title to the assets of the Limited Partnership, and thus its ownership of the Mortgage at the time the Assignment to Wells Fargo was executed. In its order, the Land Court stated that:
After due proceedings, it is ORDERED: that that [sic] all assets (including without limitation all instruments of record) standing in the name of Washington Mutual Home Loans, Inc. be deemed assigned to and stand in the name of Washington Mutual Bank, FA, effective as of March 1, 2002, the date of the sale and assignment of Limited Partner Interest.
Russell Aff. Ex. G.10
The Land Court Order was issued after WaMu FA filed an Ex-Parte Subsequent Petition (the “S-Petition”) in the Massachusetts Land Court on June 2, 2002. According to Wells Fargo, the S-Petition, filed pursuant to MGL ch. 185, § 114, was not limited to any specific piece of property, and Wells Fargo places emphasis on the order’s reference to “all” assets of WaMu HLI, which assets would have included the Debtor’s Mortgage. Additionally, Wells Fargo says that a search at the Plymouth Registry District of the Land Court shows that the Land Court Order was assigned an individual document number not associated with a particular property address, thus supporting its argument that the order is effective against all property, registered or unregistered, and including the Debtor’s Property.
Wells Fargo therefore contends that the Land Court Order effectively “assigned” all of WaMu HLI’s assets, including the Mortgage, to WaMu FA, even if the assets of WaMu HLI failed to otherwise become assets of WaMu FA by operation of law. According to Wells Fargo, this Court has no jurisdiction to “invalidate” the Land Court Order, because, under the Rooker-Feldman doctrine, the Court is “precluded `from exercising subject matter jurisdiction where the issues in the case are “inextricably intertwined” with questions previously adjudicated by a state court, such that a federal district [or bankruptcy] court would be in the unseemly position of reviewing a state court decision for error.'” Wells Fargo Post-Hr’g Mem. 5 (quoting Mills v. Harmon Law Offices, P.C., 344 F.3d 42, 44 (1st Cir. 2003)).
The Debtor maintains, however, that the Land Court Order is not binding on either the Debtor or this Court. The Debtor characterizes the S-Petition as an action to correct the certificate of title on a particular piece of registered land (not the Property at issue in this case). Arguing that the S-Petition was essentially an in rem proceeding, the Debtor says that the Land Court Order has no preclusive effect here.
4. The Limited Partnership
Because Wells Fargo relies on its standing argument and its assertion that the Land Court Order precludes further litigation regarding whether the Mortgage was transferred from WaMu HLI to WaMu FA, it has not provided further documentation or legal argument to support its contention that WaMu FA’s purchase of WaMu Securities’ interest in the Limited Partnership transferred all the partnership assets to WaMu FA.
The Debtor argues, however, that the Mortgage, as an asset of the Limited Partnership, was never transferred to WaMu FA and instead remains an asset of the Limited Partnership.11 According to the Debtor, under Ohio’s limited partnership law, the dissolution of the Limited Partnership did not terminate the legal existence of the partnership. Instead, the Debtor argues that the Limited Partnership remains in existence (and in possession of its assets) until the completion of the winding up of the partnership’s affairs (which winding up would include the distribution of partnership assets). Because no evidence relative to the winding up process or distribution of the partnership assets has been provided, the Debtor says Wells Fargo has failed to demonstrate that title to the Mortgage ever passed from the Limited Partnership to WaMu FA. Accordingly, the Debtor argues, the Assignment could not have transferred the Mortgage to Wells Fargo.
II. DISCUSSION
A. Summary Judgment Standard
Summary Judgment should be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a), made applicable to this proceeding by Fed. R. Bank. P. 7056. “[W]hile the absence of a genuine dispute as to a material fact is a necessary prerequisite to a finding of summary judgment in favor of the movant,” the moving party must still “show that it is entitled to judgment as a matter of law.” Tomsic v. Sales Consultants of Boston, Inc. (In re Salience Assoc., Inc.), 371 B.R. 578, 585 (Bankr. D. Mass. 2007) (citing Desmond v. Varrasso (In re Varrasso), 37 F.3d 760, 764 (1st Cir. 1994)). In resolving cross motions for summary judgment, the court “must resolve all genuine factual disputes in favor of the party opposing each such motion and draw all reasonable inferences derived from the facts in that party’s favor. Atlantic Fish Spotters Ass’n v. Evans, 321 F.3d 220, 224 (1st Cir. 2003); see also E.E.O.C. v. Steamship Clerks Union, Local 1066, 48 F.3d 594, 603 n.8 (1st Cir. 1995) (the “court must consider each motion separately, drawing inferences against each movant in turn”).
B. Foreclosure by Power of Sale in Massachusetts
In Massachusetts, foreclosure of a mortgage may be undertaken without judicial authorization. Ibanez, 941 N.E.2d at 49. “With the exception of the limited judicial procedure aimed at certifying that the mortgagor is not a beneficiary of the Servicemembers Act, a mortgage holder can foreclose on a property . . . by exercise of the statutory power of sale, if such a power is granted by the mortgage itself.” Id. The Mortgage here did grant that power, thus “includ[ing] by reference the power of sale set out in G.L. c. 183, § 21, and further regulated by G.L. c. 244, §§ 11-17C.” Id. “Under Massachusetts General Laws chapter 183, section 21, after a mortgagor defaults in the performance of the underlying note, the mortgagee may sell the property at a public auction, conveying the property to the purchaser in fee simple.” Culhane v. Aurora Loan Servs. of Neb., ___ F. Supp. 2d ___, Civil Action No. 11-11098, 2011 WL 5925525, *6 (D. Mass. Nov. 28, 2011) (citing Ibanez, 941 N.E.2d at 49). Because the statutory power of sale allows a mortgage holder to foreclose on property “without immediate judicial oversight,” the Massachusetts Supreme Judicial Court (the “SJC”) has ruled that “one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void.” Ibanez, 941 N.E.2d at 49-50 (quoting Moore v. Dick, 72 N.E. 967, 968 (Mass. 1905)).
C. Sufficiency of Notice
A mortgage holder who forecloses by power of sale must comply with the notice requirements set forth in MGL ch. 244, § 14. “Advance notice of the foreclosure sale must be provided to the mortgagor by registered mail and other interested parties by publication in a newspaper published or generally circulating in the town where the mortgaged property lies.”12 Culhane, 2011 WL 5925525, at *7; Mass. Gen. Laws ch. 244, § 14. The Debtor has challenged neither the content of the Foreclosure Notices nor the fact that the notices were mailed to the Debtor by registered mail. See Mass. Gen. Laws ch. 4, § 7 (“`Registered mail,’ when used with reference to the sending of notice . . . shall include certified mail.”); see also Town of Andover v. State Fin. Servs., Inc., 736 N.E.2d 837, 840 (Mass. 2000); Carmel Credit Union v. Bondeson, 772 N.E.2d 1089, 1091 & n.4 (Mass. App. Ct. 2002) (quoting Durkin v. Siegel, 165 N.E.2d 81, 83 n.3 (Mass. 1960)).
The law in Massachusetts is clear; the requirement that the notice be mailed to the owner of the relevant property “is satisfied by mailing and nonreceipt is irrelevant.Hull v. Attleboro Sav. Bank, 596 N.E.2d 358, 362 (Mass. App. Ct. 1992) (emphasis supplied); see also Lindsey v. First Horizon Home Loans, Civil Action No. 11-10408-FDS, 2012 WL 689745, *3 (D. Mass. March 1, 2012). Wells Fargo has submitted copies of the Foreclosure Notices sent to the Debtor bearing certified mailing stamps. See Hedvig Aff. Ex. A. Wells Fargo admits that the certified mail was returned unclaimed, but there is no dispute that the Foreclosure Notices were sent. Accordingly, there being no material issue of fact in dispute, the Court must rule as a matter of law that Wells Fargo complied with the notice requirement under MGL ch. 244, § 14, and summary judgment should be entered in favor of Wells Fargo on the Debtor’s claim that notice of the Foreclosure Sale was insufficient.
D. Debtor’s Standing to Challenge the Foreclosure Sale
Even if the notice of the Foreclosure Sale were proper, the Debtor also argues that the sale should be declared void, as Wells Fargo is not (and was not) the holder of the Mortgage and thus had no authority to exercise the statutory power of sale. The Debtor is correct in her general assertion that, absent Wells Fargo’s status as holder of the Mortgage, the Foreclosure Sale is void; as the SJC has explained:
One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose. The “statutory power of sale” can be exercised by “the mortgagee or his executors, administrators, successors or assigns.” G.L. c. 183, § 21. Under G.L. c. 244, § 14, “[t]he mortgagee or person having his estate in the land mortgaged, or a person authorized by the power of sale, or the attorney duly authorized by a writing under seal, or the legal guardian or conservator of such mortgagee or person acting in the name of such mortgagee or person” is empowered to exercise the statutory power of sale. Any effort to foreclose by a party lacking “jurisdiction and authority” to carry out a foreclosure under these statutes is void.
Ibanez, 941 N.E.2d at 50.13
Despite the SJC’s clear admonition that failure to hold the mortgage at the time of foreclosure renders a foreclosure sale void, Wells Fargo argues that the Debtor cannot challenge the Foreclosure Sale through her request for declaratory judgment, because the Debtor lacks standing to challenge the Assignment of the Mortgage. This argument is unpersuasive for several reasons.
First, the thrust of the Debtor’s argument is not an attack on the Assignment itself, but instead a challenge to Wells Fargo’s assertion that Washington Mutual held the Mortgage at the time it executed the Assignment. The Debtor’s claim that Washington Mutual did not own the Mortgage at the time it purported to assign it is not a “claim[ ] that the assignment . . . is defective,” but rather a claim that, as a stranger to the Mortgage, Washington Mutual could not have passed any ownership rights in the Mortgage to Wells Fargo.14
This case is thus distinguishable from those where the courts have concluded that borrowers lacked standing to challenge assignments of mortgages on grounds that assignments failed to comply with the terms of underlying Pooling and Servicing Agreements (“PSAs”). In such cases, the courts have found that the borrowers lacked standing to challenge a mortgage assignment based on an alleged breach of an underlying PSA, because the borrowers were neither parties to nor third-party beneficiaries under those agreements. See, e.g., Juarez v. U.S. Bank Nat’l Ass’n, Civil Action No. 11-10318, 2011 WL 5330465, *4 (D. Mass. Nov. 4, 2011); In re Correia, 452 B.R. at 324 (citing In re Almeida, 417 B.R. 140, 149 n.4 (Bankr. D. Mass. 2009)). The Debtor’s argument here is not based on the breach of an underlying contract to which she was not a party; instead, her argument is aimed at the ownership of the Mortgage at the time it was purportedly assigned.
The Court also finds the two cases relied on by Wells Fargo to be inapposite here. In In re Lopez, Judge Hillman discussed standing only in the context of a debtor’s allegation that a bank’s denial of his request for a loan modification was actionable under the Home Affordable Modification Program (“HAMP”). 446 B.R. 12, 21 (Bankr. D. Mass. 2011). Noting his agreement with the “nearly unanimous” conclusion that HAMP “affords no private right of action and that borrowers lack standing as third-party beneficiaries to enforce the HAMP guidelines under a breach of contract theory,” Judge Hillman ultimately concluded that the debtor had failed to adequately plead his standing under HAMP. Id. at 21-22.15 Because the issue in Lopez was the Debtor’s standing under HAMP, it has no relevance to the Debtor’s standing to question Wells Fargo’s status as holder of the Mortgage in this case.
In Kiah v. Aurora Loan Servs., LLC, Civil Action No. 10-40161-FDS, 2011 WL 841282 (D. Mass. March 4, 2011), the borrower filed an action seeking “a declaratory judgment that `the mortgage on record [was] legally null and void.'” Id. at *1 (emphasis supplied). Among the various allegations raised in the complaint was the borrower’s assertion that the mortgage assignment was invalid because it was given for no consideration. Id. at *6. In rejecting that argument, Judge Saylor noted that the allegation was not only speculative, but that the borrower’s standing to contest the assignment on the basis of lack of consideration was questionable — since it was doubtful whether the plaintiff could demonstrate a “compensable injury if the consideration was not paid.” Id. The Debtor here is not seeking a declaration that the Mortgage is void, nor is she contesting the consideration given for the Assignment. Accordingly, the Court finds Judge Saylor’s discussion of standing in Kiah to be irrelevant to the issues raised here.
And while recent cases have contained somewhat broader language to the effect that a borrower has no standing to challenge a mortgage assignment, as the borrower is neither a party to, nor a third-party beneficiary of, the assignment, see, e.g., Oum v. Wells Fargo, N.A., ___ F. Supp. 2d ___, Civil Action Nos. 11-11663-RGS, 11-11683-RGS, 2012 WL 390271 (D. Mass. Feb. 8, 2012); Wenzel v. Sand Canyon Corp., ___ F. Supp. 2d ___, Civil Action No. 11-30211-JCB, 2012 WL 219371 (D. Mass. Jan. 5, 2012); Peterson, 2011 WL 5075613, the Debtor is not, as previously discussed, challenging the Assignment per se. Instead, the Debtor questions only whether the assignor had any rights in the Mortgage to transfer to the assignee.16
The Debtor has standing to challenge the validity of the Foreclosure Sale because she has demonstrated “a concrete and particularized injury in fact, a causal connection that permits tracing the claimed injury to the defendant’s actions, and a likelihood that prevailing in the action will afford some redress for the injury.” Antilles Cement Corp. v. Fortuno, 670 F.3d 310, 317 (1st Cir. 2012) (quoting Weaver’s Cove Energy, LLC v. R.I. Coastal Res. Mgmt. Council, 589 F.3d 458, 467 (1st Cir. 2009)). The injury to the Debtor is the purported termination of her equity of redemption in the Property by a party who had no authority to foreclose that equity of redemption.17 If Wells Fargo did not hold the Mortgage at the time it foreclosed, then the injury is traceable directly to Wells Fargo, as it is the allegedly invalid foreclosure by Wells Fargo that constitutes the Debtor’s claimed injury. Should the Court determine that the Foreclosure Sale is void, the Debtor will retain the equity of redemption — an interest in the Property that cannot be lightly disregarded.
Also of paramount importance is the Debtor’s status as a Chapter 13 debtor. By dint of § 1322(b)(5), Congress has promised such debtors the opportunity to propose a Chapter 13 Plan that “provide[s] for the curing of any default within a reasonable time and maintenance of payments while the case is pending,” thereby allowing a debtor to “restore and maintain his currency on a longterm debt.” In re Euliano, 442 B.R. 177, 186 (Bankr. D. Mass. 2010) (quoting 11 U.S.C. § 1322(b)(5); Grubbs v. Houston First Am. Sav. Ass’n, 730 F.2d 236, 245 (5th Cir. 1984)).
But under § 1322(c)(1) of the Bankruptcy Code, a Chapter 13 debtor’s ability to cure a default on a mortgage note through a Chapter 13 Plan is only available “until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.” 11 U.S.C. § 1322(c)(1); see also In re Mellino, 333 B.R. 578, 584 (Bankr. D. Mass. 2005) (“Section 1322(c)(1) of the Bankruptcy Code allows a debtor to cure his or her default under a mortgage unless the property has been sold at a foreclosure sale which was conducted in accordance with applicable state law.”) (citing In re Crichlow, 322 B.R. 229, 234 (Bankr. D. Mass. 2004)).
And, as previously noted, in Massachusetts, a foreclosure sale is “conducted in accordance with applicable nonbankruptcy law” only if the foreclosing party held the mortgage at the time the notice of foreclosure was sent and the foreclosure sale conducted. The Debtor’s ability to cure the default and reinstate the Mortgage through a Chapter 13 plan thus turns on whether or not the Foreclosure Sale was validly conducted under Massachusetts law by an entity holding the Mortgage. For these reasons, the Court determines that the Debtor has standing to seek a ruling on the validity of the Foreclosure Sale.18
E. Effect of the Land Court Order
Wells Fargo next argues that the substance of the underlying transactions affecting the Mortgage should not be reexamined, because the Land Court Order established WaMu FA’s ownership of WaMu HLI’s assets (including the Mortgage), and the Assignment therefore validly conveyed ownership to Wells Fargo prior to the Foreclosure Sale. But Wells Fargo fails to adequately articulate any legal theory supporting its contention that both the Debtor and the Court are bound by the Land Court Order. Wells Fargo refers only briefly to the Rooker-Feldman doctrine as preventing this Court from deciding questions regarding the ownership of the Mortgage, maintaining that this Court has no jurisdiction to “invalidate” the Land Court Order.
The Rooker-Feldman doctrine is not applicable here, because the Debtor was not a party to the Land Court action. See Lance v. Dennis, 546 U.S. 459, 465 (2006) (Rooker-Feldman does not apply where party was not party to the state court proceeding); Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005) (The Rooker-Feldman Doctrine has been limited to “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.”). Similarly, although this Court is bound by 28 U.S.C. § 1738 (the Full Faith and Credit Statute) to “give the same preclusive effect” to the Land Court Order that the order “would be given in the courts of [Massachusetts],” In re Ellis, 354 B.R. 11, 17 (Bankr. D. Mass. 2006) (quoting Migra v. Warren City Bd. of Educ., 465 U.S. 75, 81 (1982)), Wells Fargo has provided no reason why Massachusetts courts would give preclusive effect to the Land Court Order in an unrelated case involving non-parties to the Land Court action.
As Wells Fargo itself notes, “[t]he purpose of an S-Petition, filed pursuant to G.L. c. 185, § 114, et seq., is to alter certificates of title on registered land.” Wells Fargo Post-Hr’g Mem. 2 (emphasis supplied).19 There is no indication, despite its broad language, that the Land Court Order applied to any property other than the property affected by the registered certificate of title at issue in that case. The Property here, in fact, is not registered land. Although the Land Court may, in some cases, exercise jurisdiction over recorded land, see MGL ch. 185, § 1, the evidence produced by Wells Fargo indicates that the Land Court Order was issued pursuant to its jurisdiction over a particular certificate of title in registered land, and thus has no preclusive effect here. Similarly, even if this Court were to reach a conclusion different than that reached by the Land Court and find that WaMu HLI’s assets were not transferred to WaMu FA, such a ruling would in no way “invalidate” the Land Court’s Order. Just as that order has no preclusive effect in the case before this Court, the decision reached in this case would not affect the parties involved in the case before the Land Court.
In sum, because the Land Court Order was issued in a case unrelated to the one before this Court, and involved neither the Debtor nor the Property at issue here, and because Wells Fargo has not articulated any other reason why the order has preclusive effect in this case, the Court concludes that the Land Court Order is insufficient to establish, for purposes of this case, that Washington Mutual held the Mortgage when it executed the Assignment to Wells Fargo.
F. So Who Holds the Mortgage?
To re-cap: the parties agree that the Mortgage was originally given to Shawmut Mortgage. Shawmut Mortgage merged with Fleet Mortgage, which in turn merged with WaMu HLI. WaMu HLI then merged with the Limited Partnership (created in Ohio), and the Mortgage thus became an asset of the Limited Partnership. The sole general partner (WaMu FA) then purchased the sole limited partner’s (WaMu Securities) interest in the Limited Partnership and the partnership was “canceled” pursuant to Ohio law. See Sale & Assignment of Limited Partner Interest and “Washington Mutual bank, FA Secretary’s Certificate,” both attached as exhibits to Pl.’s Post-Hr’g Mem. and Wells Fargo’s Post-Hr’g Mem; see also Ohio Rev. Code § 1782.10 (A) (“A certificate of limited partnership shall be canceled . . . at any other time there are no limited partners.”).
But neither party has provided evidence demonstrating what happened to the assets of the Limited Partnership. Under Ohio law, “a partnership interest is personal property.” Ohio Rev. Code § 1782.39. The assignment of a partnership interest transfers only the interest in the partnership and the right to receive distributions as a partner; it does not transfer the underlying partnership assets themselves. Ohio Rev. C. § 1782.40. Thus, WaMu FA’s purchase of WaMu Securities’ interest in the Limited Partnership did not necessarily transfer the assets of the Limited Partnership (which included the Mortgage) to WaMu FA.
The Debtor assumes that the Limited Partnership was merely “dissolved,” and therefore would have the Court conclude that, consistent with Ohio law, the assets of the Limited Partnership remain with the Limited Partnership until otherwise distributed through the “winding up process.” While the Debtor is correct that, under Ohio law, the assets of a Limited Partnership do not vest in the partners as a matter of law and must be appropriately distributed, see Ohio Rev. Code § 1782.46, it is possible that the Limited Partnership assets vested in WaMu FA pursuant to the underlying partnership agreement or as a result of distribution during the winding-up process. See id. (“Except as otherwise provided in the partnership agreement, the general partners . . . . may wind up the affairs of a limited partnership . . . [and] may do any or all of the following . ..: (3) Dispose of and convey the property of the limited partnership; . . . (5) Distribute to the partners any remaining assets of the limited partnership.”). Simply put, there is insufficient evidence on the summary judgment record to conclude either that the Mortgage remains an asset of the Limited Partnership (as the Debtor argues) or became property of WaMu FA (as Wells Fargo argues). Accordingly, the Court cannot determine whether Washington Mutual owned the Mortgage at the time it executed the Assignment to Wells Fargo and both parties’ motions for summary judgment must be denied.
III. CONCLUSION
For the foregoing reasons, the Court will deny both the Debtor’s and Wells Fargo’s motions for summary judgment. However, in accordance with the conclusions of law reached herein, a further evidentiary hearing is necessary only to resolve the limited issue of whether the Mortgage, as an asset of the Limited Partnership, ultimately became an asset of Washington Mutual, allowing the assignment of the Mortgage from Washington Mutual to Wells Fargo. An order in conformity with this memorandum shall issue forthwith.

