BARBARA R. GUDEMAN and EDWARD J. GUDEMAN, Plaintiffs,
v.
SAXON MORTGAGE SERVICES, INC., OCWEN FINANCIAL CORPORATION and MORGAN STANLEY PRIVATE BANK, N.A., Defendants.

Civil Action No. 13-13341.United States District Court, E.D. Michigan, Southern Division.March 28, 2014.

OPINION AND ORDER DENYING MOTION TO DISMISS and SETTING SCHEDULING CONFERENCE

DENISE PAGE HOOD, District Judge.

I. BACKGROUND

This matter was removed from the Oakland County Circuit Court, State of Michigan on August 5, 2013. Plaintiffs Barbara R. Gudeman and Edward J. Gudeman filed an action against Defendants Morgan Stanley Private Bank, N.A. f/k/a Morgan Stanley Dean Witter Credit Corporation (“Morgan Stanley”), Saxon Mortgage Services, Inc. (“Saxon”), and Ocwen Financial Corporation (“Ocwen”) (collectively, “Defendants”) alleging: Breach of Contract (Count I); Slander of Title(Count II); and, Specific Performance (Count III).

The property at issue is located in Bloomfield Township, Michigan. On December 27, 1999, a Mortgage was obtained from Morgan Stanley which was recorded in the Oakland County Register of Deeds on January 27, 2000. (Comp., ¶ 4) Saxon serviced the Mortgage. (Comp., ¶ 5) Ocwen is an Assignee and Purchaser of the Mortgage as recorded in the Oakland County Register of Deeds. (Comp., ¶ 6) Plaintiffs assert that the Mortgage was fully satisfied, leaving a zero balance for the loan securing the Mortgage. (Comp., ¶ 7) Notwithstanding the satisfaction of the loan and Mortgage, Defendants have failed to provide Plaintiffs with a discharge of the Mortgage, despite numerous requests by Plaintiffs. (Comp., ¶ 8) Plaintiffs are unable to refinance and refusal to discharge the Mortgage is a breach of the conditions of the Mortgage. (Comp., ¶¶ 9-10)

This matter is now before the Court on Ocwen’s Motion to Dismiss. Morgan Stanley and Saxon joined in the motion. A response and reply have been filed.

II. ANALYSIS

A. Standard of Review

Rule 12(b)(6) of the Rules of Civil Procedure provides for a motion to dismiss based on failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court explained that “a plaintiff’s obligation to provide the `grounds’ of his `entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do[.] Factual allegations must be enough to raise a right to relief above the speculative level….” Id. at 555 (internal citations omitted). Although not outright overruling the “notice pleading” requirement under Rule 8(a)(2) entirely, Twombly concluded that the “no set of facts” standard “is best forgotten as an incomplete negative gloss on an accepted pleading standard.” Id. at 563. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Id. at 570. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556. The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully. Ibid. Where a complaint pleads facts that are “merely consistent with” a defendant’s liability, it “stops short of the line between possibility and plausibility of `entitlement to relief.'” Id. at 557. Such allegations are not to be discounted because they are “unrealistic or nonsensical,” but rather because they do nothing more than state a legal conclusion-even if that conclusion is cast in the form of a factual allegation. Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009). In sum, for a complaint to survive a motion to dismiss, the non-conclusory “factual content” and the reasonable inferences from that content, must be “plausibly suggestive” of a claim entitling a plaintiff to relief. Id. Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged, but it has not shown that the pleader is entitled to relief. Fed. R. Civ. P. 8(a)(2). The court primarily considers the allegations in the complaint, although matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint may also be taken into account. Amini v. Oberlin College, 259 F.3d 493, 502 (6th Cir. 2001).

B. Discharge/Satisfaction of Mortgage

This matter involves a second mortgage on the property at issue granted by Plaintiffs to Morgan Stanley on December 27, 1999. On June 28, 2007, Edward Gudeman filed a Voluntary Petition for chapter 7 bankruptcy. (Ex. 2, Motion) On December 20, 2007, Edward Gudeman’s debts were discharged. (Ex. 5, Motion) Saxon thereafter sent a letter to Edward Gudeman indicating the loan was charged off on April 29, 2011, and a 1099-C Cancellation of Debt form indicating that the $207,910.07 debt was cancelled by Morgan Stanley. (Ex. 6, Motion) On June 14, 2012, the Mortgage was transferred to Ocwen for servicing.

Defendants argue that Plaintiffs have failed to state a claim upon which relief may be granted since the Mortgage has not been discharged and that Defendants have no duty to discharge the Mortgage. They assert that all three claims alleged by Plaintiffs against the Defendants must be dismissed since they have no duty under Michigan or federal law to discharge the Mortgage. Defendants argue that the bankruptcy discharge is as to the personal loan, but not as to the “in rem” portion under the Mortgage.

Plaintiffs respond that they are not arguing that the bankruptcy discharge served to cancel the underlying note, agreeing that the bankruptcy discharge extinguishes the liability on the note and that the bankruptcy discharge is an injunction against the enforcement of the note. Plaintiffs instead argue that Defendants voluntarily extinguished the liability on the note years after the bankruptcy filing since Defendants cancelled and extinguished the underlying debt. Plaintiffs claim that since there is no debt, then there can be no lien to foreclose and the mortgage is discharged as well, citing Fifth Third Bank v. Danou Technical Park, LLC, 2012 WL 933953 (Mich. App. Mar. 20, 2012).

Defendants reply that the issuance of Form 1099-C does not operate to extinguish the Mortgage and that the informational letter sent with the Form 1099-C is not an admission by the creditor that it has discharged the debt and can no longer pursue collection. Defendants also assert that Plaintiffs failed to address the Michigan statute, MCL § 545.41 and MCL § 545.44(1) in their response.

A discharge of a Mortgage is governed by MCL § 565.41 which provides,

(1) Within the applicable time period in section 44(2) after a mortgage has been paid or otherwise satisfied, the mortgagee or the personal representative, successor, or assign of the mortgagee shall prepare a discharge of the mortgage, file the discharge with the register of deeds for the county where the mortgaged property is located, and pay the fee for recording the discharge.

MCL § 565.41(1). Liability for refusal or neglect to discharge is governed by MCL § 656.44:

(1) If a mortgagee or the personal representative or assignee of the mortgagee, after full performance of the condition of the mortgage, whether before or after a breach of the mortgage, or, if the mortgage is entirely due, after a tender of the whole amount due, within the applicable time period in subsection (2) after being requested and after tender of the mortgagee’s reasonable charges, refuses or neglects to discharge the mortgage as provided in this chapter or to execute and acknowledge a certificate of discharge or release of the mortgage, the mortgagee is liable to the mortgagor or the mortgager’s heirs or assigns for $1,000.00 damages. The mortgagee is also liable for all actual damages caused by the neglect or refusal to the person who performs the condition of the mortgage or assigns, or to anyone who has an interest in the mortgaged premises. Damages under this section may be recovered in an action for money damages or to procure a discharge or release of the mortgage. The court may, in its discretion, award double costs in an action under this section.

MCL § 565.44(1).

Even though bankruptcy may discharge a debtor’s personal liability on a mortgage note, bankruptcy does not discharge a debtor’s in rem liability on the mortgage lien. Johnson v. Home State Bank, 501 U.S. 78, 84 (1991); Atwood v. Schlee, 269 Mich. 322, 325 (1934); In re Glance, 487 F.2d 317, 320-21 (6th Cir. 2007). The case cited by Plaintiffs, Fifth Third Bank, is not applicable since it was an action to quiet title and did not involve a discharge under bankruptcy proceedings, but a transfer of property as payment for the debt secured by a note with a mortgage. Fifth Third Bank, 2012 WL 933983, at 6. In that case, the appellate court found that the transfer of the property was considered a payment in full under the note, therefore since the note was fully paid, a foreclosure action could not be commenced to secure a payment of a non-existent debt. Id. at *7. Here, none of the Defendants are seeking a foreclosure action, therefore, Fifth Third Bank is not applicable and there is no requirement that the Mortgage be discharged.

In this case, all parties agree that there was no payment of the underlying debt, but that the debt was discharged in bankruptcy. Plaintiffs argue that the June 3, 2013 letter to Plaintiffs by Morgan Stanley indicating that the loan was “charged off” on April 29, 2011 and that they no longer have any obligations to Saxon and that the balance owed on the loan is $0.00 is evidence of a “discharge” of the note. They claim that since the note has been “discharged” by Morgan Stanley, this means that the Mortgage is “satisfied” and is voluntarily extinguished. Plaintiffs argue that Defendants have not attempted to collect the debt from Barbara Gudeman, since she has not filed for bankruptcy, which is further evidence that the underlying Mortgage has been satisfied.

There is no specific case cited by any party in Michigan or this Circuit that holds that a mortgage is discharged based on a letter with a Form 1099-C. Michigan courts have held in general that “[i]t is a general rule that the cancellation of a mortgage on the record is not conclusive as to its discharge, or as to the payment of the indebtedness of secured thereby.” Schanhite v. Plymouth Savings Bank, 277 Mich. 33, 39 (1936). It is “the well-settled rule that the acceptance by a mortgagee of a new mortgage and his cancellation of the old mortgage do not deprive the mortgage of priority over intervening liens.” Washington Mut. Bank v. ShoreBank Corp., 267 Mich. App. 11, 126 (2005).

In this district, a quiet title action by a plaintiff was dismissed where the plaintiff had purchased a property under a warranty deed from another who had received a Form 1099-C cancellation of debt. The plaintiff was under the impression that her interest was superior to the mortgage subject to the Form 1099-C. The district court noted that the plaintiff’s mortgage was not superior to the previously recorded mortgage. See Richards v. Bank of New York Mellon, 2013 WL 4054586 (E.D. Mich. Aug. 12, 2013). Courts in Michigan which have interpreted the term “otherwise satisfied” in MCL § 565.41 have held that if “evidence” is shown as to the intention of the transaction that it was not intended to “satisfy” the mortgage, then as a matter of law, the mortgage is not discharged. Agema, L.L.C. v. GreenStone Farm Credit Services, F.L.C.A., 2013 WL 296656 (Mich. App. May 14, 2013). The Hermiz case cited by Defendant is inapplicable since it did not involve a Form 1099-C letter as in this case. Hermiz v. Kamma, 2005 WL 2806226 (Oct. 27, 2005).

In this case, the Court finds that at this Rule 12(b)(6) stage, Plaintiffs have stated a claim that it was the “intention” of Defendants to “satisfy” the mortgage based on its Form 1099-C letter. There may be “evidence” that Defendants did not intend for the Form 1099-C letter to act as a discharge of the mortgage, which can be developed through discovery. However, no cases in this Circuit or in Michigan have held that under the Michigan statute governing discharges of mortgages, MCL § 565.41, the Form 1099-C letter does not constitute a discharge of the underlying mortgage and, applies to the “otherwise satisfied” language of the statute. As noted above, the Courts in Michigan interpreting MCL § 565.41 have reviewed “evidence” to determine whether the “otherwise satisfied” language was fulfilled as to the intention of the mortgagee to discharge the mortgage.

III. CONCLUSION

For the reasons set forth above,

IT IS ORDERED that Defendants’ Motion to Dismiss (Doc. No. 5) is DENIED.

IT IS FURTHER ORDERED that Defendants file an Answer by April 7, 2014.

IT IS FURTHER ORDERED that a Scheduling Conference is set in this matter for April 28, 2014, 2:00 p.m.

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

Diane Gray,
v.
Federal National Mortgage Association.

No. 2120087.Court of Civil Appeals of Alabama.January 10, 2014.This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter. Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-0649), of any typographical or other errors, in order that corrections may be made before the opinion is printed in Southern Reporter.

PER CURIAM.

Diane Gray appeals from a summary judgment entered by the Jefferson Circuit Court (“the trial court”) in favor of the Federal National Mortgage Association (“Fannie Mae”). We reverse the trial court’s judgment.

Facts and Procedural History

On April 15, 2011, Fannie Mae filed a complaint against Gray asserting that, “by virtue of foreclosure on April 4, 2011, of that certain Mortgage originally between Diane Gray and Mortgage Electronic Registration Systems, Inc. acting solely as nominee for Irwin Mortgage Corporation subsequently transferred and assigned to EverHome Mortgage Company and further purchased by [Fannie Mae],” Fannie Mae is the owner of certain real property located in Jefferson County. Fannie Mae alleged that it had served a written demand for possession on Gray, that Gray had failed to vacate the property, and that Gray had lost her right to redeem the property. Fannie Mae requested possession of the property, money damages for the wrongful retention of the property, and an order stating that Gray had “forfeited her right to redemption for failing to vacate the property.” On May 18, 2011, Gray answered and asserted as an affirmative defense that the foreclosure was void.

On March 27, 2012, Fannie Mae filed a motion for a summary judgment, along with evidentiary materials in support thereof. Fannie Mae submitted the affidavit of Robin Murdock, vice president for “EverBank sbm Everhome Mortgage Company” (hereinafter referred to as “EverBank” or “EverHome”), the servicer of the loan, in which Murdock stated, in pertinent part:

“3. In my present position, I have direct access to business records of EverBank as loan servicer regarding the account which forms the basis of this action and am a custodian of said business records. I have reviewed said relevant business records, and consistent with my review of the business records of EverBank as loan servicer, I have knowledge of the facts set forth in this Affidavit.

“4. The business records were made in the ordinary course of the business and it was the regular course of said business to make such records. Said records relative to Defendant GRAY … and this action, were made at the time of the transaction, occurrence or event referred to therein or were made within a reasonable time thereafter, and said records are kept under my care, supervision, and/or control.

“5. On or about January 30, 2004, GRAY entered into and executed that certain Note, in favor of Irwin Mortgage Corporation and its successors and assigns….

“6. On or about January 30, 2004, GRAY entered into and executed that certain Mortgage, securing the Note, in favor of FANNIE MAE….

“7. On May 10, 2007, Irwin Mortgage Corporation executed an Assignment of Mortgage to EverHome Mortgage Company (aka EverBank)….

“8. On November 4, 2010 and December 31, 2010, GRAY [was] sent a Notice of Default. This notice informed GRAY of [her] failure to make payments according to the terms of the Note and Mortgage and advised her of the possibility of foreclosure. … This notice was sent to the address recited in the Mortgage.

“9. On February 8, 2011, GRAY [was] sent a Notice of Acceleration at the address recited in the mortgage….

“10. The notice of foreclosure was published on February 9, 16, 23, and March 5, 2011, in The Alabama Messenger….

“11. On April 4, 2011, the Mortgage was foreclosed through a valid foreclosure sale….

“12. By virtue of the April 4, 2011 foreclosure sale, FANNIE MAE was the highest and best bidder at the foreclosure sale and is the owner of the [property].

“13. On April 4, 2011, a demand for possession of the property was sent to the GRAY at the property address set forth in the Mortgage….”

Fannie Mae also attached a note dated January 30, 2004, given by Gray in favor of Irwin Mortgage Corporation; a mortgage (“the mortgage”) relating to the property given by Gray to Mortgage Electronic Registration Systems, Inc. (“MERS”), acting solely as a nominee for Irwin Mortgage and its successors and assignees; an assignment of the mortgage from MERS, as nominee for Irwin Mortgage and its successors and assignees, to EverHome dated May 10, 2007; a letter dated November 4, 2010, notifying Gray that she was in default on her mortgage payments and that she had 20 days to get her account current or the mortgage would be foreclosed; a letter to Gray dated December 31, 2010, notifying her of her breach of the note and of the mortgage and stating that she must pay the amount of $21,094.53 in order to reinstate the loan and to avoid acceleration of the total amount due under the note and the mortgage; a letter dated February 8, 2011, notifying Gray that she was in default of the note and the mortgage and that EverHome was accelerating to maturity the entire unpaid balance of the loan; proof of publication of the notices in the Alabama Messenger, a newspaper of general circulation in Jefferson County; a foreclosure deed dated April 4, 2011, from EverHome to Fannie Mae, which states that the foreclosure sale occurred “at public outcry in front of the Courthouse door in Birmingham, Jefferson County, Alabama,” on that day “between the legal hours of sale” and which includes a certification from the auctioneer that the sale took place on that date at 11:33 a.m.; and a demand for possession of the property sent by Fannie Mae to Gray dated April 4, 2011.

On May 1, 2012, Gray filed her response to the summary-judgment motion, along with her affidavit in support thereof. In her affidavit, Gray averred, in pertinent part:

“I bought the property … on January 30, 2004, and signed a promissory note with Irwin Mortgage Corporation and executed a mortgage with [MERS] as nominee for Irwin Mortgage Corporation. The note and mortgage are secured by the property. … The mortgage was recorded in the probate records of Jefferson County, Alabama. I am the sole owner of the property in which I currently reside.

“The mortgage and note [were] apparently transferred to EverHome Mortgage Company at some point thereafter; although, I was never notified of said transfer. Prior to the foreclosure EverHome was acting as the servicer of my mortgage loan. The original terms of the note and mortgage required [me] to pay $708.59 each month which included escrow funds for taxes and insurance. My mortgage is a Fannie Mae mortgage and so states on the face of the document. In September 2007, I lost my job due to company layoffs. As a result of my job loss, my household income significantly decreased, and I began having difficulty paying the mortgage payments. Because of the circumstances, I began seeking assistance from the mortgage company regarding my difficulty in making the monthly mortgage payments. In October 2007, I began contacting the mortgage company about making payment arrangements. It ried to get EverHome to assist me, but it refused so I was forced to file a chapter 13 bankruptcy petition on March 31, 2008 to save my home. While I was in Bankruptcy, I lost my job in October 2010, and had difficulty again making my mortgage payments and the bankruptcy payments. I got behind with the mortgage payments again and was sent a notice that EverHome intended to foreclose on my home. I again contacted the mortgage company in February 2011 in an effort to save my home and asked for HAMP [Home Affordable Modification Program] modification through EverHome’s loss mitigation program.

“In February and March 2011, I spoke to the mortgage company numerous times about a loan modification or work out plan through their loss mitigation program. They told me they would work with me and that I qualified for assistance and would get a loan modification. However, they did not follow through with assisting me, and I never got the loan modification to which I was promised. I could never get anyone to follow up with the modification despite my repeated calls to the mortgage company. I sent all the requested information to them; however, I never heard from them. I had to keep calling them back regarding my application for assistance. I was told by them that the foreclosure would not go forward as long as they were working with me through the loss mitigation program. Because of these communications with the lender, I was confused about the foreclosure procedure. Further, I relied upon these communications and believed that the mortgage company was working with me to help me keep my home and avoid foreclosure.

“Although, I was aware I was in foreclosure, I never received any notice that a foreclosure sale had been set for April 4, 2011. On Friday, April 1, 2011, I was told by representatives of the mortgage company not to worry, that they were still reviewing my account for a loan modification and that they would postpone any sale until the review was finished. My first knowledge [of] the foreclosure sale was the morning of the sale (April 4, 2011) at approximately 9:00 a.m. when I called the mortgage company to check on the status of the mortgage and was advised that the house had was set to be sold that day at noon and that there was nothing further that they could do to stop the foreclosure sale. They refused to offer me any further help to save my home. I went to the courthouse at approximately 11:20 am the morning of the sale and stood on the front steps of the main entrance of the Jefferson County Courthouse. I stayed there until after 12:30 p.m. and no one ever appeared there to [sell] my house. I later received a letter from the law office of Sirote & Permutt advising me that the house had been sold and asking me to vacate the premises.

“I was never sent nor did I receive any proper notice of default or an opportunity to cure the delinquency. Furthermore, I was never provided with a notice of intent to accelerate as required by my mortgage contract. Paragraph 21 requires that the mortgage company send me a default notice and a notice of intent to accelerate the mortgage indebtedness. I was not provided with a notice of intent to accelerate stating the following elements: (a) the specific default, (b) the action required to cure the default, (c) a date by which to cure the default, and (d) that failure to cure the default on or before the date specified in the notice will cause acceleration of the debt. The notice was required by the mortgage, and was extremely important. I have a meritorious defense to this action. This property was wrongly foreclosed. Even if the mortgage contract is held to be valid, EverHome has failed to abide by the terms and conditions of the mortgage contract. Since its power of sale and ability to foreclose is conditioned upon the mandates and procedures of the contract, their failure to follow said contract renders the foreclosure sale invalid. EverHome wrongfully foreclosed and attempted to purchase for itself the property on April 4, 2011 without giving me a proper notice of the default, a notice of intent to accelerate, a notice of sale, and an opportunity to cure that default. Prior to acceleration of the debt, I did not receive the required notice outlined in the mortgage document that I was given on January 30, 2004.

“The indebtedness on the property at the time of the foreclosure sale was approximately $75,000.00. [Fannie Mae] bought the property from itself at the foreclosure sale for $73,185.89.

“Failure to set aside this foreclosure sale would render a harsh result on me due to my financial situation. I want to keep this property.”

Both parties moved to strike the affidavits submitted by the other party. On May 22, 2012, Fannie Mae filed a reply to Gray’s response to the summary-judgment motion. Fannie Mae attached an affidavit of the foreclosure-sale auctioneer averring that he had conducted the foreclosure sale on April 4, 2011, “at or about 11:33 AM during the legal hours of sale at the place appointed for foreclosure auctions in front of the main entrance to the Courthouse in Birmingham, Jefferson County, Alabama.”

After a hearing, the trial court entered a judgment on June 22, 2012, in favor of Fannie Mae, awarding possession of the property to Fannie Mae and ordering the Jefferson County sheriff to restore possession of the property to Fannie Mae. The trial court found that Gray had forfeited her right of redemption by failing to deliver possession of the property to Fannie Mae after having been given 10 days’ written notice. The trial court did not rule on the respective motions to strike. On July 25, 2012, Gray filed a postjudgment motion to alter, amend, or vacate the trial court’s judgment; Fannie Mae filed a response to the motion on September 4, 2012. Following a hearing, the trial court denied Gray’s postjudgment motion on September 6, 2012. On October 17, 2012, Gray filed her notice of appeal to this court. On May 22, 2013, this court transferred the appeal to the Alabama Supreme Court for lack of jurisdiction; that court subsequently transferred the appeal to this court, pursuant to Ala. Code 1975, § 12-2-7.

Standard of Review

“`We review this case de novo, applying the oft-stated principles governing appellate review of a trial court’s grant or denial of a summary judgment motion:

“`”We apply the same standard of review the trial court used in determining whether the evidence presented to the trial court created a genuine issue of material fact. Once a party moving for a summary judgment establishes that no genuine issue of material fact exists, the burden shifts to the nonmovant to present substantial evidence creating a genuine issue of material fact. `Substantial evidence’ is `evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.’ In reviewing a summary judgment, we view the evidence in the light most favorable to the nonmovant and entertain such reasonable inferences as the jury would have been free to draw.”`

“American Liberty Ins. Co. v. AmSouth Bank, 825 So. 2d 786, 790 (Ala. 2002) (quoting Nationwide Prop. & Cas. Ins. Co. v. DPF Architects, P.C., 792 So. 2d 369, 372 (Ala. 2000) (citations omitted)).”

General Motors Corp. v. Kilgore, 853 So. 2d 171, 173 (Ala. 2002).

Discussion

On appeal, Gray argues that the summary judgment entered by the trial court was improper because, she says, there were genuine issues of material fact in dispute. Specifically, she argues that there was no evidence indicating that EverHome was the owner of the note at the time of the foreclosure sale. We agree. The only evidence regarding the note is a copy of the note indorsed by the vice president of Irwin Mortgage; that indorsement is not dated and does not include the name of the assignee of the note. In Harris v. Deutsche Bank National Trust Co., [Ms. 1110054, Sept. 13, 2013] ___ So. 3d ___, ___ (Ala. 2013), our supreme court reasoned:

“The Harrises also argue that the power of sale described in the mortgage was given by the Harrises as part of the security for the repayment of the debt evidenced by the note and can be `executed’ only by the trustee ifit was the party entitled to the money thus secured. They cite § 35-10-12, Ala. Code 1975, which states that the power to sell lands given in a mortgage `is part of the security and may be executed by any person, or the personal representative of any person who, by assignment or otherwise, becomes entitled to the money thus secured.’ In Carpenter v. First National Bank, 236 Ala. 213, 181 So. 239 (1938), this Court applied the predecessor to § 35-10-12, stating:

“`A power of sale in a mortgage of real estate is a part of the security, and passes to any one who by assignment or otherwise becomes entitled to the money secured. Code 1923, § 9010.

“`But an agent of such holder to whom the mortgage is delivered merely for the purpose of foreclosure, having no ownership of the debt, is not authorized to foreclose in his own name, and execute a deed in his name to the purchaser. Ownership of the debt does not pass to such agent merely because the note is indorsed in blank. Such foreclosure is ineffective, and a court of equity may take jurisdiction for the purpose of foreclosure.’

“236 Ala. at 215, 181 So. at 240 (emphasis added). The foreclosure deed in this case was executed by the trustee in its own name, not on behalf of the lender, SouthStar, or any other party to which SouthStar may have assigned the note. The deed was effective to transfer title and to foreclose the rights of the mortgagor, therefore, only if the trustee, in its own name, was entitled to receive the money secured by the note at the time it executed and delivered that deed.

“The parties agree in their briefs, however, and we accept for purposes of this case, that the mortgage given MERS `solely as a nominee for Lender and Lender’s successors and assigns’ did not entitle MERS to the money secured by the mortgage. Accordingly, the subsequent assignment of that mortgage by MERS to the trustee did not accomplish an assignment of that right to the trustee. The trustee in fact concedes that summary judgment was inappropriate in this case and that on the state of the current record there is a genuine issue of material fact as to whether the trustee received an assignment of the note so as to have entitled it to execute the power of sale in its own name. (It asserts that, if this case is returned to the trial court, it will introduce `conclusive evidence’ of its receipt as early as 2005 of the debt evidenced by the original note signed by the Harrises.) The summary judgment entered by the trial court therefore is due to be vacated and the case remanded for a determination as to whether the trustee received an assignment of the right to receive the money secured by the note, and thus the power to execute the corresponding power of sale in its own name, before executing and delivering the foreclosure deed.”

(Footnote omitted.) See also Ex parte BAC Home Loans Servicing, LP, [Ms. 1110373, Sept. 13, 2013] ___ So. 3d ___, ___ (Ala. 2013) (holding that the right of the foreclosing entity to conduct a foreclosure sale must be proven in order to show that the buyer at a foreclosure sale has superior legal title and a cause of action to eject the debtor). Further, in Coleman v. BAC Servicing, 104 So. 3d 195 (Ala. Civ. App. 2012), this court explained:

“Alabama law specifically contemplates that there can be a separation. See § 35-10-12 and Harton [v. Little, 176 Ala. 267, 57 So. 851 (1911)]. The Restatement (Third) of Property: Mortgages takes the position that a note and mortgage can be separated but that `[t]he mortgage becomes useless in the hands of one who does not also hold the obligation because only the holder of the obligation can foreclose.’ Restatement (Third) of Property: Mortgages § 5.4, Reporter’s Note — Introduction, cmt. a at 386. The Restatement explains: `”The note is the cow and the mortgage the tail. The cow can survive without a tail, but the tail cannot survive without the cow.”‘ Id. at 387 (quoting Best Fertilizers of Arizona, Inc. v. Burns, 117 Ariz. 178, 179, 571 P.2d 675, 676 (Ct. App.), reversed on other grounds, 116 Ariz. 492, 570 P.2d 179 (1977)).”

104 So. 3d at 205.

Similar to Harris, in the present case “the mortgage given MERS `solely as a nominee for [Irwin Mortgage] and [Irwin Mortgage’s] successors and assigns’ did not entitle MERS to the money secured by the mortgage. Accordingly, the subsequent assignment of that mortgage by MERS to [EverHome] did not accomplish an assignment of that right to [EverHome].” Id. at ___. EverHome presented no evidence indicating that the note had been transferred “by delivery of possession or by written assignment.” Coleman v. BAC Servicing, 104 So. 3d at 203 (“The promissory note evidencing that debt was a bearer instrument that could be transferred in two ways: by delivery of possession or by written assignment.”); see also Ala. Code 1975, § 8-5-24 (“The transfer of a… note given for the purchase money of lands, whether the transfer be by delivery merely or in writing, expressed to be with or without recourse on the transferor, passes to the transferee the lien of the vendor of the lands.”). “`[O]nly the holder of the obligation can foreclose.'” Coleman, 104 So. 3d at 205. Because there was no evidence presented that EverHome, the foreclosing entity, was the holder of the note at the time of the foreclosure sale, we conclude that, like in Harris, the summary judgment entered in the present case was improper.

Gray makes several other arguments regarding the propriety of the summary judgment and the denial of her motion to strike. Because we are reversing the summary judgment on the merits, we pretermit discussion of those arguments. See Crews v. McLing, 38 So. 3d 688, 696 (Ala. 2009).

Based on the foregoing, we reverse the summary judgment and remand this cause for further proceedings.

REVERSED AND REMANDED.

Pittman, Moore, and Donaldson, JJ., concur.

Thompson, P.J., concurs in the result only, with writing, which Thomas, J., joins.

THOMPSON, Presiding Judge, concurring in the result only.

In defense of the ejectment action initiated by the Federal National Mortgage Association (“Fannie Mae”), Diane Gray argued that the foreclosure deed pursuant to which Fannie Mae claimed to own the property was invalid because there was no authority to conduct the foreclosure sale upon which that deed is based. Among other things, Gray contends that, in support of its summary-judgment motion in its ejectment action, Fannie Mae failed to present prima facie evidence that either the mortgage or the note had been transferred to EverHome Mortgage Company before EverHome conducted the foreclosure sale.^[1]

The record indicates that on May 10, 2007, Mortgage Electronic Registration Systems, Inc. (“MERS”), in its capacity as nominee for Irwin Mortgage Company, the original mortgagee, purported to assign to EverHome the mortgage executed by Gray in favor of Irwin Mortgage Company. However, the power to sell or foreclose is available only to a person or entity entitled to payment of the money secured by the mortgage or note. § 35-10-7, Ala. Code 1975. In Harris v. Deutsche Bank National Trust Co., [Ms. 1110054, Sept. 13, 2013] ___ So. 3d ___ (Ala. 2013), our supreme court held that when an agent, or nominee, of a lender is not entitled under § 35-10-7 to receive the money secured by a mortgage, the agent may not purport to transfer the right to the receive that money on behalf of the lender. In other words, under the facts of this case, if MERS was not entitled to receive the money secured by the mortgage from Gray, it could not validly assign to EverHome the right to receive that money. The language specifying the rights afforded MERS under Gray’s mortgage is identical to the language setting forth the rights MERS had under the mortgage at issue in Harris. In Harris, the parties agreed that the language detailing MERS’s rights under the mortgage did not entitle MERS under § 35-10-7 to the money secured by the mortgage at issue, and our supreme court accepted that agreement for the purposes of resolving the appeal. ___ So. 3d at ___. In this case, there is no such agreement. However, Fannie Mae has not argued that at the time MERS executed its purported assignment of Gray’s mortgage to EverHome, MERS had a right to receive the money secured by the mortgage. In the absence of such arguments or evidence, I believe the holding in Harris controls this issue in this case. EverHome could foreclose and transfer the property via a foreclosure deed to Fannie Mae only if, at the time it foreclosed, EverHome had the right to receive the money secured by the mortgage. Harris, ___ So. 3d at ___. Under our supreme court’s recent holding in Harris, MERS could not properly assign the right to the payment of the money secured by Gray’s mortgage to EverHome. Accordingly, I must conclude that Fannie Mae failed to present a prima facie case that EverHome had acquired the right to foreclose on Gray’s mortgage by virtue of a purported assignment of that mortgage from MERS to EverHome.^[2]

However, the inquiry does not necessarily end when it is determined that a valid or timely assignment of a mortgage did not occur. This court has recognized that a mortgage need not be assigned in order to enable an owner of the debt secured by that mortgage to foreclose under a power of sale. Perry v. Federal Nat’l Mortg. Ass’n, 100 So. 3d 1090, 1095 (Ala. Civ. App. 2012). A promissory note secured by a mortgage that is indorsed in blank may be transferred merely by possession. Id. This court has explained:

“The promissory note evidencing that debt was a bearer instrument that could be transferred in two ways: by delivery of possession or by written assignment. See Ala. Code 1975, § 8-5-24 (`The transfer of a … note given for the purchase money of lands, whether the transfer be by delivery merely or in writing, expressed to be with or without recourse on the transferor, passes to the transferee the lien of the vendor of the lands.’); Kevin M. Hudspeth, Clarifying Murky MERS: Does Mortgage Electronic Registration Systems, Inc., Have Authority to Assign the Mortgage Note in a Standard Illinois Foreclosure Action?, 31 N. Ill. U. L. Rev. 1, 14 (2010) (stating that `a plaintiff in a mortgage foreclosure action obtains the right to enforce the note in one of two primary ways: (1) through proper assignment …, or (2) through negotiation under the U[niform] C[ommercial] C[ode]’).

“`Ownership of a contractual obligation can generally be transferred by a document of assignment; see Restatement, Second, Contracts § 316 [(1981)]. However, if the obligation is embodied in a negotiable instrument, a transfer of the right to enforce must be made by delivery of the instrument; see [former] U.C.C. § 3-202 (1995).’

“Restatement (Third) of Property: Mortgages § 5.4, cmt. b. at 381.”

Coleman v. BAC Servicing, 104 So. 3d 195, 203-04 (Ala. Civ. App. 2012).

As the main opinion indicates, the record on appeal contains a blank indorsement to EverHome of the note executed by Gray and secured by the mortgage.^[3] My review of the evidence in the record indicates that Fannie Mae failed to present evidence as to whether EverHome was in possession of the note that was indorsed in blank. Murdock’s affidavit speaks only in terms of certain actions being taken by some unspecified entity—perhaps EverHome, although this court may not so speculate—in seeking to accelerate Gray’s debt and foreclose based on the purported assignment of the mortgage from MERS to EverHome. EverHome might have been in possession of the promissory note at the time it foreclosed; however, Fannie Mae failed to make a prima facie showing in support of its summary-judgment motion that EverHome was in possession of the note.

Fannie Mae attempted to base its prima facie case in support of ejectment on its claim that it had a valid foreclosure deed. However, Fannie Mae failed to present prima facie evidence demonstrating that EverHome had the authority to foreclose and to issue the foreclosure deed. Accordingly, I conclude that Gray has demonstrated on appeal that the trial court erred in entering a summary judgment in favor of Fannie Mae.

Thomas, J., concurs.

[1] In considering this issue, I do not address the argument raised by Gray that some portions of Fannie Mae’s evidence was not admissible under Rule 56, Ala. R. Civ. P.

[2] In support of its summary-judgment motion, Fannie Mae submitted the affidavit of Robin Murdock, the “Vice President for Everbank sbm Everhome.” In his affidavit, Murdock stated that, “[o]n May 10, 2007, Irwin Mortgage Corporation executed an Assignment of Mortgage to EverHome Mortgage Company (aka EverBank). A copy of the Assignment of Mortgage is attached as `Exhibit C.'” The exhibit to which Murdock referred in his affidavit was the May 10, 2007, purported assignment from MERS, as nominee for Irwin Mortgage Company, to EverHome. Fannie Mae submitted no other evidence tending to indicate that Irwin Mortgage Company had executed an assignment of Gray’s mortgage to EverHome.

[3] A “blank indorsement” is “an indorsement that names no specific payee, thus making the instrument payable to the bearer and negotiable by delivery only.” Black’s Law Dictionary 844 (9th ed. 2009).

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

Bessie T. Sturdivant
v.
BAC Home Loan Servicing, LP

No. 2100245.Court of Civil Appeals of Alabama.

December 13, 2013.This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter. Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-0649), of any typographical or other errors, in order that corrections may be made before the opinion is printed in Southern Reporter.

THOMPSON, Presiding Judge.

The facts of this case, as set forth in an earlier opinion of this court, are as follows:

“On December 31, 2009, BAC Home Loans Servicing, LP (hereinafter `BAC’), filed a complaint in ejectment against Bessie T. Sturdivant. Specifically, BAC alleged that it had sold at foreclosure certain property pursuant to the terms of a mortgage executed by Sturdivant, that it had purchased the property at the foreclosure sale, and that Sturdivant had failed to surrender possession of the property. Sturdivant answered and denied the material allegations of the complaint.

“BAC moved for a summary judgment, and Sturdivant opposed that motion. After conducting a hearing, the trial court, on October 29, 2010, entered a summary judgment in favor of BAC. The trial court also ordered that a writ of possession in favor of BAC be issued. Sturdivant filed a postjudgment motion, which the trial court denied. Sturdivant timely appealed to the Alabama Supreme Court, which transferred the appeal to this court pursuant to § 12-2-7(6), Ala. Code 1975.

“The record indicates the following relevant facts. In December 2007, Sturdivant obtained a loan from Security Atlantic Mortgage Co., Inc. (‘Security Atlantic’), to purchase a home. To secure the loan, Sturdivant executed a mortgage with Mortgage Electronic Registration Systems, Inc. (‘MERS’), `solely as nominee’ for Security Atlantic. The record indicates that the loan was insured by the Federal Housing Administration (‘FHA’). A portion of the security agreement for the mortgage reads:

“`This security instrument is given to Mortgage Electronic Registration Systems, Inc. (“MERS”), solely as nominee for lender, as hereinafter defined, and lender’s successors and assigns, as beneficiary…. For this purpose, borrower does hereby mortgage, grant and convey to MERS (solely as nominee for lender and lender’s successors and assigns) and to the successors and assigns of MERS, with power of sale, the following described property located in Jefferson County, Alabama ….

“`… Borrower understands and agrees that MERS holds only legal title to the interest granted by borrower and the security instrument; but, if necessary to comply with law or custom, MERS (as nominee for lender and lender’s successors and assigns) has the right to exercise any and all of those interests, including, but not limited to, the right to foreclose and sell the property; and to take any action required of lender….’

“Sturdivant stated in an affidavit that in March 2009 several of her family members died, that she herself became ill, and that she suffered a decrease in her income. Sturdivant testified that in March 2009 she began contacting BAC about the possibility of modifying her loan payments.

“The record indicates that when Sturdivant did not make the loan payments due in April 2009 or May 2009, BAC sent a letter on June 8, 2009, in which it identified itself as the `servicer’ of her loan. In that letter, BAC notified Sturdivant that if her default on the terms of the mortgage was not cured, the loan payments would be accelerated and the balance of the loan would be due.

“BAC presented evidence indicating that in September 2009 it referred the matter to an attorney to begin the foreclosure process. The record contains two letters, each dated September 20, 2009, sent by BAC’s attorney to Sturdivant. One of the September 20, 2009, letters identified BAC as the `holder of [Sturdivant’s] mortgage,’ informed Sturdivant of the total amount due under the terms of the mortgage-loan contract, and notified her of the procedures for disputing the debt. The other September 20, 2009, letter from BAC’s attorney to Sturdivant notified Sturdivant that BAC, identified as the holder of the mortgage, had instructed the attorney to proceed with the foreclosure of the mortgage and that a foreclosure sale was scheduled for October 28, 2009.

“BAC also submitted into evidence two communication logs generated by Neighborhood Housing Services of Birmingham, Inc. (‘NHSB’), an organization that Sturdivant authorized to negotiate on her behalf with `the lender’ in connection with the mortgage loan. The NHSB communication logs indicate that in late April or early May 2009 Sturdivant began the process of applying for a `work out’ of her mortgage, i.e., applying for assistance regarding, a modification of, or a restructuring of the mortgage loan. The communication logs indicate that in mid September 2009 Sturdivant was informed that BAC was seeking to foreclose on the property and that Sturdivant was continuing her efforts to obtain a modification of the mortgage loan.