 


 Footnotes


1. Many of the relevant facts were also detailed in this Court’s earlier memorandum regarding the defendant’s motion to dismiss. See Bailey v. Wells Fargo Bank, NA (In re Bailey), 437 B.R. 721 (Bankr. D. Mass. 2010) (“Bailey I”).

2. The Property was originally purchased by the Debtor and her former husband in 1984. The mortgage loan at issue here was incurred by the Debtor to purchase her former husband’s interest in the Property pursuant to a judgment of divorce and modification agreement. Bailey I, 437 B.R. at 724 n.1.
3. The Servicemembers Civil Relief Act (the “Servicemembers Act”), 50 U.S.C. App. §§ 501-591, prevents the foreclosure of a mortgage where the owner of the property is an armed servicemember and the mortgage was entered into prior to the start of military service; the act “restricts foreclosures against active duty members of the uniformed services.” Akar v. Fed. Nat’l Mortg. Ass’n, ___ F. Supp. 2d ___, Civil Action No. 10-10539 NMG, 2012 WL 661458, *12 (D. Mass. Feb. 8, 2012). In Massachusetts, a special legislative act created a “court procedure to determine that no one interested in the property is in the military service.” See Bailey I, 437 B.R. at 724 n.2 (quoting 28 Mass. Prac. § 10.4).

 

4. See 11 U.S.C. § 101 et seq. (the “Bankruptcy Code” or the “Code”).
5. In order to validly foreclose on property under power of sale, “advance notice of the foreclosure sale [must be] provided to the mortgagor, to other interested parties, and by publication in a newspaper published in the town where the mortgaged land lies or of general circulation in that town.” U.S. Bank Nat’l Ass’n v. Ibanez, 941 N.E.2d 40, 50 (Mass. 2011). The Debtor has not argued that Wells Fargo failed to appropriately publish notice of the Foreclosure Sale in the relevant newspaper, and her arguments are targeted only at the adequacy of the notice provided directly to the Debtor.
6. According to Wells Fargo, identical copies of the Foreclosure Notices were sent by certified and first class mail to two different versions of the Debtor’s address (one identifying the building and unit of the condominium complex in which the Property is located and the other identifying the address by the unit number only). Hedvig Aff. 2 ¶ 8. The Debtor has not argued that either form of address was incorrect or incomplete.
7. WaMu HLI was also a wholly-owned subsidiary of WaMu FA.
8. In its original brief submitted in support of the summary judgment motion, Wells Fargo supported this argument with a citation to an order from the Land Court, cited as JP Morgan Mortg. Acquisition Corp. v. Lord, Land Court Case No. 10 MISC 427846, Memorandum and Order Denying Defendant’s Motion to Vacate Judgment and Dismiss Plaintiffs’ Complaint (Nov. 29, 2010) (Long, J.). See Wells Fargo Mem. in Supp. of Mot. for Summ. J. 8, Oct. 6, 2011, ECF No. 60. This citation is, at least so far as the Court was able to discern, insufficient to allow easy access to a copy of the referenced order in a publicly-available database, and Wells Fargo failed to attach a copy of the order to its brief. As such, the Court is unable to lend any persuasive value to the quote from that order provided by Wells Fargo.
9. At the hearing on the parties’ motions for summary judgment, counsel for Wells Fargo also directed the Court’s attention to two additional cases (which were not, as represented by counsel, cited in Wells Fargo’s brief). Those cases, Kiah v. Aurora Loan Servs., LLC, Slip Copy, Civil Action No. 10-40161-FDS, 2011 WL 841282 (D. Mass. March 4, 2011), and In re Lopez, 446 B.R. 12 (Bank. D. Mass. 2011), are discussed later in this memorandum.
10. Viewing both parties’ arguments relative to the Land Court Order to be somewhat sparse, at the conclusion of the hearing on the summary judgment motions, the Court asked the parties to provide further briefing on the preclusive effect, if any, of the Land Court Order. Both parties have done so.
11. The Debtor raises additional arguments premised on the fact that many of the documents relied on by Wells Fargo to demonstrate how ownership of the Mortgage changed, through various corporate mergers and name changes, were not recorded in the relevant Registry of Deeds. The Debtor has asserted, with no citation to relevant case law or statute, that those documents should have been recorded because the various corporations were foreign to Massachusetts and were not registered to do business in Massachusetts. Because they were not recorded, the Debtor says a title examiner would not be able to ascertain how title ultimately vested in Wells Fargo. In Bailey I, however, the Court specifically rejected the Debtor’s assertion that the documents on record at the time of the foreclosure had to demonstrate an unbroken chain of ownership of the Mortgage from Shawmut Mortgage to Wells Fargo. 437 B.R. at 728-29. And the SJC has subsequently agreed, holding that although a foreclosing party must have evidence that they hold the Mortgage at the time the foreclosure notice is sent, recording of those documents prior to the sending of the foreclosure notice, while perhaps the best practice, is not required. See U.S. Bank Nat’l Ass’n v. Ibanez, 941 N.E.2d 40, 53 (Mass. 2011); Bailey I, 437 B.R. at 728-29 (citing U.S. Bank Nat’l Ass’n v. Ibanez, Nos. 384283 (KCL), 386018 (KCL), 386755 (KCL), 2009 WL 795201 (Mass. Land Ct. March 26, 2009); U.S. Bank Nat’l Ass’n v. Ibanez, Nos. 08 Misc. 384283 (KCL), 08 MISC. 386755 (KCL), 2009 WL 3297551 (Mass. Land Ct. Oct. 14, 2009), aff’d 941 N.E.2d 40).
12. As noted earlier, there is no assertion or evidence that notice of the Foreclosure Sale was not published in a relevant newspaper as required by MGL ch. 244, § 14.
13. And, as the SJC explained further in Ibanez, if the foreclosing entity was not the holder of the mortgage at the time it sent notice of the foreclosure and claimed status as holder of the mortgage, “the failure to identify the [correct] holder of the mortgage in the notice of sale may render the notice defective and the foreclosure sale void.” Id.
14. In her post-hearing brief, the Debtor raises an additional scattershot attack on the Assignment directly, arguing that the individual who executed the Assignment has been the subject of “widespread national scrutiny.” Pl.’s Post-Hr’g Mem. in Supp. of Pl.’s Mot. for Summ. J. 20, Jan. 5, 2012, ECF No. 81. Based on allegations raised in other (unrelated) cases, the Debtor maintains that the “Assignment was prepared . . . years after the events recited therein, and signed by someone who had no personal knowledge of the facts or events,” and is “nothing short of outright fraud.” Id. at 21. While the Court could simply ignore this untimely argument to which Wells Fargo has had no opportunity to respond, see Correia v. Deutsche Bank Nat’l Trust Co. (In re Correia), 452 B.R. 319, 323 (B.A.P. 1st Cir. 2011), the Court feels compelled to note its lack of merit based on extant case law, see, e.g., Id. at 323-24; Culhane, 2011 WL 5925525, at *17-18; Peterson v. GMAC Mortg., Civil Action No. 11-11115-RWZ, 2011 WL 5075613, *4-5 (D. Mass. Oct. 25, 2011); Rosa v. Mortg. Elec. Sys., Inc., ___ F. Supp. 2d ___, Civil Action No. 10-12141-PBS, 2011 WL 5223349, *4-5 (D. Mass. Sept. 29, 2011); In re Marron, 455 B.R. 1, 8 (Bankr. D. Mass. 2011); Kiah, 2011 WL 841282, at *7.
15. While Judge Hillman did address the debtor’s additional attacks on an assignment of the mortgage, those claims were found deficient not because the debtor lacked standing to challenge the assignment of his mortgage, but because the Debtor had failed to articulate any affirmative objection to the allegedly defective assignment in that case. Id. at 19.
16. The Court expresses no opinion here on whether it would agree with those courts that have rejected challenges to foreclosures based on the borrowers’ lack of standing to challenge an assignment and have concluded that the SJC, in Ibanez, “did not intend to `give [ ] Massachusetts mortgagors a legally protected interest in assignments to which they are not a party . . . .'” Oum, 2012 WL 390271, at *6 (quoting Peterson, 2011 WL 5075613, at *3). The Court notes, however, that other courts in this district have assumed jurisdiction and recognized a borrower’s standing to bring such actions based on the SJC’s conclusion that foreclosures conducted by non-mortgage holders are void. See, e.g., Rosa, 2011 WL 5223349, at *3 n.5 (“Under Massachusetts law, `any effort to foreclose by a party lacking “jurisdiction and authority” to carry out a foreclosure . . . is void.’ The Plaintiffs appear to have standing under this principle, because the allegations, if proven, would render the foreclosure sale void, under Massachusetts law.”); see also Culhane, 2011 WL 5925525, at *12 (possible cloud on title that may reduce value of property at foreclosure and thus increase deficiency claim was sufficient to give borrower standing to challenge authority of assignor to assign mortgage); cf. Bevilacqua v. Rodriguez, 955 N.E.2d 884, (Mass. 2011) (mortgagor retains an interest in the property by holding the equity of redemption until a valid foreclosure sale is conducted).
17. “In Massachusetts, a `mortgage splits the title in two parts: the legal title, which becomes the mortgagee’s, and the equitable title, which the mortgagor retains.'” Bevilacqua, 955 N.E.2d at 895 (quoting Maglione v. BancBoston Mortg. Corp., 557 N.E.2d 756, 757 (1990)). The equitable title, or “equity of redemption,” retained by the mortgagor “[is] the basic and historic right of a debtor to redeem the mortgage obligation after its due date, and ultimately to insist on foreclosure as the means of terminating the mortgagor’s interest in the mortgaged real estate.” Id. (quoting Restatement (Third) of Property (Mortgages) c.3, Introductory note at 97 (1996)).