“The foreclosure sale scheduled for October 28, 2009, was postponed until December 1, 2009, while BAC continued to review Sturdivant’s request for a modification of her loan. A November 13, 2009, entry on one of the NHSB communication logs indicates that NHSB was informed on that date that Sturdivant’s request was still under review but that the foreclosure sale remained scheduled for December 1, 2009. On December 1, 2009, NHSB entered a notation that it had been informed that Sturdivant `did not qualify for a loan mod on 11-7-2009.’ An assistant vice president for BAC, Ken Satsky, stated in an affidavit that, `based upon a review of the financial information provided by Ms. Sturdivant, she did not meet the applicable guidelines’ for a modification of the mortgage loan.

“In his affidavit, which was submitted in support of BAC’s summary-judgment motion, Satsky said that, `[i]n my employment capacity, I am personally familiar’ with Sturdivant’s mortgage account. Satsky’s affidavit stated that Sturdivant’s mortgage had originated with MERS, on behalf of Security Atlantic or its successors and assigns, and that foreclosure proceedings had been initiated. Satsky’s affidavit does not reference an assignment of the mortgage to BAC, and it does not indicate the identity of the entity that initiated the foreclosure proceedings. Satsky testified that Sturdivant defaulted on the note secured by the mortgage and that BAC `provided her with Notice of Default and acceleration of the debt due under said note by letter dated January 6, 2009.’ The record on appeal does not contain a letter dated January 6, 2009, and Satsky’s affidavit does not refer to the September 20, 2009, letters BAC submitted to the trial court in support of its summary-judgment motion.

“Also in support of its summary-judgment motion, BAC submitted into evidence a statement that a notice of foreclosure had been published on November 7, 2009, in the Alabama Messenger, a `weekly newspaper of general circulation.’ See § 35-10-8, Ala. Code 1975 (governing the notice required for a foreclosure sale). In that notice, BAC stated that it was the `holder of [Sturdivant’s] mortgage,’ which contained a power of sale, and that BAC would sell the property on December 1, 2009, at public auction. BAC also represented in its published notice of the proposed December 1, 2009, foreclosure sale that Sturdivant had mortgaged the property to MERS, as nominee for Security Atlantic or its successors and assigns, and that `said mortgage was subsequently assigned to BAC Home Loans Servicing, LP, by instrument recorded in [the probate court].’

“On December 1, 2009, the property was sold at the foreclosure sale that BAC had scheduled. BAC was the purchaser of the property at that sale. Also on December 1, 2009, MERS assigned Sturdivant’s mortgage to BAC.

“In support of its motion for a summary judgment, BAC submitted to the trial court a copy of its auctioneer’s foreclosure deed, also dated December 1, 2009, which states, among other things, that MERS had assigned the mortgage to BAC, that BAC had recorded that assignment of the mortgage, and that BAC had completed other steps necessary to obtain a deed by virtue of its purchase of the property at the foreclosure sale. With regard to the assignment of the mortgage, the December 1, 2009, auctioneer’s foreclosure deed specifically states:

“WHEREAS, BESSIE T. STURDIVANT, unmarried, executed a mortgage to Mortgage Electronic Registration Systems, Inc. [MERS], acting solely as nominee for Lender and Lender’s Successors and Assigns on the 18th day of December 2007, on that certain real property hereinafter described, which mortgage is recorded in Book LR200801, Page 21971, of the records in the Office of the Judge of Probate, Jefferson County, Alabama; which said mortgage was subsequently assigned to BAC Home Loans Servicing LP by instrument recorded in Book 200912 Page 14464 of said Probate Court records….’

“(Emphasis added.) The `book’ and `page’ numbers identified in the above-quoted portion of the December 1, 2009, auctioneer’s foreclosure deed are not printed in typeface, as is the remainder of the deed. Rather, those numbers are handwritten insertions into the auctioneer’s foreclosure deed. The evidence submitted by BAC in support of its summary-judgment motion indicates that the December 1, 2009, assignment of Sturdivant’s mortgage from MERS to BAC and the December 1, 2009, auctioneer’s foreclosure deed were each first recorded in the office of the Jefferson Probate Court (‘the probate court’) on December 23, 2009, and the time stamps on those documents indicate that the auctioneer’s foreclosure deed was recorded one second after the assignment.

“On December 4, 2009, BAC sent a letter to Sturdivant notifying her of its purchase of the property at the December 1, 2009, foreclosure sale and demanding possession of the property pursuant to § 6-5-251, Ala. Code 1975.”

Sturdivant v. BAC Home Loans Servicing, LP, [Ms. 2100245, Dec. 16, 2011] ___ So. 3d ___, ___ (Ala. Civ. App. 2011) (footnotes omitted), rev’d, Ex parte BAC Home Loans Servicing, LP, [Ms. 1110373, Sept. 13, 2013] ___ So. 3d ___, ___ (Ala. 2013).

In Sturdivant, supra, this court, relying on precedent from our supreme court, held that because Sturdivant’s mortgage had not been assigned to BAC at the time BAC initiated the foreclosure proceedings, BAC did not have the right to conduct the foreclosure sale and, therefore, lacked standing to prosecute its ejectment action. Id. Accordingly, this court pretermitted the discussion of the other issues raised in Sturdivant’s brief on appeal.

BAC filed a petition for a writ of certiorari to our supreme court, which consolidated the action with another action with similar facts. Our supreme court held that this court erred in determining that BAC did not have standing to prosecute its ejectment action, concluding that the issue whether the foreclosing entity had valid title to or the right to possess the property was not one that impacted the subject-matter jurisdiction of the trial court. Ex parte BAC Home Loans Servicing, LP, So. 3d at. Rather, our supreme court held, those issues impacted the determination whether a foreclosing person or entity could meet each element of its cause of action in ejectment. Id. The supreme court explained:

“[BAC Home Loans Servicing, LP (‘BAC’),] attended a foreclosure auction, was the successful bidder at that auction, paid money for the auctioned property, and received a foreclosure deed to the property. With deed in hand, [BAC] now brings an action under Alabama law, specifically § 6-6-280(b), Ala. Code 1975, claiming good title to the property at issue and the right to eject the original debtor. We are clear to the conclusion that the trial courts had subject-matter jurisdiction over [this] cause[], including any issue as to the validity in fact of [BAC’s] title to the property, this being one of the elements of proof required in an ejectment action.

“If in the end the facts do not support [BAC], or the law does not do so, so be it—but this does not mean [BAC] cannot come into court and allege, and attempt to prove, otherwise. If [BAC] fail[s] in this endeavor, it is not that [it has] a `standing’ problem, it is, as Judge Pittman recognized in Sturdivant, that [it has] a `cause of action’ problem, or more precisely in [this] case[], a `failure to prove one’s cause of action’ problem. The trial court has subject-matter jurisdiction to `hear’ such `problems’—and the cases in which they arise. To the extent Cadle [v. Shabani, 950 So. 2d 277 (Ala. 2006),] holds otherwise, i.e., that a plaintiff in an ejectment action lacks `standing’ if it cannot prove one of the elements of its claim (namely, legal title or the right to possession of the property) and that the trial court in turn lacks subject-matter jurisdiction over that claim—it and other cases so holding are hereby overruled.”

Ex parte BAC Home Loans Servicing, LP, ___ So. 3d at ___.

On remand from our supreme court, we now reach the other issues raised by Bessie T. Sturdivant in her brief submitted to this court pertaining to whether BAC Home Loans Servicing, LP (“BAC”), was entitled to a summary judgment on its cause of action for ejectment. The standard by which this court reviews a summary judgment is well settled:

“`”To grant [a summary-judgment] motion, the trial court must determine that the evidence does not create a genuine issue of material fact and that the movant is entitled to a judgment as a matter of law. Rule 56(c)(3), Ala. R. Civ. P. When the movant makes a prima facie showing that those two conditions are satisfied, the burden shifts to the nonmovant to present `substantial evidence’ creating a genuine issue of material fact. Bass v. SouthTrust Bank of Baldwin County, 538 So. 2d 794, 797-98 (Ala. 1989); § 12-21-12(d)[,] Ala. Code 1975. Evidence is `substantial’ if it is of `such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.’ West v. Founders Life Assur. Co. of Florida, 547 So. 2d 870, 871 (Ala. 1989).

“`”In our review of a summary judgment, we apply the same standard as the trial court. Ex parte Lumpkin, 702 So. 2d 462, 465 (Ala. 1997). Our review is subject to the caveat that we must review the record in a light most favorable to the nonmovant and must resolve all reasonable doubts against the movant. Hanners v. Balfour Guthrie, Inc., 564 So. 2d 412 (Ala. 1990).”‘

“Payton v. Monsanto Co., 801 So. 2d 829, 832-33 (Ala. 2001) (quoting Ex parte Alfa Mut. Gen. Ins. Co., 742 So. 2d 182, 184 (Ala. 1999)).”

Maciasz v. Fireman’s Fund Ins. Co., 988 So. 2d 991, 994-95 (Ala. 2008).

Sturdivant argues that the trial court erred in entering a summary judgment in favor of BAC because, she contends, BAC did not present prima facie evidence in support of each element of its claim for ejectment. This court explained BAC’s claim seeking to eject Sturdivant from the property as follows:

“BAC’s claim for ejectment is one arising under § 6-6-280(b), Ala. Code 1975. See EB Invs., L.L.C. v. Atlantis Dev., Inc., 930 So. 2d 502 (Ala. 2005) (the claim was one in ejectment under § 6-6-280(b), Ala. Code 1975, when the complainant alleged that it was entitled to possession of land because of its purchase of the land at a foreclosure sale and that the defendant was unlawfully detaining same); Muller v. Seeds, 919 So. 2d 1174 (Ala. 2005), overruled on other grounds, Steele v. Federal Nat’l Mortg. Ass’n, 69 So. 3d 89 (Ala. 2010) (same); and Earnest v. First Fed. Sav. & Loan Ass’n of Alabama, 494 So. 2d 80 (Ala. Civ. App. 1986) (same).

“Section 6-6-280(b) provides as follows:

“`(b) An action for the recovery of land or the possession thereof in the nature of an action in ejectment may be maintained without a statement of any lease or demise to the plaintiff or ouster by a casual or nominal ejector, and the complaint is sufficient if it alleges that the plaintiff was possessed of the premises or has the legal title thereto, properly designating or describing them, and that the defendant entered thereupon and unlawfully withholds and detains the same. This action must be commenced in the name of the real owner of the land or in the name of the person entitled to the possession thereof, though the plaintiff may have obtained his title thereto by a conveyance made by a grantor who was not in possession of the land at the time of the execution of the conveyance thereof. The plaintiff may recover in this action mesne profits and damages for waste or any other injury to the lands, as the plaintiff’s interests in the lands entitled him to recover, to be computed up to the time of the verdict.'”

Sturdivant, ___ So. 3d at ___ (Some emphasis in original; some emphasis added).

“In order to maintain an action for ejectment, a plaintiff must allege either possession or legal title….” Cadle Co. v. Shabani, 950 So. 2d 277, 279 (Ala. 2006). In Ex parte BAC Home Loans Servicing, LP, supra, our supreme court clarified that either possession or legal title is an element of proof to be demonstrated in support of a cause of action for ejectment. See also § 6-6-280(b), Ala. Code 1975 (A complaint in ejectment “is sufficient if it alleges that the plaintiff was possessed of the premises or has the legal title thereto.”); Ex parte McKinney, 87 So. 3d 502, 507 n. 6 (Ala. 2011) (“`Ejectment may be maintained on proof of title carrying, as an element of ownership, a right to possession and enjoyment. …’ Lane v. Henderson, 232 Ala. 122, 124, 167 So. 270, 271 (1936).”).

In this case, BAC alleged in its ejectment complaint that it had legal title to the property. In response, Sturdivant argued that BAC’s deed, pursuant to which BAC claimed title to the property, was void because BAC could not have validly foreclosed on the mortgage. A deed resulting from a foreclosure sale may be deemed void when, among other things, “the foreclosing entity does not have the legal right to exercise the power of sale, as for example, when that entity is neither the assignee of the mortgage … nor the holder of the promissory note … at the time it commences the foreclosure proceedings.” Campbell v. Bank of America, N.A., [Ms. 2100246, June 22, 2012] ___ So. 3d ___, ___ (Ala. Civ. App. 2012). “In an ejectment action, the burden is on the plaintiff, not the defendant, to prove superior title to the property in question.” Maiden v. Federal Nat’l. Mortg. Ass’n, 86 So. 3d 368, 376 n.1 (Ala. Civ. App. 2011).

Section 35-10-12, Ala. Code 1975, provides in part that “[w]here a power to sell lands is given in any mortgage, the power is part of the security and may be executed by any person, or the personal representative of any person who, by assignment or otherwise, becomes entitled to the money thus secured.” (Emphasis added.) Sturdivant argues that the foreclosure sale was invalid because, she contends, BAC was not an assignee of the mortgage and, therefore, did not have the legal right to initiate foreclosure proceedings in September 2009.

However, on the same date that it released its opinion in Ex parte BAC Home Loans Servicing, LP, supra, our supreme court also released Ex parte GMAC Mortgage, LLC, [Ms. 1110547, Sept. 13, 2013] ___ So. 3d ___ (Ala. 2013). In Ex parte GMAC, supra, GMAC accelerated the terms of a mortgage, gave notice of foreclosure, and scheduled a foreclosure sale. The mortgage was assigned to GMAC one day before the foreclosure sale. The mortgagors, who were defendants in GMAC’s ejectment action, challenged the validity of the foreclosure sale on the basis that GMAC had not been assigned the mortgage at the time it had initiated the foreclosure proceedings. Our supreme court held that “the validity of a foreclosure turns not on whether the foreclosing party held the mortgage and the power of sale at the time of the initiation of the foreclosure process, but on whether it held the mortgage and the power of sale `at the time the power of sale is executed.'” ___ So. 3d at ___. Thus, the court concluded, “[a]t the time GMAC Mortgage signed and delivered the foreclosure deed, it was in fact the holder of the mortgage. It had at that point the full power to exercise the power of sale so as to `foreclose’ the mortgagor’s rights in the land and convey those rights to itself or to another.” Ex parte GMAC, ___ So. 3d at ___.

Accordingly, we consider Sturdivant’s argument that BAC lacked the authority to foreclose because of the timing of its assignment in light of the recent holding of Ex parte GMAC, supra, and we must determine whether BAC presented a prima facie case that, at the time it foreclosed on Sturdivant’s mortgage, BAC had received an assignment of the mortgage. The record indicates that Mortgage Electronic Registration Systems, Inc. (“MERS”), assigned the mortgage to BAC on December 1, 2009. Also on December 1, 2009, BAC conducted the foreclosure sale and obtained a foreclosure deed to Sturdivant’s property. The record contains no indication as to what time the December 1, 2009, assignment occurred or when BAC conducted the foreclosure sale on December 1, 2009.^[1] Although BAC might have had the assignment at the time it foreclosed, it failed to present evidence in support of that fact in its summary-judgment motion. Thus, BAC failed to present a prima facie case in support of its summary-judgment motion that it had received the December 1, 2009, assignment of Sturdivant’s mortgage before it foreclosed on the property on December 1, 2009. Accordingly, we conclude that BAC was not entitled to a summary judgment on the basis of having demonstrated that it had been assigned Sturdivant’s mortgage at the time it foreclosed.

However, under § 35-10-2, Ala. Code 1975, BAC might “otherwise” become entitled to foreclose. This court has held that under § 35-10-12 any person or entity who, before initiating foreclosure proceedings, becomes a holder of a promissory note secured by a mortgage and thereby is entitled to the payment of the mortgage debt may validly foreclose upon a borrower’s default. Perry v. Federal Nat’l Mortg. Ass’n, 100 So. 3d 1090, 1094 (Ala. Civ. App. 2012). The parties have not addressed in their briefs submitted to this court whether BAC was a holder of the promissory note secured by Sturdivant’s mortgage at the time BAC initiated the foreclosure proceedings. However, an appellate court may affirm a judgment that is correct for any reason. Ex parte Shelby Cnty. Health Care Auth., 850 So. 2d 332, 339 (Ala. 2002) (“[T]his Court will affirm a properly entered summary judgment, even if the trial court’s reasons for entering the judgment were incorrect.”). For that reason, this court addresses the issue whether the evidence would support a conclusion that BAC presented a prima facie case that it was entitled to a summary judgment on the basis that it was a holder of the note at the time it foreclosed on the property.

In Alabama, a note secured by a mortgage is a negotiable instrument. Thomas v. Wells Fargo Bank, N.A., 116 So. 3d 226, 233 (Ala. Civ. App. 2012). A holder of a note secured by a mortgage is entitled to enforce the terms of the note. Perry v. Federal Nat’l Mortg. Ass’n, 100 So. 3d at 1094.^[2] This court has explained:

“In Harton v. Little, 176 Ala. 267, 270, 57 So. 851, 851 (1911), our supreme court held that `[i]t is not at all necessary that a mortgage deed be assigned in order to enable the owner of the debt to foreclose under a power of sale.’

“`The power of sale is a part of the security, and may be exercised by an assignee, or any person who is entitled to the mortgage debt. And a transfer of the debt, by writing or by parol, is in equity an assignment of the mortgage.’

“176 Ala. at 270, 57 So. At 851-52 (citations omitted). See also Ala. Code 1975, § 8-5-24 (‘the transfer of a … note given for the purchase money of lands, whether the transfer be by delivery merely or in writing, expressed to be with or without recourse on the transferor, passes to the transferee the lien of the vendor of the liens.’) See generally Restatement (Third) of Property: Mortgages § 5.4(a) (1997) (stating that `[a] transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise’).”

Perry v. Federal Nat’l Mortg. Ass’n, 100 So. 3d at 1095.

In Coleman v. BAC Servicing, 104 So. 3d 195, 203 (Ala. Civ. App. 2012), this court reiterated that “[t]he promissory note evidencing that debt was a bearer instrument that could be transferred in two ways: by delivery of possession or by written assignment.” (Citing § 8-5-24, Ala. Code 1975.) In that case, although it had not received an assignment of the mortgage at issue, the foreclosing entity had possession of the note secured by the mortgage; therefore, this court held that the foreclosing entity was entitled to enforce the note and foreclose on the mortgage. In so holding, this court explained that “`[t]he note is symbolic of the debt, and the physical possession of the note governs over any other indicium of its ownership.'” Coleman, 104 So. 3d at 204 (quoting Restatement (Third) of Property: Mortgages § 5.4(c), cmt. following illus. 7 (Tentative Draft No. 5, March 18, 1996)).

In Nelson v. Federal National Mortgage Association, 97 So. 3d 770 (Ala. Civ. App. 2012), the record indicated that Flagstar Bank, FSB, was the entity that had the rights to service a mortgage loan on behalf of the mortgagee or note holder. MERS, as nominee for Flagstar, foreclosed on the property and obtained a foreclosure deed, which it then transferred to the Federal National Mortgage Association (“Fannie Mae”). Fannie Mae, relying on the foreclosure deed it received from Flagstar, sought to eject the mortgagors, the Nelsons. In opposing Fannie Mae’s ejectment action, the Nelsons argued that the foreclosure deed was invalid. It was undisputed that the mortgage at issue had not been assigned to MERS or Flagstar at the time that MERS, on behalf of Flagstar, initiated the foreclosure proceedings, and, therefore, based on decisions pre-dating Ex parte GMAC, supra, the foreclosure sale could not be said to be valid based on a timely assignment. Nelson, supra.

However, in that case, this court concluded that, in its summary-judgment motion in support of its ejectment claim, Fannie Mae had failed to present any evidence indicating that Flagstar was the holder of the note at the time that MERS, on behalf of Flagstar, initiated the foreclosure proceedings. Nelson, 97 So. 2d at 779 (explaining that, under § 35-10-2, “the owner of the debt may foreclose on property that is the subject of a mortgage securing that debt if the owner is the holder of the promissory note at the time the owner initiates foreclosure proceedings”). This court concluded:

“The complete absence of any evidence indicating that Flagstar was the owner of the debt, i.e., the holder of the note, before June 5, 2009, when MERS, as nominee for Flagstar, invoked the power of sale in the mortgage means that MERS did not convey legal title to itself by virtue of the foreclosure deed because MERS had no authority to initiate the foreclosure proceedings. Consequently, the special warranty deed that Fannie Mae received from MERS two days after the foreclosure sale, which depended on its efficacy upon the validity of the MERS foreclosure deed, see 11 Thompson on Real Property § 94.07(b)(2)(I) at 390 (David A. Thomas 2d ed. 2002), was also void.”

Nelson, 97 So. 3d at 780 (emphasis added).

In Nelson, supra, this court, relying on Sturdivant, supra, held that, as a result of the void ejectment deed, Fannie Mae lacked standing to initiate its foreclosure action against the Nelsons. Our supreme court has reversed Sturdivant and held that a foreclosing entity with a purportedly valid deed does have standing to initiate an ejectment action, but that having a valid deed at the time it initiates the ejectment action is an essential element of that cause of action. Ex parte BAC Home Loans Servicing, LP, ___ So. 3d at ___ (“[T]he validity in fact of the plaintiffs’ title to the property [is] one of the elements of proof required in an ejectment action.”). In addition, our supreme court in Ex parte GMAC held that there is no requirement that the foreclosing entity have title (or be a holder of the note) until the time of foreclosure, thus negating that part of Nelson in which this court held that the foreclosing entity was required to have legal title or be in possession of the note at the time the foreclosure “process” was initiated.

Accordingly, given Sturdivant’s argument concerning whether BAC met its prima facie burden and given the foregoing precedent, we must determine whether BAC presented a prima facie case indicating that it was a holder of the note at the time it foreclosed. The record indicates that BAC sent a June 8, 2009, letter to Sturdivant in which BAC stated that it “services the home loan described above on behalf of the holder of the promissory note (the `Noteholder’).”^[3] BAC did not identify the person or entity who was the “Noteholder” referenced in that letter. In a September 20, 2009, letter from counsel for BAC, the attorney who authored the letter referred to BAC as the “holder of the above mortgage.” In another September 20, 2009, letter to Sturdivant, as well as an October 28, 2009, letter, BAC’s attorney referred to Sturdivant’s mortgage as being “held by BAC.”^[4] Those statements in correspondence by an attorney, however, are unsworn representations and do not constitute evidence regarding whether BAC was a holder of the note secured by Sturdivant’s mortgage at the time of the foreclosure.

The record contains no evidence indicating if or when BAC became the holder of the note secured by the mortgage. In support of its summary-judgment motion, BAC submitted only documentary evidence, the affidavit of its attorney detailing the measures he took in initiating the foreclosure proceedings, and Satsky’s affidavit. None of those submissions sets forth evidence indicating whether BAC was merely the debt servicer for a holder of the note or whether BAC was the holder of the note by virtue of having the note in its possession.

Thus, BAC presented no evidence indicating that it was either the assignee of the mortgage or the holder of the note entitled to payment of the mortgage indebtedness at the time it foreclosed on Sturdivant’s mortgage. We must conclude that BAC failed to present a prima facie case in support of its summary-judgment motion that it had the authority to foreclose and, thus, had valid title to or the right to possess the property. Given BAC’s failure to present prima facie evidence of one of the elements of its claim in ejectment, we must reverse the summary judgment and remand the cause for further proceedings. See, e.g., Ross v. Wells Fargo Bank, N.A., 122 So. 3d 219, 223 (Ala. Civ. App. 2013) (The foreclosing entity conceded that, because of errors in the assignment of a mortgage, there existed a genuine issue of material fact regarding whether it had the authority to foreclose, and, therefore, whether it could maintain its action in ejectment.). Our resolution of these issues makes it unnecessary to address Sturdivant’s other arguments pertaining to the summary judgment.

REVERSED AND REMANDED.

Pittman, Thomas, Moore, and Donaldson, JJ., concur.

[1] According to the statement in the foreclosure deed, the sale was conducted “during the legal hours of sale” on December 1, 2009.

[2] We also note that Sturdivant contends that the mortgage and the note were separated. This court has held that such a separation does not render the note unenforceable. Nelson v. Federal Nat’l Mortg. Ass’n, 97 So. 3d 770, 775 (Ala. Civ. App. 2012).

[3] Even assuming that the statement of its attorney could be said to be evidence indicating that BAC was the servicer of the mortgage debt, a transfer of the rights to service a loan to an entity such as BAC might, but does not necessarily, transfer to the servicer the note secured by the mortgage. Nelson, 97 So. 3d at 777.

[4] None of the letters referenced in this paragraph was authored by BAC’s appellate counsel.

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

For the record this is a $9 Billion settlement NOT $13 Billion. See this for reference:  Settlement Agreement | FHFA Announces $5.1 Billion in Settlements with J.P. Morgan Chase & Co

UPDATE: As Shahien Nasiripour ? points out ” In JPM-DOJ statement of facts there’s mention of Clayton reports (http://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2010-0923-Clayton-All-Trending-Report.pdf … & http://www.huffingtonpost.com/2010/09/25/wall-street-subprime-crisis_n_739294.html …). Bad omen 4 other banks?“

UPDATE #2: JPMORGAN CFO SAYS $7 BILLION OF COMPENSATORY PAYMENTS WILL BE TAX DEDUCTIBLE –
$2B Civil Penalty Isn’t Tax Deductible

Department of Justice

Justice Department, Federal and State Partners Secure Record $13 Billion Global Settlement with JPMorgan for Misleading Investors About Securities Containing Toxic Mortgages

.

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

 

CITIBANK, N.A., TRUSTEE (SACO 2007-2),
v.
DEBRA LINDLAND, EXECUTRIX (ESTATE OF MADLYN LANDIN), ET AL.

No. (SC 18885).Supreme Court of Connecticut.Argued March 19, 2013.Officially Released September 17, 2013.Barbara M. Schellenberg, with whom were David A. Ball and, on the brief, Philip C. Pires, for the appellants (defendants Robert Olsen and 17 Ridge Road, LLC).

Peter A. Ventre, for the appellee (plaintiff).

Rogers, C. J., and Zarella, Eveleigh, McDonald and Espinosa, Js.^[*]

Opinion

ZARELLA, J.

The principal issue in this certified appeal is whether the trial court had authority to open a judgment of foreclosure by sale and related supplemental judgments after title had passed to the purchaser when a series of errors by the court and the parties caused the purchaser to buy a property that, unbeknownst to him but actually known by the second mortgagee, was in fact subject to a first mortgage that was to be foreclosed shortly thereafter. The defendant Robert Olsen, the purchaser, and the defendant 17 Ridge Road, LLC, a limited liability company in which Olsen has a 50 percent ownership interest, both of whom the trial court permitted to join this action,^[1] claim that the Appellate Court incorrectly concluded that the trial court lacked authority to open the judgments under the unique circumstances of the case. The plaintiff, Citibank, N.A., as trustee of SACO 2007-2, maintains that the Appellate Court correctly concluded that the trial court lacked authority to open the judgment of foreclosure and the supplemental judgments because title had vested in the purchaser. We reverse in part the judgment of the Appellate Court.

The record discloses the following facts and procedural history relevant to our resolution of the present appeal. The plaintiff, the mortgagee of the property at 17 Ridge Road in the town of Cromwell, initiated a foreclosure action against the named defendant, Debra Lindland, executrix of the estate of Madlyn Landin (estate), on May 5, 2008. In its complaint, the plaintiff alleged that the estate had defaulted on a mortgage loan secured by the subject property and disclosed that certain encumbrances, including a mortgage held by IndyMac Federal Bank, FSB (IndyMac), were prior in right to the plaintiff’s mortgage. IndyMac, which was represented by the same counsel as the plaintiff, pursued a separate foreclosure action on its mortgage.

On July 10, 2008, the plaintiff filed a motion for judgment of strict foreclosure, along with a foreclosure worksheet in support of the motion. The plaintiff’s foreclosure worksheet contained a significant computational error in that it represented that there was negative equity of $12,815.46. The actual amount of negative equity was, in fact, $72,815.46, a difference of $60,000.^[2] Despite this error, the foreclosure worksheet accurately disclosed that (1) the property had a fair market value of $305,000, (2) encumbrances on the property ahead of the plaintiff’s lien totaled $295,200, and (3) the debt arising out of the plaintiff’s second mortgage was $82,615.46.

On August 4, 2008, the plaintiff’s motion for judgment of strict foreclosure appeared on the short calendar. Citing a fair market value of $305,000 and an updated debt of $82,615.46, the trial court, Holzberg, J., determined that there was substantial equity in the property and rendered judgment of foreclosure by sale. The court failed to recognize the existence of the IndyMac priority debt of $295,200. The plaintiff’s counsel, who also represented IndyMac with respect to its prior mortgage, failed to bring this error to the court’s attention.

The court scheduled a foreclosure sale for October 4, 2008. John J. Carta, Jr., an attorney, was appointed as the committee for sale. In the course of his appointment, Carta posted a sign outside of the property, arranged for newspaper advertisements announcing the foreclosure sale, and prepared a notice to bidders to be read at the foreclosure sale. Although the notice to bidders purported to disclose the “encumbrances and restrictions. . . prior in right to the mortgage being foreclosed,” it listed only outstanding taxes that might be owed to the town of Cromwell because Carta, relying on the court’s foreclosure orders, had concluded that the mortgage subject to the foreclosure sale was a first mortgage. The posted sign, newspaper advertisement, and notice to bidders thus made no reference to the IndyMac mortgage. Carta later testified that, if he had known that the property was subject to a prior mortgage, he would have disclosed this information in the notice to bidders.

Prior to the sale, Olsen contacted his attorney, Stephen Small, to inquire about the property. Small, in turn, contacted Carta for additional information. On the basis of his discussion with Carta, Small reported to Olsen that the mortgage being foreclosed was a first mortgage. Small did not perform a title search or inspect the court file, land, or probate court records.

With a bid of $216,000, Olsen was the successful bidder at the foreclosure sale on October 4, 2008, and delivered a deposit of $30,500. Carta prepared a bond for deed, executed by Olsen, which disclosed that taxes owed to the town of Cromwell were prior in right to the plaintiff’s mortgage. The bond for deed, however, failed to disclose the existence of the prior IndyMac mortgage. The trial court, Jones, J., approved the sale on December 10, 2008.

On December 22, 2008, in the separate foreclosure action brought by IndyMac relating to IndyMac’s first mortgage on the property, a judgment of strict foreclosure was rendered. Law days were set for March 23, 2009, and subsequent days. Nevertheless, the plaintiff’s counsel, who concurrently represented IndyMac and the plaintiff in their respective foreclosure actions involving the same property, did not bring this development to the attention of the court, the committee, or Olsen or his attorney.

Meanwhile, Small prepared for the closing by performing a title search, which revealed the existence of the IndyMac mortgage and lis pendens. Small did not contact the parties or the court to clarify this situation, or request that the sale be set aside or postponed. Instead, Small reviewed an entry on the Judicial Branch website, which, due to a clerical error, incorrectly reported that the IndyMac mortgage had been satisfied. Small did not review the official court or land records, which would have revealed that the online entry was incorrect. Small thereafter issued a title insurance policy to Olsen that failed to except the IndyMac mortgage.

The closing took place on January 21, 2009. Olsen testified that he relied on Small’s assurances of title in closing the sale. Olsen tendered the balance of the purchase price to Carta, who delivered the committee deed to Olsen. Olsen immediately transferred his interest in the property to 17 Ridge Road, LLC, by quitclaim deed.

Following the closing, on February 2, 2009, the plaintiff filed a motion for determination of priorities and for supplemental judgment. In support of the motion, the plaintiff submitted an affidavit of debt, which incorrectly represented that the plaintiff was “the holder and owner of the first mortgage” on the property, even though the plaintiff’s counsel also represented IndyMac, the actual holder of the first mortgage, and therefore knew that IndyMac had obtained a judgment of strict foreclosure on December 22, 2008. (Emphasis added.) Thereafter, on February 26, 2009, the trial court ordered a disbursement of $91,854.27, which was paid to the plaintiff.^[3] The estate filed a similar motion several weeks later, which the court granted. Disbursement was stayed on April 14, 2009, and the court continues to hold the balance of the proceeds.

In the weeks following the closing, the defendants cleaned and restored the property, and paid the outstanding municipal taxes. On April 12, 2009, however, Olsen attempted to enter the property but discovered that a lock box had been installed, which prevented his access. Shortly thereafter, Olsen learned that IndyMac had a prior mortgage on the property and had obtained a judgment of strict foreclosure in December, 2008, several weeks before the closing took place. Consequently, 17 Ridge Road, LLC’s interest in the property, for which Olsen had paid $216,000, had been foreclosed.

In response, the defendants filed separate motions to be joined as parties in the present case, which the court, M. Taylor, J., granted. On April 23, 2009, Olsen filed a motion to open and to vacate the judgment of foreclosure by sale and the supplemental judgments (motion to open) that had allocated his purchase moneys between the plaintiff and the estate. Counsel for 17 Ridge Road, LLC, indicated to the trial court that it was joining Olsen’s motion to open.

The trial court conducted an evidentiary hearing on the motion to open before issuing a memorandum of decision on August 5, 2010. Among those testifying was the plaintiff’s expert witness, Dennis Anderson, an attorney with significant real estate and foreclosure experience, who opined that Small’s representation of Olsen fell below the standard of care. Anderson acknowledged, however, that the plaintiff could not reasonably have expected to receive $91,854.27 in proceeds from the foreclosure sale and that such amount effectively constituted a windfall.

In its memorandum of decision, the court, Holzberg, J., concluded that “the combination of Olsen’s $216,000 loss and the undeserved windfall of approximately $100,000 each to the plaintiff and the . . . estate require equity to intervene,” and therefore granted the motion to open. The trial court underscored the sui generis nature of this case, describing the “series of cascading mistakes” involved and predicting that such a “calamity” would never be repeated. With respect to the conduct of the plaintiff’s counsel, which it found “highly relevant to the disposition of this matter,” the trial court emphasized its significant concerns. The trial court noted in particular counsel’s unquestionable awareness of the IndyMac foreclosure due to his concurrent representation of IndyMac, his failure to correct the court’s mistaken impression despite this heightened awareness, and the affirmative representations during the supplemental judgment proceedings that the plaintiff was the holder of a first mortgage on the property. Specifically, the trial court explained that, “at the time of the entry of the judgment of foreclosure by sale, through and including the sale itself and subsequent closing, [the] plaintiff’s counsel or his firm was fully aware of the existence of the [prior] IndyMac mortgage. . . . That knowledge is indisputable because the same counsel represented IndyMac in the foreclosure of its first mortgage and filed notice of lis pendens on the land records with respect to both foreclosures. Further, [the] plaintiff’s counsel filed a series of motions for determination of priorities and supplemental judgment in the [present] action, in which [he] continued to incorrectly assert that [the plaintiff] was the holder of the first mortgage on the property . . . . Throughout the pendency of [the present] action, and as late as April 14, 2009, when the court granted the . . . estate’s motion for supplemental judgment, [the plaintiff’s] counsel inexplicably failed to raise the issue, despite multiple opportunities to correct the mistaken conclusion of the court, its committee, [Olsen] and [Olsen’s] attorney as to the priority of the [plaintiff’s] mortgage.”

After granting the motion to open, the trial court instructed Olsen to file a proposed order “specifying with particularity the relief [that] he seeks by way of a final order,” and invited all other parties to do so as well. In response, Olsen and 17 Ridge Road, LLC, jointly submitted proposed orders. The plaintiff then filed a motion in opposition to these proposed orders, and the trial court never issued a final order.

The plaintiff appealed to the Appellate Court from the trial court’s decision to grant the motion to open,^[4] claiming that the trial court (1) improperly opened the judgments because it lacked authority to do so, and (2) incorrectly concluded that the defendants had standing to pursue their claims against the plaintiff. See Citibank, N.A. v. Lindland, 131 Conn. App. 653, 656, 666, 27 A.3d 423 (2011). The Appellate Court agreed with the plaintiff on both claims and reversed the trial court’s decision. See id., 659, 670. Thereafter, the defendants appealed to this court, and we granted certification to appeal, limited to the following question: “Did the Appellate Court properly conclude that the trial court lacked the equitable authority to open a judgment of foreclosure by sale under the circumstances of this case?”^[5] Citibank, N.A. v. Lindland, 303 Conn. 906, 31 A.3d 1180 (2011).

The defendants claim that the Appellate Court failed to recognize that they sought a remedy relating to the proceeds from the sale rather than the property; thus, even if the trial court were stripped of jurisdiction over the property when title vested in the purchaser, the court still possessed authority to allocate the proceeds at the supplemental judgment proceedings in accordance with the equities of the case. Relatedly, the defendants claim that the Appellate Court incorrectly concluded that they lacked standing to intervene in the supplemental judgment proceedings during which the amount that Olsen paid for the property was to be allocated.

The defendants further claim that the Appellate Court incorrectly concluded that the trial court lacked authority to open the judgment of foreclosure because of the extraordinary factual circumstances of the case, in which virtually all of the actors involved in the transaction made errors, including the court and the committee as an arm of the court. Equitable relief is necessary in the present case, the defendants maintain, to correct the court’s own mistake and to prevent the plaintiff from obtaining an undeserved windfall, and the court is empowered to undertake such action when fraud, mistake, or surprise has inequitably infected the transaction. The defendants further note that, subject to certain equitable exceptions; see, e.g., New Milford Savings Bank v. Jajer, 244 Conn. 251, 260, 708 A.2d 1378 (1998); the legislature has, under General Statutes § 49-15, restricted the opening of judgments of strict foreclosure after title has vested in the encumbrancer, but no equivalent statutory proscription exists with respect to judgments of foreclosure by sale and the vesting of title in the purchaser. Thus, the defendants claim that the Appellate Court improperly expanded this rule without appropriately accounting for either this legislative distinction or the different status of a purchaser as compared to the holder of the equity of redemption.

The plaintiff, however, asserts that the Appellate Court correctly concluded that the trial court lacked authority to open the judgment of foreclosure in the present case after title had vested in the purchaser. Additionally, the plaintiff maintains that this appeal is moot because we did not grant certification on the issue of whether the Appellate Court correctly concluded that the defendants lacked standing; the plaintiff asserts that the Appellate Court therefore correctly and definitively resolved the issue of standing. The plaintiff alternatively maintains that, even if this court considers and resolves the standing question in favor of the defendants, equity cannot afford them relief under the facts of this case because the predicament facing the defendants was attributable, in part, to the conduct of their attorney and a lack of due diligence, and, therefore, was not “unmixed with negligence . . . .”^[6] (Internal quotation marks omitted.)

I

Because the defendants’ standing claim implicates our subject matter jurisdiction over this appeal; see, e.g., Soracco v. Williams Scotsman, Inc., 292 Conn. 86, 90, 971 A.2d 1 (2009); we begin by considering that claim. Before reaching the substance of the standing claim, however, we address preliminarily the plaintiff’s argument regarding whether this issue is appropriately before this court. Specifically, the plaintiff asserts that the manner in which we granted certification^[7] does not allow for review of the Appellate Court’s conclusion that neither Olsen nor 17 Ridge Road, LLC, had standing to join the present action as defendants and to seek to open the judgments. Accordingly, the plaintiff maintains that, under Practice Book § 84-9,^[8] the defendants may not challenge the Appellate Court’s determination that they lacked standing. We disagree.

As the defendants observe, this court did not grant certification with respect to the two distinct questions that they formulated^[9] but, rather, recast those questions into a single, broader question involving the propriety of the Appellate Court’s conclusions “under the circumstances of this case . . . .” Citibank, N.A. v. Lindland, supra, 303 Conn. 906. The defendants therefore contend that the certified question, as framed by this court, necessarily encompasses the Appellate Court’s conclusions concerning standing and the trial court’s authority to open the judgments, as both are intertwined under the unique factual circumstances of the present case. We agree with the construction of the certified question that the defendants advance and thus conclude that the issue of their standing is appropriately before us.

We also note that our framing of the certified question addressed the trial court’s authority to consider the motion to open the judgment of foreclosure and did not expressly refer to the supplemental judgments, whereas the question proposed by the defendants refers to “foreclosure judgments . . . .” The briefs of the parties and the decisions of the Appellate Court and the trial court have treated the issue as encompassing the motions to open the supplemental judgments, and, accordingly, we treat the motion to open the supplemental judgments as within the scope of, and ultimately dispositive of, the certified question.

We turn next to the issue of whether the Appellate Court correctly concluded that the trial court improperly had determined that the defendants had standing to be joined as defendants, and that their lack of standing deprived the trial court of jurisdiction to consider Olsen’s motion to open and to grant any relief requested therein. It is well established that, “[i]f a party is found to lack standing, the court is without subject matter jurisdiction to determine the cause. . . . A determination regarding a trial court’s subject matter jurisdiction is a question of law. When . . . the trial court draws conclusions of law, our review is plenary and we must decide whether its conclusions are legally and logically correct and find support in the facts that appear in the record.” (Internal quotation marks omitted.) Pond View, LLC v. Planning & Zoning Commission, 288 Conn. 143, 155, 953 A.2d 1 (2008).

With respect to the applicable legal principles, we have explained that “[s]tanding is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy.” (Internal quotation marks omitted.) Wilcox v. Webster Ins., Inc., 294 Conn. 206, 214, 982 A.2d 1053 (2009). Nevertheless, “[s]tanding is not a technical rule intended to keep aggrieved parties out of court; nor is it a test of substantive rights. Rather it is a practical concept designed to ensure that courts and parties are not vexed by suits brought to vindicate nonjusticiable interests and that judicial decisions which may affect the rights of others are forged in hot controversy, with each view fairly and vigorously represented.” (Internal quotation marks omitted.) Canty v. Otto, 304 Conn. 546, 556, 41 A.3d 280 (2012). “These two objectives are ordinarily held to have been met when a complainant makes a colorable claim of direct injury he has suffered or is likely to suffer, in an individual or representative capacity. Such a personal stake in the outcome of the controversy . . . provides the requisite assurance of concrete adverseness and diligent advocacy.” (Internal quotation marks omitted.) Pond View, LLC v. Planning & Zoning Commission, supra, 288 Conn. 155. “Standing [however] requires no more than a colorable claim of injury . . . .” (Internal quotation marks omitted.) Electrical Contractors, Inc. v. Dept. of Education, 303 Conn. 402, 411, 35 A.3d 188 (2012).

“It is axiomatic that aggrievement is a basic requirement of standing, just as standing is a fundamental requirement of jurisdiction. . . . There are two general types of aggrievement, namely, classical and statutory; either type will establish standing, and each has its own unique features.” (Citations omitted.) Soracco v. Williams Scotsman, Inc., supra, 292 Conn. 91-92.

“Classical aggrievement requires a two part showing. First, a party must demonstrate a specific, personal and legal interest in the subject matter of the [controversy], as opposed to a general interest that all members of the community share. . . . Second, the party must also show that the [alleged conduct] has specially and injuriously affected that specific personal or legal interest.” (Internal quotation marks omitted.) Pond View, LLC v. Planning & Zoning Commission, supra, 288 Conn. 156.

The Appellate Court nevertheless reasoned that, notwithstanding these principles, “a purchaser at a foreclosure sale who has consummated the closing . . . does not have standing to join the supplemental proceedings in order to seek the refund of his purchase price on the ground that a recorded, outstanding priority lien existed.” Citibank, N.A. v. Lindland, supra, 131 Conn. App. 668-69. The Appellate Court further explained that “supplemental proceedings in a foreclosure action are not a means by which foreclosure sale purchasers, dissatisfied with the condition of the property purchased or the title to the property received, may seek either abatement or [a] refund of the purchase price.” Id., 669. In the alternative, the Appellate Court also reasoned that, “even if a successful bidder at a foreclosure sale generally had a right to intervene in the supplemental proceedings to seek the return of his purchase price after taking title, which he does not, Olsen, who no longer had any individual interest in the property [because he had transferred it to 17 Ridge Road, LLC], could not pursue such right.” Id., 670. Thus, under the Appellate Court’s framework, there never would be a mechanism to correct the errors involved in this case because Olsen had transferred his interest in the property to 17 Ridge Road, LLC, and 17 Ridge Road, LLC, had not expended the funds used to purchase the property. See id.

The Appellate Court also explained that “[t]he purpose of supplemental proceedings is to adjudicate the rights of lienholders to the funds realized from the sale after the sale has been ratified by the court.” Id., 669. This is indisputably an important function of supplemental proceedings, but, as the authors of a leading treatise explain, “[t]he supplemental judgment performs a variety of functions. Not only does it ratify and confirm the sale, but it also determines the priorities of the encumbrancers and finds the debt due to each, as well as orders disbursement of the expenses of the sale and possession to the successful bidder.” (Footnote omitted.) 2 D. Caron & G. Milne, Connecticut Foreclosures (5th Ed. 2011) § 20-4:3, p. 55; see also 1 D. Caron & G. Milne, supra, § 9-1, p. 435. This description of the purposes of the supplemental judgment procedure suggests that it is the mechanism to adjudicate all claims on the proceeds paid into the court and to determine their priorities. This would include the claims of the mortgager and the purchaser, in addition to those of lienors.

By way of analogy, if a successful bidder at a closing mistakenly pays more than the agreed on amount because of an accounting error, and the error is not discovered until after title has vested in the purchaser, the purchaser would have standing to intervene to recoup the overpayment during the supplemental proceedings. We see no reason why a more restrictive standing approach would be warranted under the facts of the present case, given that, in both instances, the purchaser seeks to correct a procedural error relating to the circumstances surrounding the purchase.

In the present case, Olsen possessed a specific legal interest in the funds used to purchase the property. As we noted previously, Olsen, as the purchaser, expended $216,000 to obtain the property, which he immediately transferred to 17 Ridge Road, LLC, of which he had a 50 percent ownership interest; within three months of the closing, that interest had been foreclosed, and neither Olsen nor 17 Ridge Road, LLC, had received any benefit from Olsen’s acquisition. The supplemental judgments Olsen sought to open related to the distribution of the purchase moneys that Olsen had expended. Under the classical aggrievement test, in light of the fact that Olsen had caused the purchase moneys to be deposited with the court, which were subsequently allocated between the plaintiff and the estate, there can be little doubt that Olsen possessed a personal stake in the opening of the judgments and that he has demonstrated a colorable claim of injury. See, e.g., Pond View, LLC v. Planning & Zoning Commission, supra, 288 Conn. 155-56. Because “[s]tanding is not a technical rule intended to keep aggrieved parties out of court”; (internal quotation marks omitted) Canty v. Otto, supra, 304 Conn. 556; we conclude that the Appellate Court incorrectly determined that Olsen lacked standing under the circumstances of the present case.

With respect to the Appellate Court’s conclusion that 17 Ridge Road, LLC, lacked standing, however; see Citibank, N.A. v. Lindland, supra, 131 Conn. App. 670; we do not disturb that conclusion because that issue has been improperly briefed and therefore abandoned. “We repeatedly have stated that [w]e are not required to review issues that have been improperly presented to this court through an inadequate brief. . . . Analysis, rather than mere abstract assertion, is required in order to avoid abandoning an issue by failure to brief the issue properly. . . . [When] a claim is asserted in the statement of issues but thereafter receives only cursory attention in the brief without substantive discussion or citation of authorities, it is deemed to be abandoned.” (Internal quotation marks omitted.) Connecticut Light & Power Co. v. Gilmore, 289 Conn. 88, 124, 956 A.2d 1145 (2008); accord State v. T.R.D., 286 Conn. 191, 213-14 n.18, 942 A.2d 1000 (2008).

The defendants devote little more than one page of their brief to their standing argument, the bulk of which provides support for Olsen’s standing, not that of 17 Ridge Road, LLC. The defendants advance no specific reason why 17 Ridge Road, LLC, is aggrieved under the circumstances, other than to recite that it has been “divested of its ownership in the property.” Indeed, rather than establishing 17 Ridge Road, LLC’s aggrievement directly, the defendants simply describe Olsen’s injury and the inequity that would result if neither Olsen nor 17 Ridge Road, LLC, was able to seek reimbursement. Accordingly, we conclude that the defendants inadequately briefed the issue of 17 Ridge Road, LLC’s standing to intervene as a defendant, and, therefore, the issue is deemed abandoned.

II

We turn next to the primary issue in this appeal, namely, whether the Appellate Court correctly concluded that the trial court lacked authority to open the judgment of foreclosure and related supplemental judgments in this case after title had vested in Olsen, the purchaser. It is well established that “[a] foreclosure action is an equitable proceeding . . . [and that] [t]he determination of what equity requires is a matter for the discretion of the trial court.” (Internal quotation marks omitted.) Deutsche Bank National Trust Co. v. Angle, 284 Conn. 322, 326, 933 A.2d 1143 (2007). Similarly, the determination of whether to grant a motion to open a judgment rests in the trial court’s sound discretion. See, e.g., Priest v. Edmonds, 295 Conn. 132, 138, 989 A.2d 588 (2010); see also Chapman Lumber, Inc. v. Tager, 288 Conn. 69, 95, 952 A.2d 1 (2008) (“We do not undertake a plenary review of the merits of a decision of the trial court to grant or to deny a motion to open a judgment. The only issue on appeal is whether the trial court has acted unreasonably and in clear abuse of its discretion.” [Internal quotation marks omitted.]).

The issue before us in the present case, however, is not whether the trial court properly exercised its discretion in granting the motion to open but, rather, whether the trial court had authority to do so under the circumstances of this case. See, e.g., AvalonBay Communities, Inc. v. Plan & Zoning Commission, 260 Conn. 232, 239-40, 796 A.2d 1164 (2002). This presents a question of law over which we exercise plenary review. See id. (“Whether the trial court had the power to issue the order, as distinct from the question of whether the trial court properly exercised that power, is a question involving the scope of the trial court’s inherent powers and, as such, is a question of law. . . . Accordingly, our review is plenary.” [Citation omitted.]).

Olsen^[10] advances several arguments in support of his position that the Appellate Court incorrectly concluded that the trial court lacked authority to grant the motion to open. Olsen claims that, in evaluating the trial court’s authority to open the judgments, the Appellate Court improperly focused solely on the trial court’s authority over the foreclosed property, rather than the proceeds from the sale implicated in the supplemental judgment proceedings, a portion of which is still being held by the court. Olsen further claims that the Appellate Court incorrectly concluded that the trial court lacked authority to open the judgments in the present case, asserting that, under this court’s precedent, a trial court is authorized to open a judgment of foreclosure when equity so requires, and this court never has recognized the vesting of title as an absolute bar to the opening of a judgment of foreclosure by sale. Finally, Olsen asserts that the decision of the Appellate Court improperly narrowed the import of this court’s decision in Citicorp Mortgage, Inc. v. Burgos, 227 Conn. 116, 629 A.2d 410 (1993), limiting it to cases of fraud, rather than to fraud, mistake, and surprise.

The plaintiff, by contrast, maintains that the Appellate Court correctly concluded that the trial court improperly had determined that it possessed authority to grant the motion to open in the present case because title had vested in the purchaser, which strips the court of its jurisdiction over the property. The plaintiff further asserts that, although the proceeds from the sale then take the place of the property, and the court has jurisdiction over the proceeds such that it may conduct supplemental proceedings to distribute the proceeds, the Appellate Court correctly concluded that a purchaser cannot intervene in supplemental proceedings to seek a refund of the purchase price because of the limited functions of such proceedings. Finally, in response to Olsen’s claim regarding the Appellate Court’s construction of our decision in Burgos, the plaintiff asserts that there was no mistake or surprise in the present case to justify equitable relief under Burgos. We agree with Olsen as to his supplemental judgment claim and, therefore, need not reach his remaining arguments.

With respect to the supplemental judgment proceedings, the Appellate Court observed that, “[o]nce title to the property vests in the purchaser, the property itself is placed beyond the power of the court. . . . At that point, the proceeds from the sale take the place of the property, and the court engages in whatever supplemental proceedings may be required to distribute those proceeds.” (Citation omitted.) Citibank, N.A. v. Lindland, supra, 131 Conn. App. 663.

As Olsen explains, however, he does not seek any remedy relating to the property itself; it is the proceeds from the sale and the restitution thereof that is at issue. Thus, in Olsen’s view, the trial court’s authority over the property is immaterial because he does not seek title to the property, and the court’s authority over the proceeds of the sale is clear.^[11] See General Statutes § 49-27. We agree.

Although the Appellate Court acknowledged that the vesting of title did not strip the court of its jurisdiction over the proceeds from the sale; see Citibank, N.A. v. Lindland, supra, 131 Conn. App. 663; it nevertheless concluded that a purchaser could not intervene in supplemental proceedings to seek a return of the purchase price, even under the circumstances of the present case, because of the function of supplemental judgment proceedings. Id., 668-69. As we discussed previously, however, supplemental judgments serve many functions, some of which may indeed involve the purchaser. See 2 D. Caron & G. Milne, supra, § 20-4:3, p. 55 (“The supplemental judgment performs a variety of functions. Not only does it ratify and confirm the sale, but it also determines the priorities of the encumbrancers and finds the debt due to each, as well as orders disbursement of the expenses of the sale and possession to the successful bidder.” [Footnote omitted.]); see also 1 D. Caron & G. Milne, supra, § 9-1, p. 435. Nothing about the nature of the supplemental judgment compels the conclusion that the court is stripped of its jurisdiction over the proceeds of the sale once the purchaser takes title to the property.

We therefore are persuaded that the supplemental judgment process comfortably accommodates a limited role for the purchaser under circumstances such as those in the present case. Moreover, because we concluded that Olsen did have standing to join the supplemental proceedings, we conclude that there is no jurisdictional barrier to the trial court’s opening of the supplemental judgments in the present case. Because the relief that Olsen seeks relates to the proceeds from the sale, rather than to the property itself, and, therefore, would be addressed within the supplemental judgment process without regard to the status of the property, our conclusion that the trial court had jurisdiction to open the supplemental judgments in the present case obviates the need to resolve whether the Appellate Court correctly determined that the passing of title divested the trial court of jurisdiction to open the judgment of foreclosure by sale.^[12] Accordingly, we reverse the judgment of the Appellate Court insofar as that court concluded that the trial court lacked authority to open the supplemental judgments.

III

A

As an alternative ground for affirmance, the plaintiff claims that the Appellate Court correctly concluded that the trial court lacked authority to open the judgment of foreclosure and related supplemental judgments in the present case because Olsen failed to file a timely motion to open the judgments as required under General Statutes § 52-212a,^[13] thereby depriving the trial court of authority to consider such a motion. The plaintiff maintains that the trial court no longer was empowered to entertain a motion to open the judgment of foreclosure and the supplemental judgments as of four months after August 4, 2008, the date on which the trial court rendered judgment of foreclosure by sale.

In applying § 52-212a, the Appellate Court considered both August 4, 2008, and December 10, 2008, the date on which the committee sale was approved, and posited that the motions were untimely using either date. Citibank, N.A. v. Lindland, supra, 131 Conn. App. 661. Framing this restriction “as one affecting the court’s substantive authority rather than . . . its jurisdiction,”^[14] however; id.; the Appellate Court determined that it was “not presented with a situation in which the timeliness of the motion pursuant to § 52-212a is dispositive . . . .” Id. Instead, the Appellate Court relied on this court’s statement that “[o]ur case law on [§ 52-212a] recognizes that, in some situations, the principle of protection of the finality of judgments must give way to the principle of fairness and equity.” (Internal quotation marks omitted.) Id., quoting Kim v. Magnotta, 249 Conn. 94, 109, 733 A.2d 809 (1999); cf. Connecticut Savings Bank v. Obenauf, 59 Conn. App. 351, 356, 758 A.2d 363 (2000) (“[when] there is a judicial action of a trial court that requires a change in a judgment because it affects justice, an appellate court should effect that change” [internal quotation marks omitted]).

Although we agree that § 52-212a does not alter the outcome of this action, we analyze the time constraints in a manner different from the Appellate Court. As we noted in part II of this opinion, the defendants, in their briefs and at oral argument before this court, explained that Olsen sought only a return of the purchase price and did not seek any relief relative to the property itself. Thus, because the purchase price was allocated between the plaintiff and the estate during the supplemental judgment proceedings, rather than the proceedings leading to the judgment of foreclosure by sale, we conclude that February 26, 2009, the date on which the trial court rendered supplemental judgment and allocated $91,854.27 to the plaintiff, is the relevant date for purposes of § 52-212a. Cf. Nelson v. Dettmer, 305 Conn. 654, 672, 676, 46 A.3d 916 (2012) (evaluating “when a judgment sought to be set aside is `rendered or passed’ under § 52-212a” and determining that four month period began on date of denial of motion to reargue, not date on which original judgment was rendered). Because Olsen filed his motion to open on April 23, 2009, which was well within four months of February 26, 2009, we conclude that § 52-212a did not limit the trial court’s authority to open the supplemental judgments, which thereby could enable the court to order that the purchase price be returned to Olsen.

If we were instead to conclude that the date on which judgment of foreclosure by sale was rendered, rather than the date on which the supplemental judgment was rendered, governed the operation of § 52-212a, the results would prove anomalous and illogical. Under such an interpretation, a supplemental judgment that is rendered more than four months after the judgment of foreclosure is rendered—as in the present case— never could be opened. Yet, a supplemental judgment is, by definition, a type of judgment, and we cannot fathom why a motion to open could not be directed at a supplemental judgment just as it can be directed at any other judgment. This further supports our conclusion that the trial court’s authority to open the supplemental judgments in the present case was not precluded by the four month limitation set forth in § 52-212a.

B

Finally, the plaintiff offers several other alternative grounds for affirming the judgment of the Appellate Court, all of which essentially depend on the plaintiff’s assertion that the conduct of Olsen’s counsel precludes the trial court from exercising its equitable authority.^[15] Although the plaintiff frames these arguments in terms of challenging the trial court’s authority to consider the motion to open, these claims instead appear to challenge the relief that the trial court may award to Olsen once the judgments are opened.

It is well established that our review is limited to appeals from final judgments. See General Statutes § 52-263. As we noted previously; see footnote 4 of this opinion; a decision on a motion to open a judgment ordinarily is not considered a final judgment from which an appeal may lie. See, e.g., Nelson v. Dettmer, supra, 305 Conn. 672. An exception applies when, as in the present case, the appeal challenges the trial court’s authority to open the judgment. See id. The plaintiff’s arguments regarding the purported negligence of Olsen’s attorney and the effect of the lis pendens statute, however, seek to prevent the trial court from exercising its discretion to fashion an equitable remedy after having opened the judgment. Such issues are not properly before this court because the appeal was taken from the granting of the motion to open, and the trial court had not issued a final order. Accordingly, these additional arguments are beyond the scope of our review.^[16]

We note that the record reflects the aforementioned “highly relevant” conduct of the plaintiff’s counsel, who elected to remain silent in the face of a known mistake rather than to bring the error to the trial court’s attention. As we noted previously, the plaintiff’s counsel also represented IndyMac, and, therefore, was aware that IndyMac had obtained a judgment of strict foreclosure on December 22, 2008. Nevertheless, the plaintiff’s counsel did not bring this fact to the attention of the court, the committee, or Olsen, the purchaser, prior to the closing on January 21, 2009. And yet, the plaintiff’s counsel still sought a distribution of the proceeds of the sale, representing to the court in an affidavit of debt that the plaintiff was the holder of the first mortgage on the property. The conduct of the plaintiff’s counsel in failing to correct the misimpression that his client was the holder of a first mortgage, and in affirmatively representing as much in subsequent submissions to the court for the purpose of obtaining a disbursement of the proceeds of the sale, raises significant concerns.^[17] Accordingly, on remand, the trial court should conduct a hearing to determine whether such conduct warrants a referral to the Statewide Grievance Committee or an exercise of its disciplinary authority under Practice Book § 2-44.^[18]

The judgment of the Appellate Court is reversed insofar as that court determined that Olsen lacked standing to intervene in the case and that the trial court lacked authority to grant Olsen’s motion to open with respect to the supplemental judgments, and the case is remanded to the Appellate Court with direction to remand the case to the trial court with direction to grant Olsen’s motion to open with respect to the supplemental judgments only and for further proceedings according to law; the judgment of the Appellate Court is affirmed in all other respects.

In this opinion the other justices concurred.

 

[*] This appeal was originally scheduled to be argued before a panel of this court consisting of Chief Justice Rogers and Justices Palmer, Zarella, Eveleigh, McDonald, Espinosa and Vertefeuille. Justice Vertefeuille, however, has not participated in the argument of this case, and neither Justice Palmer nor Justice Vertefeuille has participated in the decision of this case.

 

[1] The named defendant, Debra Lindland, executrix of the estate of Madlyn Landin, did not take part in this appeal, nor did Lindland in her individual capacity, David Landin, Donna Hassler, Middlesex Hospital, or the Connecticut Department of Revenue Services, who also were named as defendants in the complaint. In the interest of simplicity, we hereinafter refer to Olsen and 17 Ridge Road, LLC, collectively as the defendants.

 

[2] The plaintiff’s expert witness, Dennis Anderson, later acknowledged this error and agreed that the plaintiff had a duty to present the court with correct calculations.

 

[3] In the trial court’s memorandum of decision on Olsen’s motion to open the foreclosure judgment, the trial court clarified that it was unaware of the existence of the prior IndyMac mortgage when it rendered the supplemental judgments.

 

[4] “Although it is well established that an order opening a judgment ordinarily is not a final judgment [for purposes of appeal] . . . [t]his court . . . has recognized an exception to this rule [when] the appeal challenges the power of the court to act to set aside the judgment. . . . Thus, [a]n order of the trial court opening a judgment is . . . an appealable final judgment [when] the issue raised is the power of the trial court to open [the judgment] in light of the four month limitation period of [General Statutes] § 52-212a.” (Internal quotation marks omitted.) Nelson v. Dettmer, 305 Conn. 654, 672, 46 A.3d 916 (2012).

 

[5] Although the parties, the trial court, and Appellate Court use the phrase “equitable authority,” we note that what is at issue is not the court’s exercise of its discretion to open the judgment and grant whatever relief is appropriate but, rather, the court’s authority to act. See part II of this opinion. Accordingly, we refer simply to the court’s authority to open the judgment rather than its equitable authority.

 

[6] The plaintiff’s arguments regarding the negligence of Olsen’s attorney and the effect of the lis pendens statute do not address the trial court’s authority to open the judgment but, rather, are directed at the relief that the defendants seek. Thus, for the reasons set forth in part III B of this opinion, these arguments are beyond the limited scope of our review in the present case.

 

[7] As we noted previously, our grant of certification in the present case was limited to the following question: “Did the Appellate Court properly conclude that the trial court lacked the equitable authority to open a judgment of foreclosure by sale under the circumstances of this case?” Citibank, N.A. v. Lindland, supra, 303 Conn. 906.

 

[8] Practice Book § 84-9 provides in relevant part: “The issues which the appellant may present are limited to those raised in the petition for certification, except where the issues are further limited by the order granting certification.”

 

[9] In their petition for certification, the defendants requested that we consider the following questions: (1) “Did the Appellate Court improperly determine that the trial court lacked jurisdiction to open foreclosure judgments after title had vested, where the trial court acted on equitable grounds to [prevent] the foreclosing bank and defaulting mortgagor from receiving undeserved windfalls, and where the erroneous judgments resulted from a `series of cascading mistakes’ made by: 1) the trial court; 2) the committee; 3) the court clerk; 4) the foreclosing bank; 5) the bank’s attorney; and 6) the purchaser’s attorney?”

 

(2) “Did the Appellate Court improperly determine that a purchaser who was misled at a foreclosure sale and suffered a substantial monetary loss as a result, and that purchaser’s company, which obtained title to the property contemporaneously with the purchaser, lacked standing to seek [a] refund of the purchase price paid for that property at the sale?”

 

[10] Because of our conclusion in part I of this opinion that the issue of 17 Ridge Road, LLC’s standing has been abandoned, we hereinafter refer only to Olsen’s claims.

 

[11] The court’s authority with respect to the proceeds of the sale is expressly set forth in General Statutes § 49-27, which provides in relevant part: “The proceeds of each such sale shall be brought into court, there to be applied if the sale is ratified, in accordance with the provisions of a supplemental judgment then to be rendered in the cause, specifying the parties who are entitled to the same and the amount to which each is entitled. . . .”

 

[12] We note, however, that this court never has adopted this purported requirement, and the legislature likewise has limited the title based statutory restriction to the context of judgments of strict foreclosure. See General Statutes § 49-15. Moreover, despite this statutory bar, we previously have concluded that opening a judgment after title has vested in a strict foreclosure case is permissible if equity so requires. See New Milford Savings Bank v. Jajer, supra, 244 Conn. 257, 260. In Jajer, the plaintiff, New Milford Savings Bank, brought an action for foreclosure in which the plaintiff inadvertently referred to only two of the three properties included in the original mortgage conveyance. Id., 253. After the trial court rendered a judgment of strict foreclosure and title had vested in the plaintiff, the plaintiff became aware of the defect in its foreclosure action, which caused title to the omitted property to remain clouded. See id., 253-54. The trial court granted the plaintiff’s motion to open the judgment of strict foreclosure and permitted it to amend its foreclosure complaint to include the inadvertently omitted parcel. Id., 254. The Appellate Court reversed the judgment of the trial court, concluding that, by operation of § 49-15, the trial court lacked the authority to open the judgment after title had vested absolutely in the plaintiff. Id., 254-55. This court reversed the Appellate Court’s judgment, concluding that the trial court did have jurisdiction to open the judgment of foreclosure. Id., 260, 264, 268. We explained that “the equitable nature of foreclosure proceedings persuades us that § 49-15 does not preclude the trial court from exercising its discretion to open the judgment of strict foreclosure in the circumstances of [the] case.” Id., 257.

 

The court in Jajer also explained that “foreclosure is peculiarly an equitable action”; (internal quotation marks omitted) id., 256; and, therefore, “the trial court may examine all relevant factors to ensure that complete justice is done.” (Internal quotation marks omitted.) Citicorp Mortgage, Inc. v. Burgos, supra, 227 Conn. 120.

 

[13] General Statutes § 52-212a provides in relevant part: “Unless otherwise provided by law and except in such cases in which the court has continuing jurisdiction, a civil judgment or decree rendered in the Superior Court may not be opened or set aside unless a motion to open or set aside is filed within four months following the date on which it was rendered or passed. . . .”

 

[14] “[T]he issue of subject matter jurisdiction is distinct from the authority to act under a particular statute. Subject matter jurisdiction involves the authority of a court . . . to adjudicate the type of controversy presented by the action before it. . . . A court . . . does not truly lack subject matter jurisdiction if it has competence to entertain the action before it. . . . Although related, the court’s . . . authority to act pursuant to a statute is different from its subject matter jurisdiction. The power of the court . . . to hear and determine, which is implicit in jurisdiction, is not to be confused with the way in which that power must be exercised in order to comply with the terms of the statute.” (Internal quotation marks omitted.) Pereira v. State Board of Education, 304 Conn. 1, 43 n.30, 37 A.3d 625 (2012).

 

[15] Specifically, the plaintiff offers the following additional grounds for affirming the judgment of the Appellate Court: (1) the negligence of Olsen’s attorney; (2) the imputation of such negligence to Olsen under principles of agency; (3) the operation of the lis pendens statute, which gave Olsen and his attorney constructive notice of the first mortgage; and (4) the doctrine of superseding cause, under which the plaintiff claims that the negligence of Olsen’s attorney, although not the sole cause of Olsen’s loss, was the superseding cause of that loss.

 

[16] Even if we were to accept the plaintiff’s arguments that these factors limited the trial court’s authority to open the judgments in this case, we would regard with skepticism the plaintiff’s assertion that equity precludes Olsen from obtaining any relief on the ground that Olsen’s attorney, like virtually every actor but Olsen himself, made mistakes that contributed to Olsen’s plight and the plaintiff’s windfall. See, e.g., Farmers & Mechanics Savings Bank v. Sullivan, 216 Conn. 341, 354, 579 A.2d 1054 (1990) (“[s]ince a mortgage foreclosure is an equitable proceeding, either a forfeiture or a windfall should be avoided if possible”). In support of this position, the plaintiff relies on a long line of cases that have limited the application of equitable relief when the party seeking such relief has played a role in creating the predicament at issue. See, e.g., Duncan v. Milford Savings Bank, 134 Conn. 395, 401-403, 58 A.2d 260 (1948); Palverari v. Finta, 129 Conn. 38, 43, 26 A.2d 229 (1942); Hoey v. Investors’ Mortgage & Guaranty Co., 118 Conn. 226, 231, 171 A. 438 (1934); Hayden v. R. Wallace & Sons Mfg. Co., 100 Conn. 180, 186-88, 123 A. 9 (1923); Jarvis v. Martin, 77 Conn. 19, 20-21, 58 A. 15 (1904). As we traditionally have explained, “[e]quity will not, save in rare and extreme cases, relieve against a judgment rendered as the result of a mistake on the part of a party or his counsel, unless the mistake is unmixed with negligence, or . . . unconnected with any negligence or inattention on the part of the judgment debtor, or . . . when the negligence of the party is not one of the producing causes.” (Internal quotation marks omitted.) Jarvis v. Martin, supra, 21. Granting relief to Olsen in the present case, however, would not constitute a departure from this long established principle. Instead, we are of the view that the circumstances of the present case, which the trial court aptly described as “sui generis,” constitute precisely the sort of “rare and extreme [case]”; Jarvis v. Martin, supra, 21; in which equity permits a court to provide relief in response to an egregious mistake. See Lomas & Nettleton Co. v. Isacs, 101 Conn. 614, 620-21, 127 A. 6 (1924) (observing that this court has “upheld the power of a court of equity to grant relief from the consequences of an innocent mistake, although the mistake was not unmixed with negligence . . . and although it was a mistake of law . . . [when] the failure to do so would allow one to enrich himself unjustly at the expense of another” [citations omitted]). This is particularly true in the present case given the “highly relevant” conduct of the plaintiff’s counsel in creating these extraordinary circumstances and given the ease with which this predicament might have been averted if the plaintiff’s counsel had addressed the court with greater accuracy.

 

[17] We express no view regarding the conduct of the plaintiff’s counsel but merely recite facts from the record of this case that give us cause for concern.

 

[18] Practice Book § 2-44 provides in relevant part: “The superior court may, for just cause, suspend or disbar attorneys . . . .”

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

 

By Susan Chana Lask, Esq.

Foreclosure complaints routinely allege that because homeowners fail to pay their mortgage then the bank must take the home to recover its losses.  However, the bank may not be at a loss according to the Pooling and Servicing Agreement (“PSA”) trusts terms. Notably, banks never inform the courts of the PSA terms in their foreclosure complaints.

To establish a prima facie case in an action to foreclose a mortgage, the plaintiff bank must establish “the existence of the mortgage and mortgage note, ownership of the mortgage and note, and the Defendant’s default in payment.”  Campaign v. Barba, 23 AD3d 327 (2^nd Dept. 2005). The PSA is the insurance existing specifically to protect the banks from  homeowner’s default, which by its terms always pays any defaulting mortgage and other fees, including real estate taxes. Logically, if the bank is paid then there is no default or damage to the bank.  How can a loan be in default if the servicer advanced every payment to cover any alleged default?

For example, the PSA for a trust called OAR2 names not one but two servicers as Wells Fargo Bank, N.A. (the master servicer and securities administrator) and Wilshire Credit Corporation. Those servicers are responsible to advance payments to protect all mortgaged property in the trust in the event a homeowner defaults in payment (at PSA pages 53 and 116) as follows:

“Servicing Advances: All customary, reasonable and necessary “out of pocket” costs and expenses incurred in the performance by a Servicer of its servicing obligations hereunder, including, but not limited to, the cost of (1) the preservation, inspection, restoration and protection of a Mortgaged Property, including without limitation advances in respect of prior liens, real estate taxes and assessments, (2) any collection, enforcement or judicial proceedings, including without limitation foreclosures, collections and liquidations, (3) the conservation, management, sale and liquidation of any REO Property, (4) executing and recording instruments of satisfaction, deeds of reconveyance, substitutions of trustees on deeds of trust or Assignments of Mortgage to the extent not otherwise recovered from the related Mortgagors or payable under this Agreement, (5) correcting errors of prior servicers; costs and expenses charged to such Servicer by the Trustee; tax tracking; title research; flood certifications; and lender paid mortgage insurance, (6) obtaining or correcting any legal documentation required to be included in the Mortgage Files and reasonably necessary for the Servicer to perform its obligations under this Agreement and (7) compliance with the obligations under Sections 13.01 and 13.10.”  and

“Section 6.04 Advances. If the Monthly Payment on a Mortgage Loan that was due on a related Due Date and is Delinquent other than as a result of application of the Relief Act and for which the applicable Servicer was required to make an advance pursuant to this Agreement exceeds the amount deposited in the Master Servicer Collection Account that will be used for a Advance with respect to such Mortgage Loan, the Master Servicer will deposit in the Master Servicer Collection Account not later than the Distribution Account Deposit Date immediately preceding the related Distribution Date an amount equal to such deficiency, net of the Servicing Fee for such Mortgage Loan, except to the extent the Master Servicer determines any such Advance to be nonrecoverable from Liquidation Proceeds, Insurance Proceeds or future payments on the Mortgage Loan for which such Advance was made. If the Master Servicer has not deposited the amount described above as of the related Distribution Account Deposit Date, the Trustee will, subject to applicable law and its determination of recoverability, deposit in the Master Servicer Collection Account not later than the related Distribution Date, an amount equal to the remaining deficiency as of the Distribution Account Deposit Date. Subject to the foregoing, the Master Servicer shall continue to make such Advances through the date that the applicable Servicer is required to do so under the Applicable Servicing Agreement. If applicable, on the Distribution Account Deposit Date, the Master Servicer shall present an Officer’s Certificate to the Securities Administrator (i) stating that the Master Servicer elects not to make a Advance in a stated amount and (ii) detailing the reason it deems the advance to be nonrecoverable.”

Pursuant to the above PSA terms, if a homeowner misses a payment under the loan then the servicer makes the payment.  Moreover, the PSA terms mandate that the servicer is obligated to commence foreclosure proceedings, not the trustee that is usually the bank named as the plaintiff in every foreclosure complaint. In fact, review the foreclosure complaint carefully because in a recent HSBC foreclosure complaint I reviewed they plaintiff bank states it “or its agent has paid” the charges for the premises.  “Or its agent” is the servicer pursuant to the PSA terms and conclusively then the servicer who paid the fees is the real party suffering damages.  Conspicuously, that complaint like all complaints fails to state the fact that the servicer advances all defaulted monthly payments whenever a homeowner defaults. Foreclosure complaints then are actually requests for permission from the courts by banks who are not the real party in interest to double-dip and profit hand over fist first from the servicer who paid them and then from the homeowner. Lets not forget the fact that they also profited from slicing and dicing the mortgage into various Mortgage Backed Securities (“MBS”) sold to investors through the PSAs.

I am not proposing that homeowners should not pay their loans; however, consistent with the facts of most foreclosure cases between the “too big to fail” banks and the homeowners is the fact that the banks created this system of selling mortgages knowing homeowners would default then banks refuse to workout loans and communicate with homeowners before and during their foreclosure filings. My position is that if the banks want to profit from the plight they caused homeowners when they created MERS[1] and all their layers of protection with PSAs and MBS’ filed with the SEC then the banks better stop the BS and prove their case with more than shoddy and fictional mass produced foreclosure documents.  

To expose the double dipping docket of baseless foreclosure complaints, ask the court to review an accounting from the plaintiff banks of who got paid what and from whom and how many times the bank got paid on the same mortgage from the PSA, servicers, investors of the MBS’ and everywhere else they received payment from that loan. The court may find that a bank is not the plaintiff, there is no case and some servicer and/or investors out there need to come forth. “Will the real slim shady please stand up?”[2]

Susan Chana Lask is an author, lecturer and accomplished attorney litigating in State and Federal Courts, including the United States Supreme Court for the past 25 years. She is named by the media as “New York’s High Profile Attorney” who consistently makes headlines worldwide and changes history with her controversial dogged lawsuits. Her 2010 lawsuit shut down the country’s most notorious Foreclosure Mill in New York State for the benefit of the public suffering from fraudulent foreclosure filings. In 2011 she appeared before the Supreme Court of the United States with the support of five Attorneys General where she obtained a historical decision that strip searching non-criminal offenders is unacceptable unless they are in the general population. Her 2006 lawsuit against the makers of Ambien resulted in the FDA complying with her demands to change prescription drug warnings to protect some 26 Million consumers. Her cases are monumental and have changed history.

Follow Ms. Lask on twitter @SusanChanaLask

This article is for informational purposes only. It is not legal advice. You should seek counsel from a licensed attorney if you have legal questions.

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

Even if this were a real liar’s loan (i.e., when the borrower had truly, and voluntarily, lied in her loan application), the original lender might well have had a cause of action for fraud, but not the successor holder of the mortgage, to whom no such lies had been told. Heritage’s standing was as an assignee, not as a victim.

REFinBlog-

The same appellate panel that delivered a terrifying punch to the residential lending industry a few months ago in Jolley v Chase Home Fin., LLC (2013) 213 CA4th 872, reported at 36 CEB RPLR 46 (Mar. 2013) (which is now official, since the supreme court declined to review it), has now given another branch of that industry an equally frightening setback in Heritage Pac. Fin., LLC v Monroy (2013) 215 CA4th 972. More fully described on p 84 of this issue, the case concerned a financial institution (Heritage) whose business model involved buying up defaulted junior mortgages that had already been rendered worthless by senior foreclosures, and then attempting to collect whatever it could from the former mortgagors, even when-as in this case-those mortgages were purchase money loans, and therefore uncollectible because of CCP §580b’s one-action rule.

After acquiring Ms. Monroy’s mortgage and sending three demand letters to her, Heritage discovered that she had apparently falsified her income on her original loan application and had wrongly represented the purchase as an arm’s-length transaction when, in fact, she was buying the house from her son. Emboldened by these discoveries, Heritage wrote Monroy again and also filed a complaint against her for fraud. She responded by cross-complaining that Heritage was violating the California and federal Fair Debt Collection Practices Acts.

After a lot of procedural skirmishing, the trial court sustained Monroy’s demurrer to Heritage’s complaint and granted summary judgment to her on her cross-complaint, awarding her $1 in damages but also $90,000 in attorney fees and costs. All of this was affirmed on appeal.

The published and lengthy appellate decision, although sometimes surprising in its reasoning, gives a good deal of guidance to practitioners-especially those who represent creditors and their collection arms or cohorts-as to the many dangers lurking in attempts to collect residential debt obligations too energetically.

Careless Handling of Assignments …

continue reading [REFinBlog]

 

Filed 3/29/13  Heritage Pacific Financial v. Monroy CA1/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

 

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b).  This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. 