 

18. In its post-hearing brief, Wells Fargo argues, as an additional ground for affirming the validity of the Foreclosure Sale, that any defect in the Assignment could, in accordance with the SJC’s statements in Ibanez, be resolved by the recording of a “confirmatory assignment.” While the SJC indicated that a post-foreclosure “confirmatory assignment” may be used in cases where a valid pre-foreclosure assignment of mortgage was made but “is not in recordable form or bears some defect,” the court also stressed that such a confirmatory assignment “cannot confirm an assignment that was not validly made earlier.” Ibanez, 941 N.E.2d at 55. If the Court finds that Washington Mutual did not hold the Mortgage at the time the Assignment was executed, then there is no “valid” assignment to which a confirmatory assignment could refer.
19. In Massachusetts, real property may be either registered or unregistered (recorded) land. Real estate in Massachusetts primarily consists of unregistered land, which is conveyed by the delivery of a deed. 28 Mass. Prac., Real Estate Law § 4.59. Registered land is not recorded in the same manner as other real estate, but is governed by Massachusetts statutes codifying a version of what is commonly referred to as a “Torrens System” for the registration of land titles. See, e.g. The Torrens System, 25 Law. & Banker. Cent. L.J. 226 (1932). Registered land has gone through an adjudication process in order to quiet title, and “the Commonwealth guarantees and insures the title to land that is registered.” 28 Mass. Prac., Real Estate Law § 22.1. A certificate of title in registered property is stored on the “registered land side of the registry of deeds,” 28 Mass. Prac., Real Estate Law § 31A.1, and may be altered only through an action (like the S-Petition referred to here) brought in the Land Court, see MGL ch. 185 § 114.

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Angry priest pulls church money out of Bank of America, Joins a nationwide interfaith movement

Angry priest pulls church money out of Bank of America, Joins a nationwide interfaith movement


The Edge-

Father Robert Rien, of St Ignatius at Antioch, a Catholic church east of San Francisco, speaks with a crisp buoyant voice that belies his 65 years. When he is angry it fairly crackles.

This Lenten season he is angry at America’s big banks, so angry he has pulled all his parish’s money out of the Bank of America and opened accounts at a small local bank.

He has called on his flock to do the same and joined a nationwide interfaith movement dedicated to divesting from the major banks. They see Lent as the perfect time to spread the word.

”We have a mandate from the gospels to act,” says Father Rien.

”Jesus went to the temple and he challenged the banking system of his day. He said, ‘you are thieves and marauders, you are wrong in what you are doing’.” On Ash Wednesday this year a group of San Francisco clergy spilled ashes outside a Wells Fargo ATM and called for a foreclosure sabbatical, invoking the Biblical term for the ancient practice of forgiving debts.

Read more: http://www.theage.com.au

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Churches Moving Money Out Of Big Banks In Protest Of Foreclosure Actions

Churches Moving Money Out Of Big Banks In Protest Of Foreclosure Actions


HuffPO-

For lent this year, some will inevitably give up the usual guilty pleasures like chocolate or meat. More than a few churches are taking a decidedly different approach.

About 25 churches have withdrawn $16 million from big banks such as Wells Fargo, Bank of America and JPMorgan Chase as part of a Lent-themed protest against the banks’ foreclosure actions, The New York Times reports, citing PICO National Network, a social justice coalition of churches that’s leading the charge. Individual members and organizational partners have also taken out an additional $15 million.

The demonstration, which started on Ash Wednesday, aims to protest “the injustice that still dominates the banking industry in this country, unmasking corporate greed and dishonesty that is destroying our families,” Ryan J. Bell, senior pastor Hollywood Seventh Day Adventist Church, wrote in a blog for The Huffington Post last month.

[HUFFINGTON POST]

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In re Jones (ED La. 4-5-12) Wells Fargo sanctioned over $3M in punitives for mortgage accounting stay violation

In re Jones (ED La. 4-5-12) Wells Fargo sanctioned over $3M in punitives for mortgage accounting stay violation


Via: Dawn M. Rapoport, ESQ

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF LOUISIANA

IN RE: CASE NO. 03-16518

MICHAEL L. JONES
DEBTOR

MICHAEL L. JONES
PLAINTIFF

VERSUS

WELLS FARGO HOME MORTGAGE, INC.
DEFENDANT

EXCERPT:

1. Wells Fargo applied payments first to fees and costs assessed on mortgage loans, then to outstanding principal, accrued interest, and escrowed costs. This application method was directly contrary to the terms of Jones’ note and mortgage, as well as, Wells Fargo’s standard form mortgages and notes. Those forms required the application of payments first to outstanding principal, accrued interest, and escrowed charges, then fees and costs. The improper application method resulted in an incorrect amortization of loans when fees or costs were assessed. The improper amortization resulted in the assessment of additional interest, default fees and costs against the loan. The evidence established the utilization of this application method for every mortgage loan in Wells Fargo’s portfolio.

2. Misapplication of payments received post petition resulted in incorrect amortization of Wells Fargo loans and threatened a debtor’s fresh start, as well as, discharge.

3. Application of post petition payments to new, undisclosed post petition fees or costs also threatened a debtor’s fresh start and discharge.

[…]

get the entire decision below

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RIGBY vs WELLS FARGO | FL 4DCA “Bank failed to establish that it had standing to foreclosure upon the note”

RIGBY vs WELLS FARGO | FL 4DCA “Bank failed to establish that it had standing to foreclosure upon the note”


DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT

January Term 2012

DAVID RIGBY and KATHLYN RIGBY,
Appellants,

v.

WELLS FARGO BANK, N.A., AS TRUSTEE FOR OPTION ONE MORTGAGE LOAN TRUST 2007-FXD2 ASSET-BACKED CERTIFICATES, SERIES 2007-FXD2,
Appellee.

No. 4D10-3587

[April 4, 2012]

STEVENSON, J.

This appeal stems from a complaint of foreclosure filed b y the
appellee, Wells Fargo Bank, N.A., as trustee (“Bank”), against the
appellants David Rigby and Kathlyn Rigby. The trial court entered final
summary judgment. Because Bank failed to meet its burden on
summary judgment, we reverse.

The Bank file d its complaint on May 21, 2008, and attached a
mortgage that named Option One Mortgage Corporation (“Option One”)
as the lender. Subsequently, the Bank filed an assignment of mortgage,
from Option One to Bank, dated May 22, 2008, as well as the undated
original note containing a special endorsement in favor of Bank. The
parties proceeded to discovery and Bank sought an admission from the
Rigbys acknowledging that they had previously received notice that the
note and mortgage had been transferred to Bank. The Rigbys failed to
respond to this request. Bank then filed a motion for summary
judgment, attaching an affidavit wherein the affiant swore that Bank was
holder and owner of the mortgage. Based on this record, the trial court
entered summary judgment. A trial court’s entry of summary judgment
is reviewed de novo. See Frost v. Regions Bank, 15 So. 3d 905, 906 (Fla.
4th DCA 2009).

The Bank failed to establish that it had standing to foreclosure upon
the note. “A crucial element in any mortgage foreclosure proceeding is
that the party seeking foreclosure must demonstrate that it has standing
to foreclose.” McLean v. JP Morgan Chase Bank Nat’l Ass’n, 79 So. 3d
170, 173 (Fla. 4th DCA 2012). To establish standing, the plaintiff must
submit the note bearing a special endorsement in favor of the plaintiff,
an assignment from payee to the plaintiff or an affidavit of ownership
proving its status as holder of the note. Servedio v. U.S. Bank Nat’l
Ass’n, 46 So. 3d 1105, 1107 (Fla. 4th DCA 2010). “A party must have
standing to file suit at its inception and may not remedy this defect by
subsequently obtaining standing.” Venture Holdings & Acquisitions Grp.,
LLC v. A.I.M. Funding Grp., LLC, 75 So. 3d 773, 776 (Fla. 4th DCA 2011).
The Bank has not shown that it was holder of the note at the time the
complaint was filed. The note containing a special endorsement in favor
of Bank was not dated. The assignment of mortgage, dated May 22,
2008, indicates that Bank did not acquire the mortgage until the day
after the complaint was filed. Finally, neither the affidavit, nor the
technical admissions made by the Rigbys, establishes the date on which
Bank acquired possession of the note and there is no evidence in the
record establishing that an equitable transfer of the mortgage occurred
prior to the date the complaint was filed. See McLean, 79 So. 3d at 174
(reversing final summary judgment of foreclosure because appellee bank
failed to establish standing where mortgage was assigned to bank three
days after lawsuit was filed; note contained undated special endorsement
in favor of bank; and affidavit in support of summary judgment failed to
indicate that bank became equitable owner of note and mortgage prior to
date lawsuit was filed).

Reversed.

WARNER and CONNER, JJ., concur.

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Amicus Brief of Oregon AG John Kroger on Hooker v Northwest Trustee, BofA & MERS lawsuit pending before the 9th U.S. Circuit Court of Appeals.

Amicus Brief of Oregon AG John Kroger on Hooker v Northwest Trustee, BofA & MERS lawsuit pending before the 9th U.S. Circuit Court of Appeals.


Hi/5 Dan Marsh

IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

IVAN HOOKER, KATHERINE HOOKER

v.

NORTHWEST TRUSTEE SERVICES, INC.;
BANK OF AMERICA, N.A.; MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.,

[ipaper docId=87906947 access_key=key-1d94q5wlnt1hwjjwo1ha height=600 width=600 /]

 

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Review Finds Possible Flaws in More Than 138,000 Bank Foreclosures

Review Finds Possible Flaws in More Than 138,000 Bank Foreclosures


Not this word again “Flaw”…it’s FULL   B L O W N   FRAUD!

Why wasn’t this review done prior to any settlement? Because they never began any investigation.

DealBook-

The nation’s biggest banks may have put the huge $25 billion settlement over bad foreclosure practices behind them, but that doesn’t mean their mortgage troubles are over.

A separate review — this time by independent consultants on behalf of the Office of the Comptroller of the Currency — flagged more than 138,000 cases for possible flaws in the foreclosure process at the nation’s largest mortgage servicers. Those include foreclosures involved with the so-called robo-signing scandal, in which bank representatives churned through hundreds of documents a day in foreclosure proceedings without reviewing them for accuracy.

[DEALBOOK]

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CERTIFIED CLASS ACTION | CITY OF FARMINGTON HILLS EMPLOYEES RETIREMENT SYSTEM v. WELLS FARGO BANK, NA, Dist. Court, Minnesota 2012

CERTIFIED CLASS ACTION | CITY OF FARMINGTON HILLS EMPLOYEES RETIREMENT SYSTEM v. WELLS FARGO BANK, NA, Dist. Court, Minnesota 2012


The City of Farmington Hills Employees Retirement System, individually and on behalf of ALL OTHERS SIMILARLY SITUATED, Plaintiff,
v.
Wells Fargo Bank, N.A., Defendant.

Civil No. 10-4372 (DWF/JJG).
United States District Court, D. Minnesota.

March 27, 2012.

MEMORANDUM OPINION AND ORDER

DONOVAN W. FRANK, District Judge.

David M. Cialkowski, Esq., Carolyn G. Anderson, Esq., Brian C. Gundmundson, Esq., and June Pineda Hoidal, Esq., Zimmerman Reed, P.L.L.P.; and Peter A. Binkow, Esq., Andy Sohrn, Esq., Casey E. Sadler, Esq., Elizabeth M. Gonsiorowski, Esq., Robin Bronzaft Howald, Esq., and Jill Duerler, Esq., Glancy Binkow & Goldberg LLP; and Thomas C. Michaud, Esq., VanOverbeke, Michaud & Timmony PC; Christopher D. Kaye, Esq. and E. Powell Miller, Esq., The Miller Law Firm, P.C.; and Avraham Noam Wagner, Esq., The Wagner Firm, counsel for Plaintiffs.