 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION TWO

 

HERITAGE PACIFIC FINANCIAL, LLC,               Plaintiff, Cross-defendant, and               Appellant, v. MARIBEL MONROY,               Defendant, Cross-complainant, and               Respondent.

A135274, A136043         (Contra Costa County       Super. Ct. No. C10-01607)

Maribel Monroy executed two promissory notes with WMC Mortgage Corp. (WMC) when purchasing a home in Richmond, California in 2006 (the Richmond property).  After a foreclosure on the senior deed of trust, Heritage Pacific Financial, LLC (Heritage) acquired Monroy’s second promissory note from WMC.  Heritage sent Monroy a letter attached to a complaint and summons advising her that Heritage had filed a lawsuit against her alleging various fraud claims.  The letter admonished that any misinformation provided by Monroy on her original loan application with WMC could result in civil liability and that Heritage would proceed with a lawsuit if it were unable to resolve the matter with Monroy.  Monroy filed a cross-complaint against Heritage, alleging violations of the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) and the federal Fair Debt Collection Practices Act (FDCPA or the Act).

              After permitting Heritage to amend its complaint three times, the trial court sustained Monroy’s demurrer against Heritage’s pleading on the grounds that Heritage had failed to provide or allege an assignment agreement with sufficient particularity to demonstrate that the assignment of Monroy’s promissory note included an intent to assign WMC’s tort claims against the borrower.  Thereafter, Monroy moved for summary judgment or adjudication on her cross-complaint.  The court denied her motion as to her claim of a violation of the Rosenthal Act but granted the motion as to a violation of the FDCPA, on the condition that Monroy agree to damages in the amount of one dollar.  Monroy agreed to the damage award of one dollar and the court entered judgment in her favor.  Subsequently, Monroy requested attorney fees and costs under title 15 of the United States Code section 1692k(a)(3), and the court found that Monroy was the prevailing party and entitled to attorney fees and costs in the amount of $89,489.60.  The court concluded that the issues regarding the cross-complaint and complaint were interrelated and could not be reasonably separated.  Heritage separately appealed the judgment and the award of attorney fees and we, on our own motion, consolidated the appeals.

              On appeal, Heritage argues that it sufficiently set forth allegations to support a claim that the assignment from WMC included an intent to assign WMC’s tort claims against Monroy and that the trial court improperly weighed the evidence when sustaining the demurrer without leave to amend.  It also contends that triable issues of fact exist regarding Monroy’s FDCPA claim and therefore the trial court erred in granting summary judgment.  Finally, it objects to the award and amount of attorney fees.  We are not persuaded by Heritage’s argument, and affirm the judgment and the award of attorney fees.  

BACKGROUND

              Monroy is Spanish speaking and works as a housekeeper.  On November 26, 2006, she purchased the Richmond property for $425,000.  Monroy executed two promissory notes with WMC.  She obtained a senior mortgage loan for $340,000 and a junior mortgage loan for $85,000 (the note, the second note, or the promissory note).  Both promissory notes were secured by a deed of trust on the property.  The beneficiary of each deed of trust was Mortgage Electronic Servicing Corporation.

Both the first and second promissory notes provided in the first paragraph the following:  “I understand that the Lender may transfer this Note.  The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note will be called the ‘Note holder.’ ”  Monroy signed a form stating that the information in the loan application was true and correct and acknowledged that “any intentional or negligent misrepresentation of this information . . . may result in civil liability, including monetary damages.”

On her loan application, Monroy claimed to make $9,200 per month as the owner of Maribel’s Cleaning Services.  Monroy signed a certification that she did not have a family or business relationship with the seller of the property. 

The seller of the Richmond property was Marvin E. Monroy, Monroy’s son.  He received $53,258.49 as a result of the sale.  Monroy bought the house from her son because he was not able to make the mortgage payments. 

At this same time, on November 20, 2006, property in Manteca (the Manteca property) was purchased in Monroy’s name and a promissory note was executed for the amount of $312,000.  According to Monroy, the Manteca property was purchased under her name as a result of identity theft.  She stated that in 2006 she was unaware of this transaction.  She averred that she has never been to the Manteca Property.  In 2008, Monroy submitted to the credit-reporting agency a verified fraud statement.  In this statement, she asserted that a mortgage in Manteca was opened in her name as a result of the identity theft.

Monroy failed to make her mortgage payments on the Richmond property, which resulted in a foreclosure on the senior deed of trust on August 28, 2008. 

On May 22, 2009, Heritage acquired Monroy’s second promissory note as part of a “larger pool of loans.”  Heritage is a limited liability company organized under the laws of the State of Texas and its principal place of business is in Dallas County, Texas.  Heritage sent Monroy a letter stating that it had purchased her second unpaid loan.  Heritage was unsuccessful in speaking with Monroy.  In October 2009, Heritage sent by certified mail another notice of the transfer of the ownership of the note.  Heritage sent Monroy a third notice in December 2009.  In this notice, it asserted that she was obligated to pay Heritage the unpaid balance on the second promissory note. 

Heritage did further research and concluded that Monroy had misrepresented her income and submitted false documentation regarding her income on her original loan application.  Heritage also discovered that Monroy’s son was the seller of the Richmond property.  Additionally, it uncovered the documents related to the Manteca property. 

On June 1, 2010, Heritage filed a complaint against Monroy for intentional misrepresentation, fraudulent concealment, promise without intent to perform, and negligent misrepresentation based on her loan application with WMC.  Heritage alleged that it was not barred from pursuing its action by any antideficiency statute because it was not seeking a deficiency judgment for the balance of a promissory note following foreclosure, but was seeking a judgment for Monroy’s alleged fraud in connection with her loan application.  Heritage requested actual damages in the amount of $85,000, the sum owed on the promissory note, and also asked for punitive damages. 

On June 27, 2010, Monroy received a letter dated May 25, 2010, from Heritage that attached Heritage’s summons and complaint against her.  The letter advised her about its civil action against her and stated in bold type:  “Should you wish to voluntarily provide us with your federal tax return transcripts, a signed copy of Form 4506-T (Request for Transcript of Tax Return) and/or your proof of residency in the property made the subject of our Complaint, please contact us at your earliest convenience . . . .”  The letter directed:  “If you notify us of your intent to voluntarily provide us with this documentation, we may suspend actions to provide you with an opportunity to provide us with copies of the same.”  The letter told Monroy to notify Heritage if she wanted to provide a copy of her promissory note as Heritage, “as assignee of the promissory note, has the right to reverify the information contained therein.”  The letter admonished Monroy that “any misinformation or misrepresentations provided in the [loan] application are a violation of federal law and may result in ‘civil liability, including monetary damages, to any person who may suffer any loss due to reliance upon any misrepresentation’ for which Heritage . . . currently seeks.”  The letter warned that if Heritage was unable to resolve the matter by the date Monroy’s answer to the complaint was due, Heritage would “have no other option but to proceed with litigation against” her.  The letter declared that it was “from a debt collector” and was “an attempt to collect a debt.”

On July 28, 2010, Monroy answered Heritage’s complaint and filed a cross-complaint alleging violations of the Rosenthal Act (Civ. Code, § 1788 et seq.) and the FDCPA (15 U.S.C. § 1692 et seq.).  A little more than a month later, on September 2, Heritage demurred to the cross-complaint and filed a motion to strike the pleading.  On November 16, 2010, Monroy filed a motion for judgment on the pleadings on Heritage’s complaint.

On December 28, 2010, the trial court overruled Heritage’s demurrer to Monroy’s cross-complaint and denied its motion to strike.  On this same date, the court granted with leave to amend Monroy’s motion for judgment on Heritage’s complaint.  The court explained that Heritage had failed to allege that the lender had assigned its fraud claims to it and Heritage had conceded that no California legal authority held that the assignment of a promissory note automatically constituted an assignment of a lender’s fraud claims.  The court added:  “If [Heritage] chooses to amend its complaint so as to specifically allege an assignment of the lender’s fraud claims, [Heritage] shall make such allegations with the particularity required of a fraud cause of action, and [Heritage] shall attach as an exhibit to the amended complaint a full and legible copy of any written assignment agreement.”

Heritage filed its first amended complaint for the same four causes of action on December 23, 2010.  Heritage attached Monroy’s second promissory note for $85,000, and alleged in the pleading that the assignment was recorded on the last page of the promissory note. 

Monroy demurred to the first amended complaint.  On April 7, 2011, the trial court sustained Monroy’s demurrer “with one last opportunity” for Heritage to amend.  (Bold omitted.)  The court explained that Heritage had “still failed to adequately allege an assignment of the original lender’s tort claims, as distinct from an assignment of the original lender’s contractual rights under the subject promissory note.”  The court cited Sunburst Bank v. Executive Life Ins. Co. (1994) 24 Cal.App.4th 1156, 1164.  The court concluded that Heritage had “not attached to its complaint a written assignment agreement, as specified in the court’s ruling on the motion for judgment on the pleadings, and [Heritage] ha[d] not alleged the formation of an oral assignment agreement.”

The trial court noted in the order that Heritage had represented at oral argument that it would amend the pleading to allege “the existence of either a written assignment of the original lender’s tort claims, or an assignment agreement implied in fact from circumstances other than the mere assignment of contractual rights.”  The court admonished Heritage that its future pleading must “allege with the particularity required of a fraud cause of action all the circumstances showing the formation and terms” of an implied agreement if Heritage was relying on an assignment implied in fact.  The amended complaint also needed to allege “whether the subject promissory note was assigned before or after foreclosure of the first deed of trust and the corresponding extinguishment of the second deed of trust securing the promissory note.” 

On May 10, 2011, Heritage filed its second amended complaint (the SAC).  The SAC again set forth claims for intentional misrepresentation, fraudulent concealment, promise without intent to perform, and negligent misrepresentation.  Heritage alleged that after the foreclosure on the first deed of trust, WMC sold Monroy’s promissory note secured by the second deed of trust on the Richmond property and “assigned any and all rights WMC may have including but not limited to any right to fraud claims against [Monroy].  Such assignment is evidenced by signature and stamp of the secretary of WMC . . . on the last page of the note . . . .”  Heritage further alleged:  “In assigning [Monroy’s] loan, [Heritage] as assignee of WMC obtained all rights, title and interest in and to the mortgage loan by [Monroy].  The assignment to [Heritage] included assignment of the original lender’s (WMC) tort claim.  The assignment of tort claims is implied in the language of the loan sell agreement to [Heritage] including but not limited to language such as ‘Seller does hereby sell, assign and convey to Buyer, its successors and assigns, all right, title and interest in the loan.’  The loan sell agreement also provided that ‘the Seller transfers assign, set-over, quitclaim and convey to Buyer all right, title and interest of the Seller in the mortgage loan.’ ” 

The SAC also added the following language:  “The assignment of the tort claim is also implied by conduct of the parties in the secondary mortgage market as it is custom and practice in the mortgage industry to assign any and all rights and interests including any right to tort claim against the borrower when selling mortgage loan.  [Heritage] alleges that based on the conduct of the parties and the language included in the buy sell agreement of the loan, and the custom and practice of lenders such as WMC, the assignment of [Monroy’s] loan by WMC included assignment of any and all tort claims.”  The SAC also asserted that the language of the loan application signed by Monroy implied the assignment of tort claims.

Monroy demurred to the SAC, and Heritage attached a declaration of Diane Taylor, a representative for WMC Mortgage, LLC, to its “sur-reply in support” of its opposition to Monroy’s demurrer.  Taylor’s declaration dated August 4, 2011, stated:  “As Assistant Secretary, I am authorized to speak on behalf of WMC Mortgage, LLC, successor to WMC . . . .”  She stated that WMC relied on the information provided by the borrower applying for a loan to determine the borrower’s “eligibility for the products offered.”  She stated:  “When WMC sold its mortgage loans to third parties, WMC assigned all of its legal rights (in tort as well as contract), as the originating lender, to the buyer—including, but not limited to, the right to recover against a borrower for fraud.”  (Underline omitted.) 

On August 15, 2011, the trial court filed its order sustaining without leave to amend Monroy’s demurrer to Heritage’s SAC.  The court explained:  “Despite being afforded an opportunity to amend, [Heritage] has still failed to adequately allege an assignment of the original lender’s tort claims, as distinct from an assignment of the original lender’s contractual rights under the subject promissory note.  [Citation.]  [Heritage] has not attached to its complaint a written assignment agreement . . . , and [Heritage] has not adequately alleged the formation of an oral assignment agreement.” 

The trial court stated that there was an independent ground for sustaining the demurrer without leave to amend.  The SAC stated that the promissory note was assigned after foreclosure of the first deed of trust and the corresponding extinguishment of the second deed of trust securing the promissory note.  The court found that “there was no underlying property interest supporting an incidental assignment of the original lender’s fraud claims.” 

On November 18, 2011, Monroy filed a motion for summary judgment or summary adjudication on her cross-complaint.  Monroy asserted that Heritage was involved in the business practice of filing invalid fraud claims to avoid California’s antideficiency laws in order to collect on nonrecourse debts or convert them into recourse default judgments.  With regard to the claim of violating the FDCPA, Monroy alleged that Heritage was a debt collector and was engaged in a deceptive debt collections practice within the meaning of title 15, United States Code sections1692d, 1692e, and 1692f.  Monroy cited the letter Heritage sent her after it had filed the lawsuit against her.  Monroy also asserted that Heritage had violated provisions of the Rosenthal Act under Civil Code sections 1788.17 and 1788.13, subdivision (k).  Monroy claimed that she was entitled to $1,000 for Heritage’s violation of the FDCPA and $1,000 for Heritage’s violation of the Rosenthal Act. 

Heritage opposed the motion for summary judgment and also requested a continuance to conduct additional discovery.  In its opposition to Monroy’s motion for summary judgment, Heritage agreed that it was a debt collector but disputed the contention that the FDCPA applied.  Heritage argued that the FDCPA did not apply because Monroy bought the Richmond property for her son and also purchased a home in Manteca.  It also disputed the allegation that it engaged in deceptive debt collections practices within the meaning of the FDCPA or that it violated the Rosenthal Act. 

On February 21, 2012, the trial court issued its order granting in part and denying in part Monroy’s motion for summary adjudication on her cross-complaint.  The court granted Monroy’s motion as to her claim that Heritage violated the FDCPA.  The court found that Heritage’s conduct in threatening Monroy with the prosecution of legal claims that had no merit violated the FDCPA.  The court noted that Heritage had made a binding judicial admission that it received the assignment of Monroy’s note after the foreclosure of the first deed of trust, and that event extinguished the second deed of trust securing Monroy’s note.  The court advised that it could not grant summary adjudication on her cause of action for monetary damages because the issue of the amount of damages remained unresolved; it thus awarded statutory damages in the nominal amount of one dollar.  The court added:  “If Monroy insists on receiving a greater amount, then summary adjudication must be denied and the matter must proceed to trial.” 

The trial court denied Monroy’s summary adjudication motion with regard to her claim that Heritage violated the Rosenthal Act.  The court concluded there was a triable issue of fact as to Heritage’s statutory “unclean hands” defense.  The court also sustained a number of Heritage’s objections to the declaration of Monroy’s counsel. 

The trial court denied Heritage’s request for a continuance to conduct additional discovery.  Heritage’s four discovery motions were set for a hearing 10 days after the scheduled trial date and thus the court found that Heritage’s discovery requests were untimely.  Further, the court found that there was no good cause for granting a continuance. 

On March 12, 2012, the trial court filed its entry of judgment in favor of Monroy and against Heritage and awarded Monroy nominal statutory damages of one dollar on her cross-complaint, the maximum sum she could receive without a trial on her FDCPA claim.  The order stated that Monroy was the “prevailing party.” 

Heritage filed a timely notice of appeal.

On March 23, 2012, Monroy filed a memorandum of costs.  On May 10, 2012, Monroy filed her motion for attorney fees and costs under title 15 of the United States Code section 1692k(a)(3).  Heritage filed its memorandum in opposition on June 6, 2012. 

The trial court held a hearing on Monroy’s fee motion on June 19, 2012.  At the conclusion of the hearing, the court stated it was granting Monroy’s motion.  The court explained:  “As the judge in this case, I did go over the billings and I didn’t see anything that I could say was unreasonable for hours spent on certain tasks.  And I felt the hourly rate was within the acceptable parameters for Bay Area attorneys.”

On July 10, 2012, the court filed its order granting Monroy’s motion for an award of attorney fees and expenses.  The order stated that Monroy was the prevailing party and entitled “to the full amount of her attorney’s fees relating to the FDCPA claim as well as to Heritage’s complaint.”  The court added:  “The issues are synonymous and interrelated and cannot reasonably be separated.”  The court concluded that counsel’s hourly fee rate of $450 was “within acceptable parameters for attorneys of [counsel’s] skill and experience practicing” in the San Francisco Bay area, and that the time spent was 194.5 hours.  The court denied the enhancement requested.  The court awarded fees in the amount of $87,525 ($450 x 194.5).  The court awarded litigation expenses in the amount of $1,964.60.  

On this same date, July 10, 2102, the trial court entered an amended judgment, stating that it had sustained with prejudice Monroy’s demurrer to Heritage’s SAC, and had granted Monroy’s motion for summary adjudication on her claim in her cross-complaint for violations of the FDCPA.  The court repeated that Monroy shall take statutory damages of one dollar on her cross-complaint, the maximum she could receive without a trial.  The court stated that Monroy was the prevailing party and awarded her $89,489.60 for attorney fees and litigation costs and expenses ($87,525 + $1,964.60).  Thus, the total judgment in favor of Monroy and against Heritage was $89,490.60 ($89,489.60 + $1.00 in damages). 

Heritage filed a timely notice of appeal from the order awarding attorney fees.  This court on its own motion consolidated both of Heritage’s appeals.

On November 8, 2012, Monroy filed a request for judicial notice of an order in a class certification lawsuit against Heritage and of Heritage’s requests for default judgments against other plaintiffs in a different lawsuit.  Heritage opposed the request and argued that Monroy is asking this court to take judicial notice of facts in documents and these facts may not be true.  On December 5, 2012, we issued an order that the opposed request for judicial notice would be decided with the merits of the appeal.

“ ‘Taking judicialnotice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning.’  [Citation.]  While courts take judicialnotice of public records, they do not take notice of the truth of matters stated therein.  [Citation.]  ‘When judicialnotice is taken of a document, . . . the truthfulness and proper interpretation of the document are disputable.’  [Citation.]”  (Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)  Accordingly, we take judicial notice of the existence of these court documents (Evid. Code, §§ 452, subd. (d), 459, subd. (a)), but do not take notice of the disputed facts in the documents.

DISCUSSION

I.  The Demurrer against Heritage’s SAC

A.  The Standard of Review, The Pleading Requirements for Alleging Fraud, and the

      Burden of Proof When Alleging an Assignment

The trial court sustained Monroy’s demurrer against Heritage’s SAC without leave to amend.  The standard of review governing an appeal from the judgment after the trial court sustains a demurrer without leave to amend is well established.  “ ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.  [Citation.]  We also consider matters which may be judicially noticed.’  [Citation.]  Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.  [Citation.]  When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action.  [Citation.]  And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment:  if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm.  [Citations.]  The burden of proving such reasonable possibility is squarely on the plaintiff.”  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

Here, Heritage alleged that it had a right to pursue misrepresentations Monroy made in her loan application to WMC based on a claim that WMC assigned its torts claims against Monroy to it.  “The burden of proving an assignment falls upon the party asserting rights thereunder [citations].”  (Cockerell v. Title Ins. & Trust Co. (1954) 42 Cal.2d 284, 292.)  An assignment agreement “must describe the subject matter of the assignment with sufficient particularity to identify the rights assigned.”  (Mission Valley East, Inc. v. County of Kern (1981) 120 Cal.App.3d 89, 97.)  An assignment is “a manifestation to another person by the owner of the right indicating his [or her] intention to transfer, without further action or manifestation of intention, the right to such other person, or to a third person.”  (Cockerel, at p. 291.)  As with contracts generally, the nature of an assignment is determined by ascertaining the intent of the parties.  (Cambridge Co. v. City of Elsinore (1922) 57 Cal.App. 245.) 

Furthermore, the policy of liberal construction of the pleadings does not apply to fraud causes of action.  “In California, fraud must be pled specifically; general and conclusory allegations do not suffice.”  (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)  This requirement serves two purposes.  First, it gives the defendant notice of the definite charges to be met.  Second, the allegations “should be sufficiently specific that the court can weed out nonmeritorious actions on the basis of the pleadings.  Thus the pleading should be sufficient ‘ “to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud.’ ” ”  (Committee on Children’s Television, Inc. v. General Goods Corp. (1983) 35 Cal.3d 197, 216-217, superseded by statute on another issue.) 

B.  The Adequacy of the Fraud Allegations

Heritage argues that it adequately alleged that WMC assigned its fraud claims against Monroy to it.  The trial court’s insistence that it had to attach a document establishing the assignment shows, according to Heritage, that the court improperly considered the sufficiency of the evidence when ruling on the demurrer.  For the reasons discussed below, we disagree with Heritage’s contention.

Heritage cites various allegations in its SAC where it asserted in a conclusory fashion that WMC assigned to Heritage its tort claims when WMC transferred to Heritage its rights under Monroy’s promissory note.  In particular it cites its allegations that WMC “sold the loan and assigned any and all rights WMC may have including but not limited to any right to fraud claim” against Monroy.  It further alleged that this assignment was “evidenced by signature and stamp of the secretary of WMC” on the last page of the note.  Heritage set forth in its SAC that as the assignee of WMC, Heritage “obtained all rights, title and interest in and to the mortgage loan by defendant[,]” including WMC’s tort claim.  Heritage claimed that the assignment of tort claims was implied by the following language in the agreement between Heritage and WMC:  “ ‘Seller does hereby sell, assign and convey to Buyer, its successors and assigns, all right, title and interest in the loan.’  The loan sell agreement also provided that ‘the Seller transfers assign, set-over, quitclaim and convey to Buyer all rights, title and interest of the Seller in the mortgage loan.’ ” The SAC added that WMC acknowledged on May 9, 2011, that it assigned to Heritage its tort claims. 

Heritage contends that its SAC also alleged assignment of the tort claims based on implied conduct of the parties, as follows:  “The assignment of the tort claim is also implied by conduct of the parties in the secondary mortgage market as it is custom and practice in the mortgage industry to assign any and all rights and interests including any right to tort claim against the borrower when selling mortgage loan.  [Heritage] alleges that based on the conduct of the parties and the language included in the buy sell agreement of the loan, and the custom and practice of lenders such as WMC, the assignment of [Monroy’s] loan by WMC included assignment of any and all tort claims.” 

Heritage also maintains that the language in Monroy’s loan implied an assignment, as Monroy acknowledged the following:  “ ‘Each of the undersigned specifically represents to Lender and to lender’s actual or potential agents, brokers, processors, attorneys, insurers, servicers, successors and assigns and agrees and acknowledges that:  (1) the information provided in this application is true and correct as of the date set forth opposite my signature and that any intentional or negligent misrepresentation of this information contained in this application may result in civil liability, including monetary damages, to any person who may suffer any loss due to reliance upon any misrepresentation that I have made on this application. . . .  (6)  The Lender, its servicers, successors or assigns may rely on this information contained in the application. . . .’ ”  (Bold omitted.) 

Heritage insists that the foregoing language and the attached document, which was the written indorsement containing the signature and stamp of the secretary of WMC on the last page of the promissory note, were sufficient, and the trial court should have overruled Monroy’s demurrer.

We agree that the allegations in Heritage’s SAC and the attached indorsement showed an assignment of Monroy’s promissory note.  However, the assignment of this contract right did not carry with it a transfer of WMC’s tort rights.  While no particular form of assignment is required, it is essential to the assignment of a right that the assignor manifests an intention to transfer “the right.”  (Sunburst Bank v. Executive Life Ins. Co., supra, 24 Cal.App.4th at p. 1164.)

An assignment of a right generally carries with it an assignment of other rights incident thereto.  (Civ. Code, § 1084.)  The fraud claims based on Monroy’s loan application with WMC are not “incidental to” the transfer of the promissory note to Heritage.  “A suit for fraud obviously does not involve an attempt to recover on a debt or note.”  (Guild Mortgage Co. v. Heller (1987) 193 Cal.App.3d 1505, 1512; see also Millner v. Lankershim Packing Co. (1936) 13 Cal.App.2d 315, 319-320 [assignment of mortgage did not include assignment of right to recover for injury to the mortgaged property]; Schauer v. Mandarin Gems of Cal., Inc. (2005) 125 Cal.App.4th 949, 956-957 [divorce agreement awarding diamond ring purchased by husband to wife did not automatically transfer husband’s claim against jeweler for fraud].)  For example, in Williams v. Galloway (1962) 211 Cal.App.2d 302, the corporation’s sale and transfer to a second corporation “ ‘[a]ll personal property’ ” and all “ ‘property held on a leas[e]hold basis’ ” did not transfer a claim for money the first corporation had against its former lessor.  (Id. at pp. 304-305.)

In the present case, the indorsement and allegations established that WMC assigned the second promissory note to Heritage.  The transfer of the promissory note provided Heritage with contract rights.  Fraud rights are not, as a matter of law, incidental to the transfer of the promissory note.[1]

It is true that incidental rights may include certain ancillary causes of action but the assignment agreement “must describe the subject matter of the assignment with sufficient particularity to identify the rights assigned.”  (Mission Valley East, Inc. v. County of Kern, supra, 120 Cal.App.3d at p. 97.)  “[A] basic tenet of California contract law dictates that when a particular right or set of rights is defined in an assignment, additional rights not similarly defined or named cannot be considered part of the rights transferred.”  (DC3 Entertainment, LLC v. John Galt Entertainment, Inc. (W.D. Wash. 2006) 412 F.Supp.2d 1125, 1144.)

Here, none of the allegations regarding assignment in the SAC specified that the assignment was transferring the ancillary right of a tort claim.  The document attached by Heritage did not support any claim of an assignment by WMC to Heritage of its fraud claims against Monroy.  This document was the promissory note signed by Monroy, which, on the last page, contained the signature and stamp of the secretary of WMC.  Directly under “Pay to the order of” was Heritage’s stamp.  The transfer of the promissory note by indorsement did not show a clear intent to assign WMC’s fraud claim.  (See Comm. Code, § 3201 et seq.)  The conveyance of the promissory note to Heritage does not establish that WMC assigned to Heritage its right to the performance of other, distinct obligations owed by Monroy, such as the obligation to provide truthful information.  (See Cambridge Co. v. City of Elsinore, supra, 57 Cal.App. at pp. 249-250.)

Additionally, the allegations did not show an assignment of the tort claims based on custom and practice.  “While no particular form of assignment is necessary, the assignment, to be effectual, must be a manifestation to another person by the owner of the right indicating his intention to transfer, without further action or manifestation of intention, the right to such other person, or to a third person.  [Citation.]”  (Cockerell v. Title Ins. & Trust Co., supra, 42 Cal.2d at p. 291.)  The parties’ intention is determined by considering their words and acts as well as the subject matter of the contract.  (Lumsden v. Roth (1955) 138 Cal.App.2d 172, 175.)  The assignment agreement in the present case is completely silent regarding any tort claim and nothing in the agreement suggests that the assignment included any rights other than those rights incidental to the contract rights.  Heritage cannot allege general custom and practice to expand the assignment agreement to include ancillary rights not specified.

Heritage claims that the decision in National Reserve Co. v. Metropolitan Trust Co. (1941) 17 Cal.2d 827, 833 (National Reserve) supports its position that WMC’s tort claims were assigned with the transfer of the note.  Our Supreme Court in National Reserve stated that an unqualified assignment of a contract vests in the assignee “all rights and remedies incidental thereto.”  (Id. at p. 833.)  Heritage then proceeds to cite portions of the following quote:  “If . . . an accrued cause of action cannot be asserted apart from the contract out of which it arises or is essential to a complete and adequate enforcement of the contract, it passes with an assignment of the contract as an incident thereof.  Thus, the assignment of a contract passes from assignor to assignee an accrued cause of action for rescission [citations], and a creditor’s assignee acquires the right to set aside a prior fraudulent conveyance by the debtor.  [Citations.]  As a corollary, if an assignor by express provision of a contract is denied the right to assert an accrued cause of action after he has assigned away his interest in the contract, the right to sue passes to his assignee.  There would otherwise be no one to enforce the right.”  (Ibid.) 

Heritage ignores the language in National Reserve, supra, 17 Cal.2d 827, which directly preceded the paragraph it quotes from the decision.  In the preceding paragraph, the Supreme Court noted that incidental rights may “include certain ancillary causes of action arising out of the subject of the assignment and accruing before the assignment is made.”  (Id. at p. 833.)  However,  “[u]nless an assignment specifically or impliedly designates them, accrued causes of action arising out of an assigned contract, whether ex contractu or ex delicto, do not pass under the assignment as incidental to the contract if they can be asserted by the assignor independently of his continued ownership of the contract and are not essential to a continued enforcement of the contract.”  (Ibid.)

Applying the legal principles set forth in National Reserve to the present case, Heritage has failed to state a claim for a cause of action for fraud based on Monroy’s loan application.  Neither the indorsement nor the other allegations in the SAC authorize the assignment, specifically or impliedly, of WMC’s tort claims.  As already stressed, fraud is an ancillary cause of action to the promissory note.

Heritage maintains that it did not have to allege details and could simply allege a clear statement of the ultimate facts necessary to the cause of action.  (See Lyon v. Master Holding Corp. (1942) 50 Cal.App.2d 238, 241.)  Heritage claims that it was sufficient for it to plead the ultimate fact of ownership of the property at the time it filed this action and cites a 1924 case, Commercial Credit Co. v. Peak (1924) 195 Cal. 27, 32-33.  This case does not help Heritage.  Commercial Credit involved recovering the value of personal property or chattel.  (Id. at p. 29.)  This case did not involve a promissory note; it did not involve a claim based on the assignment of a tort; nor did it involve claims based on fraud.  Thus, Commercial Credit has no application to the present case.  Heritage ignores that every element of a fraud cause of action must be pleaded specifically.

Finally, Heritage complains that the trial court was assessing the veracity of the allegations in the SAC, and cites the court’s order instructing it to attach a writing to show an assignment as proof that the court improperly assessed the weight of the evidence.  We disagree with Heritage’s conclusion. 

“A written contract may be pleaded either by its terms––set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference––or by its legal effect.  [Citation.]  In order to plead a contract by its legal effect, plaintiff must ‘allege the substance of its relevant terms.  This is more difficult, for it requires a careful analysis of the instrument, comprehensiveness in statement, and avoidance of legal conclusions.’  [Citation.]”  (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.)  Since the allegations in Heritage’s pleadings did not set forth with specificity any assignment of the tort claims, the trial court properly instructed Heritage to attach the written agreement that evinced an intent to assign the tort claims.

Accordingly, we conclude that the trial court did not err when it found that Heritage failed to state causes of action for fraud based on assignment.[2]

C. Denying Heritage Leave to Amend its SAC

              Heritage contends that the trial court abused its discretion when it did not permit it to amend its SAC.

The court abuses its discretion in sustaining the demurrer without leave to amend if the plaintiff can show a reasonable possibility of curing the defect in the complaint by amendment.  (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.)  Heritage has the burden of proving that an amendment would cure the defect.  (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) 

In support of its argument that it should have been permitted to amend its pleading a third time, Heritage argues that its SAC was sufficient and that it could have amended the pleading to indicate that WMC intended to transfer its tort rights to Heritage.  In the trial court, Heritage attached a declaration of Taylor, a representative for WMC Mortgage, LLC.  Taylor’s declaration dated August 24, 2011, stated:  “As Assistant Secretary, I am authorized to speak on behalf of WMC Mortgage, LLC, successor to WMC . . . .”  She confirmed that WMC relied on the information provided by the borrower applying for a loan to determine the borrower’s “eligibility for the products offered.”  She declared:  “When WMC sold its mortgage loans to third parties, WMC assigned all of its legal rights (in tort as well as contract), as the originating lender, to the buyer—including, but not limited to, the right to recover against a borrower for fraud.”  (Underline omitted.) 

Taylor’s declaration on August 24, 2011, more than two years after Heritage acquired Monroy’s unpaid note as part of a “larger pool of loans,” does not shed any light on the parties’ intent at the time of the assignment.  The assignment agreement contains absolutely no language indicating that WMC intended to transfer any rights ancillary to the right to collect on the promissory note.  Contract “rights” do not exist as disembodied abstractions apart from a contract that created them.  More precisely, in California, “the intention of the parties as expressed in the contract is the source of contractual rights and duties.”  (Pacific Gas & E.Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 38.)  Thus, we assess the intent at the time the agreement is formed, not years later.

              The trial court provided Heritage with ample opportunity to cure the defect in its pleading; Heritage failed to demonstrate it could cure the defect.  The trial court thus did not abuse its discretion in sustaining the third demurrer against Heritage’s pleading without leave to amend.

II.  The Grant of Summary Adjudication on Monroy’s Cross-Complaint

A.  The Trial Court’s Ruling

              Monroy alleged violations of the Rosenthal Act and the FDCPA in her cross-complaint.  She claimed that Heritage violated the FDCPA by attempting to collect a debt not owed, by using unconscionable, false, deceptive, and/or misleading means to seek to collect a debt, and by threatening legal actions that could not be legally taken.

Monroy moved for summary adjudication on her claims and the trial court denied the motion as to her claim of violating the Rosenthal Act.  It granted her motion as to her claim that Heritage violated the FDCPA, and awarded Monroy damages in the amount of one dollar.  The court found that Heritage’s conduct in threatening Monroy with the prosecution of legal claims that had no merit violated the FDCPA.[3]

B.  Standard of Review

To prevail on a summaryadjudication motion, a cross-complainant must prove “each element of the cause of action entitling the party to judgment on that cause of action. . . .”  (Code Civ. Proc., § 437c, subd. (p)(1).)  Only if the cross-complainant satisfies this burden will the burden shift to the cross-defendant “to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.”  (Ibid.)  The cross-defendant “may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto.”  (Ibid.)

“In reviewing whether these burdens have been met, we strictly scrutinize the moving party’s papers and construe all facts and resolve all doubts in favor of the party opposing the motion.  [Citations.]”  (Innovative Business Partnerships, Inc. v. Inland Counties Regional Center, Inc. (2011) 194 Cal.App.4th 623, 628.)  On appeal, the trial court’s ruling is examined under a de novo standard of review.  (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 555.)

C.  TheFDCPA

              The purpose of the FDCPA is “to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.”  (15 U.S.C. § 1692(e).)  “A basic tenet of the Act is that all consumers, even those who have mismanaged their financial affairs resulting in default on their debt, deserve ‘the right to be treated in a reasonable and civil manner.’ ”  (Bass v. Stopler, Koritzinsky, Brewster & Neider, S.C. (7th Cir. 1997) 111 F.3d 1322, 1324 (Bass).)  Since the FDCPA is a remedial statute, “it should be construed liberally in favor of the consumer.”  (See, e.g., Johnson v. Riddle (10th Cir. 2002) 305 F.3d 1107, 1117.) 

The word “ ‘creditor’ means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.”  (15 U.S.C. § 1692a(4).)  “The term ‘debt’ means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”  (15 U.S.C. § 1692a(5).)

              The FDCPA defines “ ‘debt collector’ ” as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. . . .  [T]he term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. . . .”  (15 U.S.C. § 1692a(6).)

              Under the FDCPA, “A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.”  (15 U.S.C. § 1692e.)  A violation of this section includes “[t]he false representation of” “the character, amount, or legal status of any debt[.]”  (15 U.S.C. § 1692e(2)(A).)  A violation also includes “[t]he threat to take any action that cannot legally be taken . . . .”  (15 U.S.C. § 1692e(5).)  Additionally, a violation occurs if the debt collector uses “any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer” (15 U.S.C. § 1692e(10)) or makes “[t]he false representation or implication that accounts have been turned over to innocent purchasers for value” (15 U.S.C. § 1692e(12)).  

              State courts have concurrent jurisdiction over claims under the FDCPA.  (15 U.S.C. § 1692k(d).)  The FDCPA will not impose any liability “to any act done or omitted in good faith in conformity with any advisory opinion of the Bureau, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.”  (15 U.S.C. § 1692k(e).)

D.  Heritage Violated the FDCPA

              When alleging a claim under the FDCPA, a plaintiff must establish that (1) the plaintiff is a consumer, as defined by the FDCPA; (2) the debt arises out of a transaction primarily for personal, family or household purposes; (3) the defendant is a debt collector, as that phrase is defined by the FDCPA; and (4) the defendant violated a provision of the Act.  (15 U.S.C. § 1692e; Heintz v. Jenkins (1995) 514 U.S. 291, 294; Wallace v. Washington Mut. Bank, F.A. (6th Cir. 2012) 683 F.3d 323, 326.)

              Monroy’s claim was based on the collection letter dated May 25, 2010, sent to her by Heritage.  She received the letter on June 28, 2010, and it was attached to the summons and complaint against her.  The letter advised that Heritage had commenced a civil action against Monroy and admonished her that “any misinformation or misrepresentations provided in the [loan] application are a violation of federal law and may result in ‘civil liability, including monetary damages, to any person who may suffer any loss due to reliance upon any misrepresentation’ for which Heritage . . . currently seeks.”  The letter warned that if Heritage was unable to resolve the matter by the date Monroy’s answer was due, Heritage would “have no other option but to proceed with litigation against” her.  The letter declared that it was “from a debt collector” and was “an attempt to collect a debt.”  In the trial court, in Heritage’s separate statement of disputed facts in support of its opposition to Monroy’s motion for summary adjudication, Heritage admitted that it was a debt collector and that it was attempting to collect an alleged debt against Monroy. 

Thus, the undisputed facts established that Heritage was a debt collector and attempting to collect a debt from Monroy.  Monroy’s obligation was to pay for “personal, family, or household purposes” (15 U.S.C. § 1692a(5)), as this was a debt incurred to purchase a home in which, according to Monroy’s declaration, she intended to live.  There was evidence that a Manteca property was also purchased in Monroy’s name, but there is no evidence that she ever lived in that home or intended to live in that home.  Indeed, the unchallenged evidence was that Monroy was the victim of identity theft and that she did not know anything about the Manteca property.  Monroy stated that she lived at the Richmond property and Heritage presented no evidence that she resided at another location.

The evidence also supported a finding that the letter Heritage sent to Monroy violated the FDCPA.  The letter attached to the complaint and summons threatened Monroy with a lawsuit for any misinformation she provided on her loan application with WMC.  Heritage asserted that Monroy owed it the money for any fraud on her application because it was now the owner of the promissory note.  As discussed extensively above, Heritage’s claims based on fraud had no merit.  Thus, Heritage violated the FDCPA when it indicated in the letter that it had the right to sue Monroy for any misinformation submitted on the promissory note and when it attempted to induce her to settle with Heritage. 

Additionally, according to Ben Ganter, the director of client relations for Heritage, Heritage acquired Monroy’s unpaid note as part of a larger pool of loans that included both secured and unsecured mortgage loans.  He acknowledged that Heritage then “seeks to collect on the unpaid balances of the notes it purchased” and that “Heritage’s business model is collecting on the loans it purchases.”  Heritage purchased Monroy’s junior loan without any knowledge about the accuracy of the loan application.  Before Heritage discovered the alleged fraud, it sent Monroy letters telling her that she was obligated to pay Heritage “for the unpaid balance of the note . . . .”  According to Ganter, a third notice of Monroy’s obligation to pay [Heritage] for the unpaid balance on the Note was sent via postal mail in December of 2009.  These notices clearly violated the FDCPA because, as the trial court found, Heritage had made a binding judicial admission that it received the assignment of Monroy’s note after the foreclosure of the first deed of trust, and that event extinguished the second deed of trust securing Monroy’s note under the antideficiency statutes (see Code Civ. Proc., § 580b).

              Heritage complains that Monroy alleged that the complaint sent to her attached to the letter violated the FDCPA and a legal action is not a communication covered by the FDCPA.  We need not address this argument because Monroy’s claim was not based on a communication under the FDCPA, but based on the debt collector’s using “false, deceptive, or misleading representation or means in connection with the collection of any debt.”  (15 U.S.C. § 1692e.) 

              Heritage also argues that “debt,” as defined by the FDCPA, does not include tort claims.  As already noted, Heritage also violated the FDCPA when it sent a notice demanding payment on the money owed on the promissory note when that debt had been extinguished under the antideficiency statutes.  Furthermore, we disagree with Heritage’s argument that tort claims are never debts under the FDCPA.

In support of its argument that a “debt” does not include a tort claim, Heritage cites various cases that have held that any obligation to pay damages arising from a tort claim, court judgment, or criminal activity does not constitute a debt under the FDCPA.  (See, e.g., Fleming v. Pickard (9th Cir. 2009) 581 F.3d 922, 925-926 [cause of action for tortious conversion is not a debt under the FDCPA]; Turner v. Cook (9th Cir. 2004) 362 F.3d 1219, 1227 [tort judgment resulting from business-related conduct not a debt under the FDCPA because “ ‘when we speak of ‘transactions,’ we refer to consensual or contractual arrangements, not damage obligations thrust upon one as a result of no more than her own negligence’ ”]; Hawthorne v. Mac Adjustment, Inc. (11th Cir. 1998) 140 F.3d 1367, 1371 [holding that the obligation to pay arose from a tort, and not from a consumer transaction, and therefore was not a debt under the FDCPA]; Zimmerman v. HBO Affiliate Group (3d Cir. 1987) 834 F.2d 1163, 1167-1169.) 

In the cases cited by Heritage, the obligations to pay were created by something other than a consumer transaction and were not consensual.  (See, e.g., Fleming v. Pickard, supra, 581 F.3d at p. 925 [“ ‘at a minimum, a “transaction” under the FDCPA must involve some kind of business dealing or other consensual obligation’ ”].)  Thus, we agree that courts have consistently excluded tort obligations or criminal activity from the FDCPA’s definition of “debt” when the tort obligations do not arise out of a consensual transaction.  In Zimmerman v. HBO Affiliate Group, supra, 834 F.2d 1163, for example, the Third Circuit held that the FDCPA did not apply to attempts by cable television companies to collect money from people who allegedly had stolen cable television signals by installing illegal antennas.  (Zimmerman, at pp. 1167-1169.)  There was no FDCPA “debt” in Zimmerman because the obligations arose out of a theft rather than a transaction.  Neither the complaint nor the demand letter included any assertion of an offer of extension of credit and therefore no transaction had occurred.  (Zimmerman,at pp. 1167-1169.)

As already stressed, a debt or obligation under the FDCPA must be based on a consumer consensual or contractual arrangement, not a damage obligation.  (See, e.g., Hawthorne v. Mac Adjustment, Inc., supra, 140 F.3d at p. 1372).  Unlike the cases upon which Heritage relies, the present case is not a situation in which Monroy never had a contractual arrangement of any kind with WMC.  Rather, Monroy’s alleged debt to Heritage arose out of her transaction with WMC to purchase the Richmond property.  The alleged fraud claims clearly arose out of a residential mortgage transaction and Heritage cannot avoid the application of the FDCPA simply because it alleged in its pleading that Monroy’s obligation to it was based on the misrepresentations she made on her loan application rather than on a breach of her obligations under the contract.

Heritage declares that the present case is similar to Turner v. Cook, supra, 362 F.3d 1219, but Turner is clearly distinguishable from the present case.  In Turner, the appellees obtained a judgment against Stephen Turner and “the judgment arose from allegations of various business interference torts” by Turner against the appellees.  (Id. at pp. 1222-1223.)  Subsequently, the appellees filed a claim that Turner fraudulently conveyed his real and personal property to prevent the appellees from collecting on the judgment.  (Id. at p. 1223.)  Turner claimed that the appellees violated the FDCPA when attempting to collect the judgment.  (Turner, at pp. 1223-1224.)  When rejecting the claim under FDCPA, the Ninth Circuit held that a tort judgment is not a debt under the FDCPA.  (Turner, at p. 1227.)  Turner had admitted that the judgment was based on alleged business interference torts, not any consumer transaction, and it was immaterial that the fraudulent conveyance action involved Turner’s home.  (Id. at p. 1228.) 

 

In Turner v. Cook, supra, 362 F.3d 1219, the liability arose from tortious activity, not from a consensual transaction.  By contrast, here, Monroy and WMC entered into a consensual loan agreement for the purchase of a residential home.

Heritage argues that the present liability did not arise out of a consensual transaction because WMC did not consent to mortgage fraud.  Heritage maintains that the present transaction is the same as the theft of goods or services. 

Heritage’s argument is contrary to the court decisions that have held that there is no automatic fraud exception to the FDCPA. (See, e.g., F.T.C. v. Check Investors, Inc. (3d Cir. 2007) 502 F.3d 159, 170; Keele v. Wexler (7th Cir. 1998) 149 F.3d 589, 595.)  “ ‘Absent an explicit showing that Congress intended a fraud exception to the Act, the wrong occasioned by debtor fraud is more appropriately redressed under the statutory and common law remedies already in place, not by a judicially-created exception that selectively gives a green light to the very abuses proscribed by the Act.’ ”  (F.T.C.,at p. 170.) 

The breadth of the phrase “any obligation or alleged obligation” is not limited to a particular set of obligations.  (Bass, supra, 111 F.3d at p. 1325.)  Thus, a replevin action, even though it is a tort claim, may be a debt under the FDCPA.  (Rawlinson v. Law Office of William M. Rudow, LLC (4th Cir.  2012) 460 Fed.Appx. 254, 257.)  “[A] court should look beyond the label of the debt collection practice to determine whether a ‘debt’ is being collected.”  (Ibid.)

Here, WMC and Monroy consented to the loan application.  The fraud action, even though it is a tort claim, arose from the consensual loan transaction, and thus it is a debt under the FDCPA.

E. No Defense to the Application of the FDCPA

              Heritage contends that it has a defense, as a matter of law, to the application of the FDCPA.  It claims that it relied on an advisory opinion by the Federal Trade Commission (FTC) that collecting on tort damages is not a debt for purposes of the FDCPA. 

              The FDCPA provides an affirmative defense for “ ‘any act done or omitted in good faith in conformity with any [FTC] advisory opinion’ . . . .”  (Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA (2010) 599 U.S. 573, ___ [130 S.Ct. 1605, 1607] (Jerman), quoting 15 U.S.C. § 1692k(e).)  However, “ignorance of the law will not excuse any person, either civilly or criminally.”  (Jerman, at p. ___ [p. 1611].) 

The “advisory opinion” relied upon by Heritage is a letter dated August 27, 1992, written to an attorney in Florida.[4]  The attorney wished to know if the claim for civil damages against an alleged shoplifting offender would be covered under the FDCPA.  The letter stated that these torts would not be debts as defined in the FDCPA and admonished that “[t]he views expressed herin represent an informal staff opinion.  As such, they are not binding on the [FTC]. . . .”

This letter is an “informal staff opinion” and not an advisory opinion.  Furthermore, the claim of damages arising from a theft, as was the subject of the FTC’s letter, is clearly distinguishable from the present case.  As already discussed, Heritage was not collecting on tort damages, but on a claim of fraud arising out of a loan contract. 

Courts held as early as 1998 that there is no automatic fraud exception to the FDCPA.  (Keele v. Wexler, supra, 149 F.3d at p. 595 [“neither the text nor underlying legislative history of the FDCPA lends itself to the recognition of a fraud exception”].)  Heritage’s ignorance of the law does not provide it with an affirmative defense to the application of the FDCPA.

F.  No Triable Issue of Fact

              Heritage argues that the trial court should not have granted the summary adjudication motion because there was a triable issue of fact as to whether the tort claims had been assigned.  It complains that the court refused to consider its evidence of assignment. 

              In support of this argument, Heritage cites Cadlerock Joint Venture, L.P. v. Lobel (2012) 206 Cal.App.4th 1531 (Cadlerock).  In Cadlerock, a single lender provided a borrower with two non-purchase money loans secured by two deeds of trust against the same real property, and then assigned the junior loan to a third party.  (Id. at p. 1536.)  The court held that the assignee of the junior loan was not precluded from seeking a deficiency judgment against the borrower after the senior loan was extinguished by a foreclosure sale of the property.  (Id. at pp. 1546-1547.)  The court stressed that the junior loan had been assigned prior to the foreclosure sale.  (Ibid.)  In Cadelrock, the antideficiency statute did not preclude the assignee of the junior loan from seeking a deficiency judgment after the extinguishment of the senior loan, held by a different entity, because there was no evidence that the lender created two loans “as an artifice to evade” Code of Civil Procedure section 580d.  (Cadlerock, at p. 1547.)

              Cadlerock has no applicability to the present case.  Unlike the situation in Cadlerock, Monroy’s loans were purchase money loans and the antideficiency statutes applied to both her senior and junior loans under Code of Civil Procedure section 580b.  Furthermore, the junior loan was assigned to Heritage after the foreclosure.  Critical to the holding in Cadlerock was the fact that the junior loan had been assigned prior to the trustee’s sale.  (Cadlerock, supra, 206 Cal.App.4th at pp. 1546-1547.)

              Here, the undisputed facts establish that Monroy’s loans were covered by the antideficiency statutes and that the junior loan was assigned to Heritage after the foreclosure on the senior loan.  Thus, there was no triable issue of fact that Heritage could seek payment for breach of the promissory note.  Furthermore, as already discussed, Heritage has failed to identify any evidence that raised a triable issue of material fact as to its argument that the assignment agreement included WMC’s potential tort claims against Monroy.  Accordingly, we conclude the trial court did not err in granting Monroy’s motion for summary adjudication on her claim that Heritage violated the FDCPA.

III.  Attorney Fees

A.  Fees Awarded and the Standard of Review

The trial court found that Monroy was the prevailing party and entitled to attorney fees under the FDCPA.  (15 U.S.C. § 1692k(a)(3).)  The court awarded Monroy attorney fees in the amount of $450 an hour for 194.5 hours for the lodestar amount of $87,525.  The court also awarded Monroy litigation expenses in the amount of 1,964.60. 

“Unless authorized by either statute or agreement, attorney’s fees ordinarily are not recoverable as costs.  [Citations.]”  (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 127-128.)  The FDCPA provides for attorney fees to be awarded to the prevailing party.  (15 U.S.C. § 1692k(a)(3).)  “Courts have discretion in calculating reasonable attorney’s fees under this statute” (Jerman, supra, 599 U.S. at p. ___ [130 S.Ct. at p. 1621]), but the award of at least some modicum of attorney’s fees is mandatory under the FDCPA when the defendant is found to have violated the Act because “congress chose a ‘private attorney general’ approach to assume enforcement of the FDCPA” (Camacho v. Bridgeport Financial, Inc. (9th Cir. 2008) 523 F.3d 973, 978).

“ ‘On review of an award of attorneyfees after trial, the normal standard of review is abuse of discretion.  However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorneyfees . . . have been satisfied amounts to statutory construction and a question of law.’ ”  (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175.)

              Any challenge based on the amount of the fee awarded is reviewed for an abuse of discretion.  (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095 (PLCM Group) [“the trial court has broad authority to determine the amount of a reasonable fee”].)  An appellate court will interfere with the trial court’s determination of the amount of reasonable attorney fees only where there has been a manifest abuse of discretion.  (Fed-Mart Corp. v. Pell Enterprises, Inc. (1980) 111 Cal.App.3d 215, 228.)  “ ‘The “experienced trial judge is the best judge of the value of professional services rendered in [the] court, and while [the judge’s] judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong” ’—meaning that [the trial judge] abused [his or her] discretion.”  (PLCM Group, at p. 1095.)

              “[T]he fee setting inquiry in California ordinarily begins with the ‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate.  ‘California courts have consistently held that a computation of time spent on a case and the reasonable value of that time is fundamental to a determination of an appropriate attorneys’ fee award.’  [Citation.]  The reasonable hourly rate is that prevailing in the community for similar work.  [Citations.]  The lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided.  [Citation.]  Such an approach anchors the trial court’s analysis to an objective determination of the value of the attorney’s services, ensuring that the amount awarded is not arbitrary.  [Citation.]”  (PLCM Group, supra, 22 Cal.4th at p. 1095.)

B.  The Degree of Success

Heritage contends that the trial court did not apply the proper standard of law, and then argues that the attorney fee award was excessive because the trial court did not reduce the award on the basis that Monroy’s success was limited.  The decision whether to reduce an award because of a determination that the party enjoyed limited success is not reviewed de novo, as Heritage argues, but for an abuse of discretion. 

              The United States Supreme Court has held that the level of a party’s success is relevant to the amount of the fees to be awarded, and fees should not be awarded for the work on an unsuccessful claim.  (Hensley v. Eckerhart (1983) 461 U.S. 424, 434-435.)  The court in Hensley did not discuss the FDCPA, but addressed a nearly identical fee shifting statute applicable to civil rights litigation (42 U.S.C. § 1988).  The court recognized that “unrelated claims [may be] unlikely to arise with great frequency” because the case may present a single claim or the claims “will involve a common core of facts or will be based on related legal theories.  Much of counsel’s time will be devoted generally to the litigation as a whole, making it difficult to divide the hours expended on a claim-by-claim basis.  Such a lawsuit cannot be viewed as a series of discrete claims.  Instead the district court should focus on the significance of the overall relief obtained” in relation to the hours reasonably expended on the litigation.  (Hensley, at p. 435.) 

“If . . . a plaintiff has achieved only partial or limited success, the product of hours reasonably expended on the litigation as a whole times a reasonable hourly rate may be an excessive amount.  This will be true even where the plaintiff’s claims were interrelated, nonfrivolous, and raised in good faith. . . .  [T]he most critical factor is the degree of success obtained.”  (Hensley v. Eckerhart, supra, 461 U.S. at p. 436, italics added.)  To be compensable, an attorney’s time must be “reasonable in relation to the success achieved.”  (Ibid.)

Here, Heritage argues that Monroy’s attorney fees are unreasonably large in comparison to Monroy’s recovery of $1.00.  It also maintains that Monroy admitted at her deposition that she did not know what the case was about and, thus, according to Heritage, she had no stake in this action.  Heritage complains that the trial court failed to take into consideration the limited amount of success achieved and asserts that its violation of the FDCPA was only a technicality as Monroy could not show any damages.

In support of this argument, Heritage cites federal and California cases involving attorney fees in non-FDCPA cases.  (Farrar v. Hobby (1992) 506 U.S. 103; Chavez v. City of Los Angeles (2010) 47 Cal.4th 970, 989; Environmental Protection Information Center v. Department of Forestry & Fire Protection (2010) 190 Cal.App.4th 217, 238; Sokolow v. County of San Mateo (1989) 213 Cal.App.3d 231, 249.)  These cases stress that the degree or extent of the plaintiff’s success must be considered when determining reasonable attorney fees.  For example, in Farrar, the plaintiff filed a lawsuit alleging a violation of his civil rights under title 42 of the United States Code section 1983 and demanded $17 million from six defendants and, after 10 years of litigation and two trips to the Court of Appeals, he received one dollar from one defendant.  (Farrar, at p. 107.)  The United States Supreme Court held that attorney fees should not be awarded because a technical vindication of one’s constitutional rights alone was not enough to justify an award of attorney fees under section 1988.  (Farrar, at p. 115.)  The award of only nominal damages highlighted the plaintiff’s failure to prove actual injury or any basis for awarding punitive damages.  (Ibid.) 

Courts have applied the reasoning of Farrar v. Hobby, supra, 506 U.S. 103 to FDCPA cases.  (See, e.g., Zagorski v. Midwest Billing Services, Inc. (7th Cir. 1997) 128 F.3d 1164, 1166 [remanding to the district court to determine reasonable attorney fees in a FDCPA case and instructing the court to use as a guide the methodology “traditionally employed in determining appropriate fees” under title 42 United States Code section 1988]; Johnson v. Eaton (5th Cir. 1996) 80 F.3d 148, 151 [plaintiff awarded no actual or statutory damages and the mere technical violation of the FDCPA was not sufficient to support an award of attorney fees]; Tolentino v. Friedman (7th Cir. 1995) 46 F.3d 645, 651.)  Although courts when awarding attorney fees in FDCPA cases have followed Farrar by considering limited or partial success, these same courts have generally been reluctant to reduce fee awards on the basis of a low monetary recovery since FDCPA statutory damages are capped at $1,000, and a $1,000 recovery doe not render a plaintiff’s success “limited.”  (See, e.g., Defenbaugh v. JBC & Associates, Inc. (N.D. Cal. Aug. 10, 2004, No. C-03-0651 JCS) 2004 WL 1874978.)  Congress created an incentive for attorneys to represent plaintiffs in FDCPA cases by providing for fee shifting, and a requirement of proportionality between attorney fees and damages would discourage attorneys from accepting representation of FDCPA plaintiffs; this would be inconsistent with the FDCPA’s statutory scheme.  (See, e.g., Phenow v. Johnson, Rodenberg & Lauinger, PLLP (D.Minn. 2011) 766 F.Supp.2d 955, 959.)  The fees should be adequate to attract competent counsel, but they should not be “so large that it is a windfall for attorneys––who should not be encouraged to grow fat off of lackluster cases, or pester the court with trifles in the hopes of capturing large attorneys’ fees from dubious claims.”  (Obenauf v. Frontier Financial Group, Inc. (D.N.M. 2011) 785 F.Supp.2d 1188, 1214.)

Here, Monroy alleged violations of the FDCPA and the Rosenthal Act and did not allege actual damages, but requested the maximum statutory damages of $1,000 under each statute for a total statutory award of $2,000.  Her sole complaint was that Heritage had engaged in an unlawful collections effort, which was evinced by the collection letters and the lawsuit against her.  Monroy was completely successful in establishing the unlawfulness of Heritage’s behavior.  Monroy agreed to a nominal damage award to avoid the costs of litigation, but she was still the prevailing party.  A plaintiff who wins a nominal amount of statutory damages has brought a “successful action” under the FDCPA.  (See Thornton v. Wolpoff & Abramson, LLP (11th Cir. 2008) 312 Fed.Appx. 161, 164.) 

Under the FDCPA, the court in awarding damages is to consider “the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional . . . .”  (15 U.S.C. § 1692k(b)(1).)  Here, the trial court recognized that Heritage wrote a number of letters to Monroy that violated the FDCPA.  The court considered that Monroy did not seek to add unnecessary legal fees by insisting on litigating the damages.  It also considered that she did not initiate the lawsuit against Heritage, but filed a counterclaim in response to Heritage’s attempts to force her to pay money that she did not owe. 

Lastly, while the award here was nominal, that is not necessarily controlling because “an award of nominal damages can represent a victory in the sense of vindicating rights even though no actual damages are proved.”  (Farrar v. Hobby, supra, 506 U.S. at p. 121, O’Connor, J., concurring.)  Success may be measured by “the significance of the legal issues on which the plaintiff prevailed and the public purpose the litigation served.”  (Morales v. City of San Rafael (9th Cir. 1996) 96 F.3d 359, 365.)  This lawsuit may spur Heritage to cease unlawful conduct against other consumers, which is an important consideration.

We thus conclude that the trial court did not abuse its discretion in not reducing the attorney fee award based on an argument that Monroy achieved limited success.

C.  The Number of Hours Expended

              Heritage objects to the amount of the fee charged by Peter B. Fredman, counsel for Monroy, and asserts that the calculation included hours for work not reasonably expended in pursuit of Monroy’s successful claim.  (See, e.g., Harman v. City and County of San Francisco (2007) 158 Cal.App.4th 407, 424 [appellate court determined trial court properly deleted hours spent on unsuccessful petition for rehearing of a prior appeal].)  Specifically, Heritage objects to the following:  2.4 hours spent by Fredman on March 25, 2011, for attending to a letter from Heritage that threatened Fredman with a libel suit; .06 of an hour spent on April 21 and 22, 2011, for drafting a declaration in support of a motion in a different superior court class action lawsuit where Heritage was a party; 9.6 hours for attending to matters regarding the class action case and/or conferring with class counsel; 7.9 hours for communicating with another attorney regarding a demurrer hearing;[5] .02 of an hour on May 31, 2011, for reviewing investigation material of a defendant in another case involving Heritage; .08 of an hour on July 25, 2011, for a conference with another person involving Heritage in Bankruptcy Court; and 3.2 hours for an appearance at a summary judgment hearing when Fredman missed the hearing but made an appearance later to deliver a proposed order.  Heritage claims that awarding fees for the foregoing, which equals 23.26 hours, was an abuse of discretion.

At the hearing on attorney fees, counsel for Heritage made a number of specific complaints about the reasonableness of the hours billed.  For example, Heritage argued that Fredman billed his client .6 hours for preparing a declaration for another action; Heritage also objected to billing for work allegedly done on other cases unrelated to the present action.  The trial court responded that it did not see “any of this in any of your papers.”  Counsel for Heritage answered that it was in its opposition.  The court commented that it would have to take another look, but instructed counsel to proceed with argument.  At the end of the hearing, the court affirmed its tentative ruling.  Heritage maintains that the court made its ruling without reviewing its papers as promised and therefore it clearly abused its discretion. 

              The record indicates that the trial court reasonably exercised its discretion in determining the number of hours spent on the lawsuit.  The trial court considered Heritage’s argument that the abovementioned charges were unreasonable.  The court listened to argument and obviously concluded that the argument by Heritage’s counsel lacked merit and that it was unnecessary to read through the opposition papers again to determine if each specific objection had actually been raised in Heritage’s opposition.

The trial court stated, “As the judge in this case, I did go over the billings and I didn’t see anything that I could say was unreasonable for hours spent on certain tasks.”  Thus, the court specifically stated that it found the hours worked by Monroy’s attorney to have been reasonably spent, and rejected Heritage’s argument that approximately 24 hours were unreasonably spent.  The trial court had a reasonable basis for making this determination in light of the detailed timekeeping records and supporting declarations provided by Fredman.  Heritage has failed to demonstrate that the court’s finding that these hours were reasonably expended in pursuit of Monroy’s claim exceed the bounds of reason.  (See, e.g., Maughan v. Google Technology, Inc. (2006) 143 Cal.App.4th 1242, 1250.) 

D.  The Reasonable Hourly Rate

Heritage contends that the hourly rate of $450, which the trial court awarded Fredman, was unreasonable.

In determining hourly rates, the court must look to the “prevailing market rates in the relevant community.”  (Bell v. Clackamas County (9th Cir. 2003) 341 F.3d 858, 868.)  The rates of comparable attorneys in the forum district are usually used.  (See Gates v. Deukmejian (9th Cir. 1992) 987 F.2d 1392, 1405.)  In making its calculation, the court should also consider the experience, skill, and reputation of the attorney requesting fees.  (Schwarz v. Secretary of Health & Human Services (9th Cir. 1995) 73 F.3d 895, 906.)  The court may rely on its own knowledge and familiarity with the legal market in setting a reasonable hourly rate.  (Ingram v. Oroudjian (9th Cir. 2011) 647 F.3d 925, 928.)  “Affidavits of the plaintiffs’ attorney and other attorneys regarding prevailing fees in the community, and rate determinations in other cases, particularly those setting a rate for the plaintiffs’ attorney, are satisfactory evidence of the prevailing market rate.”  (United Steelworkers of America v. Phelps Dodge Corp. (9th Cir. 1990) 896 F.2d 403, 407.) 

Here, Fredman declared that he had 15 years of experience and his “old” hourly rate was $450 per hour.  (He declared that his rate had increased to $500-$525 per hour.)  He noted that this rate had been approved for his work in a class action settlement in the superior courts and federal court.  He added that this hourly rate did not include a contingency risk.  Fredman also attached the declaration of Attorney Richard Pearl.  Pearl summarized the hourly rates charged by various law firms for comparable services.  According to his analysis, fees awarded in class actions cases in 2012, for 12-15 years of experience, varied from $455 to $610 per hour. 

The trial court concluded that counsel’s hourly fee rate of $450 was “within acceptable parameters for attorneys of counsel’s skill and experience practice in the San Francisco Bay area” and it denied the enhancement Fredman requested.  The court added:  “Whether it’s this kind of case or any other kind of case, I know that is a fee that is charged in the community.  I can’t say that it’s unreasonable.”

Heritage claims that the trial court abused its discretion in accepting the hourly rate of $450 because it did not consider similar work in the community that was equally complex.  It argues that the attorney fees discussed by Pearl in his declaration were not applicable because they were class action cases and more complex than the present case.  Heritage also distinguishes the cases cited by Fredman where the courts awarded him his hourly rate of $450 as being complex class action cases that did not allege a violation of the FDCPA.  Heritage cites a 2007 federal case where the billing rate in a FDCPA case was reduced to $250.  (Navarro v. Eskanos & Adler (N.D. Cal. Nov. 26, 2007, No. C 02-03430 WHA) 2007 WL 4200171 (Navarro), vacated by Navarro v. Eskanos & Adler (N.D. Cal. Dec. 11, 2007, No. C 06-2231 WHA) 2007 WL 448306.)

We do not find Heritage’s argument to be persuasive.  The attorney fees awarded in Navarro, a 2007 federal case where the legal work was completed in 2006, have little relevance to the hourly rate of fees for legal work done in 2010 through 2012.  Monroy’s counsel submitted evidence supporting his hourly rate and Heritage did not submit evidence of current rates contradicting this rate.  Accordingly, we conclude that the trial court did not abuse its discretion when it used the hourly rate of $450.

E.  Block Billing

Heritage asserts that the trial court should have reduced the amount of the attorney fees requested because Fredman used block billing.  In support of this argument, Heritage states that Fredman submitted records demonstrating that he billed 182.6 hours in this litigation.  Heritage fails to provide any citation to the record to support this statement. 

Heritage complains in a conclusory fashion that Fredman assigned a block of time to multiple tasks rather than itemizing the time spent on each task.  It asserts that the use of block billing makes it impossible to discern the amount of time spent on each task.  In support of this argument, Heritage relies on Bell v. Vista United School Dist. (2000) 82 Cal.App.4th 672.[6]  In Bell, the court reversed an attorney fee award because the block billing made it impossible for the court to apportion the fees between a cause of action alleging a Brown Act violation for which statutory fees are allowed and other causes of action.  (Id. at p. 689.)  Brown does not suggest that block billing is never appropriate.

Trial courts retain discretion to penalize block billing when the practice prevents them from discerning which tasks are compensable and which are not.  (Christian Research Institute v. Alnor (2008) 165 Cal.App.4th 1315, 1324-1325; Bell v. Vista Unified School Dist., supra, 82 Cal.App.4th at p. 689.)  The trial court identified no such problem here, and Heritage has completely failed to show that block billing occurred or that 182.6 hours billed for litigation was unreasonable.

F.  Apportionment

              Heritage argues that the trial court erred when it awarded attorney fees associated with the litigation in defense of the tort claims against Monroy because no statute or contract provided for fees in defense of these claims.  In a separate argument, it asserts that the court should also have separated the fees associated with Monroy’s unsuccessful claim of a violation of the Rosenthal Act. 

In attacking the fees awarded, Heritage in its opening brief does not even mention the trial court’s ruling that the issues raised by Heritage’s complaint and Monroy’s counter claims for violating the Rosenthal Act and the FDCPA “are synonymous and interrelated and cannot reasonably be separated.”  Noticeably absent from Heritage’s briefs in this court is any discussion of the substantial authority supporting a trial court’s decision not to apportion fees when all of the claims are interrelated.

“When a cause of action for which attorneyfees are provided by statute is joined with other causes of action for which attorneyfees are not permitted, the prevailing party may recover only on the statutory cause of action.  However, the joinder of causes of action should not dilute the right to attorneyfees.  Such fees need not be apportioned when incurred for representation of an issue common to both a cause of action for which fees are permitted and one for which they are not.  All expenses incurred on the common issues qualify for an award.”  (Akins v. Enterprise Rent-A-Car Co. of San Francisco (2000) 79 Cal.App.4th 1127, 1133 see also Liton Gen. Engineering Contractor, Inc. v. United Pacific Insurance (1993) 16 Cal.App.4th 577, 588.) 

The record supports the trial court’s conclusion that Heritage’s fraud claims based on WMC’s assignment of the promissory note and Monroy’s counter claims that Heritage violated the Rosenthal Act and FDCPA were interrelated.  The facts and issues related to Heritage’s claims and Monroy’s counter claims were almost identical, as they both related to the question whether Heritage had a legal right to collect money from Monroy.  We agree with the trial court’s finding that Heritage’s causes of action were closely interrelated with Monroy’s counter claims. 

We conclude that nothing in the record indicates that the trial judge, who presided over the entire case, abused her discretion in calculating the award of attorney fees.

DISPOSITION

              The judgment and the order awarding attorney fees are affirmed.  Heritage is to pay the costs of both appeals.

                                                                                                  _________________________

                                                                                                  Lambden, J.

 

 

We concur:

 

 

_________________________

Kline, P.J.

 

 

_________________________

Richman, J.

39

 

---

[1]  The antideficiency statutes bar any breach of contract claim by Heritage against Monroy.

[2]  Monroy also argues that the antideficiency statutes barred Heritage’s claims and that the fraud claim could not be assigned.  Heritage argues, among other things, that the antideficiency statutes do not preclude an action against a borrower for fraud in the inducement of a loan.  (See, e.g., Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1237-1238; see Code of Civ. Proc., § 726, subd. (f)).

The trial court did set forth a second, independent basis for its ruling.  Since the promissory note was assigned after foreclosure of the first deed of trust, the trial court stated that the second deed of trust securing the promissory note had been extinguished and “there was no underlying property interest supporting an incidental assignment of the original lender’s fraud claims.”  We need not address this independent ground for sustaining the demurrer without leave to amend.

[3]  Heritage has forfeited any argument that the trial court should have granted its request for a continuance to permit it to conduct additional discovery because it did not raise this argument in its opening brief.  (See, e.g., People v. Stanley (1995) 10 Cal.4th 764, 793 [if no legal argument with citation to authority “ ‘is furnished on a particular point, the court may treat it as waived, and pass it without consideration’ ”].)

[4]  We note that Heritage does not even make any particular citation to the “advisory opinion” but simply asserts that “[t]he FTC issued an advisory opinion stating that collecting on tort damages is not a debt for purposes of the FDCPA in a letter to James R. Palmer.”

[5]  This attorney specially appeared on behalf of Monroy at the third demurrer hearing on August 9, 2011, because Fredman was on vacation in Michigan.  These hours included the hours billed by the attorney for the work completed and the appearance.

[6]  Heritage also argues that the California State Bar’s Committee on Mandatory Fee Arbitration does not distinguish between apportioned and non-apportioned cases and the Bar opined that block billing hides accountability.  Heritage seems to be suggesting that we should take this statement of the State Bar as law and ignore the consistent precedent in California cases that provide trial courts with the discretion about whether to penalize block billing.  The State Bar’s comment about block billing in fee arbitrations is not binding on state courts. 

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

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

PUBLISHED OPINION

DOUG WALKER, an individual,

Appellant,

v.
QUALITY LOAN SERVICE CORP.
OF WASHINGTON, a Washington
corporation; SELECT PORTFOLIO
SERVICING, INC., a Utah
corporation,
coo

Respondents,

 

FILED: August 5, 2013 3^

707 F. Supp. 2d 1115

, 1123 (W.D. Wash 2010).
28 No. CV-08-00142, 2009 WL 484448 (E.D. Wash. Feb. 24, 2009).
29 Noted at 140 Wn. App. 1032 (2007).
-12-
NO. 65975-8-1/13

The court in Vawter stated four reasons for its holding. First, it explained,

“The Vawters have not identified any statutory provision of the DTA that permits

a cause of action for wrongful institution of foreclosure proceedings.”30 The court

did not address the effect of the 2009 amendments to RCW 61.24.127 because

the savings clause did not apply in the case before it.31 But, construing RCW

61.24.127(1 )(c) in a borrower’s favor, this statute demonstrates that the

legislature recognized a cause of action for damages for DTA violations. As

previously noted, nothing in the statute requires that the violation resulted in the

wrongful sale of the property.

Second, the court in Vawter explained that the legislature “established a

comprehensive scheme for the nonjudicial foreclosure process” and that “to the

extent the legislature intended to permit a cause of action for damages, it could

have said so.”32 But, the legislature has spoken and, with RCW 61.24.127(1 )(c),

recognized a cause of action for damages caused by violations of the DTA.

30 Vawter, 707 F. Supp. 2d at 1123.
31 Although the court recognized that “the Washington legislature
amended the DTA to add a handful of new protections and safeguards for
borrowers and grantors,” the homeowners acknowledged that the amendments
did not govern the nonjudicial foreclosure proceedings at issue in their case.
Accordingly, the court determined that it “need not consider the effect of these
amendments for purposes of the present motion.” Vawter, 707 F. Supp. 2d at
1122 n.9.
32 Vawter. 707 F. Supp. 2d at 1123.
-13-
NO. 65975-8-1 /14

Third, the court reasoned that allowing a presale cause of action for

damages would “spawn litigation under the DTA for damages, thereby interfering

with the efficient and inexpensive nature of the nonjudicial foreclosure process,

while at the same time failing to address directly the propriety of foreclosure or

advancing the opportunity of interested parties to prevent wrongful foreclosure.”

Bain observed that the lending industry has institutionalized a series of deceptive

practices,34 that MERS has been involved with “an enormous number of

mortgages in the country (and our state), perhaps as many as half nationwide,”35
and that MERS “often issue[s] assignments without verifying the underlying

information.”36 Thus, the lending industry and MERS have already spawned the

feared litigation with their institutionalized practices. Holding the lending industry

liable for damages caused by its DTA violations should produce greater

compliance and a reduction in future litigation. Thus, the availability of a presale

cause of action for damages could significantly reduce the long-term system-

wide expenses of nonjudicial foreclosures under the DTA.

Finally, the court in Vawter stated that even if it were to recognize a

presale cause of action for damages under the DTA, “the court is not persuaded

33 Vawter, 707 F. Supp. 2d at 1124.
34 Bain, 175 Wn.2d at 117.
35 Bain, 175 Wn.2d at 118.
36 Bain. 175 Wn.2d at 118 n.18.
-14-
NO. 65975-8-1/15

that it could be maintained without a showing of prejudice.”37 There, the plaintiffs

could not show prejudice because they conceded that the trustee’s sale was

discontinued and that one of the defendants possessed the note.38 Additionally,

the court determined that prematurely appointing a successor trustee, before

authority to make such an appointment, was a “non-prejudicial timing mistake”

because the trustee reappointed the successor after it was assigned a beneficial

interest in the deed of trust.39 Further, pre-Bain, the court explained, “Even

accepting the Vawters’ factual allegation that MERS exists to maintain records

regarding the ownership of mortgages, this does not mean that MERS cannot

hold a beneficial interest under the Deed of Trust.”40

Here, Walker alleges that MERS never had a beneficial interest because it

never held the note. Under Bain, it could never be a lawful beneficiary. Walker

also alleges damages caused by Select’s and Quality’s unlawful actions taken in

violation of the DTA. Walker’s allegations strongly support recognizing a presale

cause of action for damages under the DTA because he pleads facts showing he

has suffered prejudice from Select’s and Quality’s unlawful conduct.

37 Vawter, 707 F. Supp. 2d at 1124.
38 Vawter. 707 F. Supp. 2d at 1122-23, 1124.
39 Vawter, 707 F. Supp. 2d at 1127.
40 Vawter, 707 F. Supp. 2d at 1126.
-15-
NO. 65975-8-1/16

Quality and Select cite Massev v. BAC Home Loans Servicing LP41 to
support their argument that there is “no cause of action for damages for violation

of the DTA where the trustee’s sale is discontinued.” But, in Massev, as in

Vawter, the court followed Pfau and Krienke and did not consider the 2009

amendments to the DTA.42

MERS never held the note and, based on Walker’s amended complaint,

we can hypothesize that MERS never had independent authority to appoint a

beneficiary. We can further hypothesize that Select did not hold Walker’s note at

the time it appointed Quality. No Washington case law relieves from liability a

party causing damage by purporting to act under the DTA without lawful authority

to act or failing to comply with the DTA’s requirements.

Notably, the language of RCW 61.24.127(1 )(c) refers only to “[fjailure of

the trustee to materially comply with the provisions of this chapter.” (Emphasis

added.) We need not decide if this may prevent a borrower from suing a

beneficiary under some circumstances. Our Supreme Court has recognized, in

the context of a CPA claim, “Where the beneficiary so controls the trustee so as

to make the trustee a mere agent of the beneficiary, then as principle [sic], the

41 No. C12-1314, 2012 WL 5295146 (W.D. Wash. Oct. 26, 2012).
42 Massev. 2012 WL 5295146, at *4.
-16-
NO. 65975-8-1/17

beneficiary may be liable for the acts of its agent.”43 Here, we can plausibly
hypothesize Select controlling Quality’s actions violating the DTA.

Because the legislature recognized a presale cause of action for damages

in RCW 61.24.127(1)(c), we hold that a borrower has an actionable claim against

a trustee who, by acting without lawful authority or in material violation of the

DTA, injures the borrower, even if no foreclosure sale occurred. Additionally,

where a beneficiary, lawful or otherwise, so controls the trustee so as to make

the trustee a mere agent of the beneficiary, then, as principal, it may have

vicarious liability.

Fair Debt Collection Practices Act

Walker also asserts that Quality and Select violated the FDCPA. He

alleges that Select meets the “debt collector” definition of

15 U.S.C. § 1692a(6)(F)(iii) because he defaulted on his debt before MERS

purported to assign it to Select. Additionally, “if SELECT was a ‘debt collector’

within the terms of the FDCPA at the time of its assignment of the debt, its agent,

[Quality], would certainly be one.” Walker argues that Quality violated

15 U.S.C. § 1692e “through the use of false and misleading representations” and

violated 15 U.S.C. § 1692f with a “threat to take nonjudicial action to dispossess

the Plaintiff of his residence without a present right to possession.” He claims

43 Klem, 176Wn.2dat791 n.12.
-17-
NO. 65975-8-1/18

that Select violated these provisions of the FDCPA with its “representations” and

“actions” “made in connection with the purported collection of a debt,” as well as

its “misstatements of fact regarding a debt owed to SELECT.”