Lawrence T. Hoffman, Esq., Richard M. Hagstrom, Esq., James S. Reece, Esq., Rory D. Zamansky, Esq., Daniel J. Millea, Esq., and Michael R. Cashman, Esq., Zelle Hofmann Voelbel & Mason LLP; and Brooks F. Poley, Esq., and William A. McNab, Esq., Winthrop & Weinstine, PA, counsel for Defendant.

INTRODUCTION

This matter is before the Court on Plaintiff’s Motion for Class Certification (Doc. No. 61). For the reasons set forth below, the Court grants Plaintiff’s motion.

BACKGROUND

The City of Farmington Hills Employees Retirement System (“Plaintiff”) is a single-employer defined pension plan. (Doc. No. 63, at 6.) According to the Complaint, Plaintiff and other similarly situated institutional investors participated in a securities lending program offered through Wells Fargo Bank, N.A. (“Wells Fargo”). (Doc. No. 1, Ex. 1, Compl. ¶ 1.) Plaintiff alleges that all members of the putative class (including itself) entered into securities lending agreements (“SLAs”) with Wells Fargo. (See id. ¶ 5.) As part of Wells Fargo’s Securities Lending Program (“SLP”), the investors would allow Wells Fargo to loan their securities to third-party borrowers in return for cash collateral. (Id.) Upon receiving this cash collateral, Wells Fargo would invest the collateral and share a percentage of the revenues with the original investors. (Id.)

The putative class includes in excess of one hundred institutional investors who participated in the SLP during the Class Period: January 1, 2006 to the present. (Doc. No. 63, at 1.) Plaintiff asserts that it signed an SLA with Wells Fargo that is virtually identical to the SLAs signed by the other investors. (Id. at 7.) Further, Plaintiff asserts that every single SLA contains the phrase, “[t]he prime considerations for the investment portfolio shall be safety of principal and liquidity requirements.”[1] (Id.) Plaintiff also asserts that the investment guidelines for the Collateral Investment Trust (“CIT”), the Collateral Investment for Term Loans Trust (“CITT”), and the Enhanced Yield Fund (“EYF”), and other accounts within the SLP contained language similar to the language contained in the SLAs. (Id.) Specifically, the investment guidelines for the CIT, CITT, and EYF all contain the statement, “the prime considerations for the [CIT, CITT, EYF] shall be safety of principal and daily liquidity requirements.” (Sohrn Decl. ¶ 2, Exs. 12-14.) The same language is also present in the investment guidelines received by the Court for the non-trust pools.[2] (Id., Ex. 15; Doc. No. 72, Zamansky Aff. ¶ 4, Exs. 3, 5.)

Plaintiff and putative class members suffered losses as a result of their participation in the SLP. (Compl. ¶ 1.) The gravamen of Plaintiff’s argument is that Wells Fargo failed to ensure that the collateral funds were invested in safe, liquid, short-term investments, and instead improperly invested proceeds in high risk, long-term securities. (See Compl. ¶¶ 9, 12, 13.) Further, Plaintiff argues that Wells Fargo systematically obscured the effects of its mismanagement by concealing investment performance information from the class members in order to prevent them from exiting the SLP. (Id.) Plaintiff asserts the following six counts against Wells Fargo: (1) Breach of Fiduciary Duty; (2) Breach of Contract; (3) Violation of Minnesota Prevention of Consumer Fraud Act — Minn. Stat. § 325F.69; (4) Unlawful Trade Practices — Minn. Stat. § 325D.13; (5) Deceptive Trade Practices — Minn. Stat. § 325D.44; and (6) Civil Theft — Minn. Stat. § 604.14. (Compl. ¶¶ 50-88.)

DISCUSSION

I. Plaintiff’s Claims

Plaintiff has moved for class certification on its claims for breach of fiduciary duty, breach of contract, and consumer fraud. (See generally Doc. No. 63; Doc. No. 97, (“Tr.”), at 17.)

To prove a claim for breach of fiduciary duty under Minnesota law, a party must show: (1) the existence of a fiduciary duty; (2) a breach of that duty; (3) causation; and (4) damages. Hot Stuff Foods, LLC v. Dornback, 726 F. Supp. 2d 1038, 1043 (D. Minn. 2010) (citing Padco, Inc. v. Kinney & Lange, 444 N.W.2d 889, 891 (Minn. Ct. App. 1989)). Plaintiff claims that Wells Fargo breached its fiduciary duties on a class-wide basis by failing to competently manage the SLP’s investments, failing to conform the investments with the investment guidelines, and by concealing the effects of mismanagement of the SLP from the class members. (Doc. No. 63, at 14, 26.)

Under Minnesota law, proof of a breach of contract claim requires four elements: (1) the existence of a contract; (2) breach of the terms of the contract; (3) causation; and (4) damages. Parkhill v. Minn. Mut. Life Ins. Co., 174 F. Supp. 2d 951, 961 (D. Minn. 2000). Plaintiff argues that Wells Fargo breached its contractual obligations to members of the class by investing in high-risk, long-term securities in violation of the terms of the SLAs and investment guidelines. (Doc. No. 63, at 30.)

Finally, the Minnesota Prevention of Consumer Fraud Act (“MCFA”) prohibits:

[t]he act, use, or employment by any person of any fraud, false pretense, false promise, misrepresentation, misleading statement or deceptive practice, with the intent that others rely thereon in connection with the sale of any merchandise. . . .

Minn. Stat. § 325F.69, subd. 1 (2010). Merchandise is defined by the statute as “any objects, wares, goods, commodities, intangibles, real estate, loans, or services.” Minn. Stat. § 325F.68, subd. 2 (2010). Plaintiff alleges that Wells Fargo committed consumer fraud when it misrepresented to investors that it would invest the collateral conservatively to safeguard principal and preserve liquidity. (Doc. No. 63, at 32.)

II. Standard for Class Certification Under Rule 23

A class action serves to conserve the resources of the court and the parties by permitting an issue that may affect every class member to be litigated in an economical fashion. Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 155 (1982). Plaintiffs requesting class certification must satisfy both “implicit” and “explicit” legal requirements. Plaintiffs must first establish that a defined class exists and that the class representatives fall within that class. See Johnson v. Eveleth Taconite Co., 139 F.R.D. 657, 659-60 (D. Minn. 1991) (citing East Texas Motor Freight System v. Rodriguez, 431 U.S. 395, 403 (1977)). Rule 23 of the Federal Rules of Civil Procedure governs class certification.

To be certified as a class, plaintiffs must meet all of the requirements of Rule 23(a) and must satisfy one of three subsections of Rule 23(b). The Rule 23(a) requirements for class certification are: (1) the putative class is so numerous that it makes joinder of all members impracticable; (2) questions of law or fact are common to the class; (3) the class representatives’ claims or defenses are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

In re St. Jude Med., Inc., 425 F.3d 1116, 1119 (8th Cir. 2005) (citing Fed. R. Civ. P. 23(a)) (citations omitted).

District courts retain broad discretion in determining whether to certify a class. Gilbert v. City of Little Rock, 722 F.2d 1390, 1399 (8th Cir. 1983). When considering a motion for class certification, a court need not ask “whether the plaintiff or plaintiffs have stated a cause of action or will ultimately prevail on the merits, but rather whether the requirements of Rule 23 are met.” Beckmann v. CBS, Inc., 192 F.R.D. 608, 613 (D. Minn. 2000) (citing Eisen v. Carlisle & Jaquelin, 417 U.S. 156, 178 (1974)). The party seeking class certification “carr[ies] the burden of proof regarding Rule 23’s requirements.” In re Worker’s Comp., 130 F.R.D. 99, 103 (D. Minn. 1990) (citation omitted). A court may only certify a class if it is “satisfied after a rigorous analysis that all of the prerequisites are met.” Bishop v. Comm. on Prof’l Ethics, 686 F.2d 1278, 1287 (8th Cir. 1982) (citing Gen. Tel. Co., 457 U.S. at 161). When a question arises as to whether certification is appropriate, the court should give the benefit of the doubt to approving the class. In re Worker’s Comp., 130 F.R.D. at 103 (citation omitted).

Wells Fargo does not dispute that the proposed class satisfies the numerosity and commonality requirements of Rule 23(a). Thus, the Court considers whether Plaintiff meets the typicality and adequacy of representation requirements of Rule 23(a) as well as one of the three subsections of Rule 23(b).

A. Typicality

In order for a class to be certified, Rule 23(a) requires that the claims or defenses of the class representative be typical of the other members of the class. Fed. R. Civ. P. 23(a)(3). “This requirement is generally considered to be satisfied if the claims or defenses of the representatives and the members of the class stem from a single event or are based on the same legal or remedial theory.” Paxton v. Union Nat’l Bank, 688 F.2d 552, 561-62 (8th Cir. 1982) (citation omitted). Factual variations will not necessarily preclude certification if “the claim arises from the same event or course of conduct as the class claims, and gives rise to the same legal or remedial theory.” Alpern v. UtiliCorp United, Inc., 84 F.3d 1525, 1540 (8th Cir. 1996).

In this case, Plaintiff claims, on behalf of itself and the proposed class members, that Wells Fargo breached the fiduciary duty it owed to the proposed class members, breached the terms of the contracts it entered into with the proposed class members, and violated provisions of the MCFA in its dealings with the proposed class members. The Court finds the typicality requirement satisfied because the claims of both Plaintiff and the class are based on the same legal theories and course of conduct.

Plaintiff claims typicality is met in this case because Wells Fargo entered into SLAs with each of the investors, all of which state that “the prime considerations for the investment portfolio shall be safety of principal and liquidity requirements.” (Doc. No. 63, at 20.) Further, Plaintiff asserts that similarly stringent investment criteria were applicable across all of the funds managed by Wells Fargo in the SLP. (Id. at 21.) Plaintiff’s claims arise from the purported, “grossly incompetent management of the Program’s investment risk, term, and liquidity,” and from Wells Fargo’s failure to conform the funds to the stated mandates. (Id.; Doc. No. 80, at 9, n.6.) The class members will likely rely on the same evidence regarding mismanagement of the funds and failure to follow investment mandates concerning risk, term, and liquidity to prove their claims.

Wells Fargo first argues that, because the proposed class members entered into different agreements and participated in different pools (trust vs. non-trust), the fiduciary duties and the contractual obligations owed to the investors are distinct from one another, and Plaintiff’s claims are thus atypical. (Doc. No. 71, at 27.) The Court notes, however, that a common mandate to ensure liquidity and safety of principal existed across all of the funds. Wells Fargo’s bald assertion that membership in a trust versus a non-trust pool would alter the contract and fiduciary duty claims is not enough to overcome the fact that all of the SLAs contained the same “prime considerations,” and Wells Fargo has failed to substantiate its claim.[3]

Wells Fargo also argues that the fact that class members withdrew from the program at varying times throughout the class period defeats typicality. (Doc. No. 71, at 27.) Wells Fargo contends that certain entities will need to rely upon individualized proof to show they reasonably mitigated their damages when they chose not to exit the SLP. However, individual questions with respect to damages do not defeat class certification. See In re AM Int’l, Inc. Sec. Litig., 108 F.R.D. 190, 196 (S.D.N.Y.1985); In re Coll. Bound Consol. Litig., No. 93 CIV. 2348, 1994 WL 236163, at *3 (S.D.N.Y. May 31, 1994) (certifying a class in a securities action when faced with mitigation of damages issues). The time frame in which individuals class members sold their securities may be an issue when determining damages, but the class members are pursuing the same legal theories and will likely utilize the same evidence regarding Wells Fargo’s monitoring of the investments and alleged failure to invest the collateral in accordance with the investment guidelines to prove those legal theories. There are no defenses that are truly unique to any of the proposed class members in this case, especially since more than one hundred of them did not sell immediately after losses began to be incurred.[4] Therefore, the Court concludes the claims of the class representative are typical of the claims of the class as a whole.

B. Adequacy of Representation

Rule 23(a)(4) requires plaintiffs to establish that the “representative parties will fully and adequately protect the interests of the class.” Fed. R. Civ. P. 23(a)(4). In order to satisfy the adequacy requirement, Plaintiff must show that: (1) the representative and its attorneys are able and willing to prosecute the action competently and vigorously; and (2) the representative’s interests are sufficiently similar to those of the class that it is unlikely that their goals and viewpoints will diverge. In re Potash Antitrust Litig., 159 F.R.D. 682, 692 (D. Minn. 1995).

Wells Fargo does not appear to contest the first prong. The Court thus finds that Plaintiff and its attorneys are able and willing to prosecute the action competently and vigorously.

With respect to the second prong, the Court finds Plaintiff’s interests to be sufficiently similar to those of the class that it is unlikely that their goals and viewpoints will diverge. Wells Fargo argues that Plaintiff will not adequately represent the class, citing an unavoidable tension between those investors that withdrew early and those that remained in the fund and experienced greater losses. (Doc. No. 71, at 30.) That some of the institutional investors such as Plaintiff may have suffered more substantial losses than others does not render Plaintiff’s interests adverse to those of any other proposed class member. Rather, the interests of Plaintiff and the proposed class members are certainly aligned in this case: they share the common goal of recovering damages from Wells Fargo as a result of the SLP’s losses. Notwithstanding that the amount of damages may vary from investor to investor, Plaintiff’s goals and viewpoints are unlikely to diverge from those of the remainder of the class. Because the proposed class representative’s interests are sufficiently similar to those of the class, and because Plaintiff and its counsel are able and willing to competently and vigorously prosecute this action, the Court concludes that Plaintiff has satisfied Rule 23(a)(4).

C. Rule 23(b)

1. Predominance

Under Rule 23(b)(3), a court must find that “questions of law or fact common to the members of the class predominate over any questions affecting only individual members” in order to certify a class. Fed. R. Civ. P. 23(b)(3). When considering the facts of a given case, “a claim will meet the predominance requirement when generalized evidence proves or disproves the elements of the claim on a class-wide basis, because such proof obviates the need to examine each class member’s individual position.” Buetow v. A.L.S. Enters., Inc., 259 F.R.D. 187, 190 (D. Minn. 2009) (citation omitted). The purpose of the predominance requirement is to “achieve economy and efficiency in the settlement of disputes.” Vernon J. Rockler & Co. v. Graphic Enters., Inc., 52 F.R.D. 335, 344 (D. Minn. 1971) (citing Fed. R. Civ. P. 23 advisory committee’s note). As discussed below, the Court concludes that common questions of law and fact predominate on all three claims for which Plaintiff seeks class certification.

a. Breach of Fiduciary Duty Claim

Plaintiff asserts that its breach of fiduciary duty claim satisfies the predominance requirement because Wells Fargo entered into SLAs with each of the proposed class members, all of which state that Wells Fargo would serve as a fiduciary for the purpose of lending securities under the SLP, and Wells Fargo’s alleged failure to monitor the funds to ensure the funds conformed to the investment guidelines is subject to class-wide proof. (Doc. No. 63, at 25.) Wells Fargo maintains, however, that questions regarding the individualized experience and intelligence of the investors govern the scope and extent of any fiduciary duties owed in this case. (Doc. No. 71, at 33.)