The FDCPA “applies only to ‘debt collectors,’ which are entities who

regularly collect debts for others, not to ‘creditors,’ who are collecting on their

own behalf.”44 The statute defines a “debt collector” as

any person who uses any instrumentality of interstate commerce or
the mails in any business the principal purpose of which is the
collection of any debts, or who regularly collects or attempts to
collect, directly or indirectly, debts owed or due or asserted to be
owed or due another…. For the purpose of section 1692f(6) of
this title, such term also includes any person who uses any
instrumentality of interstate commerce or the mails in any business
the principal purpose of which is the enforcement of security
interests.1 ]

A debt is “any obligation or alleged obligation of a consumer to pay money

arising out of a transaction in which the money, property, insurance, or services

which are the subject of the transaction are primarily for personal, family, or

household purposes, whether or not such obligation has been reduced to

judgment.”46

44 Am. Express Centurion Bank v. Stratman, 172 Wn. App. 667, 676, 292
P.3d 128 (2012) (citing 15 U.S.C. § 1692a(6); Discover Bank v. Ray, 139 Wn.
App. 723, 727, 162 P.3d 1131 (2007)).
45 15 U.S.C. §1692a(6).
46 15 U.S.C. §1692a(5).
-18-
NO. 65975-8-1/19

Section 1692e of the FDCPA prohibits a debt collector from using a “false,

deceptive, or misleading representation or means in connection with the

collection of any debt.” Section 1692f prohibits a debt collector from using “unfair

or unconscionable means to collect or attempt to collect any debt.” A debt

collector violates that section by “[t]aking or threatening to take any nonjudicial

action to effect dispossession or disablement of property if there is no present

right to possession of the property claimed as collateral through an enforceable

security interest.”47

Here, Quality makes no claim that it is a creditor collecting on its own

behalf. Instead, Quality argues that it is not a statutory debt collector because it

does not regularly collect consumer debts owed to another. Quality also states

that pursuing nonjudicial foreclosure under a deed of trust does not constitute

debt collection.

“‘[M]ortgage servicer companies and others who service outstanding debts

for others, [are not debt collectors] so long as the debts were not in default when

taken for servicing.'”48 Thus, “‘[although there is no statutory definition of ‘loan

servicer’ under the Act, a loan servicer will become a debt collector under

47 15 U.S.C. § 1692f(6)(A).
48 Oliver v. Ocwen Loan Servs.. LLC. No. C12-5374, 2013 WL 210619, at
*3 (W.D. Wash. Jan. 18, 2013) (second alteration in original) (quoting Mansour v.
Cal-Western Reconveyance Corp..

618 F. Supp. 2d 1178

, 1182 (D. Ariz. 2009)).
-19-
NO. 65975-8-1/20

§ 1692a(6)(F)(iii) if the debt was in default or treated as such when it was

acquired.'”49

In Jara v. Aurora Loan Services. LLC,50 the United States District Court for

the Northern District of California recognized that most district courts within the

Ninth Circuit Court of Appeals have concluded that foreclosure proceedings do

not constitute “debt collection” within the meaning of the FDCPA. The court

noted, however, that “acts taken in furtherance of a foreclosure proceeding can

be the basis of a FDCPA claim, but only if they are alleged as violations of 15

U.S.C. § 1692f(6).”51 The court adopted the District of Idaho’s reasoning:

[l]f “debt collection” generally included the enforcement of a security
interest, the language specifying so for the purposes of § 1692f(6)
would be surplusage, and such a construction would violate a “long
standing canon of statutory construction that terms in a statute
should not be construed so as to render any provision of that
statute meaningless or superfluous.”1521
Although the Ninth Circuit has not ruled on this issue, “[t]he current trend among

district courts in the Ninth Circuit is to find that, at least insofar as defendant

confines itself to actions necessary to effectuate a nonjudicial foreclosure, only

49 Oliver. 2013 WL 210619, at *4 (quoting Bridge v. Ocwen Fed. Bank.
FSB.

681 F.3d 355

, 360 n.4 (6th Cir. 2012)).
50 No. C 11-00419,2011 WL 6217308, at *4 (N.D. Cal. Dec. 14,2011).
51 Jara, 2011 WL 6217308, at *5.
52 Jara. 2011 WL 6217308, at *5 (quoting Armacost v. HSBC Bank USA.
No. 10-CV-274, 2011 WL 825151, at *5 (D. Idaho Feb. 9, 2011)).
-20-
NO. 65975-8-1/21

§ 1692f(6) of the FDCPA applies.”53 We join this trend in recognizing a claim

under § 1692f, which is consistent with the statutory language.

Here, the trial court properly dismissed Walker’s claims under 15

U.S.C. § 1692e. Nothing in the record indicates that Quality or Select engaged in

any activities beyond those necessary to institute foreclosure proceedings. “Acts

required to institute foreclosure proceedings, such as the recording of a notice of

default, alone, are not debt collection activities for purposes of the FDCPA unless

alleged in relation to a claim for violation of 15 U.S.C. § 1692f(6).”54 Therefore,
Walker’s claim under 15 U.S.C. § 1692e fails.

The trial court erred, however, by dismissing Walker’s claim under

15 U.S.C. § 1692f. Because his arguments concern Quality’s and Select’s

actions to enforce a security interest, these parties may constitute “debt

collectors” within the statute’s meaning. Assuming that Walker’s allegations are

true, neither Quality nor Select had a present right to possess the property

through nonjudicial foreclosure because they never held the note or the

underlying debt and were not lawfully appointed under the DTA. IfWalker is able

to prove these underlying DTA violations, he may also be able to show that

Quality and Select violated § 1692f(6) by threatening judicial foreclosure.

53 McDonald v. OneWest Bank. FSB. No. C10-1952, 2012 WL 555147, at
*4 n.6 (W.D. Wash. Feb. 21, 2012).
54 Jara, 2011 WL 6217308, at *5.
-21-
NO. 65975-8-1/22

Presuming that the facts stated in Walker’s amended complaint are true,

the trial court could potentially grant relief under 15 U.S.C. § 16921 Accordingly,

the trial court erred by dismissing his FDCPA claim.

Consumer Protection Act

Walker next claims that Quality and Select violated the CPA. The CPA

declares unlawful unfair methods of competition and unfair or deceptive acts or

practices in the conduct of any trade or commerce.55 Generally, to prevail in a

private CPA claim, the plaintiff must prove (1) an unfair or deceptive act or

practice (2) occurring in trade or commerce (3) affecting the public interest, (4)

injury to a person’s business or property, and (5) causation.56 The failure to

establish any of these elements is fatal to a CPA claim.57 Here, in light of our
Supreme Court’s recent decisions in Bain58 and Klem,59 Quality and Select

contend only that Walker fails to meet the fourth and fifth elements.

55 RCW 19.86.020.
56 Hangman Ridge Training Stables. Inc. v. Safeco Title Ins. Co., 105
Wn.2d 778, 784-85, 719 P.2d 531 (1986).
57 Indoor Billboard/Wash.. Inc. v. Integra Telecom of Wash., 162 Wn.2d
59,74, 170P.3d10(2007).
58 In Bain, a case against MERS, the court recognized that the plaintiff
presumptively met the first element because “characterizing MERS as the
beneficiary has the capacity to deceive.” 175 Wn.2d at 117. The plaintiff also
presumptively met the second element based upon “considerable evidence that
MERS is involved with an enormous number of mortgages in the country (and
our state), perhaps as many as half nationwide.” 175 Wn.2d at 118. Third, the
court opined that “there certainly could be injury under the CPA” if the
homeowner borrower could not determine the noteholder, if there were incorrect
or fraudulent transfers of the note, or if concealing loan transfers deprived the
-22-
NO. 65975-8-1/23

The CPA does not define an “unfair or deceptive act or practice.” Whether

an alleged act is unfair or deceptive presents a question of law.60 A consumer
may establish an unfair or deceptive act by showing “either that an act or practice

‘has a capacity to deceive a substantial portion of the public,’ or that ‘the alleged

act constitutes a per se unfair trade practice.'”61 “Implicit in the definition of

‘deceptive’ under the CPA is the understanding that the practice misleads or

misrepresents something of material importance.”62 Whether an unfair act has
the capacity to deceive a substantial portion of the public is a question of fact.63
To establish a per se violation, a plaintiff must show “that a statute has been

violated which contains a specific legislative declaration of public interest

impact.”64

homeowner of rights that require the homeowner to sue or to negotiate with the
actual noteholder. 175 Wn.2d at 118-19.
59 In Klem. the court held that “a claim under the Washington CPA may be
predicated upon a per se violation of statute, an act or practice that has the
capacity to deceive substantial portions of the public, or an unfair or deceptive
act or practice not regulated by statute but in violation of public interest.” 176
Wn.2d at 787. The court determined that a trustee’s failure to fulfill its duty to the
borrower constituted a “deceptive act” under the CPA. 176 Wn.2d at 787.
60 Holiday Resort Cmtv. Ass’n v. Echo Lake Assocs.. LLC. 134 Wn. App.
210, 226, 135 P.3d 499 (2006).
61 Saunders v. Lloyd’s of London. 113 Wn.2d 330, 344, 779 P.2d 249
(1989) (Quoting Hangman Ridge. 105Wn.2d at 785-86).
6* Holiday Resort. 134 Wn. App. at 226.
63 Holiday Resort. 134 Wn. App. at 226-27.
64 Hangman Ridge. 105 Wn.2d at 791.
-23-
NO. 65975-8-1/24

Walker asserts that his allegations describe a per se violation of the CPA,

thereby satisfying the first two elements,65 because Quality and Select violated

“statutes related to the collection of a debt.”66 Alternatively, Walker lists four acts

that he contends were deceptive: (1) Quality sent a notice of default to Walker

“despite not meeting the requirements of a successor trustee under RCW

61.24.010(2) which [Quality] and SELECT knew or should have known at the

time the Notice of Default was issued”; (2) Quality and Select “facilitated a

deceptive and misleading effort to wrongfully execute and record documents

[Quality] and SELECT knew or should have known contained false statements

related to the Appointment of Successor Trustee and Assignment of Deed of

Trust”; (3) Quality and Select sent, executed, and recorded a notice of trustee’s

sale that they “knew contained false statements in that no obligation of the

Plaintiff was ever owed to SELECT, the purported ‘beneficiary'”; and (4) “that as

a result of this conduct, [Quality] and SELECT knew that its conduct amounted to

wrongful foreclosure and was further in violation of the FDCPA.”

To meet the fourth and fifth elements, Walker must allege facts

demonstrating that Quality’s and Select’s deceptive acts caused him harm. To

65 Hangman Ridge. 105 Wn.2d at 786.
66 See Panag v. Farmers Ins. Co. of Wash.. 166 Wn.2d 27, 53, 204 P.3d
885 (2009) (“When a violation of debt collection regulations occurs, it constitutes
a per se violation of the CPA . . . under state and federal law, reflecting the public
policy significance of this industry.”).
-24-
NO. 65975-8-1 / 25

prove causation, the “plaintiff must establish that, but for the defendant’s unfair or

deceptive practice, the plaintiff would not have suffered an injury.”67

Walker alleges as his injuries “the distraction and loss of time to pursue

business and personal activities due to the necessity of addressing the wrongful

conduct through this and other actions” and “the necessity for investigation and

consulting with professionals to address Respondents’ wrongful foreclosure and

collection practices and violation of RCW 61.24, et seq.” Additionally, he “had to

take time off from work and incurred travel expenses to consult with an attorney

to address the misconduct of the Defendants.”

In Panag v. Farmers Insurance Co. of Washington,68 our Supreme Court

held, “[T]he injury requirement is met upon proof the plaintiff’s ‘property interest

or money is diminished because of the unlawful conduct even if the expenses

caused by the statutory violation are minimal.'” Investigative expenses, taking

time off from work, travel expenses, and attorney fees are sufficient to establish

injury under the CPA.69

Walker also alleges that but for Quality’s and Select’s deceptive acts, he

would not have suffered these same injuries. Walker asserts that the deceptive

documents induced him to incur expenses to investigate whether Select and

67 Indoor Billboard. 162 Wn.2d at 84.
68 166 Wn.2d 27, 57, 204 P.3d 885 (2009) (quoting Mason v. Mortg. Am.,
Inc.. 114 Wn.2d 842, 854, 792 P.2d 142 (1990)).
69 See Panag. 166 Wn.2d at 62.
-25-
NO. 65975-8-1/26

Quality had authority to act against him and to address their allegedly improper

deceptive acts. Thus, he pleads facts sufficient to establish causation. Because

Walker pleads facts that, if proved, could satisfy all five elements, we conclude

that the trial court erred by dismissing his CPA claim.

Quiet Title

Finally, Walker claims that the court erred by dismissing his action to quiet

title to his property. He alleges, “As MERS was never a legitimate beneficiary

under RCW 61.24.005 and the interest in the Deed of Trust has been effectively

segregated from the interest in the Note, the Deed of Trust is no longer a valid

lien upon Mr. Walker’s property.”

To support his argument, Walker cites the Restatement (Third) of

Property: Mortgages, which states, in a comment, that “in general a mortgage is

unenforceable if it is held by one who has no right to enforce the secured

obligation.”70 He also cites numerous cases outside this jurisdiction for the notion

that “the segregation of the Note from the Deed of Trust through the assignment

of the Deed of Trust from MERS to SELECT without a valid assignment of the

Note renders the subject Deed of Trust a nullity and an improper lien against Mr.

Walker’s property.” He requests that the court clear the “improper cloud” on his

70 Restatement (Third) of Prop.: Mortgages § 5.4 cmt. e (1997).
-26-
NO. 65975-8-1/27

property and quiet his title, although he cites no authority recognizing such a

cause of action based upon the facts in this case.

In response, Quality and Select assert that Walker has not alleged any

facts demonstrating that he holds title superior to the deed of trust. They also

claim that he must allege payment of his loan to sufficiently plead a claim to quiet

title. For this proposition they cite Evans v. BAC Home Loans Servicing LP.71

holding that a plaintiff seeking to quiet title against a purported lender or other

holder of a debt secured by a deed of trust must allege satisfaction of the

secured obligation.

The logic of such a rule is overwhelming. Under a deed of trust, a
borrower’s lender is entitled to invoke a power of sale if the
borrower defaults on its loan obligations. As a result, the
borrower’s right to the subject property is contingent upon the
borrower’s satisfaction of loan obligations. Under these
circumstances, it would be unreasonable to allow a borrower to
bring an action to quiet title against its lender without alleging
satisfaction of those loan obligations. Plaintiffs have not provided
any rationale that would support an alternate rule.[72]
An action to quiet title is an equitable proceeding “designed to resolve

competing claims of ownership.”73 RCW 7.28.010 requires Walker to bring an

action to quiet title against “the person claiming the title or some interest” in real

property in which he has a valid interest. “A ‘plaintiff in an action to quiet title

71 No. C10-0656, 2010 WL 5138394 (W.D. Wash. 2010).
72 Evans. 2010 WL 5138394, at *4.
73 Kobza v. Tripp, 105 Wn. App. 90, 95, 18P.3d621 (2001).
-27-
NO. 65975-8-1 / 28

must prevail, if he prevails at all, on the strength of his own title, and not on the

weakness of the title of his adversary.'”74

In Bain, the Supreme Court declined to decide the legal effect of MERS

acting as an unlawful beneficiary under the DTA. However, the court stated its

inclination to agree with MERS’s assertion that any violation of the DTA “‘should

not result in a void deed of trust, both legally and from a public policy

standpoint.'”75 The court also noted, “[l]f in fact MERS is not the beneficiary, then

the equities of the situation would likely (though not necessarily in every case)

require the court to deem that the real beneficiary is the lender whose interests

were secured by the deed of trust or that lender’s successors.”76 While dicta,
these statements identify critical problems with Walker’s argument.

Here Walker does not allege a claim to quiet title based upon the strength

of his own title. Instead, he asks the court to void a consensual lien against his

property because of a defect in the instrument creating that lien, the designation

of an ineligible entity as beneficiary of the deed of trust. As previously noted, he

cites no authority recognizing this defect as a basis to void a deed of trust and

offers no equitable reason why a court should recognize his claim. As a matter of

74 Wash. State Grange v. Brandt. 136 Wn. App. 138, 153, 148 P.3d 1069
(2006) (quoting City of Centralia v. Miller, 31 Wn.2d 417, 422, 197 P.2d 244
(1948)).
75 Bain. 175 Wn.2d at 114.
76 Bain. 175 Wn.2d at 111.
-28-
NO. 65975-8-1/29

first impression, we decline to do so. We reject the argument that this defect in a

deed of trust, standing alone, renders it void and note that Washington courts

have repeatedly enforced between the parties a deed or mortgage that failed to

comply with the statutory requirement of an acknowledgement.77 The trial court

properly dismissed Walker’s action to quiet title.

Attorney Fees

Walker requests costs and reasonable attorney fees incurred on this

appeal under RAP 18.1 and the deed of trust. RAP 18.1 permits a prevailing

party to recover fees incurred on appeal if the party can recover such fees at

trial.78 “A party must prevail on the merits before being considered a prevailing

party-“79 Because Walker, at least at this point, does not prevail on the merits, he

is not entitled to costs and attorney fees incurred on appeal.

CONCLUSION

Because Walker alleges facts that, if proved, would entitle him to relief, we

reverse the trial court’s order dismissing his claims under CR 12(c) for violations

77 Bremner v. Shafer. 181 Wash. 376, 384, 43 P.2d 27 (1935).
78 Landberg v. Carlson. 108 Wn. App. 749, 758, 33 P.3d 406 (2001).
79 Ryan v. Dep’t of Soc. &Health Servs.. 171 Wn. App. 454, 476, 287 P.3d
629 (2012).
-29-
NO. 65975-8-1 / 30

of the DTA, the FDCPA, and the CPA and remand for further proceedings

consistent with this opinion. We affirm the court’s dismissal of his action to quiet

title.

*-T- tj

WE CONCUR:

-30-

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

STATE OF OHIO
COUNTY OF SUMMIT

IN THE COURT OF APPEALS
NINTH JUDICIAL DISTRICT

BAC HOME LOANS SERVICING, LP fka
COUNTRYWIDE HOME LOANS
SERVICING, LP
Appellee

v.

GARRICK P. MCFERREN, aka
GARRICK MCFERREN, et al.
Appellant

DECISION AND JOURNAL ENTRY
Dated: July 24, 2013

BELFANCE, Presiding Judge.

{¶1} Garrick McFerren appeals the decision of the Summit County Court of
Common Pleas awarding summary judgment to Bank of America, N.A. For the reasons
set forth below, we reverse.

I.

{¶2} On February 19, 2008, Mr. McFerren signed a promissory note (“the
Note”) for $211,500.00 with Quicken Loans, Inc. That same day, he also signed a
mortgage (“the Mortgage”) purporting to secure the Note, which named Mortgage
Electronic Registration Systems, Inc. (“MERS”) as “the mortgagee under this Security
Instrument.” Quicken Loans later transferred the Note to Countrywide Bank, FSB, which
subsequently endorsed the Note in blank, thus leaving the space for “payable to” empty.
On March 16, 2011, MERS assigned the mortgage to BAC Home Loan Servicing, LP,
and the assignment was recorded on April 19, 2011. BAC initiated foreclosure
proceedings on June 30, 2011.

{¶3} On July 1, 2011, BAC merged with Bank of America, N.A., and Bank of
America was substituted as party plaintiff on August 30, 2011. Bank of America moved
for summary judgment, and Mr. McFerren filed a motion in opposition, albeit untimely.
The trial court never ruled on Mr. McFerren’s motion for leave to file his motion in
opposition, and it awarded summary judgment to Bank of America on March 12, 2012, in
a judgment entry prepared by Bank of America.

{¶4} Mr. McFerren has appealed, raising a single assignment of error for our
review.

II.
ASSIGNMENT OF ERROR
REVIEWING THE APPELLEE’S MOTION FOR SUMMARY
JUDGMENT DE NOVO, THE RECORD IS CLEAR AND
CONVINCING THAT THE TRIAL COURT ERRED TO THE
PREJUDICE OF APPELLANT BY GRANTING APPELLEE’S
MOTION FOR SUMMARY JUDGMENT IN FAVOR OF APPELLEE
ON THE FORECLOSURE COMPLAINT AND AGAINST
APPELLANT ON THE QUIET TITLE COUNTERCLAIMS AND
THIRD PARTY COMPLAINT.

{¶5} Mr. McFerren argues that the trial court erred in awarding summary
judgment to Bank of America because BAC lacked standing to initiate the action. We
agree that, given the record before us, we cannot conclude that BAC had standing to
initiate the action.

{¶6} Bank of America argues that we should not reach the question of standing
because Mr. McFerren failed to properly raise it in the trial court; however, it is wellestablished
that “the issue of standing, inasmuch as it is jurisdictional in nature, may be
raised at any time during the pendency of the proceedings.” New Boston Coke Corp. v.
Tyler, 32 Ohio St.3d 216 (1987), paragraph two of the syllabus. See also Fed. Home
Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, ¶ 22 (citing
Tyler with approval).

{¶7} In Schwartzwald, the Ohio Supreme Court determined that a plaintiff in a
foreclosure action must have standing at the time it files the complaint in order to invoke
the jurisdiction of the court. Schwartzwald at ¶ 41-42. “It is an elementary concept of
law that a party lacks standing to invoke the jurisdiction of the court unless he has, in an
individual or representative capacity, some real interest in the subject matter of the
action.” (Internal quotations and citations omitted.) Id. at ¶ 22. Standing to sue is
jurisdictional in nature as it concerns a party’s capacity to invoke the jurisdiction of the
court, and, therefore, whether a party has standing is evaluated at the time of the filing of
the complaint. Id. at ¶ 24. Moreover, the lack of standing cannot be cured by a
subsequent assignment of the note and mortgage subsequent to filing the complaint. Id.
at ¶38 (“Standing is required to invoke the jurisdiction of the common pleas court.
Pursuant to Civ.R. 82, the Rules of Civil Procedure do not extend the jurisdiction of the
courts of this state, and a common pleas court cannot substitute a real party in interest for
another party if no party with standing has invoked its jurisdiction in the first instance.”).

In Schwartzwald, the record did not establish that the plaintiff/bank was the holder of the
note or mortgage when it filed the complaint. As such, it “concede[d] that there [wa]s no
evidence that it had suffered any injury at the time it commenced th[e] foreclosure
action.” Id. at ¶ 28. “Thus, because it failed to establish an interest in the note or
mortgage at the time it filed suit, it had no standing to invoke the jurisdiction of the
common pleas court.” Id.

{¶8} Prior to Schwartzwald, this Court also held that in order to have a real
interest in a foreclosure action, a party must be the owner and holder of the note and the
mortgage at the time it commences the action. See U.S. Bank, N.A. v. Richards, 189
Ohio App.3d 276, 2010-Ohio-3981, ¶ 13 (9th Dist.), quoting Everhome Mtge. Co. v.
Rowland, 10 Dist. Franklin No. 07AP-615, 2008-Ohio-1282, ¶ 12 (“‘In foreclosure
actions, the real party in interest is the current holder of the note and mortgage.’”). BAC
filed the complaint at issue in this case. Bank of America was substituted as the plaintiff
and then moved for summary judgment. Relative to the mortgage, Bank of America
submitted copies of the Mortgage naming MERS as mortgagee and the assignment of the
Mortgage from MERS to BAC.1 With respect to the Note, Bank of America attached a
copy of the Note payable to Quicken Loans. The note contained an endorsement from
Quicken Loans to Countrywide Bank, FSB, which at some point Countrywide Bank
endorsed in blank. Bank of America also submitted the affidavit of Linda Geidel. In her
affidavit, Ms. Geidel averred that she is an officer of Bank of America, that Bank of
America was successor by merger to BAC, and the Bank of America had possession of
the Note. However, Ms. Geidel did not aver that BAC had possession of the Note at the
time that it filed the complaint.2

{¶9} Accordingly, none of the evidence in the record demonstrates that BAC
had possession of the Note at the time that it filed the complaint. The copy of the Note
attached to the complaint does not show anything beyond the fact that BAC had access to
a copy of the Note. The Note itself is payable to bearer by virtue of Countrywide Bank’s
blank endorsement, meaning that nothing on the Note itself indicates when, or if, BAC
became its owner through possession of the note. Further, the fact that Bank of America
had possession of the Note at the time it moved for summary judgment does not
demonstrate that BAC had obtained possession of the Note when it filed the complaint.
See Rowland at ¶ 15 (“[Bank of America] does not specify how or when [it] became the
holder of the note and mortgage. Without evidence demonstrating the circumstances
under which it received an interest in the note and mortgage, [it] cannot establish itself as
the holder.”). Nor is there evidence that Countrywide Bank, FSB, ever delivered the
endorsed Note to BAC or its predecessors.

{¶10} Nevertheless, Bank of America maintains that the record establishes that
BAC had standing because the mortgage assignment was dated and recorded prior to the
complaint being filed. It reasons that the assignment of the mortgage alone conferred
standing. Specifically, it refers to that portion of Schwartzwald where the Supreme Court
stated that Federal Home Loans did not have standing because “it failed to establish an
interest in the note or mortgage at the time it filed suit,” Schwartzwald, 134 Ohio St.3d
13, 2012-Ohio-5017, at ¶ 28, and points to Citimortgage, Inc. v. Patterson, 8th Dist.
Cuyahoga No. 98360, 2012-Ohio-5894, to support its interpretation. In Patterson, the
court noted that Schwartzwald had held “that Federal Home Loans did not have standing
because * * * ‘it failed to establish an interest in the note or mortgage at the time it filed
suit.’” (Emphasis sic.) Id. at ¶ 21, quoting Schwartzwald at ¶ 28. The Patterson court
concluded that the use of “or” marked a departure from its previous holdings that a party
needed “‘the note and mortgage when the complaint was filed[]’” in order to have
standing. (Emphasis sic.) Patterson at ¶ 21, quoting Wells Fargo Bank, N.A. v. Jordan,
8th Dist. Cuyahoga No. 91675, 2009-Ohio-1092, ¶ 23. Thus, the court held that, in light
of Schwartzwald, a party may establish its standing by showing that it is the assignee of
the mortgage or is the holder of the note. Patterson at ¶ 21.

{¶11} We do not find the Eighth District’s rationale persuasive. It is apparent
that the Ohio Supreme Court did not consider this precise issue in Schwartzwald given
that the bank had conceded that it was not the holder of the note or mortgage. See, e.g.,
Schwartzwald at ¶ 28 (noting that Federal Home Loans conceded there was no evidence
that it had either). Thus, the language must be read in the context of the entire opinion.
Like the Eighth District, this Court has previously held that a party must have the note
and the mortgage in order to demonstrate standing. See, e.g., Richards, 189 Ohio App.3d
276, 2010-Ohio-3981, at ¶ 13. Other districts have made similar holdings. See, e.g.,
Losantiville Holdings L.L.C. v. Kashanian, 1st Dist. Hamilton No. C-110865, 2012-Ohio-
3435, ¶ 17; Arch Bay Holdings, L.L.C. v. Brown, 2d Dist. Montgomery No. 25073, 2012-
Ohio-4966, ¶ 16; U.S. Bank Natl. Assn. v. Marcino, 181 Ohio App.3d 328, 2009-Ohio-
1178, ¶ 32 (7th Dist.); Rowland, 2008-Ohio-1282, at ¶ 12. It is unlikely that the Supreme
Court intended to overturn the holdings of all of the appellate courts on the issue,
especially since the issue was not directly before it.

{¶12} Moreover, as explained in Schwartzwald, the fundamental requirement of
standing is that the party bringing the action is actually the party who has suffered the
injury. See Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, at ¶ 23, 28. A party who
only has the mortgage but no note has not suffered any injury given that bare possession
of the mortgage does not endow its possessor with any enforceable right absent
possession of the note. See Restatement of the Law 3d, Property, Mortgages, Section
5.4(e), at 385 (1996) (“[I]n general a mortgage is unenforceable if it is held by one who
has no right to enforce the secured obligation.”). In other words, possession of the
mortgage is of no import unless there is possession of the note. While it is possible to
assign a mortgage and retain possession of the note, “[t]he practical effect of such a
transaction is to make it impossible to foreclose the mortgage, unless the transferee is
also made an agent or trustee of the transferor * * *.” Restatement, Section 5.4(c), at
384. See also id. (noting that UCC 3-203 likely requires courts to disregard a mortgage
assignment when the negotiable note is not also delivered); Christopher L. Peterson, Two
Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory,
53 Wm. & Mary L.Rev. 111, 119 (2011), fn. 34 (compiling cases from many jurisdictions
finding that the note and the mortgage are inseparable and that the assignment of a
mortgage alone is a nullity). This would further support the conclusion that the Supreme
Court did not intend to imply that simply possessing the mortgage is sufficient to
establish standing given that a party who simply holds the mortgage suffers no injury.
See Schwartzwald, at ¶ 28.

{¶13} Thus, we conclude that Schwartzwald did not overturn long-standing
property and foreclosure principles and, therefore, BAC had to be holder of the Note and
the Mortgage at the time it initiated this action order to have standing. Id. It follows that,
if BAC did not have standing at the time it filed the complaint, then Bank of America
likewise did not have standing upon merging with BAC.

{¶14} Mr. McFerren has set forth arguments concerning the legal effect of
splitting the Note and Mortgage from the inception of the transaction.3 Bank of America
argues that Mr. McFerren has no standing to assert defenses which relate to the legal
effect of the prior assignments of the note or mortgage.4 However, we need not address
those arguments, as the record before us does not allow us to conclude that BAC was the
owner of the Note when it initiated the action.
{¶15} Mr. McFerren’s assignment of error is sustained.

III.

{¶16} In light of the foregoing, the judgment of the Summit County Court of
Common Pleas is reversed, and the matter is remanded for further proceedings consistent
with this opinion.

Judgment reversed,
and cause remanded.

There were reasonable grounds for this appeal.

We order that a special mandate issue out of this Court, directing the Court of
Common Pleas, County of Summit, State of Ohio, to carry this judgment into execution.
A certified copy of this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal
entry of judgment, and it shall be file stamped by the Clerk of the Court of Appeals at
which time the period for review shall begin to run. App.R. 22(C). The Clerk of the
Court of Appeals is instructed to mail a notice of entry of this judgment to the parties and
to make a notation of the mailing in the docket, pursuant to App.R. 30.

Costs taxed to Appellee.

EVE V. BELFANCE
FOR THE COURT
HENSAL, J.
CONCURS.

CARR, J.

DISSENTING.

{¶17} I agree with the majority’s conclusion that “none of the evidence in the
record demonstrates that BAC had possession of the Note at the time that it filed the
complaint,” but I would not remand this matter for further proceedings. Instead, I would
hold that BAC’s failure to demonstrate standing at the commencement of this foreclosure
action requires dismissal of the complaint pursuant to the Supreme Court of Ohio’s
decision in Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-
Ohio-5017, ¶ 40; see also Wells Fargo Bank NA v . Horn, 9th Dist. No. 12CA010230,
2013-Ohio-2374.

APPEARANCES:

DAVID N. PATTERSON, Attorney at Law, for Appellant.
STACY L. HART and CARSON A. ROTHFUSS, Attorneys at Law, for Appellee.
_____________________

footnotes:
1 Attached to the complaint was a certificate from the Texas Secretary of State
that indicated that BAC had formerly been known as Countrywide Home Loan Services,
Inc.

2 To illustrate the path both the Note and the Mortgage have taken, we have
created the chart that is attached as Appendix A at the end of this opinion.

3 As noted above, at the inception of the transaction, the Mortgage named MERS
as the mortgagee and contains language that indicates that MERS is the nominee of
Quicken Loans. This Court has not squarely addressed the legal effect of splitting a note
and mortgage at its inception. See generally Peterson, 53 Wm. & Mary L.Rev. 111
(discussing analysis of various jurisdictions relating to legal effect of splitting note and
the mortgage and the significant departure by MERS from the traditional land registration
system and the public policies undermined by the corporation’s methods). See, e.g.,
Peterson, 53 Wm. & Mary L.Rev. 144 (noting the problematic manner in which MERS
transfers its mortgages because “MERS has a web page in which mortgage servicers and
law firms can enter names of their own employees to automatically produce a boilerplate
corporate resolution that purports to designate the servicers’ and law firms’ employees as
certifying officers of MERS with the job title of assistant secretary, vice president, or
both.”). In Deutsche Bank Natl. Trust Co. v. Traxler, 9th Dist. Lorain No. 09CA009739,
2010-Ohio-3940, this Court discussed in dicta the limited argument that MERS lacked
authority as nominee to assign a mortgage to the foreclosing bank. Id. at ¶ 19. The
argument was premised upon the contention in its status as “nominee” MERS was only
permitted to enforce the mortgage, but not to assign it. Id. As such, it was argued that
the right to assign the mortgage was retained by the original lender who possessed the
note. Id. However, Traxler did not ultimately answer this question but did refer to cases
suggesting that MERS had authority to assign a mortgage when designated as both a
nominee and mortgagee. Id. at ¶ 19-21. However, the cases cited in Traxler concerning
that issue were decided without evidence in the record as to the method by which MERS
operated. See id. at ¶ 19 (compiling cases from other districts that “recognized MERS’
authority to assign a mortgage when designated as both a nominee and mortgagee”).

4 We note that it is unclear why a foreclosure defendant would lack “standing” to
raise issues concerning the legal effect of prior assignments or other transactions in
defending the foreclosure action. In that context, the defendant may raise legally relevant
defenses as such would relate to the character of the obligation (i.e. secured or not
secured) and to whom the obligation is actually owed (in cases of multiple assignments,
to avoid the risk that multiple parties claim the right to collect). Bank of America relies
upon Livonia Props. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings, LLC, 399
Fed.Appx. 97 (6th Cir.2010), and Bridge v. Aames Capital Corp., N.D.Ohio No. 1:09 CV
2947, 2010 WL 3834059 (Sept. 29, 2010), in support. However, the procedural posture
and substantive issues addressed in those cases are distinct from the instant matter and
those cases do not stand for the blanket proposition that in all contexts an obligor may not
raise defenses concerning the assignment of the obligation. Bridge is readily
distinguishable because the mortgagor was a plaintiff seeking a declaratory judgment and
the court addressed standing in the context of Ohio’s declaratory judgment statute.
Livonia addressed the question of the meaning of “record chain of title” under
Michigan’s foreclosure by advertisement statute. See id. at 99.

 

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

LIVE on C-SPAN3: Senate Hearing on Derivative Trades

Former and current JPMorgan Chase executives testify about the practices that led to the firm’s $6.2-billion “London Whale” trading losses during a hearing of the Senate Homeland Permanent Subcommittee on Investigations.

Click Below for Live Hearings

Agenda

The Permanent Subcommittee on Investigations has scheduled a hearing, “JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses,” on Friday, March 15, 2013, at 9:30 a.m., in Room G-50 of the Dirksen Senate Office Building. 

The Subcommittee will examine matters relating to credit derivative trades made by the JPMorgan Chase Chief Investment Office.  The Subcommittee expects to issue a Subcommittee staff report in conjunction with the hearing summarizing its investigative findings and recommendations.  Witnesses will include representatives from JPMorgan Chase and the Office of the Comptroller of the Currency.  A witness list will be available Wednesday, March 13, 2013.   

Witnesses

PANEL 1

• INA DREW

Former Chief Investment Officer

Download Testimony (85.4 KB)

• ASHLEY BACON

Acting Chief Risk Officer

Download Testimony (121.7 KB)

• PETER WEILAND

Former Head of Market Risk – Chief Investment Office

Download Testimony (39 KB)

.

PANEL 2

• MICHAEL J. CAVANAGH

Download Testimony (626.6 KB)

• DOUGLAS L. BRAUNSTEIN

Current Vice Chairman

.

PANEL 3

• THE HONORABLE THOMAS J. CURRY

Download Testimony (73.3 KB)

• SCOTT WATERHOUSE

Examiner-in-Charge – OCC National Bank Examiners – JPMorgan Chase

• MICHAEL SULLIVAN

Panel 1

Panel 2

Panel 3

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

2012 Ohio 5930

FEDERAL HOME LOAN MORTGAGE CORPORATION, Plaintiff-Appellee,
v.
JANE RUFO, et al., Defendant-Appellant.

No. 2012-A-0011.Court of Appeals of Ohio, Eleventh District, Ashtabula County.

December 17, 2012.Ellen L. Fornash, and Elizabeth S. Fuller, Lerner, Sampson & Rothfuss, P.O. Box 5480, Cincinnati, OH 45201-5480 (For Plaintiff-Appellee).

Anne M. Reese, Legal Aid Society of Cleveland, 121 East Walnut Street, Jefferson, OH 44047; and Philip D. Althouse, Legal Aid Society of Cleveland, 1530 West River Road, Suite 301, Elyria, OH 44035 (For Defendant-Appellant Jane Rufo).

OPINION

CYNTHIA WESTCOTT RICE, J.

{¶1} Appellant, Jane Rufo, appeals the summary judgment of foreclosure entered in favor of Appellee, Federal Home Loan Mortgage Corp. (“Freddie Mac”), by the Ashtabula County Court of Common Pleas. At issue is whether Freddie Mac’s lack of standing when it filed this mortgage foreclosure action could be cured by the assignment of the mortgage and promissory note to it prior to the entry of final judgment. For the reasons that follow, the trial court’s judgment is reversed and this matter is remanded for the trial court to dismiss the complaint without prejudice.

{¶2} On September 21, 2007, appellant and her daughter, Jennifer Rufo, purchased a home in Ashtabula, Ohio. Appellant applied for and received a residential home loan from U.S. Bank, N.A. in the amount of $114,000. In return for the loan, appellant executed a note in that amount in favor of U.S. Bank. In order to secure the loan, appellant and Jennifer executed a mortgage in favor of Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for U.S. Bank.

{¶3} Subsequently, appellant defaulted on the note, and the amount owed was accelerated. On July 21, 2010, Freddie Mac filed this action, naming appellant and Jennifer as defendants. Freddie Mac alleged it was the holder of the note on which appellant defaulted. Freddie Mac attached a copy of the mortgage to the complaint, but did not attach a copy of the note, alleging it was currently unavailable.

{¶4} One month later, on August 17, 2010, MERS, as nominee for U.S. Bank, assigned said mortgage to Freddie Mac.

{¶5} On October 5, 2010, Freddie Mac filed a “Notice of Filing [1.] Assignment of Mortgage and [2.] Note with Blank Indorsement.” Copies of the August 17, 2010 assignment of the mortgage to Freddie Mac and the September 21, 2007 note payable to U.S. Bank were attached to this notice.

{¶6} In October 2010, appellant and Jennifer filed separate motions for a more definite statement and, alternatively, motions to dismiss the complaint for lack of standing. Freddie Mac filed briefs in opposition to these motions.

{¶7} On November 24, 2010, appellant filed an answer denying the material allegations of the complaint and asserting various affirmative defenses, including Freddie Mac’s alleged lack of standing.

{¶8} On April 25, 2011, the trial court entered judgment denying appellant’s and Jennifer’s motions for a more definite statement and to dismiss.

{¶9} On June 8, 2011, Freddie Mac filed a motion for default judgment against Jennifer. Also, on that date, Freddie Mac filed a motion for summary judgment against appellant. In support of its summary-judgment motion, Freddie Mac filed the affidavit of Corie Spencer, an officer of U.S. Bank, which, she stated, was a servicing agent for Freddie Mac. Ms. Spencer stated that, based on her review of U.S. Bank’s records for this account, Freddie Mac is the holder of the instant note and mortgage. She stated that appellant is in default on the note and that the amount owed on the account had been accelerated, making the entire balance of $111,080 due. Ms. Spencer authenticated the promissory note, the mortgage, and the assignment of the mortgage from MERS to Freddie Mac.

{¶10} Appellant filed a brief in opposition to Freddie Mac’s motion for summary judgment, arguing that Freddie Mac lacked standing. However, appellant did not dispute she defaulted on the note; the amount claimed due by Freddie Mac; or the authenticity of the note, mortgage, and the assignment of the mortgage.

{¶11} On February 13, 2012, the trial court entered its judgment and decree in foreclosure, implicitly finding that Freddie Mac had standing. The court found that Jennifer was in default, and entered summary judgment against appellant.

{¶12} A sheriff’s sale was scheduled for June 16, 2012. On June 8, 2012, appellant filed a motion to stay. On that same date, the trial court entered judgment staying execution of the order of sale pending appeal.

{¶13} Appellant now appeals, asserting two assignments of error. For her first assigned error, she alleges:

{¶14} “The trial court erred to the prejudice of the Appellant by granting Summary Judgment where the Appellee failed to sustain its burden to prove that it had standing to sue by providing evidence that it had both (1) possession of an endorsed Note on the date the Complaint was filed and (2) ownership of the Mortgage on the date the Complaint was filed.”

{¶15} “Subject matter jurisdiction is a court’s power to hear and decide a case on the merits.” Morrison v. Steiner, 32 Ohio St.2d 86 (1972), paragraph one of the syllabus. “Because subject-matter jurisdiction goes to the power of the court to adjudicate the merits of a case, it can never be waived and may be challenged at any time.” Pratts v. Hurley, 102 Ohio St.3d 81, 2004-Ohio-1980, ¶11. When the trial court lacks subject matter jurisdiction, its final judgment is void. Id. at ¶12.

{¶16} In Ohio, courts of common pleas have subject matter jurisdiction over justiciable matters. Ohio Constitution, Article IV, Section 4(B).

{¶17} “Standing to sue is part of the common sense understanding of what it takes to make a justiciable case.” Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 102 (1998). Standing involves a determination of whether a party has alleged a personal stake in the outcome of the controversy to ensure the dispute will be presented in an adversarial context. Mortgage Elec. Registration Sys. v. Petry, 11th Dist. No. 2008-P-0016, 2008-Ohio-5323, ¶18. A personal stake requires an injury to the plaintiff. Id. The Supreme Court of Ohio has held that standing is jurisdictional in nature. State ex rel. Dallman v. Franklin Cty. Court of Common Pleas, 35 Ohio St.2d 176, 179 (1973).

{¶18} In the context of a mortgage foreclosure action, the mortgage holder must establish an interest in the mortgage or promissory note in order to have standing to invoke the jurisdiction of the common pleas court. Fed. Home Loan Mortg. Corp. v. Schwartzwald, Ohio St.3d, 2012-Ohio-5017, ¶28.

{¶19} Whether standing exists is a matter of law that is reviewed de novo. Cuyahoga Cty. Bd. of Commrs. v. State, 112 Ohio St.3d 59, 2006-Ohio-6499, ¶23.

{¶20} Standing is similar to the requirement in Civ.R. 17(A) that every action “shall be prosecuted in the name of the real party in interest.” The real party in interest is one who has a real interest in the subject matter of the litigation, and not merely an interest in the action itself, i.e., “`one who is directly benefitted or injured by the outcome of the case.'” Midwest Business Capital v. RFS Pyramid Management, LLC, 11th Dist. No. 2011-T-0030, 2011-Ohio-6214, ¶19, quoting Shealy v. Campbell, 20 Ohio St.3d 23, 24 (1985). Where the action has not been initiated by the real party in interest, Civ.R. 17(A) provides that no action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for joinder or substitution of the real party in interest. Civ.R. 17 allows a representative of the real party in interest to file an action and to later be substituted by the real party in interest as long as the representative plaintiff also had standing in his own right to file the action. Schwarzwald, supra, at ¶37-44. The real-party-in-interest rule concerns only proper party joinder, not standing. Id. at ¶33.

{¶21} In contrast to standing, which is jurisdictional, Civ.R. 17(A) is considered procedural and is waived if not specifically pled. Travelers Indemn. Co. v. R.L. Smith Co., 11th Dist. No. 2000-L-014, 2001 Ohio App. LEXIS 1750, *8 (Apr. 13, 2001).

{¶22} Under her first assigned error, appellant argues Freddie Mac failed to prove it had standing because it presented no evidence it held the note and mortgage at the time it filed the complaint. Appellant therefore argues that standing is jurisdictional and must exist when the complaint is filed.

{¶23} In contrast, Freddie Mac argues it had standing to prosecute this action. Initially, Freddie Mac argues it held the note and mortgage three years before it filed the complaint based on a document referred to by Ms. Spencer in her affidavit as a “loan acquisition.” However, this document is merely an unauthenticated e-mail from an unidentified sender to an unidentified recipient in which the sender states, “Freddie funded this loan on 11/13/2007.” This document does not state that Freddie Mac acquired the note or mortgage at that time. As a result, it is of no legal significance.

{¶24} Further, Freddie Mac argues that, even if it cannot prove it held the note or mortgage when it filed its complaint, it acquired standing when it became the holder of these instruments after the complaint was filed. It therefore argues that standing is not jurisdictional, and can be acquired after the complaint is filed.

{¶25} Thus, the issue before us is whether Freddie Mac was required to have standing at the time it filed this action or whether its lack of standing was cured pursuant to Civ.R. 17(A) by the assignment of the mortgage and note after the action was filed but before final judgment was entered.

{¶26} The Supreme Court of Ohio in State ex rel. Jones v. Suster, 84 Ohio St.3d 70 (1998), stated that, pursuant to Civ.R. 17, “[t]he lack of standing may be cured by substituting the proper party so that a court otherwise having subject matter jurisdiction may proceed to adjudicate the matter.” Id. at 77.

{¶27} Relying on the Supreme Court’s pronouncement in Jones, supra, this court held that standing is not jurisdictional in the foreclosure context in Aurora Loan Servs., LLC v. Cart, 11th Dist. No. 2009-A-0026, 2010-Ohio-1157, ¶18; Waterfall Victoria Master Fund Ltd. v. Yeager, 11th Dist. No. 2011-L-025, 2012-Ohio-124, ¶13-14; Everhome Mortg. Co. v. Behrens, 11th Dist. No. 2011-L-128, 2012-Ohio-1454, ¶12, 16; and Bank of New York Mellon Trust Co, N.A. v. Shaffer, 11th Dist. No. 2011-G-3051, 2012-Ohio-3638, ¶32.

{¶28} However, the Supreme Court recently addressed the identical issue before us in Schwartzwald, surpa. In Schwartzwald, the Supreme Court criticized its ruling in Jones, supra, that standing is not jurisdictional. The Supreme Court in Schwartzwald held that standing is required to present a justiciable controversy and is a jurisdictional requirement. Id. at 21-22. The Court held that, because standing is required to invoke the trial court’s jurisdiction, standing is determined as of the filing of the complaint. Id. at ¶24. Further, the Court held that a mortgage holder cannot rely on events occurring after the complaint is filed to establish standing. Id. at ¶26. Thus, the plaintiff cannot rely on Civ.R. 17(A) to cure its lack of standing by obtaining an interest in the subject of the litigation after the action is filed and substituting itself as the real party in interest. Id. at ¶36. Finally, the Court held that when the evidence demonstrates the mortgage lender lacked standing when the foreclosure action was filed, the action must be dismissed without prejudice. Id. at ¶40.

{¶29} To the extent this court’s prior holdings in Cart, supra; Yeager, supra; Behrens, supra; and Shaffer, supra, are inconsistent with the Supreme Court’s holding in Schwartzwald that standing is jurisdictional, we overrule our holdings.

{¶30} Thus, pursuant to Schwartzwald, standing is jurisdictional. As a result, Freddie Mac was required to have an interest in the note or mortgage when it filed this action in order to have standing to invoke the jurisdiction of the trial court.

{¶31} Further, appellant argues that Ms. Spencer’s affidavit was insufficient to demonstrate that Freddie Mac held the note when it filed the complaint. Appellant argues that Ms. Spencer’s statement that Freddie Mac is “the holder of, or is otherwise entitled to enforce” the promissory note is insufficient to prove it is entitled to enforce the note. Appellant argues that because this statement is made in the alternative, it is insufficient to prove either alternative. R.C. 1303.31 provides:

{¶32} “(A) “Person entitled to enforce” an instrument means any of the following persons:

{¶33} “(1) The holder of the instrument;

{¶34} “(2) A non-holder in possession of the instrument who has the rights of a holder; [or]

{¶35} “(3) A person not in possession of the instrument who is entitled to enforce the instrument * * *.”

{¶36} Ms. Spencer’s statement in her affidavit that Freddie Mac is the holder of, or otherwise entitled to enforce the note, does not allege any facts, only legal conclusions, which are insufficient to meet its burden on summary judgment. Affidavits which merely set forth legal conclusions or opinions without stating supporting facts are insufficient to meet the requirements of Civ.R. 56(E). State v. Licsak, 41 Ohio App.2d 165, 169 (10th Dist.1974); Rice v. Johnson, 8th Dist. No. 63648, 1993 Ohio App. LEXIS 4109 (Aug. 26, 1993). Due to the complete lack of any factual statements in the affidavit, it is impossible for us to tell, for example, how or when Freddie Mac came to hold or otherwise became entitled to enforce the note.

{¶37} Moreover, appellant argues that U.S. Bank failed to transfer the note to Freddie Mac because, she claims, such transfer required an endorsement on the note from U.S. Bank to Freddie Mac and there is no endorsement. Although the note was originally payable to U.S. Bank, it was endorsed “in blank” by U.S. Bank. “When an instrument is endorsed in blank, [i.e., it does not identify the payee,] the instrument becomes payable to bearer and may be negotiated by transfer of possession alone * * *.” R.C. 1303.25(B). In contrast, “if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its endorsement by the holder.” R.C. 1303.21(B). Because the promissory note at issue here was endorsed in blank, it was payable to bearer and could be negotiated by transfer of possession alone; endorsement by the holder was unnecessary.

{¶38} However, Ms. Spencer does not state in her affidavit when the note was transferred to Freddie Mac. Moreover, the record contains no evidence expressly stating the date of transfer of the note to Freddie Mac. As a result, based on the analysis that follows, the assignment of the mortgage to Freddie Mac on August 17, 2010, one month after the complaint was filed, also resulted in the transfer of the note to Freddie Mac on that date.

{¶39} MERS’ assignment of the mortgage to Freddie Mac was sufficient to transfer both the mortgage and the note to Freddie Mac. Section 5.4 of the Restatement III, Property (Mortgages) discusses the transfer of a promissory note, secured by a mortgage and the transfer of the mortgage itself by the original mortgagee to a successor mortgagee. Such transfers occur in what is commonly referred to as the “secondary mortgage market,” as opposed to the “primary mortgage market” in which mortgage loans are originated by lenders and executed by borrowers. See Bank of New York v. Dobbs, 5th Dist. No. 2009-CA-000002, 2009-Ohio-4742, ¶27. In Dobbs, the Fifth District held:

{¶40} The Restatement asserts as its essential premise * * * that it is nearly always sensible to keep the mortgage and the [note] it secures in the hands of the same party. This is because in a practical sense separating the mortgage from the [note] destroys the efficacy of the mortgage, and the note becomes unsecured. The Restatement concedes on rare occasions a mortgagee will disassociate the [note] from the mortgage, but courts should reach this result only upon evidence that the parties to the transfer agreed. Far more commonly, the intent is to keep the rights combined * * *. Thus, the Restatement [provides] that transfer of the [note] also transfers the mortgage and vice versa. Section 5.4(b) [provides] “Except as otherwise required by the Uniform Commercial Code, a transfer of a mortgage also transfers the [note] the mortgage secures unless the parties to the transfer agree otherwise.” Thus, [the note] follows the mortgage if the record indicates the parties so intended. (Emphasis added.) Dobbs, supra, at ¶28.

{¶41} The Fifth District in Dobbs, supra, noted that, “[i]n Ohio it has been held that transfer of the note implies transfer of the mortgage. * * * `Where a note secured by a mortgage is transferred so as to vest the legal title to the note in the transferee, such transfer operates as an equitable assignment of the mortgage, even though the mortgage is not assigned or delivered.'” Dobbs, supra, at ¶29-30, quoting LaSalle Bank N.A. v. Street, 5th Dist. No. 08CA60, 2009-Ohio-1855, ¶28. The Fifth District in Dobbs extended this rationale, holding that the assignment of a mortgage, without an express transfer of the note, is sufficient to transfer both the mortgage and the note, if the record indicates that the parties intended to transfer both. Id. at ¶31.

{¶42} In the instant case, the mortgage provides that it secures to the Lender, U.S. Bank, the performance of appellant’s agreements under the promissory note. Further, the note provides that the mortgage, dated the same date as the note, protects the holder of the note from loss that might result if appellant does not keep the promises made in the note.

{¶43} In addressing the provisions in the note and mortgage at issue in Dobbs, supra, which are virtually identical to those at issue here, the Fifth District held: “Because the note refers to the mortgage and the mortgage, in turn, refers to the note, we find a clear intent by the parties to keep the note and mortgage together, rather than transferring the mortgage alone.” Id. at ¶36.

{¶44} We find the Fifth District’s holding in Dobbs, supra, to be persuasive, and hold that the instant note and mortgage evidence the parties’ intent to keep the instruments together. We thus hold the assignment of the mortgage, without an express transfer of the note, was sufficient to transfer both the mortgage and the note. Since the mortgage was assigned on August 17, 2010, one month after the complaint was filed, the note was effectively transferred on that date.

{¶45} We therefore hold that, pursuant to Schwartzwald, supra, because Freddie Mac failed to establish it held the note before filing the complaint, it did not have standing to bring this foreclosure action against appellant. As a result, the trial court erred in granting summary judgment in favor of Freddie Mac because it was not entitled to judgment as a matter of law. We sustain appellant’s first assignment of error, reverse the court’s summary judgment in favor of Freddie Mac, and order the trial court to dismiss the complaint without prejudice.

{¶46} For its second assigned error, appellant alleges:

{¶47} “The trial court erred to the prejudice of the appellant by overruling her Motion for a More Definite Statement and Motion to Dismiss. The filing of a Notice of Assignment of Mortgage and Indorsed Note is not a substitute for filing an Amended Complaint. If no Amended Complaint can be filed to correct the deficient documents, the remedy is to dismiss the Complaint without prejudice.”

{¶48} Having sustained appellant’s first assignment of error, we find her second assigned error to be moot.

{¶49} For the reasons stated in this opinion, it is the judgment and order of this court that the judgment of the Ashtabula County Court of Common Pleas is reversed, and this matter is remanded to the trial court for further proceedings consistent with this opinion.

MARY JANE TRAPP, J. and THOMAS R. WRIGHT, J., concur.

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

Decided on December 24, 2012

 

8473/2011

For the Plaintiff: Stein, Wiener & Roth, LLP, by Gerald Roth and Robert Sambursky, Esqs., One Old Country Road, suite 113, Carle Place, New York 11514

Guardian Ad Litem: Christina Cline, Esq., 224 Nassau Boulevard South, Garden City South, New York 11530

Charles J. Markey, J.

Papers Numbered and Read:

Report of the Guardian Ad Litem Christina Cline, Esq………………………………………………1

Affirmation of Services by Christina Cline, Esq., dated December 9, 2012…………………..2

The Court’s prior order dated October 26, 2012, and entered on November 19, 2012…….3

CHARLES J. MARKEY, J.

In a sua sponte decision by the undersigned, dated October 26, 2012, and entered on November 19, 2012, the Court observed that the plaintiff financial institution submitted a proposed order for this Court’s consideration to name a referee to compute sums allegedly due to the plaintiff in this mortgage foreclosure case.

In that decision, and based on a review of the plaintiff financial institution’s papers, the undersigned already had grave concerns on the legitimacy of the service of process and the mental condition of the homeowner who was confined to a nursing home. In that order, this Court decided to appoint Christina Cline, Esq., a distinguished lawyer with an expertise in elderly law to act as the guardian ad litem for defendant Evelyn L. Jackson a/k/a Evelyn L. Jackson Brooks. The Court asked Ms. Cline to make an extensive investigation and submit proposed findings, recommendations, and conclusions. Finally, the Court set Ms. Cline’s fee at $275.00 fee per hour, plus expenses, and such fees and expenses shall be paid to her by the plaintiff. The hourly fee is modest when Ms. Cline’s professional credentials and significant experience are taken into consideration. [*2]

Ms. Cline, taking her fiduciary appointment with admirable seriousness of purpose, set forth on her appointed task immediately, overcoming considerable time constraints and permitted the appointment to override her other pressing matters. The Court is impressed with the extensive report submitted by Ms. Cline, her investigation and recommendations. The Court adopts Ms. Cline’s report in all respects, without exception, as though it were made by the undersigned. The Court ratifies and adopts all of the findings and conclusions contained therein. In brief, the results of Ms. Cline’s investigation confirmed all of the undersigned’s worst fears and suspicions when the Court issued its order in October.

The case law is already expansive on the rampant abuses in the mortgage foreclosure field. Documentary filmmaker Joel Sucher, in a series of articles for American Banker, Huffington Post, and in several other blogs available on the internet, has been an eloquent champion against the bullying, corrosive, and abusive tactics used by “servicers” of mortgages in debt. In one article dated March 26, 2012, for American Banker, entitled “Behind Every ‘Distressed Asset’ Is a Distressed Human Being,” Joel Sucher, whose forthcoming film is entitled ” Foreclosure Diaries,” concerning the current financial crisis, states:

“I’m intrigued by the Orwellian phraseology that megabanking executives and the mortgage industry have coined to describe their work. They trade, for instance, in ‘distressed assets.’

“What’s a distressed asset? From what I understand, an asset, like a subprime mortgage, is distressed because it fails to churn out the revenue stream it was originally supposed to produce. But post-crash, with a nod to obfuscation, ‘distressed assets’ have become ‘legacy assets.’

“It doesn’t take [contemporary Italian essayist and philosopher] Umberto Eco to figure out the real meaning of these dehumanizing terms: for the millions of people whose assets – – their homes – – are underwater, it’s their lives that have become truly distressed.”

The Court will quote extensively from the report of Christina Cline, Esq., because the abuses that occurred in the case at bar would have overwhelmed a powerless individual such as defendant Evelyn Jackson, had the undersigned’s earlier apprehensions not been aroused leading to the appointment of Ms. Cline. Ms. Cline’s report to the Court, in pertinent part, states:

INTEREST OF MY WARD

2. My ward owns one half share of the property which is the subject of this foreclosure action. There is nothing in the court file that indicates that my ward is the sole owner. A view of the ACRIS records does not reveal how the property is held.

BACKGROUND

3. This action is one of FORECLOSURE upon a reverse mortgage. The defendant, [*3]EVELYN L. JACKSON, a/k/a EVELYN L. JACKSON BROOKS, and Harding Brooks allegedly signed a mortgage agreement with FINANCIAL FREEDOM SENIOR FUNDING CORPORATION, a subsidiary of Lehman Brothers Bank, FSB on May 21, 2004.

4.The mortgage allowed for an indebtedness of $475,000.00 with interest. At the closing the following payments were made: $215,745.00, Initial Payment of the loan which consisted of: $16,668.00, closing costs; $142.150.86, payment of liens; $53,285.71, loan advance; $3,640.43. At the time the action was commenced there was a balance due to Plaintiff in the amount of $217,225.40.

5. On February 21, 2010, Harding Brooks died.

6.On March 9, 2011, FINANCIAL FREEDOM SENIOR FUNDING CORPORATION, a subsidiary of LEHMAN BROTHERS BANK, FSB assigned the mortgage to Plaintiff, FINANCIAL FREEDOM ACQUISITION.

DEFAULT on the MORTGAGE

7.On October 13, 2010 the assignee of the Mortgage, Financial Freedom Acquisition, L. L.C. sent a letter entitled “Home Equity Conversion Mortgage Repayment Notice” addressed to Evelyn L. Jackson-Brooks at 109-14 177th St. Jamaica, New York 11433. In part the letter states “Upon the occurrence of a maturity event, including the borrower’s decision to permanently leave and no longer occupy the subject property as a primary residence, the loan becomes due and payable.” It continues in the second paragraph, with information and assistance to which the borrower is entitled. Defendant, EVELYN L. JACKSON defaulted on the mortgage.

8. A Lis Pendens was filed in April 2011.

9. Plaintiff filed a summons and complaint in Queens Supreme Court.

10.Defendant did not appear in the action nor did she submit an answer in the action.

11. Plaintiff submitted a motion for an Order of Reference upon which the Court issued an Order appointing your affiant in connection with the motion.

INVESTIGATION

12.My ward, EVELYN L. JACKSON, the defendant in this action, currently resides at the Hollis Manor Nursing Home located at 191-06 Hillside Ave. Hollis, NY 11432, having been placed in the facility on May12, 2010, by her son, Will Jackson. Her admitting diagnosis in 2010 was Alzheimer’s disease, macular degeneration, seizure disorder, and hypertension. [*4]

13. Prior to being placed in Hollis Park Nursing Home by her son, Ms. Jackson resided at her home located at 109-14 177th Street, Jamaica, New York 11433 the premises of this action.

JURISDICTION

14. The Affidavit of Service submitted by plaintiff in support of personal jurisdiction over defendant, Evelyn L. Jackson, a/k/a Evelyn L. Jackson Brooks states the following:

a. that on 4/12/11 at the Hillside Manor Nursing Home located at 191-06 Hillside Ave, Hollis, NY 11432 Andrew Ceponis served the summons and complaint bearing Index No. 8473-11 & filing date 04/06/11upon individual Evelyn L. Jackson a/k/a Evelyn L. Jackson Brooks defendant therein by delivering thereat a true copy of each to said defendant personally; deponent knew said person so served to be the person described as said defendant therein named. She identified herself as such.

b. The description of Evelyn L. Jackson is given as a female, black, grey hair of 85 years of age only 5ft. 3in. weighing 105lbs.

15. On December 4, 2012 I visited the defendant Evelyn L. Jackson at the Hollis Park Nursing Home – – NOT the Hillside Manor Nursing Home, as indicated in the Affidavit of Service – – where Ms. Jackson has been since May 12, 2010. I found Ms. Jackson a pleasant elderly woman. I inquired of her regarding the service of the summons and complaint, the notice of default, the judgment, and of the underlying mortgage on her house she has absolutely no recollection of anything about this action. I inquired of her as to her family members and the information she provided me is completely inaccurate and different from that supplied to me by the nursing home staff. I inquired of SHARON SELBERG, who functions as both receptionist and director of social activities, whether she was present when EVELYN L. JACKSON was allegedly served with the Summons and Complaint, and she informed me that she had no recollection of any such event.

16. I inquired of Dr. Riki Koenigsberg, the resident Psychologist who advised me that EVELYN L. JACKSON suffers from Alzheimer’s disease, dementia, and macular degeneration. When I inquired whether Ms. Jackson would be able to understand the documents even if one assumed that she was in fact served with any of them. I was informed by Dr. Koenigsberg that Ms. Jackson’s eyesight is so poor that she can not even see her food never mind read legal documents. I asked if her eyesight had been poor in July 2011 and was informed that it had been just as poor at that time and in fact that it had been poor in May12, 2010 upon her admission to Hollis Park Nursing Home.

17. Dr. Koenigsberg also informed me that even if she had been able to see the papers she would have had no concept of the importance of the documents as her Alzheimer’s disease and dementia had progressed to the point that she could neither understand not conceptualize the [*5]importance of a summons, complaint or a notice of default.

18. The Affidavit of Service submitted by plaintiff in support of personal jurisdiction over defendant, Evelyn L. Jackson, a/k/a Evelyn L. Jackson Brooks states the following:

a. that on 4/12/11 at the Hillside Manor Nursing Home located at 191-06 Hillside Ave, Hollis, NY 11432 Andrew Ceponis served the summons and complaint bearing Index # 8473-11 & filing date 04/06/11-upon individual Evelyn L. Jackson a/k/a Evelyn L. Jackson Brooks B/S/U Nathan Heilweil as Administrator of the Hillside Manor Nursing Home 3 story brick defendant therein named by delivering thereat a true copy of each to said defendant personally; deponent knew said person so served to be the person described as said defendant therein. (S)he identified (her) himself as such.

b. The description of NATHAN HEILWEIL is given as a male, white, brown hair of 54 years of age, height-6′ 1″ weighing 210lbs.

19. On November 12, 2012 I spoke to NATHAN HEILWEIL who informed me that he had no recollection of ever being served in this matter and referred me to the Edith Gonzalez in the Comptroller’s office to review the records contained in Ms. Jackson’s file. “Edith Gonzalez” indicated that Ms. Jackson’s file contained a large manilla envelope with a date stamp of August 22, 2012. The envelope contained a notice of default dated 7/27/12. Ms. Gonzalez indicated that the envelope had been delivered to the Nursing Home and forwarded to her office and that it had been retained by her in the Controller’s office. There is nothing in the nursing home file that indicates that Ms. Jackson ever received the Summons and Complaint or the Notice of Default, or a copy of any Judgment entered against her.

20. While there, I inquired of Mr. Heilweil and he informed me that he is 62 years of age 5’9″ tall weighing 190-200 lbs and has grey hair.

NOTICE OF DEFAULT IN THE ACTION

21. Upon visiting the Hollis Park Nursing Home, I was informed that they had an envelope in Ms. Jackson’s file, but that Ms Jackson never received it.

APPLICABLE LAW: APPOINTMENT OF AGUARDIAN AD LITEM

22. Mrs. Jackson is an incapacitated person. Even though she had not been judicially declared incapacitated, in an Article 81 proceeding the Court still has certain obligations with respect to the proceeding in which a party is incapacitated.

23. CPLR 1201 states that “a person shall appear by his guardian ad litem . . . if he is an [*6]adult incapable of adequately prosecuting or defending his rights.” (CPLR 1201).

24. The appointment by a guardian ad litem for an adult incapable ofadequately prosecuting or defending his rights” is made by the courtin accordance with CPLR 1202 . . . .

* * ** * * ** *

25. CPLR 1203 states that, “. . . No default judgment may be enteredagainst an adult incapable of adequately protecting his rights forwhom a guardian ad litem has been appointed unless twenty dayshave expired since the appointment.” (Emphasis added.)

26. While the statutes are vague if not silent with regard to aplaintiff’s obligation when dealing with an incapacitated defendant,case law is replete with the court’s interpretation that Article 12places an obligation upon a party to advise the court of the possibilitythat another party may suffer an incapacity or that he or she is aperson “incapable of adequately prosecuting or defending hisrights.”(CPLR 1201)

* * ** * * ** *

The papers submitted in support of the application present a strongevidentiary showing that at the time the action was commenced and atthe time the default judgment was entered, the decedent Defendant,Evelyn L. Jackson, although not judicially declared an incompetent,was “an adult incapable of adequately prosecuting or defending herrights” (CPLR 1201). As such, she should have been represented inthe action by a guardian ad litem. In fact “it is questionable whether any appearance by the defendant . . . either pro se or by an attorney, without the appointment of a guardian ad litem, would have been authorized.” (Rand v Lockwood, 65 Misc 2d 182 [Sup Ct Nassau County 1970]). A person specified in CPLR 1201 may only appear by a guardian ad litem.

* * ** * * ** *

CONCLUSIONS

31. From the examination and analysis of the entire file herein, the “Home Equity Conversion Mortgage Repayment Notice,” the Summons and Complaint, the affidavit of services, the Notice of Default, and the affidavit of service: the files held by Hollis Nursing Home; the conversations with Nathaniel Heilwell, “EDITH GONZALEZ”, the comptroller and other members of the nursing home staff, and my own investigation, my conclusions in this matter are as follows:

The Notice of Default in the Mortgage was improperly served upon defendant, Evelyn L. [*7]Jackson at 109-14 177th Street, Jamaica, New York 11433. In light of the fact that defendant’s absence from the premises forms the basis of the default sending the Mortgage Repayment Notice denied the defendant of her right to notice and the opportunity to timely repay the balance amount and HUD services prior to the Foreclosure proceeding. As plaintiff had actual knowledge (plaintiff’s action is based upon the fact that defendant was not living at the premises) of this condition precedent to the commencement of the action, the action must be dismissed.

32. As to the affidavits of service I find the following irregularities:

A.Service upon Evelyn L. Jackson

1. disparities in location of service— affidavit of service states that defendant, Jackson was served at Hillside Manor Nursing Home— while she is a resident of Hollis Park Manor Nursing Home. The Name is clearly displayed in the front of the building and it would seem difficult to mistake the name if the process server had been there.

2. disparities in description of individual served— affidavit of service describes defendant Jackson as a black female with grey hair being 85 years of age, 5’1″ and 105 lbs. Ms. Jackson is 92 years of age.

B. Service upon Evelyn L. Jackson B/S/U NATHAN HEILWEIL as Administrator of the Hillside Manor Nursing Home.

1. disparities in person served—Mr Heilweil is the Administrator of the Hollis Park Manor Nursing Home.

2. disparities in description of person served— The Affidavit of Service contains a description of NATHAN HEILWEIL as a male, white, brown hair of 54 years of age, height-6′ 1″ weighing 210lbs. In fact, Mr. Heilweil is 62 years of age 5’9″ tall weighing 190-200 lbs and has grey hair.

33. While counsel alleges in paragraph 13 of the affirmation in support of the instant motion that a notice pursuant to RPAPL 1303 was served with the Summons and Complaint no mention of that notice is indicated in the affidavit of service of the summons and complaint, nor is there any separate affidavit in the court file or in the Motion for an Order of Reference.

34. The Notice of the Default in the Action was served again at Hillside Manor Nursing Home.

35. The Motion for an Order of Reference was served again at Hillside Manor Nursing Home.

36. There is no indication of service of the notice of 3215(g)(3)(I) 20 day notice before [*8]the entry of judgment.

37. Paragraph 24 of the affirmation of counsel states that all of the defendants herein are of full age and none of said defendants is an incompetent or absentee. Clearly defendant is incapacitated.

38. The estate of Harding Brooks was not served and there is nothing to indicate that there are no heirs at law of Harding Brooks who would be entitled to notice especially as there is nothing to indicate that the property was held by Harding Brooks and Evelyn L Jackson a/k/a Evelyn L Jackson-Brooks as tenants by the entirety giving her rights to the entire property upon Harding Brooks’ death.

39. Thus, I conclude:

(1) the condition precedent to the commencement of the action has not been properly completed,

(2) that jurisdiction of this Court over EVELYN L. JACKSON has not been properly obtained in that she was not properly served and

(3) that there is no indication that the notice pursuant to RPAPL 1303 was served upon defendant Jackson,

(4) that the Notice that the action should not have proceeded without the appointment of a Guardian ad Litem for Ms Jackson in accordance with CPLR 1201. The action must be dismissed or in the alternative that defendant should be returned to her position upon the service of the “Home Equity Conversion Mortgage Repayment Notice” as the court did in Oneida Nat. Bank & Tr. Co. v Unczur, 37 AD2d 480, 483 [4th Dept. 1971].

In light of the irregularities and the failure of plaintiff to comply with the applicable law and statutes, it should be responsible for any and all additional costs, interests, incurred as a result of the delay in the proceeding.

The Court adopts each and every one of the findings, recommendations, and conclusions quoted above by Ms. Cline. The Court finds that defendant Jackson had no mental competency so as to understand what papers she was receiving, assuming arguendo that papers had indeed been served on her. Second, aside from Ms. Jackson’s dementia and lack of mental competency, the Court finds that the nursing home’s administrator was not properly served as contended by the plaintiff.

The Court, finally, thanks Ms. Cline for the great amount of time, effort, and energy spent [*9]in preparing a comprehensive report.

The Court, entirely agreeing with Ms. Cline’s report, dismisses the complaint for the improper service of process, as set forth above. The Clerk is thus directed to dismiss the action.

Concerning the appropriate fee, Ms. Cline’s accompanying affirmation of services indicates that she has worked 18.2 hours on the report. The Court previously awarded her a fee of $275.00 per hour. Accordingly, the Court awards Ms. Cline the sum of $5,005.00 for her fees. The Court further awards Ms. Cline the sum of $575.00 for expenses.

In sum, the plaintiff shall pay Ms. Cline the sum of $5,580.00 within 20 days of the service upon it by Ms. Cline of a copy of this order bearing the County Clerk’s dated stamp of entry. If such sum is not paid by the plaintiff timely, the Court shall convene a hearing and entertain an application by Ms. Cline for higher fees based upon a re-evaluation of whether Ms. Cline’s services should have been compensated at the rate of $550.00 per hour.

The complaint is dismissed for improper service of process, and the action is dismissed.

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

_______________________________

J.S.C.

Dated: December 24, 2012

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

H/T Social Apocalyps

CERTIFIED FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON IN KRISTIN BAIN, Plaintiff,

v.

METROPOLITAN MORTGAGE GROUP, INC., INDYMAC BANK, FSB; MORTGAGE ELECTRONICS REGISTRATION SYSTEMS; REGIONAL TRUSTEE SERVICE; FIDELITY NATIONAL TITLE; and DOE Defendants 1 through 20, inclusive, Defendants.
KEVIN SELKOWITZ, an individual, Plaintiff,

v.

LITTON LOAN SERVICING, LP, a Delaware limited partnership; NEW CENTURY MORTGAGE CORPORATION, a California corporation; QUALITY LOAN SERVICE CORPORATION OF WASHINGTON, a Washington corporation; FIRST AMERICAN TITLE INSURANCE COMPANY, a Washington corporation; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a Delaware corporation; and DOE Defendants 1 through 20, Defendants.

 

No. 86206-1. consolidated with No. 86207-9.Supreme Court of Washington, En Banc. 

Filed August 16, 2012.Melissa Ann Huelsman, Law Offices of Melissa A. Huelsman, 705 2nd Ave Ste 1050, Seattle, WA, 98104-1741; Richard Llewelyn Jones, Richard Llewelyn Jones PS, 2050 112th Ave Ne Ste 230, Bellevue, WA, 98004-2976, Counsel for Plaintiffs.

Jennifer Lynn Tait, Robinson Tait PS, 710 2nd Ave Ste 710, Seattle, WA, 98104-1724; Nicolas Adam Daluiso, Attorney at Law, 710 2nd Ave Ste 710, Seattle, WA, 98104-1724; Douglas Lowell Davies, Davies Law Group, 701 5th Ave Ste 4200, Seattle, WA, 98104-7047; Heidi E. Buck, Attorney at Law, 13555 Se 36th St Ste 300, Bellevue, WA, 98006-1489; Russell Brent Wuehler, DLA Piper LLP (US), 701 5th Ave Ste 7000, Seattle, WA, 98104-7044; Robert J. Pratte, Fulbright & Jaworski, LLP, 80 South Eighth Street Suite 2100, Minneapolis, MN, 55402; Robert Norman, Houser & Allison, 9970 Research Drive, Irving, CA, 92618; Charles Thomas Meyer, Attorney at Law, 4665 Macarthur Ct Ste 280, Newport Beach, CA, 92660-1811; Mary Stearns, McCarthy & Holthus, LLP, 19735 10th Ave Ne Ste N200, Poulsbo, WA, 98370-7478; Melissa Robbins Coutts, 1770 Fourth Avenue, San Diego, CA, 92101; Ann T. Marshall, Bishop White Marshall & Weibel PS, 720 Olive Way Ste 1201, Seattle, WA, 98101-1878; Kennard M. Goodman, Bishop White Marshall & Weibel PS, 720 Olive Way Ste 1201, Seattle, WA, 98101-1878, Counsel for Defendants.

John Sterling Devlin III, Lane Powell PC, 1420 5th Ave Ste 4100, Seattle, WA, 98101-2338; Andrew Gordon Yates, Lane Powell PC, 1420 5th Ave Ste 4100, Seattle, WA, 98101-2375, Amicus Curiae on behalf of Washington Bankers Association.

Shawn Timothy Newman, Attorney at Law, 2507 Crestline Dr Nw, Olympia, WA, 98502-4327, Amicus Curiae on behalf of Organization United for Reform O..

James T. Sugarman, Attorney at Law, 800 5th Ave Ste 2000, Seattle, WA, 98104-3188, Amicus Curiae on behalf of Attorney General of State of Was.

Scott Erik Stafne, Stafne Law Firm, 239 N. Olympic Ave, Arlington, WA, 98223-1336; Ha Thu Dao, Grand Central Law, PLLC, Po Box 7382, Lakeland, FL, 33807-7382; Rebecca Thorley, Stafne Law Firm, 239 N. Olympic Ave, Arlington, WA, 98223-1336; Andrew J. Krawczyk, STAFNE LAW FIRM, 239 N. Olympic Ave, Arlington, WA, 98223-1336; Timothy Charles Robbins, Attorney at Law, 3501 Rucker Ave, Everett, WA, 98201-4628; Nicholas D. Fisher, Attorney at Law, 1812 Hewitt Ave Ste B, Everett, WA, 98201-5817, Amicus Curiae on behalf of National Consumer Law Center.

David A. Leen, Leen & O’Sullivan PLLC, 520 E. Denny Way, Seattle, WA, 98122-2138; Geoff Walsh, 7 Winthrop Square, Boston, MA, 02110, Amicus Curiae on behalf of Homeowners’ Attorneys.

CHAMBERS, J.

In the 1990s, the Mortgage Electronic Registration System Inc. (MERS) was established by several large players in the mortgage industry. MERS and its allied corporations maintain a private electronic registration system for tracking ownership of mortgage-related debt. This system allows its users to avoid the cost and inconvenience of the traditional public recording system and has facilitated a robust secondary market in mortgage backed debt and securities. Its customers include lenders, debt servicers, and financial institutes that trade in mortgage debt and mortgage backed securities, among others. MERS does not merely track ownership; in many states, including our own, MERS is frequently listed as the “beneficiary” of the deeds of trust that secure its customers’ interests in the homes securing the debts. Traditionally, the “beneficiary” of a deed of trust is the lender who has loaned money to the homeowner (or other real property owner). The deed of trust protects the lender by giving the lender the power to nominate a trustee and giving that trustee the power to sell the home if the homeowner’s debt is not paid. Lenders, of course, have long been free to sell that secured debt, typically by selling the promissory note signed by the homeowner. Our deed of trust act, chapter 61.24 RCW, recognizes that the beneficiary of a deed of trust at any one time might not be the original lender. The act gives subsequent holders of the debt the benefit of the act by defining “beneficiary” broadly as “the holder of the instrument or document evidencing the obligations secured by the deed of trust.” RCW 61.24.005(2).

Judge John C. Coughenour of the Federal District Court for the Western District of Washington has asked us to answer three certified questions relating to two home foreclosures pending in King County. In both cases, MERS, in its role as the beneficiary of the deed of trust, was informed by the loan servicers that the homeowners were delinquent on their mortgages. MERS then appointed trustees who initiated foreclosure proceedings. The primary issue is whether MERS is a lawful beneficiary with the power to appoint trustees within the deed of trust act if it does not hold the promissory notes secured by the deeds of trust. A plain reading of the statute leads us to conclude that only the actual holder of the promissory note or other instrument evidencing the obligation may be a beneficiary with the power to appoint a trustee to proceed with a nonjudicial foreclosure on real property. Simply put, if MERS does not hold the note, it is not a lawful beneficiary.

Next, we are asked to determine the “legal effect” of MERS not being a lawful beneficiary. Unfortunately, we conclude we are unable to do so based upon the record and argument before us.

Finally, we are asked to determine if a homeowner has a Consumer Protection Act (CPA), chapter 19.86 RCW, claim based upon MERS representing that it is a beneficiary. We conclude that a homeowner may, but it will turn on the specific facts of each case.