The Court concludes that the elements of the fiduciary duty claim are subject to proof by generalized evidence on a class-wide basis. See Buetow, 259 F.R.D. at 190. There appears to be no dispute that Wells Fargo entered into SLAs with each participant in the SLP, all of which required Wells Fargo to serve as a fiduciary for the purposes of securities lending; and Wells Fargo acted in a fiduciary capacity as the administrator of the program. Plaintiff alleges that Wells Fargo owed a fiduciary duty to all class members to follow the investment mandates contained within the SLAs and to monitor the SLP’s assets to ensure that the investment selections continued to reflect those mandates. Notably, Wells Fargo’s actions and conduct, not the conduct of any individual class member, is the focal point of the fiduciary duty claim. Common issues such as whether Wells Fargo knew or should have known that the investments it selected did not comport with investment mandates, whether Wells Fargo failed to monitor the investments to ensure they were not overly risky or illiquid, and whether the class members sustained losses as a result of the alleged breach of Wells Fargo’s fiduciary duty to select proper investments and monitor the funds for undue risk, will likely turn on substantially the same evidence for the class as a whole. See AFTRA Ret. Fund v. J.P. Morgan Chase Bank, N.A., 269 F.R.D. 340, 349 (S.D.N.Y. 2010) (granting class certification on fiduciary duty claim by seventy-six investors in a securities lending program). Claims concerning Wells Fargo’s purported failure to perform any monitoring, failure to maintain a list of its approved investments, and failure to apprehend or respond to information about high-risk, long-term securities, are all subject to proof through generalized evidence in light of Wells Fargo’s standardized investment guidelines. See id. Thus, the Court concludes that class members can rely on generalized evidence to prove that Wells Fargo breached its fiduciary duty to the class as a whole.

b. Breach of Contract Claim

Plaintiff argues that its breach of contract claim also satisfies the predominance requirement because all of the SLAs required Wells Fargo to “abide by the mandate that `the prime considerations for the investment portfolio shall be safety of principal and liquidity requirements,'” a contractual obligation that Wells Fargo failed to follow with respect to all class members. (Doc. No. 63, at 26.) Wells Fargo claims, again without explaining how, that the subscription agreements and the Declaration of Trust signed by some investors and not others, necessarily requires individualized determinations concerning the contractual duties owed by Wells Fargo.[5] (Doc. No. 71, at 41, n.18.)

The Court concludes that generalized evidence can be used to prove Plaintiff’s breach of contract claim on a class-wide basis. Here, the entire class participated in the SLP, and each class member entered into an SLA with Wells Fargo that contained the following statement: “The prime considerations for the investment portfolio shall be safety of principal and liquidity requirements.” (Sohrn Decl. ¶ 2, Ex. 8, at 2.) The class members will likely all rely on that statement to prove that Wells Fargo breached their respective contracts.

Plaintiff has alleged that Wells Fargo violated an express mandate contained within the SLAs when it invested collateral in illiquid and risky assets. (Doc. No. 63, at 29.) Whether Wells Fargo breached the terms of each of the SLAs by selecting the investments it did will be subject to common proof through generalized evidence. Thus, the class members need not rely upon individualized evidence to prove their breach of contract claims. Moreover, whether Wells Fargo did in fact select investments that did not conform to the investment mandates in the SLAs will not require a foray into any individualized understanding of the agreements by the plan participants. Contra Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1029-30 (8th Cir. 2010) (determining that each proposed class member’s individualized understanding of a contractual provision stating that non-guaranteed interest would be credited “in a way set by our Board of Directors” was central to the dispute). The Court concludes that the breach of contract claim is subject to proof by generalized evidence on a class-wide basis.

c. MCFA Claim

Finally, Plaintiff claims that common questions predominate on its MCFA claim because Wells Fargo intended for the class members to rely on the statement in the SLA concerning safety of principal and liquidity requirements, a statement Plaintiff alleges was fraudulent. (Doc. No. 63, at 32.) Wells Fargo asserts that common issues of law and fact do not predominate on the MCFA claim because the claim requires proof of individual reliance. (Doc. No. 71, at 39-40.) While the Court acknowledges that some claims under the MCFA are not subject to class certification, the Court concludes that Plaintiff’s MCFA claim in this case can be proven on a class-wide basis through the use of generalized evidence.

The Minnesota Legislature has eliminated the requirement of pleading and proving traditional common law reliance as an element of a statutory misrepresentation in a sales action; however, causation remains an element of such a claim. Grp. Health Plan, Inc. v. Philip Morris Inc., 621 N.W.2d 2, 13 (Minn. 2001). It is still necessary to prove reliance on the alleged misrepresentations or conduct in order to satisfy the causation requirement. Id. What is required to prove this reliance is a causal nexus between the plaintiff’s damages and the defendant’s wrongful conduct. Id. at 14. This causal nexus, however, “need not include direct evidence of reliance by individual consumers.” Id. Plaintiffs may utilize circumstantial evidence of reliance to prove the causation element of their consumer fraud claims. Id.; Curtis v. Altria Grp., Inc., 792 N.W.2d 836, 858 (Minn. Ct. App. 2011), rev. granted March 15, 2011 (noting “that the required causal nexus may be established when there is something to connect the claimed damages and the alleged prohibited conduct”) (internal quotations omitted).

Here, the parties acknowledge that the SLA for each participant in the SLP contained the statement: “The prime considerations for the investment portfolio shall be safety of principal and liquidity requirements.” There is no dispute that each member of the class signed a document containing the alleged misrepresentation. See Mooney v. Allianz Life Ins. Co., Civ. No. 06-545, 2008 WL 2952055, at *2-3 (D. Minn. Jul. 28, 2008) (upholding class certification where there was no question that each member of the putative class had received the alleged misrepresentation and determining that the plaintiffs could “prove a causal nexus on a class-wide basis through direct and circumstantial evidence that policyholders were misled to their detriment by the references to an `up-front’ and `immediate’ bonus”). Contra In re St. Jude Medical, Inc., 522 F.3d 836, 838-40 (8th Cir. 2008) (“St. Jude II“) (acknowledging questions over whether patients and doctors had received the alleged misrepresentations concerning the relevant product and ultimately concluding, in light of the lack of consistency in what alleged misrepresentations were communicated and how they were communicated, that individual issues as to causation and reliance would predominate).

The impact of Wells Fargo’s statement regarding safety of principal and liquidity requirements was likely the same for all class members — namely, to instill a belief about the nature of the risk of the investment. See Curtis, 792 N.W.2d at 858. Further, Wells Fargo has not, at this point in the litigation, negated the common sense inference in this case that the statement in the SLA may have successfully persuaded the class members of the safety of their investments. See id. at 859. Because each member of the putative class signed an SLA containing the alleged misrepresentation and because Plaintiff can rely upon direct and circumstantial evidence to prove reliance on a class-wide basis, common questions predominate over questions affecting individual class members. Therefore, the Court finds that class certification on the MCFA claim is appropriate.

2. Superiority

Rule 23(b)(3) further requires the court to find that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). The rule provides four nonexclusive factors to help determine if a class action is superior:

(A) the class members’ interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.

Id. Having considered the relevant factors, the Court finds that a class action is the superior method of adjudication.

First, as to the class members’ interests in individually controlling the prosecution of separate actions, the Court finds that such interests are minimal and outweighed by the greater interest in having the claims heard as a class action. While Wells Fargo points out that some of the SLP participants are capable of bringing individual claims against Wells Fargo, Plaintiff notes that smaller investors may not have the financial means to bring suit against Wells Fargo on their own. See AFTRA, 269 F.R.D. at 355; (Doc. No. 63, at 34). While it is certainly true that some institutional investors could effectively bring their own claims, on the whole, the Court finds that a class action is preferable.[6]

Second, that four other lawsuits challenging Wells Fargo’s SLP have been filed does not render a class action here an inferior method of adjudication. It is true that some investors have initiated separate actions against Wells Fargo. Notably, however, in each of the other lawsuits, multiple parties joined together as plaintiffs. Additionally, as noted earlier, simply because some investors have the resources to devote to a lawsuit of this nature does not mean the same holds true for all members of the putative class. Rather, class members who may not otherwise have the means to litigate their claims will likely benefit greatly from a class action, and a class action will ensure that class members who are otherwise unaware that they possess a claim will have their rights represented. Furthermore, minimizing the number of individual lawsuits filed on this basis (which, given the size of the class, could potentially total in the hundreds) promotes the interests of judicial economy and efficiency.[7]

Third, it appears that Wells Fargo does not dispute the desirability of concentrating the litigation of these claims in this forum. Even if that were not the case, the Court finds that the presence of Wells Fargo, the relevant documents, and many of the administrators of the SLP in Minnesota makes it desirable to concentrate the claims in this forum.

Finally, the Court foresees little difficulty in managing a class action based on the similarity of the contracts and the likely ability of the class members to prove their claims with generalized evidence. The Court further notes that class actions of this size and complexity are common. See, e.g., AFTRA, 269 F.R.D. at 355.

In light of the relevant considerations, the Court concludes that a class action is the superior method for adjudicating these claims pursuant to Rule 23(b)(3).

CONCLUSION

For the foregoing reasons, the Court finds that Plaintiff has satisfied the requirements of Rules 23(a) and 23(b)(3) with respect to its breach of fiduciary duty, breach of contract, and MCFA claims against Wells Fargo. A class action in this matter will prevent further, duplicative litigation of the relevant claims and will serve to conserve the resources of the Court and the parties by permitting the issues to be litigated in an economical fashion. The Court further notes that a class action will likely minimize the costs and expenses of litigation without compromising the rights of the parties. Therefore, the Court certifies the proposed class with respect to Counts I, II, and III of Plaintiff’s Class Action Complaint (Doc. No. 1, Ex. 1).

ORDER

Accordingly, IT IS HEREBY ORDERED that:

1. Plaintiff’s Motion for Class Certification (Doc. No. [61]) is GRANTED as to Count I (Breach of Fiduciary Duty), Count II (Breach of Contract), and Count III (Violation of Minnesota Prevention of Consumer Fraud Act — Minn. Stat. § 325F.69) of Plaintiff’s Class Action Complaint (Doc. No. 1, Ex. 1).

2. The following class is certified pursuant to Rule 23 of the Federal Rules of Civil Procedure:

All participants in Defendant Wells Fargo Bank, N.A.’s securities lending program (the “Program”) from any time in the period January 1, 2006 to the present who suffered losses due to the Program’s purchase and maintenance of high risk, long-term securities.

3. The parties shall negotiate the content of the class notice. Within fourteen (14) days of the date of this Order, the parties shall submit a joint proposed notice to the Court. If the parties are unable to agree on the content of the notice, the parties shall each submit a proposed notice, together with briefing not to exceed ten (10) pages per side, within twenty-one (21) days of the date of this Order.

4. The Court appoints the City of Farmington Hill Employees Retirement System as class representative.

5. Having considered the requirements of Rule 23(g) of the Federal Rules of Civil Procedure, the Court appoints Glancy Binkow & Goldberg LLP, the Miller Law Firm, P.C., VanOverbeke Michaud & Timmony, P.C., and Zimmerman Reed, PLLP, as class counsel.

[1] Plaintiff submitted three SLAs that do not appear to contain the language concerning safety of principal and liquidity requirements. (Doc. No. 63, at 7, n.3; Doc. No. 65, Sohrn Decl. ¶ 2, Exs. 9-11.) One of these SLAs is from 1994 and outside the class period, so the Court need not consider it. (See Sohrn Decl. ¶ 2, Ex. 9, at 7.) One of the SLAs contains substantially similar language concerning liquidity and safety of principal. (See id., Ex. 10, at 23) (“The key objective of the management of cash collateral supporting securities loans are to: safeguard principal [and] . . . maintain adequate liquidity. . . .”). The final agreement does not appear to be an SLA, but rather an agreement for the services of an independent contractor. (See id., Ex. 11.) Plaintiff, however, provides only a single SLA containing the sentence “[t]he prime considerations for the investment portfolio shall be safety of principal and liquidity requirements.” (Id., Ex. 8, at 2.) While the Court questions Plaintiff’s decision to provide only a single SLA to support its claim that the SLAs entered into between Wells Fargo and more than one hundred other class members contain exactly the same language, Wells Fargo does not appear to dispute Plaintiff’s assertion that all the SLAs contained this language.

[2] Plaintiff submitted investment guidelines for the three trust pools — CIT, CITT, and EYF — in addition to one other pool, the name of which has been redacted. (Sohrn Decl. ¶ 2, Exs. 12-15.) Because the parties agree there were only three trust pools — CIT, CITT, and EYF — the Court concludes that the investment guidelines contained in Exhibit 15 must be from a non-trust pool. Further, Wells Fargo has provided six sets of investment guidelines with its submissions. (Zamansky Aff. ¶ 4, Exs. 3-5, Exs. 71-73.) Exhibits 71, 72, 73, and 5 to the Zamansky affidavit in opposition to the motion for class certification are the same as Exhibits 12, 13, 14, and 15 to the Sohrn declaration in support of the motion for class certification. (Compare Zamansky Aff. ¶ 4, Ex. 5, Exs. 71-73, with Sohrn Decl. ¶ 2, Exs. 12-15.) Exhibit 3 to the Zamansky affidavit appears to be another set of investment guidelines from what must be a non-trust pool as it does not match the three sets of investment guidelines from the three trust pools. (Zamansky Aff. ¶ 4, Ex. 3.) Significantly, at least five sets of investment guidelines that have been submitted by the parties contain the exact same language concerning safety of principal and liquidity requirements as that found in all of the SLAs signed by the participants in the SLP. (Zamansky Aff. ¶ 4, Exs. 3, 5; Sohrn Decl. ¶ 2, Exs. 12-15.)

[3] Nothing on the face of the Declaration of Trust (Zamansky Aff. ¶ 4, Ex. 80) appears to alter the fiduciary duties or contractual obligations owed by Wells Fargo to the investors as those duties are articulated in the SLAs and investment guidelines. Notably, all of the SLAs signed by the participants, including participants in the non-trust pools, represent that the prime considerations of the funds are safety of principal and liquidity requirements. Further, the investment guidelines for all three trust pools contained this same language.

[4] Here, there are no fewer than 132 potential class members and Wells Fargo concedes that only approximately twenty sought to exit the program immediately after they began to incur losses. (Doc. No. 80, at 16, n.10.) There is no evidence that Plaintiff was made aware of Wells Fargo’s alleged fraudulent activity but opted to continue investing in the program, despite having knowledge of the purported fraud. Contra Gary Plastic Packaging v. Merrill Lynch, 903 F.2d 176, 179-80 (2d Cir. 1990) (finding that continued investment after having notice of and investigating alleged fraud created defenses unique to the proposed representative). Furthermore, there does not appear to be an issue arising from the comparative sophistication of the investors here; rather, Wells Fargo claims that the members of the putative class were all sophisticated investors who knew and understood the risks involved in participating in the SLP. Contra Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52, 59-60 (2d Cir. 2000) (concluding that the claims of the proposed class representative were atypical because she “was a sophisticated broker who had access to more information than other investors in the putative class”).

[5] Further, Wells Fargo voices its concern about the need for each class member to separately and independently prove its individualized damages. (See Doc. No. 71, at 42.) Nevertheless, “the mere existence of individual questions such as damages does not automatically preclude satisfaction of the predominance requirement . . . so long as there is some common proof to adequately demonstrate some damage to each plaintiff.” Bokusky v. Edina Realty, Inc., No. 3:92-cv-00223, 1993 WL 515827, at *8 (D. Minn. 1993) (citing In re Worker’s Comp., 130 F.R.D. 99, 108 (D. Minn. 1990)).

[6] Wells Fargo argues that, because at least eleven participants in the SLP negotiated choice-of-law provisions, the proposed class members have a strong interest in controlling their own litigation. The Court finds, however, that the potential interest of eleven investors in controlling the prosecution of separate actions does not outweigh the interest of the more than 100 additional class members in having their claims heard as part of a class action.

[7] Litigating this dispute as a class action will foster judicial economy, as certifying this class may resolve the claims of over 100 potential plaintiffs. A class action will further serve the interests of economy and efficiency given that the parties will likely rely on common evidence to prove their claims with respect to Wells Fargo’s management of the portfolios’ liquidity and risk.

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

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


 

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

 

 Case No. 3:11-cv-2091-JM-WVG.

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

ORDER DENYING MOTION TO DISMISS Docket No. 12.

JEFFREY T. MILLER, District Judge.

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

I. BACKGROUND

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

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

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

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

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

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

II. LEGAL STANDARD AND DISCUSSION

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

A. Viability of Attack on Loan Securitization

1. Ability to Challenge Loan Securitization

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

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

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

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

2. Sufficiency of Allegations of Improper Assignment

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

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

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

B. Tender Requirement

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

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

C. Declaratory Relief

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

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

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

D. Negligence

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

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

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

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

E. Quasi-Contract

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

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

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

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

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

1. Whether Plaintiff Failed to Submit a Proper QWR

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

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

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

2. Whether Plaintiff Adequately Pled Damages

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

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

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

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

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

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

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

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

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

I. Accounting

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

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

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

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

J. Motion to Strike Request for Punitive Damages and Fees

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

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

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

III. CONCLUSION

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

IT IS SO ORDERED.

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

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

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

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

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

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SEC Files Subpoena Enforcement Action Against Wells Fargo for Failure to Produce Documents in Mortgage-Backed Securities Investigation

SEC Files Subpoena Enforcement Action Against Wells Fargo for Failure to Produce Documents in Mortgage-Backed Securities Investigation


Litigation Release No. 22305 / March 23, 2012

Securities and Exchange Commission v. Wells Fargo & Company, Civil Action No. CV-1280087 CRB Misc. (N.D. Cal. March 23, 2012)

.

.

SEC Files Subpoena Enforcement Action Against Wells Fargo for Failure to Produce Documents in Mortgage-Backed Securities Investigation

The Securities and Exchange Commission announced today that it has filed a subpoena enforcement action in the U.S. District Court for the Northern District of California against Wells Fargo & Company. According to the filing, the Commission is investigating possible fraud in connection with Wells Fargo’s sale of nearly $60 billion in residential mortgage-backed securities to investors. Pursuant to subpoenas dating back to September 2011, the bank was obligated to produce (and agreed to produce) documents to the Commission, but has failed to do so. Accordingly, the Commission filed its Application for an Order Requiring Compliance with Administrative Subpoenas.

The Commission’s action relates to its investigation into whether Wells Fargo made material misrepresentations or omitted material facts in a series of offerings between September 2006 and early 2008. The Commission’s application explains that, in connection with the securitization of the loans, a due diligence review of a sample of the loans in each offering was performed. Certain loans within that sample would be dropped from the offering for failure to comply with Wells Fargo’s loan underwriting standards. However, according to the Commission, it does not appear that Wells Fargo took any steps to address similar deficiencies in the remainder of the loans in the pool, which were securitized and sold to investors. The Commission is investigating, among other things, whether Wells Fargo misrepresented to investors that the loans being securitized complied with the bank’s loan underwriting standards.

The staff in the Commission’s San Francisco Regional Office issued several subpoenas to Wells Fargo since September 2011 seeking, among other things, materials related to due diligence and to the bank’s underwriting guidelines. According to the Commission, Wells Fargo agreed to produce the documents, and set forth a timetable for doing so, yet has failed to produce many of the materials.

Pursuant to its Application, the Commission is seeking an order from the federal district court compelling Wells Fargo to comply with the Commission’s administrative subpoenas and to produce all responsive materials to the staff. The Commission notes that it is continuing to conduct a fact-finding inquiry and has not concluded that anyone has broken the law.

 

http://www.sec.gov/litigation/litreleases/2012/lr22305.htm

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Steven J. Baum settles with NY AG Schneiderman; will pay $4M

Steven J. Baum settles with NY AG Schneiderman; will pay $4M


What about the rest? This is an insult!

Update: Pillar Processing is also part of this settlement.

Buffalo Business First-

The case of embattled foreclosure attorney Steven Baum has taken another turn as the Amherst attorney reached a settlement with the New York State Attorney General over charges his firm mishandled foreclosure filings statewide over many years.

Under terms of the agreement, Baum has agreed not to handle mortgages for two years and will pay a penalty of $4 million.

The deal with Attorney General Eric Schneiderman’s office comes five month after the firm settled with the United States Attorney for the Southern District and paid $2 million while agreeing to drastically overhaul its business practices.

[BUFFALO BUSINESS FIRST]

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Citibank, N.A. v Van Brunt Props., LLC | NYSC “plaintiff’s papers are defective, the fact that the limited power of attorney is undated is a further defect”

Citibank, N.A. v Van Brunt Props., LLC | NYSC “plaintiff’s papers are defective, the fact that the limited power of attorney is undated is a further defect”


Decided on March 16, 2012

Supreme Court, Kings County

 

Citibank, N.A., Plaintiff,

against

Van Brunt Properties, LLC; and “John Does” and “Jane Does” No.1-100, the last names being fictitious and unknown to the plaintiff, the persons and parties intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest in or lien upon the premises described in the verified amended complaint, Defendant. Plaintiff, Sutter Avenue Management, LLC Miller Lumber & Mill Work Inc.; And “John Does” and “Jane Does” #1-100, the last names being fictitious and unknown to the plaintiff, the persons and parties intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest in or lien upon the premises described in the verified amended complaint, Defendants.

Plaintiff, – against –

against

Sutter Avenue Management, LLC Miller Lumber & Mill Work Inc.; And “John Does” and “Jane Does” #1-100, the last names being fictitious and unknown to the plaintiff, the persons and parties intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest in or lien upon the premises described in the verified amended complaint, Defendants.

3523/10

Plaintiff Attorney: Dacia C Cocariu, Esq.

Sills Cummis & Gross

Defense Attorney: Kirk P. Tzandies, Esq

Yvonne Lewis, J.

Defendant Van Brunt Properties, LLC (Van Brunt) and defendant Sutter Avenue Management, LLC (Sutter) collectively move for an order, pursuant to [*2]Civil Practice Law and Rules (CPLR) §602(a), to consolidate the foreclosure action of Citibank, N.A. v Sutter Avenue Management, LLC., Midwood Lumber & Mill Work, Inc., et al. (Index No. 354/10), into the foreclosure action of Citibank, N.A. v Van Brunt Properties, LLC, et al. (Index No. 3523/10). Upon consolidation, the defendants seek an order, pursuant to the doctrine of collateral estoppel, declaring that this court’s March 4, 2011 order in the Van Brunt action is equally binding on the Sutter action. The defendants further move for equitable relief in the Sutter action based on their assertion that Citibank acted unconscionably and in bad faith during the protracted period of settlement negotiation. Finally the defendants seek an order terminating the temporary receivership imposed on the Sutter property.

Citibank cross-moves for an order striking all references to conduct and statements made during settlement negotiations, including a pre-negotiation agreement (signed by all three parties), which together form much of the basis of the defendants’ claims for equitable relief, in the Van Brunt action under CPLR § 4547. Citibank also cross-moves, pursuant to CPLR §1018, to substitute Wells Fargo as the plaintiff in the Van Brunt action, and, pursuant to CPLR §3025, to correspondingly amend the case caption. Finally, Citibank cross-moves for an order clarifying the portion of this court’s March 4th order which requires Van Brunt to commence making monthly payments to Citibank.

Background and Procedural History

Sutter is the legal and equitable owner of premises located at 529 Sutter Avenue in Brooklyn. On October 29, 2007, Citibank entered into a mortgage loan in the principal amount of $2,610,000.00 with Sutter. Van Brunt is the legal and equitable owner of premises located at 252-254 Van Brunt Street, also in Brooklyn, which is encumbered by a mortgage in the amount of $950,000.00 financed by Citibank, dated March 21, 2007. Roland Dib is a managing member of both Sutter and Van Brunt. Both the defendants began to have difficulty meeting their mortgage obligations and assert that attempts were made in late 2008 and early 2009 to negotiate with Citibank for a modification of the interest rate so that the requisite payments could be made. The defendants assert that they expended substantial sums to attract new tenants to the properties.

Commencing on July 1, 2009, Van Brunt failed to make its required monthly payments.. Citibank contends that on December 16,2009, it notified Van Brunt that it was in default and advised that if the default was not cured, Citibank reserved its right to exercise all of its rights and remedies. Citibank initiated a foreclosure proceeding against Van Brunt on February 5, 2010.On August 9, 2010, Citibank moved for summary judgment on its foreclosure action against Van Brunt and sought dismissal of Van Brunt’s answer and affirmative defenses and the appointment of a temporary receiver. Van Brunt cross-moved for an order determining that Citibank was not entitled to: any interest on the principal balance of the mortgage loan, late charges, advances, attorneys’ fees, prepayment penalties, commissions and all other costs and expenses. On October 15, 2010, Citibank transferred all interest in the note and mortgage, as well as the other loan documents, to LSREF2 Nova Investments, LLC (“Nova”). On December 10, 2010, all interest in the note and mortgage , together with the other loan documents, were transferred to Wells Fargo. On June 24, 2011, Citibank moved to substitute Wells Fargo into the action as the plaintiff.

In an order dated March 4, 2011, this Court denied that branch of [*3]Citibank’s motion seeking the appointment of a receiver, and denied without prejudice that branch of the motion seeking substitution and for summary judgment. The order granted Van Brunt’s cross motion to the extent of ordering that Citibank is not entitled to any interest from the date of the alleged default to and through March 31, 2011 and found that Citibank is not entitled to any default interest or expenses, including attorneys fees and prepayment penalties. Van Brunt was directed to pay the principal and interest due under the loan commencing on April 1, 2011. In addition, it was directed to pay to Citibank by April 1, 2011, the principal only from the date of default to March 31, 2011, which would be applied to the reduction of the principal.

As regards Sutter, beginning October 2009 it failed to make its required monthly payments under the mortgage. By letter dated December 16, 2009, Citibank maintains that it advised Sutter that it was in default and that failure to cure could result in Citibank exercising its right to accelerate the indebtedness. On February 5, 2010, Citibank filed a separate foreclosure action against the Sutter property. On February 24, 2010, a receiver was appointed to manage the Sutter property.On May 26, 2011, Citibank moved for summary judgment on its foreclosure action and to dismiss Sutter’s answer and affirmative defense. On October 15, 2010, Citibank transferred all interest in the note and mortgage, as well as the other loan documents, to LSREF2 Nova Investments, LLC (“Nova”). On December 10, 2010, all interest in the note and mortgage , together with the other loan documents, were transferred to Wells Fargo. On April 11,2011, Citibank moved to substitute Wells Fargo into the action as the plaintiff.

Defendants’ Motion

Consolidation

The defendants move to consolidate the Van Brunt and Sutter actions arguing that both actions involve common questions of law and fact and arise from the same facts and circumstances and assert the identical legal theories and defenses, in accord with the direction of §602(a) of the CPLR. If successful on the issue of consolidation, the defendants then seek an order, pursuant to the doctrine of collateral estoppel, declaring that this court’s March 4, 2011 order in the Van Brunt action is equally binding on the Sutter action. The defendants further move for equitable relief in the Sutter action based on their assertion that Citibank acted unconscionably and in bad faith during the protracted period of settlement negotiation. Finally the defendants seek an order terminating the temporary receivership imposed on the Sutter property.They further contend that the resolution of both cases will involve the same documents and witnesses and thus, such overlap, necessitates consolidation to avoid unnecessary costs, delays and inconsistent judgments. Finally, they contend that there would be no prejudice to Citibank if the actions were consolidated arguing that both actions are in the same pre-discovery stage.

The defendants assert that Citibank treated the two mortgages as a package from the moment of default, noting for example, that Citibank alleges that it notified both properties of default on the same day and that all renegotiation’ efforts were done with both properties and as a package. The defendants note that every transfer of the property – October 15, 2010 to Nova and December 10, 2010 to Wells Fargo – was packaged as well. They argue that both of the defendants’ theory of the case is that foreclosure should be denied due to the bad faith and unconscionable behavior of Citibank throughout the course of said joint negotiations. They allege that they were jointly induced [*4]to make substantial personal investments in the respective properties at issue, based on an implied promise by Citibank that this show of good faith on the defendants’ part would result in a renegotiation of both mortgages, thereby avoiding default. The defendants conclude that the substance and legal theories of both cases are identical, will require the same testimony and evidence to be presented to the court, and should therefore be consolidated to avoid unnecessary costs, delay and inconsistent judgments.In opposition, Citibank argues that Van Brunt and Sutter are foreclosure actions filed separately by Citibank on February 5th, 2010 against two different commercial borrowers, namely Van Brunt Properties LLC, et al. and Sutter Avenue Management, LLC, et. al., each of whom holds a mortgage on a distinct property. They further point out that the circumstances under which each loan was made, the loan documents, and the defaults differ from one another. Moreover, Citibank avers that the receivership status and procedural posture of each case differs. Citibank maintains that consolidation should be denied inasmuch as the two actions do not have the requisite common issues of law and fact. Citibank also argues that it would be prejudiced by consolidation since consolidation would delay the resolution while both actions were aligned with one another. Finally, Citibank claims that the defendants are only seeking consolidation in an attempt to obtain a more favorable outcome, noting that there was no motion for consolidation until, this court’s ruling favorable to Van Brunt in the Van Brunt action.

Discussion

Section 602(a) of the CPLR gives a court discretion to consolidate actions where common questions of law or fact are present. Consolidation is preferred where these commonalities exist, absent proof that consolidation will prejudice a substantial right of the party opposing the motion (Best Price Jewelers.Com, Inc. v Internet Data Stor. & Sys., Inc., 51 AD3d 839 [2008]; Beerman v Morhaim, 17 AD3d 302 [2005]; Progressive Insurance Co. v Vasquez, 10 AD3d 518, 519 [2004]; Zupich v Flushing Hosp. & Med. Ctr., 156 AD2d 677, 677 [1989]). Further, consolidation is appropriate where it will avoid unnecessary duplication of trials, save unnecessary costs and expense, and prevent an injustice which would result from divergent decisions based on the same facts (see Zupich, 156 AD2d at 677). The defendants assert that their respective actions raise identical factual and legal issues, that the two properties have been dealt with as a package since they defaulted, that there will be little delay as the result of consolidation, that there would be no substantial prejudice to the plaintiff and therefore consolidation is required. The plaintiff does not dispute that the two properties were dealt with as a package during the period of renegotiation of their mortgages, but opposes the consolidation of these actions primarily on the ground that substantial prejudice would result from the delay that such a consolidation would cause. It avers that each action has an independent mortgage related to a separate and distinct parcel of land, that consolidation will unduly and additionally delay resolution and that the defendants’ motion is an attempt to forum shop in order to get a more favorable outcome in both actions

Absent a showing of prejudice to a substantial right the existence of common questions of law or fact justifies the grant of a motion for consolidation. (Lamboy v. Inter Fence Co., 196 AD2d 705, 601 N.Y.S.2d 619 (1st Dept.1993).However, a delay which would prevent a trial from taking place for “some time to come” has justified the denial of such a motion, Mulligan v. Farmingdale Union Free School District No. 22, 133 AD2d 617, 519 N.Y.S.2d [*5]725 (2d Dept.1987). In the instant actions, there are, as the plaintiff suggests, different procedural postures but these differences are not likely to cause such a delay as would substantially prejudice the plaintiff. The plaintiff does argue that it will be so prejudiced, but the arguments consist of conclusory self-serving statements that prejudice would occur if consolidation were ordered. The plaintiff suggests that there will be a delay “while the actions [are] brought in line with each other.” The major delay , appears to be caused by the appeals this Court’s March 4, 2011 Order, and the appeal of the instant motion, regardless of the out come. The plaintiff’s counsel says, “[t]rying to bring these actions in line with each other, so that they can proceed together, would only create undue delay and confusion, allowing defendant to prolong the proceedings and avoid judgement to Plaintiff’s severe prejudice.” Counsel does say not how the plaintiff is prejudiced nor what the prejudice is. There is no showing of prejudice to a substantial right of the plaintiff. “[A] and mere delay of the trial is not a sufficient basis upon which to deny a motion for consolidation or a joint trial (see Alsol Enters., Ltd. v. Premier Lincoln—Mercury, Inc., 11 AD3d 494, 783 N.Y.S.2d 620; Zupich, 156 AD2d at 677).” (Whiteman v Parsons Transportation Group of New York, Inc, et al. 72 AD3d 677, 900 N.Y.S.2d 87 ( 2d Dept 2010)

” Although a motion pursuant to CPLR 602 (a) to consolidate two pending actions is addressed to the sound discretion of the trial court, consolidation is favored by the courts in serving the interests of justice and judicial economy (see, Zupich v Flushing Hosp. & Med. Ctr., 156 AD2d 677). As both actions clearly involve similar issues of fact and law, it [would be] an improvident exercise of discretion to deny consolidation….” (Flaherty v RCP Assoc., 208 AD2d 496, 616 N.Y.S.2d 801,[ 1994]). In the case at bar, there are issues, with regard to whether the plaintiff and or its assigns have acted in good faith, which necessarily must be decided prior to a determination of whether the foreclosure of the defendants’ properties should go forward.These actions arise from the same factual events, involve virtually identical legal theories and defenses; they feature nearly the same principal parties. ” Where common questions of law or fact exist, a motion pursuant to CPLR 602(a) to consolidate … should be granted absent a showing of prejudice to a substantial right of the party opposing the motion (see Mas—Edwards v. Ultimate Servs., Inc., 45 AD3d 540, 845 N.Y.S.2d 414; Perini Corp. v. WDF, Inc., 33 AD3d 605, 606, 822 N.Y.S.2d 295; Nationwide Assoc. v. Targee St. Internal Med. Group, P.C. Profit Sharing Trust, 286 AD2d 717, 730 N.Y.S.2d 349).

Collateral Estoppel

The defendants seek an order, pursuant to the doctrine of collateral estoppel, declaring that this Court’s March 4, 2011 order in the Van Brunt action is equally binding on the Sutter action. They urge the utilization of the doctrine of issue preclusion which is part of Collateral Estoppel. In order for a court’s ruling to be dictated by the decision made in a prior action under the doctrine of issue preclusion, “the identical issue necessarily must have been decided in the prior action and be decisive of the present action, and second, the party to be precluded from relitigating the issue must have had a full and fair opportunity to contest the prior determination” (Kaufman v Eli Lily and Co., 65 NY2d 449, 455 [1985]; Allied Chemical v Niagra Mohawk Power, 72 NY2d 271, 276 [1988]. When a court decides whether issue preclusion applies in a given case “the party seeking the benefit of collateral estoppel bears the initial burden of demonstrating that an issue in the present litigation is identical to an issue decided in the prior determination” (Lewis v City of New York, 17 Misc 3d [*6]537, 544 [2007]. The defendants further move for equitable relief in the Sutter action based on their assertion that Citibank acted unconscionably and in bad faith during the protracted period of settlement negotiation and that Citibank treated Van Brunt and Sutter identically during the course of said negotiation. For which reason, the defendants believe that Sutter is entitled to the relief granted to Van Brunt in this Court’s March 4, 2011 order.

Citing Halyalkar v. Board of Regents of the State of NY, 72 NY2d 261,268, the plaintiff, argues in opposition, that collateral estoppel is inapplicable unless the matter has been “actually litigated” The plaintiff’s counsel buttresses Citibank’s argument with a reminder that the actions “involve, among other things, different loan transactions and different parties. Most notably, the Sutter Loan Documents and the circumstances of Sutter’s default have never even been before this Court.” In sum, the argument is that collateral estoppel cannot be applied herein because there has been no actual litigation of the foreclosure in the Sutter action. Halyalkar,defines actually litigated’ as follows: “To satisfy the identicality requirement, the question must have been actually litigated and, therefore, it must have been properly raised by the pleadings or otherwise placed in issue and actually determined in the prior proceeding.” Halyalkar, supra at 261.

This Court’s March 4, 2011order in the Van Brunt action was issued after consideration of the papers and after oral argument on several motions which were before the Court. The motions and cross motion were before the court on March 4th and they were heard together. The plaintiff’s motions sought a temporary receiver, substitution and summary judgement on the foreclosure. The relief requested was denied with express permission to re-file both as to substitution and summary judgement. The motion for a temporary receiver can be made anew at anytime during the course of the proceeding where new facts arise. The defendants cross motion sought equitable relief; the plaintiff responded with opposition and oral argument was heard on the motion. The March 4th Order resulted from a full presentation by the parties on the issues before the court. As relevant to the collateral estoppel, the order addresses the behavior of the parties in that action and the consequences of that behavior with regard to the period following the “default” and renegotiation efforts made by the parties. It is not a permanent determination with regard to the foreclosures of the subject properties, rather it is the imposition of an equity equalizer put in place in recognition of the fact that Citibank and its assigns, as determined on papers and after oral argument, did actively prolong these proceeding with such lack of good faith as to require that they should forfeit any interest that would have otherwise been owning to them under the terms of the agreement they had with the borrowers. All of the renegotiation efforts were made with both Van Brunt and Sutter and at all the same times and places. Citibank had a full and fair opportunity to contest the prior determination; the issues were actually litigated in the Van Brunt action. In as much as the behavior of the lenders in the Van Buren action were identical, both in substance and in time, to the behavior of the lenders in Sutter, this Court cannot see how any different outcome for the Sutter action can fail to be an inconsistent result and a waste of judicial resources.

Finally the defendants seek an order terminating the temporary receivership imposed on the Sutter property. This Court is without sufficient information to make a determination as to wether or not the temporary receiver should be removed. Upon consolidation, and in as much as the papers are already before the Court, defendant Sutter may request a [*7]conference/argument with the plaintiff on the appropriateness/lack of need for the receiver.

Citibank’s Cross Motion.

Citibank cross-moves for an order finding that all conduct and statements over the course of settlement negotiations entered into between Citibank and the defendants, including the pre-negotiation agreement signed by all three parties, be ruled inadmissable in the Van Brunt action, pursuant to CPLR § 4547. Citibank also cross moves for an order seeking to substitute Wells Fargo as the plaintiff in the Van Brunt action and that the case caption be amended accordingly. Finally, Citibank cross-moves for clarification of two rulings contained in this court’s March 4, 2011 order.

In opposition to Citibank’s cross motion, the defendants argue that the cross motion and opposition papers should not be considered as such submissions were untimely and defective. On the issue of timeliness, the court notes that CPLR §2215 pertinently provides that “[a]t least three days prior to the time at which the motion is noticed to be heard, or seven days prior to such time if demand is properly made pursuant to subdivision (b) of rule 2214, a party may serve upon the moving party a notice of cross-motion demanding relief, with or without supporting papers . . .” Here, the defendants motion was served upon the plaintiff on April 6, 2011. The cross motion was not served until June 20, 2011, a full seventy-five days later.

The defendants further argue that the plaintiff’s papers are defective and should not be considered by the court. Specifically, it is argued that the papers are defective because they are submitted in reliance upon an affidavit of Marisa K. McGuaghey, who describes herself as an “authorized representative of Hudson Americas LLC” and bases her authority to submit her affidavit on behalf of Wells Fargo pursuant to an undated, uncertified copy of a Limited Power of Attorney. A power of attorney presented to the Court must be an original or a copy certified by an attorney, pursuant to CPLR §2105. Section 2105 of the CPLR states, inter alia, that “an attorney admitted to practice in the court of the state may certify that it has been compared by him with the original and found to be a true and complete copy” (see Security Pacific Nat. Trust Co. v Cuevas, 176 Misc 2d 846 [1998]). Here, there is nothing in the record indicating that the plaintiff’s attorney has performed this comparison (see Lasalle Bank N.A. v Smith, 26 Misc 3d 1239A [2010]; United States Bank Natl. Assn. v White, 22 Misc 3d 1112A [2009]; U.S. Bank Natl. Assn. v Bernard,18 Misc 3d 1130A [2008]). Additionally, the court notes that the fact that the limited power of attorney is undated is a further defect (see Ameriquest Mortgage Co., v Basevich, 16 Misc 3d 1104A [2007]. Based upon the foregoing, the court finds that the plaintiff’s papers are defective and therefore will not address the merits, or lack thereof, of the plaintiff’s cross motion.

This constitutes the decision and order of the court.

E N T E R,

____________________________

yvonne lewis, JSC

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NEW YORK CONTINUES ASSAULT ON MERS

NEW YORK CONTINUES ASSAULT ON MERS


By Jonathan C. Cross and Stacey Trimmer

New York government officials are continuing their assault against foreclosure actions where Mortgage Electronic Registration Systems, Inc. (“MERS”) was the assignee of the mortgage, and challenges to foreclosures involving MERS are increasingly gaining traction in New York courts. Recently, the New York State Attorney General filed a complaint against MERS and several banks alleging fraud and deception in foreclosure proceedings. People v. JPMorgan Chase Bank N.A., No. 2012/2768 (N.Y. Sup. Ct. Feb. 3, 2012). In addition, three New York trial courts have decided motions involving standing and other issues in such actions. CIT Group/Consumer Fin., Inc. v. Platt, 33 Misc. 3d 1231(A) (N.Y. Sup. Ct. 2011); U.S. Bank N.A. v. Bressler, 33 Misc. 3d 1231(A) (N.Y. Sup. Ct. 2011); Bank of New York Mellon v. Martinez, 33 Misc. 3d 1215(A) (N.Y. Sup. Ct. 2011). Two courts ruled against the foreclosing banks, finding they did not have standing to foreclose where MERS assigned a mortgage without express authority to do so or sufficient documentation evidencing that the note was also transferred. Although the third court dismissed a lack of standing defense, it did so solely for procedural reasons.

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Lori Wigod v. Wells Fargo | Wells LOSES at 7th Cir. Appellate…Excoriating opinion regarding a HAMP Class Action & a Judicial Request for a Fed. Amicus Curiae

Lori Wigod v. Wells Fargo | Wells LOSES at 7th Cir. Appellate…Excoriating opinion regarding a HAMP Class Action & a Judicial Request for a Fed. Amicus Curiae


H/T DEONTOS

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-1423

LORI WIGOD,
Plaintiff-Appellant,

v.

WELLS FARGO BANK, N.A.,
Defendant-Appellee.

<excerpts>

HAMILTON, Circuit Judge. We are asked in this appeal

to determine whether Lori Wigod has stated claims

under Illinois law against her home mortgage servicer

for refusing to modify her loan pursuant to the federal

Home Affordable Mortgage Program (HAMP).

She brought this putative class action alleging violations

of Illinois law under common-law contract and tort

theories and under the Illinois Consumer Fraud and

Deceptive Business Practices Act (ICFA). The district

court dismissed the complaint in its entirety under

Rule 12(b)(6) of the Federal Rules of Civil Procedure.

This appeal followed, and it presents two sets of issues.

The first set of issues concerns whether Wigod

has stated viable claims under Illinois common law and

the ICFA. We conclude that she has on four counts …

These allegations support garden-variety

claims for breach of contract or promissory estoppel.

She has also plausibly alleged that Wells Fargo com-

mitted fraud under Illinois common law and engaged in

unfair or deceptive business practices in violation of the

ICFA.

The second set of issues concerns whether these

state-law claims are preempted or otherwise barred by

federal law. We hold that they are not.

We accordingly reverse the judgment of

the district court on the contract, promissory estoppel,

fraudulent misrepresentation, and ICFA claims …

IV. Conclusion

The judgment of the district court is therefore

REVERSEDas to Counts I, II, and VII, and the

fraudulent misrepresentation claim of Count V …

RIPPLE, Circuit Judge, concurring. I am very pleased

to join the excellent opinion of the court written by

Judge Hamilton. I write separately only to note that, in

my view, our task of adjudicating this matter would

have been assisted significantly if the United States had

entered this case as an amicus curiae.

In this case, this last consideration justifies the

decision to proceed without further delay. Prompt resolution

of this matter is necessary not only for the good

of the litigants but for the good of the Country.

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U.S. Bank N A. v Nyarkoha | NYSC “endorsement on the underlying note, however, is undated, and in blank…does not state the actual date of physical delivery of the note.”

U.S. Bank N A. v Nyarkoha | NYSC “endorsement on the underlying note, however, is undated, and in blank…does not state the actual date of physical delivery of the note.”


Decided on February 29, 2012

Supreme Court, Queens County

 

U.S. Bank National Association, as Trustee, for CSFB ARMT 2006-2, 3476 Stateview Boulevard, Ft. Mill, SC 29715, Plaintiff,

against

Dorcas Nyarkoha, et al., Defendants.

13409/2009

Appearances of Counsel:

For the Plaintiff:Hogan Lovells U.S. LLP, by Allison J. Schoenthal, Danielle Mastriano, & Nicole Schiavo, Esqs., 875 Third Avenue, New York, NY 10022

For Defendant Dorcas Nyarkoha: Sumani Lanka, Esq., The Legal Aid Society – – Civil Practice, 120-46 Queens Boulevard, Kew Gardens, New York 11415-1204

Charles J. Markey, J.

The following papers numbered 1 to 13 read on this motion by defendant Dorcas Nyarkoha, pursuant to CPLR 3012(d), for leave to serve and file a late answer, as proposed.

Papers Numbered

Notice of Motion – Affidavits – Exhibits ……………………………………………………………….1-4

Answering Affidavits – Exhibits …………………………………………………………………………5-10

Reply Affidavits ……………………………………………………………………………………………..11-13

This mortgage foreclosure action raises two controversial issues that will persist in the case law, with incongruent and inconsistent results, until a definitive ruling is eventually made by the New York Court of Appeals. The first issue, especially in the area of mortgage foreclosures, where the statutory framework provides for a conference to all answering defendants in an attempted foreclosure of a residential mortgage (see, CPLR 3408, L 2008, ch 472, § 3), is whether or not a non-answering defendant’s failure to answer timely be excused because he or she relied on ongoing settlement talks, discussions, and negotiations. The second thorny issue is whether or not a plaintiff bank’s alleged lack of standing is a meritorious defense that may be asserted by a defendant seeking permission to file a late answer.

Defendant Nyarkoha, in effect, moves to vacate her default in answering the complaint and for leave to serve a late verified answer as proposed. She claims that her default is excusable, insofar as she believed her engagement in settlement negotiations with plaintiff’s [*2]servicing agent, Wells Fargo Home Mortgage Inc. d/b/a America’s Servicing Company (“ASC”), excused her from taking further action with respect to the suit. Defendant Nyarkoha also claims she has meritorious defenses and counterclaims. The plaintiff opposes the motion.

A defendant who has failed to timely answer the complaint must provide a reasonable excuse for the default and demonstrate a potentially meritorious defense to the action, when moving to compel the acceptance of an untimely answer (see, Palmer Ave. Corp. v. Malick, 91 AD3d 853 [2nd Dept. 2012]; Lipp v Port Auth. of NY & N.J., 34 AD3d 649 [2nd Dept. 2006]; Juseinoski v Board of Educ. of City of NY, 15 AD3d 353, 356 [2nd Dept. 2005]; see also, Rodriguez v Triani, 28 Misc 3d 130(A), 2010 WL 2802747, 2010 NY Slip Op 51256(U) [App T. 2nd Dept. 2010]). The determination of what constitutes a reasonable excuse for a default in answering lies within the sound discretion of the court (see, Adolph H. Schreiber Hebrew Academy of Rockland, Inc. v Needleman, 90 AD3d 791 [2nd Dept. 2011]; Maspeth Fed. Sav. & Loan Assn. v McGown, 77 AD3d 889 [2nd Dept. 2010]; Grutman v Southgate At Bar Harbor Home Owners’ Assn., 207 AD2d 526, 527 [2nd Dept. 1994]).

Defendant Nyarkoha states that she was out of the country at the time of the service of the copy of the summons and complaint, but after her return on June 28, 2009, contacted ASC, seeking to obtain a modification of the subject mortgage. ASC, which participated in the federal Home Affordable Modification Program (“HAMP”), accepted her application for loan modification under HAMP. Defendant Nyarkoha entered into a three-month Trial Period Plan with ASC through HAMP, commencing October 1, 2009, and attended seven conferences held in the Residential Foreclosure Part, wherein she was represented by the Legal Aid Society for the purpose of the conferences.

While the case was assigned to that Part, defendant Nyarkoha twice moved, in effect, to stop the running of interest on the mortgage debt. Both motions were denied. In addition, defendant Nyarkoha filed, on July 1, 2010, a pro se motion for leave to serve an answer to the complaint, which motion was repeatedly adjourned. The case was released from the Residential Foreclosure Part on December 1, 2010.

On December 28, 2010, the Legal Aid Society served and filed a notice of appearance on behalf of defendant Nyarkoha in this action. On January 27, 2011, defendant Nyarkoha served and filed a notice, indicating her withdrawal of the pro se motion for leave to serve a late answer, without prejudice to her right to refile it. The instant motion was filed six months later.

Regarding defendant Nyarkoha’s argument that she relied on ongoing settlement discussions and negotiations, the cases are mixed. A number of cases show a great reluctance, if not loathing, for such a defense as an excuse for not taking concrete action in a litigation, such as filing an answer (see, e.g., Community Preservation Corp. v Bridgewater Condominiums, LLC, 89 AD3d 784 [2nd Dept. 2011] [reliance on settlement discussions does not constitute reasonable excuse]; Mellon v Izmirligil, 88 AD3d 930 [2nd Dept. 2011] [motion to vacate was properly denied]; Maspeth Fed. Sav. & Loan Assn. v McGown, 77 AD3d 889, supra [purported reliance [*3]on settlement discussions was unsubstantiated]; Jamieson v Roman, 36 AD3d 861 [2nd Dept. 2007] [upholding denial of motion to vacate default despite party’s claim of ongoing settlement discussions, since party delayed in appearing after being served with a copy of the judgment]; Flora Co. v Ingilis, 233 AD2d 418 [2nd Dept. 1996] [reliance on settlement discussions was questionable at best]; Bank of New York v Jayaswal, 33 Misc 3d 1214(A), 2011 WL 5061626, 2011 NY Slip Op 51922(U) [Sup Ct Suffolk County 2011] [Whelan, J.] [denying motion to file a late answer, court stated that “the mere engagement in discussions aimed at a potential modification of the subject mortgage loan may not serve as a means to open up an otherwise inexcusable default in answering the summons and complaint by the defendant/mortgagor.”; discussing the competing cases and reasoning that defendant’s conversation with the plaintiff bank’s “operations consultant” could not be reasonably characterized as “legal advice” that “allegedly duped defendant . . . into not answering the complaint in a timely manner.”).

The defense or excuse of a party’s abstaining from taking any action in good faith reliance on ongoing settlement discussions and negotiations has, nevertheless, been sustained if the underlying facts and circumstances are substantiated and reasonable (see, e.g., Performance Constr. Corp. v Huntington Bldg., LLC, 68 AD3d 737, 738 [2nd Dept. 2009] [record revealed that party was actively engaged in settlement negotiations, and adversary unfairly and manipulatively failed to disclose plan to enter default judgment]; Scarlett v McCarthy, 2 AD3d 623 [2nd Dept. 2003]; HSBC Bank USA, N.A. v Cayo, ____ Misc 3d, 934 NYS2d 792, 794 [Sup Ct Kings County 2011] [party presented meritorious defense and substantiated belief that action was stayed pending settlement talks]; Emigrant Mortgage, Inc. v Abbey, 2011 WL 972555, 2011 NY Slip Op 30600(U) [Sup Ct Queens County 2011] [McDonald, J.]).

This Court, in the present action, concludes that defendant Nyarkoha’s reliance upon settlement negotiations with ASC was reasonable and her participation in the conferences is substantiated and thus constituting a sufficient and reasonable excuse for her failure to serve an answer through at least December 1, 2010.

To the extent Defendant Nyarkoha’s pro se motion for leave to serve a late answer was withdrawn prior to its submission, and the instant motion was not made for another six months, such additional delay may be attributable to her counsel and constitutes, at most, law office failure, which is excusable (see, CPLR 2005). Plaintiff has not demonstrated it has been prejudiced by the additional delay (see, Merchants Ins. Group v. Hudson Valley Fire Protection Co., Inc.,72 AD3d 762, 764 [2nd Dept. 2010]).

Plaintiff made no motion seeking any relief during that six-month period, notwithstanding that the order dated December 1, 2010, permitted it to seek an order of reference, and makes no cross motion for such relief. A strong public policy, furthermore, exists favoring the disposition of matters on their merits (see, Berardo v Guillet, 86 AD3d 459, 459 [1st Dept. 2011]; Yu v Vantage Mgt. Servs., LLC, 85 AD3d 564[1st Dept. 2011]; Billingly v Blagrove, 84 AD3d 848, 849 [2nd Dept. 2011]; Khanal v Sheldon, 74 AD3d 894, 896 [2nd Dept. 2010]; Rakowicz v [*4]Fashion Institute of Technology, 65 AD3d 536, 537 [2nd Dept. 2009]; Reed v Grossi, 59 AD3d 509, 511-512 [2nd Dept. 2009]; Bunch v Dollar Budget, Inc., 12 AD3d 391 [2nd Dept. 2004]).

The motion papers, in the case at bar, adequately demonstrate that the defendant Nyarkoha may have a meritorious defense based upon lack of standing (compare Citigroup Global Markets Realty Corp. v. Randolph Bowling, 25 Misc 3d 1244(A), 2009 WL 4893940, 2009 NY Slip Op 52567(U), slip op at 3 [Sup Ct Kings County 2011] [standing issue was not raised as a last minute gesture to avert sale of property and was thus properly raised on a motion to file a late answer] with Deutsche Bank Nat. Trust Co. v. Young, 66 AD3d 819,819 [2nd Dept. 2009] [upholding lower court’s denial of motion to vacate default in mortgage foreclosure action, Second Department stated that “the Supreme Court did not err in determining that they waived the issue of standing by failing to timely appear or answer”] and HSBC Bank, USA v. Dammond, 59 AD3d 679, 680 [2nd Dept. 2009] [where it was “undisputed that the respondent was personally served” and the defendant did not raise the standing defense until “immediately prior to the date scheduled for the sale of the property,” the Second Department stated: “The respondent waived any argument that HSBC lacked standing to commence the foreclosure action. Having failed to interpose an answer or file a timely pre-answer motion which asserted the defense of standing, the respondent waived such defense pursuant to CPLR 3211(e).”]; and Deutsche Bank Nat. Trust Co. v. Pietranico, 33 Misc 3d 528 [Sup Ct Suffolk County 2011] [Whelan, J.] [alleged lack of standing was untimely asserted on motion to vacate a default in a mortgage foreclosure action]; see, U.S. Bank, N.A. v Collymore, 68 AD3d 752 [2nd Dept. 2009] [upholding denial of plaintiff bank’s motion for summary judgment and appointment of a referee, Second Department stated: “Contrary to the Bank’s contentions, it failed to demonstrate its prima facie entitlement to judgment as a matter of law because it did not submit sufficient evidence to demonstrate its standing as the lawful holder or assignee of the subject note on the date it commenced this action.”]).

In the present action, the assignment agreement indicates that the mortgage, “[t]ogether with all moneys . . . owing or that may . . . become due or owing in [r]espect thereof,” were assigned by First United Mortgage Banking Corp. to plaintiff on May 12, 2009. The endorsement on the underlying note, however, is undated, and in blank and without recourse, and the affidavit of Jennifer Robinson, the vice-president of loan documentation for Wells Fargo, indicates that the note was physically delivered to Wells Fargo as custodian for plaintiff “prior to the commencement of this action on May 25, 2009.” The action, however, was commenced on May 21, 2009, and Ms. Robinson does not state the actual date of physical delivery of the note.

The Court holds, under the circumstances of the present action, that the alleged lack of standing of the plaintiff bank may be considered on a motion to vacate a default in a mortgage foreclosure action. Absent express legislation barring a litigant from proving a meritorious defense in an attempt to vacate a default because of an alleged lack of standing, courts should not engraft such a prohibition on the case law of this State.

The Court grants defendant’s motion for leave to serve a late answer is granted, and the [*5]proposed answer annexed to the motion papers shall be deemed served upon service of a copy of this order bearing the date stamp of the County Clerk, with notice of entry. Plaintiff shall serve a reply or move with respect to the answer, within 30 days of the service of a copy of this order with notice of entry. Defendant Nyarkoha shall file a copy of the answer within 20 days of service of a copy of this order with notice of entry.

The foregoing constitutes the decision, opinion, and order of the Court.

______________________________________

J.S.C.

Dated: February 29, 2012

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