FACTS

In 2006 and 2007 respectively, Kevin Selkowitz and Kristin Bain bought homes in King County. Selkowitz’s deed of trust named First American Title Company as the trustee, New Century Mortgage Corporation as the lender, and MERS as the beneficiary and nominee for the lender. Bain’s deed of trust named IndyMac Bank FSB as the lender, Stewart Title Guarantee Company as the trustee, and, again, MERS as the beneficiary. Subsequently, New Century filed for bankruptcy protection, IndyMac went into receivership,^[1] and both Bain and Selkowitz fell behind on their mortgage payments. In May 2010, MERS, in its role as the beneficiary of the deeds of trust, named Quality Loan Service Corporation as the successor trustee in Selkowitz’s case, and Regional Trustee Services as the trustee in Bain’s case. A few weeks later the trustees began foreclosure proceedings. According to the attorneys in both cases, the assignments of the promissory notes were not publically recorded.^[2]

Both Bain and Selkowitz sought injunctions to stop the foreclosures and sought damages under the Washington CPA, among other things.^[3] Both cases are now pending in Federal District Court for the Western District of Washington. Selkowitz v. Litton Loan Servicing, LP, No. C10-05523-JCC, 2010 WL 3733928 (W.D. Wash. Aug. 31, 2010) (unpublished). Judge Coughenour certified three questions of state law to this court. We have received amici briefing in support of the plaintiffs from the Washington State attorney general, the National Consumer Law Center, the Organization United for Reform (OUR) Washington, and the Homeowners’ Attorneys, and amici briefing in support of the defendants from the Washington Bankers Association (WBA).

CERTIFIED QUESTIONS

1. Is Mortgage Electronic Registration Systems, Inc., a lawful “beneficiary” within the terms of Washington’s Deed of Trust Act, Revised Code of Washington section 61.24.005(2), if it never held the promissory note secured by the deed of trust? [Short answer: No.]

2. If so, what is the legal effect of Mortgage Electronic Registration Systems, Inc., acting as an unlawful beneficiary under the terms of Washington’s Deed of Trust Act? [Short answer: We decline to answer based upon what is before us.]

3. Does a homeowner possess a cause of action under Washington’s Consumer Protection Act against Mortgage Electronic Registration Systems, Inc., if MERS acts as an unlawful beneficiary under the terms of Washington’s Deed of Trust Act?

[Short answer: The homeowners may have a CPA action but each homeowner will have to establsih the elements based upon the facts of that homeowner’s case.]

Order Certifying Question to the Washington State Supreme Ct. (Certification) at 3-4.

ANALYSIS

“The decision whether to answer a certified question pursuant to chapter 2.60 RCW is within the discretion of the court.” Broad v. Mannesmann Anlagenbau, A.G., 141 Wn.2d 670, 676, 10 P.3d 371 (2000) (citing Hoffman v. Regence Blue Shield, 140 Wn.2d 121, 128, 991 P.2d 77 (2000)). We treat the certified question as a pure question of law and review de novo. See, e.g., Parents Involved in Cmty Schs v. Seattle Sch. Dist. No. 1, 149 Wn.2d 660, 670, 72 P.3d 151 (2003) (citing Rivett v. City of Tacoma, 123 Wn.2d 573, 578, 870 P.2d 299 (1994)).

Deeds of Trust

Private recording of mortgage-backed debt is a new development in an old and long evolving system. We offer a brief review to put the issues before us in context.

A mortgage as a mechanism to secure an obligation to repay a debt has existed since at least the 14th century. 18 William B. Stoebuck & John W. Weaver, Washington Practice: Real Estate: Transactions § 17.1, at 253 (2d ed. 2004). Often in those early days, the debtor would convey land to the lender via a deed that would contain a proviso that if a promissory note in favor of the lender was paid by a certain day, the conveyance would terminate. Id. at 254. English law courts tended to enforce contracts strictly; so strictly, that equity courts began to intervene to ameliorate the harshness of strict enforcement of contract terms. Id. Equity courts often gave debtors a grace period in which to pay their debts and redeem their properties, creating an “equitable right to redeem the land during the grace period.” Id. The equity courts never established a set length of time for this grace period, but they did allow lenders to petition to “foreclose” it in individual cases. Id. “Eventually, the two equitable actions were combined into one, granting the period of equitable redemption and placing a foreclosure date on that period.” Id. at 255 (citing George E. Osborne, Handbook on the Law of Mortgages §§ 1-10 (2d ed. 1970)).

In Washington, “[a] mortgage creates nothing more than a lien in support of the debt which it is given to secure.” Pratt v. Pratt, 121 Wash. 298, 300, 209 P. 535 (1922) (citing Gleason v. Hawkins, 32 Wash. 464, 73 P. 533 (1903)); see also 18 Stoebuck & Weaver, supra, § 18.2, at 305. Mortgages come in different forms, but we are only concerned here with mortgages secured by a deed of trust on the mortgaged property. These deeds do not convey the property when executed; instead, “[t]he statutory deed of trust is a form of a mortgage.” 18 Stoebuck & Weaver, supra, § 17.3, at 260. “More precisely, it is a three-party transaction in which land is conveyed by a borrower, the `grantor,’ to a `trustee,’ who holds title in trust for a lender, the `beneficiary,’ as security for credit or a loan the lender has given the borrower.” Id. Title in the property pledged as security for the debt is not conveyed by these deeds, even if “on its face the deed conveys title to the trustee, because it shows that it is given as security for an obligation, it is an equitable mortgage.” Id. (citing Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 1.6 (4th ed. 2001)).

When secured by a deed of trust that grants the trustee the power of sale if the borrower defaults on repaying the underlying obligation, the trustee may usually foreclose the deed of trust and sell the property without judicial supervision. Id. at 260-61; RCW 61.24.020; RCW 61.12.090; RCW 7.28.230(1). This is a significant power, and we have recently observed that “the [deed of trust] Act must be construed in favor of borrowers because of the relative ease with which lenders can forfeit borrowers’ interests and the lack of judicial oversight in conducting nonjudicial foreclosure sales.” Udall v. T.D. Escrow Servs., Inc., 159 Wn.2d 903, 915-16, 154 P.3d 882 (2007) (citing Queen City Sav. & Loan Ass’n v. Mannhalt, 111 Wn.2d 503, 514, 760 P.2d 350 (1988) (Dore, J., dissenting)). Critically under our statutory system, a trustee is not merely an agent for the lender or the lender’s successors. Trustees have obligations to all of the parties to the deed, including the homeowner. RCW 61.24.010(4) (“The trustee or successor trustee has a duty of good faith to the borrower, beneficiary, and grantor.”); Cox v. Helenius, 103 Wn.2d 383, 389, 693 P.2d 683 (1985) (citing George E. Osborne, Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 7.21 (1979) (“[A] trustee of a deed of trust is a fiduciary for both the mortgagee and mortgagor and must act impartially between them.”)).^[4] Among other things, “the trustee shall have proof that the beneficiary is the owner of any promissory note or other obligation secured by the deed of trust” and shall provide the homeowner with “the name and address of the owner of any promissory notes or other obligations secured by the deed of trust” before foreclosing on an owner-occupied home. RCW 61.24.030(7)(a), (8)(l).

Finally, throughout this process, courts must be mindful of the fact that “Washington’s deed of trust act should be construed to further three basic objectives.” Cox, 103 Wn.2d at 387 (citing Joseph L. Hoffmann, Comment, Court Actions Contesting the Nonjudicial Foreclosure of Deeds of Trust in Washington, 59 Wash. L. Rev. 323, 330 (1984)). “First, the nonjudicial foreclosure process should remain efficient and inexpensive. Second, the process should provide an adequate opportunity for interested parties to prevent wrongful foreclosure. Third, the process should promote the stability of land titles.” Id. (citation omitted) (citing Peoples Nat’l Bank of Wash. v. Ostrander, 6 Wn. App. 28, 491 P.2d 1058 (1971)).

MERS

MERS, now a Delaware corporation, was established in the mid 1990s by a consortium of public and private entities that included the Mortgage Bankers Association of America, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Government National Mortgage Association (Ginnie Mae), the American Bankers Association, and the American Land Title Association, among many others. See In re MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 96 n.2, 861 N.E.2d 81, 828 N.Y.S.2d 266 (2006); Phyllis K. Slesinger & Daniel McLaughlin, Mortgage Electronic Registration System, 31 Idaho L. Rev. 805, 807 (1995); Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. Cin. L. Rev. 1359, 1361 (2010). It established “a central, electronic registry for tracking mortgage rights . . . [where p]arties will be able to access the central registry (on a need to know basis).” Slesinger & McLaughlin, supra, at 806. This was intended to reduce the costs, increase the efficiency, and facilitate the securitization of mortgages and thus increase liquidity. Peterson, supra, at 1361.^[5] As the New York high court described the process:

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

Romaine, 8 N.Y.3d at 96. MERS “tracks transfers of servicing rights and beneficial ownership interests in mortgage loans by using a permanent 18-digit number called the Mortgage Identification Number.” Resp. Br. of MERS at 13 (Bain) (footnote omitted). It facilitates secondary markets in mortgage debt and servicing rights, without the traditional costs of recording transactions with the local county records offices. Slesinger & McLaughlin, supra, at 808; In re Agard, 444 B.R. 231, 247 (Bankr. E.D.N.Y. 2011).

Many loans have been pooled into securitization trusts where they, hopefully, produce income for investors. See, e.g., Pub. Emps’ Ret. Sys. of Miss. v. Merrill Lynch & Co., 277 F.R.D. 97, 102-03 (S.D.N.Y. 2011) (discussing process of pooling mortgages into asset backed securities). MERS has helped overcome what had come to be seen as a drawback of the traditional mortgage financing model: lack of liquidity. MERS has facilitated securitization of mortgages bringing more money into the home mortgage market. With the assistance of MERS, large numbers of mortgages may be pooled together as a single asset to serve as security for creative financial instruments tailored to different investors. Some investors may buy the right to interest payments only, others principal only; different investors may want to buy interest in the pool for different durations. Mortg. Elec. Registration Sys., Inc. v. Azize, 965 So. 2d 151, 154 n.3 (Fla. Dist. Ct. App. 2007); Dustin A. Zacks, Standing in Our Own Sunshine: Reconsidering Standing, Transparency, and Accuracy in Foreclosures, 29 Quinnipiac L. Rev. 551, 570-71 (2011); Chana Joffe-Walt & David Kestenbaum, Before Toxie Was Toxic, Nat’l Pub. Radio (Sept. 17, 2010, 12:00 A.M.)^[6] (discussing formation of mortgage backed securities). In response to the changes in the industries, some states have explicitly authorized lenders’ nominees to act on lenders’ behalf. See, e.g., Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487, 491 (Minn. 2009) (noting Minn. Stat. § 507.413 is “frequently called `the MERS statute'”). As of now, our state has not.

As MERS itself acknowledges, its system changes “a traditional three party deed of trust [into] a four party deed of trust, wherein MERS would act as the contractually agreed upon beneficiary for the lender and its successors and assigns.” MERS Resp. Br. at 20 (Bain). As recently as 2004, learned commentators William Stoebuck and John Weaver could confidently write that “[a] general axiom of mortgage law is that obligation and mortgage cannot be split, meaning that the person who can foreclose the mortgage must be the one to whom the obligation is due.” 18 Stoebuck & Weaver, supra, § 18.18, at 334. MERS challenges that general axiom. Since then, as the New York bankruptcy court observed recently:

In the most common residential lending scenario, there are two parties to a real property mortgage—a mortgagee, i.e., a lender, and a mortgagor, i.e., a borrower. With some nuances and allowances for the needs of modern finance this model has been followed for hundreds of years. The MERS business plan, as envisioned and implemented by lenders and others involved in what has become known as the mortgage finance industry, is based in large part on amending this traditional model and introducing a third party into the equation. MERS is, in fact, neither a borrower nor a lender, but rather purports to be both “mortgagee of record” and a “nominee” for the mortgagee. MERS was created to alleviate problems created by, what was determined by the financial community to be, slow and burdensome recording processes adopted by virtually every state and locality. In effect the MERS system was designed to circumvent these procedures. MERS, as envisioned by its originators, operates as a replacement for our traditional system of public recordation of mortgages.

Agard, 444 B.R. at 247.

Critics of the MERS system point out that after bundling many loans together, it is difficult, if not impossible, to identify the current holder of any particular loan, or to negotiate with that holder. While not before us, we note that this is the nub of this and similar litigation and has caused great concern about possible errors in foreclosures, misrepresentation, and fraud. Under the MERS system, questions of authority and accountability arise, and determining who has authority to negotiate loan modifications and who is accountable for misrepresentation and fraud becomes extraordinarily difficult.^[7] The MERS system may be inconsistent with our second objective when interpreting the deed of trust act: that “the process should provide an adequate opportunity for interested parties to prevent wrongful foreclosure.” Cox, 103 Wn.2d at 387 (citing Ostrander, 6 Wn. App. 28).

The question, to some extent, is whether MERS and its associated business partners and institutions can both replace the existing recording system established by Washington statutes and still take advantage of legal procedures established in those same statutes. With this background in mind, we turn to the certified questions.

I. Deed of Trust Beneficiaries

Again, the federal court has asked:

1. Is Mortgage Electronic Registration Systems, Inc., a lawful “beneficiary” within the terms of Washington’s Deed of Trust Act, Revised Code of Washington section 61.24.005(2), if it never held the promissory note secured by the deed of trust?

Certification at 3.

A. Plain Language

Under the plain language of the deed of trust act, this appears to be a simple question. Since 1998, the deed of trust act has defined a “beneficiary” as “the holder of the instrument or document evidencing the obligations secured by the deed of trust, excluding persons holding the same as security for a different obligation.” Laws of 1998, ch. 295, § 1(2), codified as RCW 61.24.005(2).^[8] Thus, in the terms of the certified question, if MERS never “held the promissory note” then it is not a “lawful `beneficiary.'”

MERS argues that under a more expansive view of the act, it meets the statutory definition of “beneficiary.” It notes that the definition section of the deed of trust act begins by cautioning that its definitions apply “`unless the context clearly requires otherwise.‘” Resp. Br. of MERS at 19 (Bain) (quoting RCW 61.24.005). MERS argues that “[t]he context here requires that MERS be recognized as a proper `beneficiary’ under the Deed of Trust [Act]. The context here is that the Legislature was creating a more efficient default remedy for lenders, not putting up barriers to foreclosure.” Id. It contends that the parties were legally entitled to contract as they see fit, and that the “the parties contractually agreed that the `beneficiary’ under the Deed of Trust was `MERS’ and it is in that context that the Court should apply the statute.” Id. at 20 (emphasis omitted).

The “unless the context clearly requires otherwise” language MERS relies upon is a common phrase that the legislative bill drafting guide recommends be used in the introductory language in all statutory definition sections. See Statute Law Comm., Office of the Code Reviser, Bill Drafting Guide 2011.^[9] A search of the unannotated Revised Code of Washington indicates that this statutory language has been used over 600 times. Despite its ubiquity, we have found no case—and MERS draws our attention to none—where this common statutory phrase has been read to mean that the parties can alter statutory provisions by contract, as opposed to the act itself suggesting a different definition might be appropriate for a specific statutory provision. We have interpreted the boilerplate: “The definitions in this section apply throughout the chapter unless the context clearly requires otherwise” language only once, and then in the context of determining whether a general court-martial qualified as a prior conviction for purposes of the Sentencing Reform Act of 1981 (SRA), chapter 9.94A RCW. See State v. Morley, 134 Wn.2d 588, 952 P.2d 167 (1998). There, the two defendants challenged the use of their prior general courts-martial on the ground that the SRA defined “conviction” as `”an adjudication of guilt pursuant to Titles 10 or 13 RCW.'” Morley, 134 Wn.2d at 595 (quoting RCW 9.94A.030(9)). Since, the defendants reasoned, their courts-martial were not “pursuant to Titles 10 or 13 RCW,” they should not be considered criminal history. We noted that the SRA frequently treated out-of-state convictions (which would also not be pursuant to Titles 10 or 13 RCW) as convictions and rejected the argument since the specific statutory context required a broader definition of the word “convictions” than the definition section provided. Id. at 598. MERS has cited no case, and we have found none that holds that extrastatutory conditions can create a context where a different definition of defined terms would be appropriate.

We do not find this argument persuasive.

MERS also argues that it meets the statutory definition itself. It notes, correctly, that the legislature did not limit “beneficiary” to the holder of the promissory note: instead, it is “the holder of the instrument or document evidencing the obligations secured by the deed of trust.” RCW 61.24.005(2) (emphasis added). It suggests that “instrument” and “document” are broad terms and that “in the context of a residential loan, undoubtedly the Legislature was referring to all of the loan documents that make up the loan transaction • i.e., the note, the deed of trust, and any other rider or document that sets forth the rights and obligations of the parties under the loan,” and that “obligation” must be read to include any financial obligation under any document signed in relation to the loan, including “attorneys’ fees and costs incurred in the event of default.” Resp. Br. of MERS at 21-22 (Bain). In these particular cases, MERS contends that it is a proper beneficiary because, in its view, it is “indisputably the `holder’ of the Deed of Trust.” Id. at 22. It provides no authority for its characterization of itself as “indisputably the `holder”` of the deeds of trust.

The homeowners, joined by the Washington attorney general, do dispute MERS’ characterization of itself as the holder of the deeds of trust. Starting from the language of RCW 61.24.005(2) itself, the attorney general contends that “[t]he `instrument’ obviously means the promissory note because the only other document in the transaction is the deed of trust and it would be absurd to read this definition as saying that “`beneficiary means the holder of the deed of trust secured by the deed of trust.”`” Br. of Amicus Att’y General (AG Br.) at 2-3 (quoting RCW 61.24.005(2)). We agree that an interpretation “beneficiary” that has the deed of trust securing itself is untenable.

Other portions of the deed of trust act bolster the conclusion that the legislature meant to define “beneficiary” to mean the actual holder of the promissory note or other debt instrument. In the same 1998 bill that defined “beneficiary” for the first time, the legislature amended RCW 61.24.070 (which had previously forbidden the trustee alone from bidding at a trustee sale) to provide:

(1) The trustee may not bid at the trustee’s sale. Any other person, including the beneficiary, may bid at the trustee’s sale.

(2) The trustee shall, at the request of the beneficiary, credit toward the beneficiary’s bid all or any part of the monetary obligations secured by the deed of trust. If the beneficiary is the purchaser, any amount bid by the beneficiary in excess of the amount so credited shall be paid to the trustee in the form of cash, certified check, cashier’s check, money order, or funds received by verified electronic transfer, or any combination thereof. If the purchaser is not the beneficiary, the entire bid shall be paid to the trustee in the form of cash, certified check, cashier’s check, money order, or funds received by verified electronic transfer, or any combination thereof.

Laws of 1998, ch. 295, § 9, codified as RCW 61.24.070. As Bain notes, this provision makes little sense if the beneficiary does not hold the note. Bain Reply to Resp. to Opening Br. at 11. In essence, it would authorize the non-holding beneficiary to credit to its bid funds to which it had no right. However, if the beneficiary is defined as the entity that holds the note, this provision straightforwardly allows the noteholder to credit some or all of the debt to the bid. Similarly, in the commercial loan context, the legislature has provided that “[a] beneficiary’s acceptance of a deed in lieu of a trustee’s sale under a deed of trust securing a commercial loan exonerates the guarantor from any liability for the debt secured thereby except to the extent the guarantor otherwise agrees as part of the deed in lieu transaction.” RCW 61.24.100(7). This provision would also make little sense if the beneficiary did not hold the promissory note that represents the debt.

Finding that the beneficiary must hold the promissory note (or other “instrument or document evidencing the obligation secured”) is also consistent with recent legislative findings to the Foreclosure Fairness Act of 2011, Laws of 2011, ch. 58, § 3(2). The legislature found:

[(1)] (a) The rate of home foreclosures continues to rise to unprecedented levels, both for prime and subprime loans, and a new wave of foreclosures has occurred due to rising unemployment, job loss, and higher adjustable loan payments;

. . . .

(2) Therefore, the legislature intends to:

. . . .

(b) Create a framework for homeowners and beneficiaries to communicate with each other to reach a resolution and avoid foreclosure whenever possible; and

(c) Provide a process for foreclosure mediation.

Laws of 2011, ch. 58, § 1 (emphasis added). There is no evidence in the record or argument that suggests MERS has the power “to reach a resolution and avoid foreclosure” on behalf of the noteholder, and there is considerable reason to believe it does not. Counsel informed the court at oral argument that MERS does not negotiate on behalf of the holders of the note.^[10] If the legislature intended to authorize nonnoteholders to act as beneficiaries, this provision makes little sense. However, if the legislature understood “beneficiary” to mean “noteholder,” then this provision makes considerable sense. The legislature was attempting to create a framework where the stakeholders could negotiate a deal in the face of changing conditions.

We will also look to related statutes to determine the meaning of statutory terms. Dep’t of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 11-12, 43 P.3d 4 (2002). Both the plaintiffs and the attorney general draw our attention to the definition of “holder” in the Uniform Commercial Code (UCC), which was adopted in the same year as the deed of trust act. See Laws of 1965, Ex. Sess., ch. 157 (UCC); Laws of 1965, ch. 74 (deed of trust act); Selkowitz Opening Br. at 13; AG Br. at 11-12. Stoebuck and Weaver note that the transfer of mortgage backed obligations is governed by the UCC, which certainly suggests the UCC provisions may be instructive for other purposes. 18 Stoebuck & Weaver, supra, § 18.18, at 334. The UCC provides:

“Holder” with respect to a negotiable instrument, means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession. “Holder” with respect to a document of title means the person in possession if the goods are deliverable to bearer or to the order of the person in possession.

Former RCW 62A.1-201(20) (2001).^[11] The UCC also provides:

“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to RCW 62A.3-309 or 62A.3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

RCW 62A.3-301. The plaintiffs argue that our interpretation of the deed of trust act should be guided by these UCC definitions, and thus a beneficiary must either actually possess the promissory note or be the payee. E.g., Selkowitz Opening Br. at 14. We agree. This accords with the way the term “holder” is used across the deed of trust act and the Washington UCC. By contrast, MERS’s approach would require us to give “holder” a different meaning in different related statutes and construe the deed of trust act to mean that a deed of trust may secure itself or that the note follows the security instrument. Washington’s deed of trust act contemplates that the security instrument will follow the note, not the other way around. MERS is not a “holder” under the plain language of the statute.

B. Contract and Agency

In the alternative, MERS argues that the borrowers should be held to their contracts, and since they agreed in the deeds of trust that MERS would be the beneficiary, it should be deemed to be the beneficiary. E.g., Resp. Br. of MERS at 24 (Bain). Essentially, it argues that we should insert the parties’ agreement into the statutory definition. It notes that another provision of Title 61 RCW specifically allows parties to insert side agreements or conditions into mortgages. RCW 61.12.020 (“Every such mortgage, when otherwise properly executed, shall be deemed and held a good and sufficient conveyance and mortgage to secure the payment of the money therein specified. The parties may insert in such mortgage any lawful agreement or condition.”).

MERS argues we should be guided by Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir. 2011). In Cervantes, the Ninth Circuit Court of Appeals affirmed dismissal of claims for fraud, intentional infliction of emotional distress, and violations of the federal Truth in Lending Act and the Arizona Consumer Fraud Act against MERS, Countrywide Home Loans, and other financial institutions. Id. at 1041. We do not find Cervantes instructive. Cervantes was a putative class action that was dismissed on the pleadings for a variety of reasons, the vast majority of which are irrelevant to the issues before us. Id. at 1038. After dismissing the fraud claim for failure to allege facts that met all nine elements of a fraud claim in Arizona, the Ninth Circuit observed that MERS’s role was plainly laid out in the deeds of trust. Id. at 1042. Nowhere in Cervantes does the Ninth Circuit suggest that the parties could contract around the statutory terms.

MERS also seeks support in a Virginia quiet title action. Horvath v. Bank of N.Y., N.A., 641 F.3d 617, 620 (4th Cir. 2011). After Horvath had become delinquent in his mortgage payments and after a foreclosure sale, Horvath sued the holder of the note and MERS, among others, on a variety of claims, including a claim to quiet title in his favor on the ground that various financial entities had by “`splitting . . . the pieces of’ his mortgage . . . `caused the Deeds of Trust [to] split from the Notes and [become] unenforceable.'” Id. at 620 (alterations in original) (quoting complaint). The Fourth Circuit rejected Horvath’s quiet title claim out of hand, remarking:

It is difficult to see how Horvath’s arguments could possibly be correct. Horvath’s note plainly constitutes a negotiable instrument under Va. Code Ann. § 8.3A-104. That note was endorsed in blank, meaning it was bearer paper and enforceable by whoever possessed it. See Va. Code Ann. § 8.3A-205(b). And BNY [(Bank of New York)] possessed the note at the time it attempted to foreclose on the property. Therefore, once Horvath defaulted on the property, Virginia law straightforwardly allowed BNY to take the actions that it did.

Id. at 622. There is no discussion anywhere in Horvath of any statutory definition of “beneficiary.” While the opinion discussed transferability of notes under the UCC as adopted in Virginia, there is only the briefest mention of the Virginia deed of trust act. Compare Horvath, 641 F.3d at 621-22 (citing various provisions of Va. Code Ann. Titles 8.1A, 8.3A (UCC)), with id. at 623 n.3 (citing Va. Code. Ann. § 55-59(7) (discussing deed of trust foreclosure proceedings)). We do not find Horvath helpful.

Similarly, MERS argues that lenders and their assigns are entitled to name it as their agent. E.g., Resp. Br. of MERS at 29-30 (Bain). That is likely true and nothing in this opinion should be construed to suggest an agent cannot represent the holder of a note. Washington law, and the deed of trust act itself, approves of the use of agents. See, e.g., former RCW 61.24.031(1)(a) (2011) (“A trustee, beneficiary, or authorized agent may not issue a notice of default . . . until . . . .” (emphasis added)). MERS notes, correctly, that we have held “an agency relationship results from the manifestation of consent by one person that another shall act on his behalf and subject to his control, with a correlative manifestation of consent by the other party to act on his behalf and subject to his control.” Moss v. Vadman, 77 Wn.2d 396, 402-03, 463 P.2d 159 (1970) (citing Matsumura v. Eilert, 74 Wn.2d 369, 444 P.2d 806 (1968)).

But Moss also observed that “[w]e have repeatedly held that a prerequisite of an agency is control of the agent by the principal.” Id. at 402 (emphasis added) (citing McCarty v. King County Med. Serv. Corp., 26 Wn.2d 660, 175 P.2d 653 (1946)). While we have no reason to doubt that the lenders and their assigns control MERS, agency requires a specific principal that is accountable for the acts of its agent. If MERS is an agent, its principals in the two cases before us remain unidentified.^[12] MERS attempts to sidestep this portion of traditional agency law by pointing to the language in the deeds of trust that describe MERS as “acting solely as a nominee for Lender and Lender’s successors and assigns.” Doc. 131-2, at 2 (Bain deed of trust); Doc. 9-1, at 3 (Selkowitz deed of trust.); e.g., Resp. Br. of MERS at 30 (Bain). But MERS offers no authority for the implicit proposition that the lender’s nomination of MERS as a nominee rises to an agency relationship with successor noteholders.^[13] MERS fails to identify the entities that control and are accountable for its actions. It has not established that it is an agent for a lawful principal.

This is not the first time that a party has argued that we should give effect to its contractual modification of a statute. See Godfrey v. Hartford Ins. Cas. Co., 142 Wn.2d 885, 16 P.3d 617 (2001); see also Nat’l Union Ins. Co. of Pittsburgh, Pa. v. Puget Sound Power & Light, 94 Wn. App. 163, 177, 972 P.2d 481 (1999) (holding a business and a utility could not contract around statutory uniformity requirements); State ex rel. Standard Optical Co. v. Superior Court, 17 Wn.2d 323, 329, 135 P.2d 839 (1943) (holding that a corporation could not avoid statutory limitations on scope of practice by contract with those who could so practice); cf. Vizcaino v. Microsoft Corp., 120 F.3d 1006, 1011-12 (9th Cir. 1997) (noting that Microsoft’s agreement with certain workers that they were not employees was not binding). In Godfrey, Hartford Casualty Insurance Company had attempted to pick and chose what portions of Washington’s uniform arbitration act, chapter 7.04A RCW, it and its insured would use to settle disputes. Godfrey, 142 Wn.2d at 889. The court noted that parties were free to decide whether to arbitrate, and what issues to submit to arbitration, but “once an issue is submitted to arbitration . . . Washington’s [arbitration] Act applies.” Id. at 894. By submitting to arbitration, “they have activated the entire chapter and the policy embodied therein, not just the parts that are useful to them.” Id. at 897. The legislature has set forth in great detail how nonjudicial foreclosures may proceed. We find no indication the legislature intended to allow the parties to vary these procedures by contract. We will not allow waiver of statutory protections lightly. MERS did not become a beneficiary by contract or under agency principals.

C. Policy

MERS argues, strenuously, that as a matter of public policy it should be allowed to act as the beneficiary of a deed of trust because “the Legislature certainly did not intend for home loans in the State of Washington to become unsecured, or to allow defaulting home loan borrowers to avoid non-judicial foreclosure, through manipulation of the defined terms in the [deed of trust] Act.” Resp. Br. of MERS at 23 (Bain). One difficulty is that it is not the plaintiffs that manipulated the terms of the act: it was whoever drafted the forms used in these cases. There are certainly significant benefits to the MERS approach but there may also be significant drawbacks. The legislature, not this court, is in the best position to assess policy considerations. Further, although not considered in this opinion, nothing herein should be interpreted as preventing the parties to proceed with judicial foreclosures. That must await a proper case.

D. Other Courts

Unfortunately, we could find no case, and none have been drawn to our attention, that meaningfully discusses a statutory definition like that found in RCW 61.24.005(2). MERS asserts that “the United States District Court for the Western District of Washington has recently issued a series of opinions on the very issues before the Court, finding in favor of MERS.” Resp. Br. of MERS at 35-36 (Bain) (citing Daddabbo v. Countrywide Home Loans, Inc., No. C09-1417RAJ, 2010 WL 2102485 (W.D. Wash. May 20, 2010) (unpublished); St. John v. Nw Tr. Ser., Inc., No. C11-5382BHS, 2011 WL 4543658 (W.D. Wash. Sept. 29, 2011, Dismissal Order) (unpublished); Vawter v. Quality Loan Servicing Corp. of Wash., 707 F. Supp. 2d 1115 (W.D. Wash. 2010)). These citations are not well taken. Daddabbo never mentions RCW 61.24.005(2). St. John mentions it in passing but devotes no discussion to it. 2011 WL 4543658, at *3. Vawter mentions RCW 61.24.005(2) once, in a block quote from an unpublished case, without analysis. We do not find these cases helpful.^[14]

Amicus WBA draws our attention to three cases where state supreme courts have held MERS could exercise the rights of a beneficiary. Amicus Br. of WBA at 12 (Bain) (citing Trotter v. Bank of N.Y. Mellon, No. 38022, 2012 WL 206004 (Idaho Jan. 25, 2012) (unpublished), withdrawn and superseded by 152 Idaho 842, 275 P.3d 857 (2012); Residential Funding Co. v. Saurman, 490 Mich. 909, 805 N.W.2d 183 (2011); RMS Residential Props., LLC v. Miller, 303 Conn. 224, 226, 32 A.3d 307 (2011)). But see Agard, 444 B.R. at 247 (collecting contrary cases); Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623-24 (Mo. App. 2009) (holding MERS lacked authority to make a valid assignment of the note). But none of these cases, on either side, discuss a statutory definition of “beneficiary” that is similar to ours, and many are decided on agency grounds that are not before us. We do not find them helpful either.

We answer the first certified question “No,” based on the plain language of the statute. MERS is an ineligible “`beneficiary’ within the terms of the Washington Deed of Trust Act,” if it never held the promissory note or other debt instrument secured by the deed of trust.

II. Effect

The federal court has also asked us:

2. If so, what is the legal effect of Mortgage Electronic Registration Systems, Inc., acting as an unlawful beneficiary under the terms of Washington’s Deed of Trust Act?

We conclude that we cannot decide this question based upon the record and briefing before us. To assist the certifying court, we will discuss our reasons for reaching this conclusion.

MERS contends that if it is acting as an unlawful beneficiary, its status should have no effect: “All that it would mean is that there was a technical violation of the Deed of Trust Act that all parties were aware of when the loan was originally entered into.” Resp. Br. of MERS at 41 (Bain). “At most . . . MERS would simply need to assign its legal interest in the Deed of Trust to the lender before the lender proceeded with foreclosure.” Id. at 41-42. The difficulty with MERS’s argument is that if in fact MERS is not the beneficiary, then the equities of the situation would likely (though not necessarily in every case) require the court to deem that the real beneficiary is the lender whose interests were secured by the deed of trust or that lender’s successors.^[15] If the original lender had sold the loan, that purchaser would need to establish ownership of that loan, either by demonstrating that it actually held the promissory note or by documenting the chain of transactions. Having MERS convey its “interests” would not accomplish this.

In the alternative, MERS suggests that, if we find a violation of the act, “MERS should be required to assign its interest in any deed of trust to the holder of the promissory note, and have that assignment recorded in the land title records, before any non-judicial foreclosure could take place.” Resp. Br. of MERS at 44 (Bain). But if MERS is not the beneficiary as contemplated by Washington law, it is unclear what rights, if any, it has to convey. Other courts have rejected similar suggestions. Bellistri, 284 S.W.3d at 624 (citing George v. Surkamp, 336 Mo. 1, 9, 76 S.W.2d 368 (1934)). Again, the identity of the beneficiary would need to be determined. Because it is the repository of the information relating to the chain of transactions, MERS would be in the best position to prove the identity of the holder of the note and beneficiary.

Partially relying on the Restatement (Third) of Property: Mortgages § 5.4 (1997), Selkowitz suggests that the proper remedy for a violation of chapter 61.24 RCW “should be rescission, which does not excuse Mr. Selkowitz from payment of any monetary obligation, but merely precludes non-judicial foreclosure of the subject Deed of Trust. Moreover, if the subject Deed of Trust is void, Mr. Selkowitz should be entitled to quiet title to his property.” Pl.’s Opening Br. at 40 (Selkowitz). It is unclear what he believes should be rescinded. He offers no authority in his opening brief for the suggestion that listing an ineligible beneficiary on a deed of trust would render the deed void and entitle the borrower to quiet title. He refers to cases where the lack of a grantee has been held to void a deed, but we do not find those cases helpful. In one of those cases, the New York court noted, “No mortgagee or oblige was named in [the security agreement], and no right to maintain an action thereon, or to enforce the same, was given therein to the plaintiff or any other person. It was, per se, of no more legal force than a simple piece of blank paper.” Chauncey v. Arnold, 24 N.Y. 330, 335 (1862). But the deeds of trust before us names all necessary parties and more.

Selkowitz argues that MERS and its allied companies have split the deed of trust from the obligation, making the deed of trust unenforceable. While that certainly could happen, given the record before us, we have no evidence that it did. If, for example, MERS is in fact an agent for the holder of the note, likely no split would have happened.

In the alternative, Selkowitz suggests the court create an equitable mortgage in favor of the noteholder. Pl.’s Opening Br. at 42 (Selkowitz). If in fact, such a split occurred, the Restatement suggests that would be an appropriate resolution. Restatement (Third) of Property: Mortgages § 5.4 reporters’ note, at 386 (1997) (citing Lawrence v. Knap, 1 Root (Conn.) 248 (1791)). But since we do not know whether or not there has been a split of the obligation from the security instrument, we have no occasion to consider this remedy.

Bain specifically suggests we follow the lead of the Kansas Supreme Court in Landmark National Bank v. Kesler, 289 Kan. 528, 216 P.3d 158 (2009). In Landmark, the homeowner, Kesler, had used the same piece of property to secure two loans, both recorded with the county. Id. Kesler went bankrupt and agreed to surrender the property. Id. One of the two lenders filed a petition to foreclose and served both Kesler and the other recorded lender, but not MERS. Id. at 531. The court concluded that MERS had no interest in the property and thus was not entitled to notice of the foreclosure sale or entitled to intervene in the challenge to it. Id. at 544-45; accord Mortg. Elec. Registration Sys., Inc. v. Sw Homes of Ark., Inc., 2009 Ark. 152, 301 S.W.3d 1 (2009). Bain suggests we follow Landmark, but Landmark has nothing to say about the effect of listing MERS as a beneficiary. We agree with MERS that it has no bearing on the case before us. Resp. Br. of MERS at 39 (Bain).

Bain also notes, albeit in the context of whether MERS could be a beneficiary without holding the promissory note, that our Court of Appeals held that `”[i]f the obligation for which the mortgage was given fails for some reason, the mortgage is unenforceable.'” Pl. Bain’s Opening Br. (Bain Op. Br.) at 34 (quoting Fid. & Deposit Co. of Md. v. Ticor Title Ins. Co., 88 Wn. App. 64, 68, 943 P.2d 710 (1997)). She may be suggesting that the listing of an erroneous beneficiary on the deed of trust should sever the security interest from the debt. If so, the citation to Fidelity is not helpful. In Fidelity, the court was faced with what appeared to be a scam. William and Mary Etter had executed a promissory note, secured by a deed of trust, to Citizen’s National Mortgage, which sold the note to Affiliated Mortgage Company. Citizen’s also forged the Etters’ name on another promissory note and sold it to another buyer, along with what appeared to be an assignment of the deed of trust, who ultimately assigned it to Fidelity. The buyer of the forged note recorded its interests first, and Fidelity claimed it had priority to the Etters’ mortgage payments. The Court of Appeals properly disagreed. Fidelity, 88 Wn. App. at 66-67. It held that forgery mattered and that Fidelity had no claim on the Etters’ mortgage payments. Id. at 67-68. It did not hold that the forgery relieved the Etters of paying the mortgage to the actual holder of the promissory note.

MERS states that any violation of the deed of trust act “should not result in a void deed of trust, both legally and from a public policy standpoint.” Resp. Br. of MERS at 44. While we tend to agree, resolution of the question before us depends on what actually occurred with the loans before us and that evidence is not in the record. We note that Bain specifically acknowledges in her response brief that she “understands that she is going to have to make up the mortgage payments that have been missed,” which suggests she is not seeking to clear title without first paying off the secured obligation. Pl. Bain’s Reply Br. at 1. In oral argument, Bain suggested that if the holder of the note were to properly transfer the note to MERS, MERS could proceed with foreclosure.^[16] This may be true. We can answer questions of law but not determine facts. We, reluctantly decline to answer the second certified question on the record before us.

III. CPA Action

Finally, the federal court asked:

3. Does a homeowner possess a cause of action under Washington’s Consumer Protection Act against Mortgage Electronic Registration Systems, Inc., if MERS acts as an unlawful beneficiary under the terms of Washington’s Deed of Trust Act?

Certification at 4. Bain contends that MERS violated the CPA when it acted as a beneficiary. Bain Op. Br. at 43.^[17]

To prevail on a CPA action, the plaintiff must show “(1) unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact; (4) injury to plaintiff in his or her business or property; (5) causation.” Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 780, 719 P.2d 531 (1986). MERS does not dispute all the elements. Resp. Br. of MERS at 45; Resp. Br. of MERS (Selkowitz) at 37. We will consider only the ones that it does.

A. Unfair or Deceptive Act or Practice

As recently summarized by the Court of Appeals:

To prove that an act or practice is deceptive, neither intent nor actual deception is required. The question is whether the conduct has “the capacity to deceive a substantial portion of the public.” Hangman Ridge, 105 Wn.2d at 785. Even accurate information may be deceptive “`if there is a representation, omission or practice that is likely to mislead.'” Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 50, 204 P.3d 885 (2009) (quoting Sw. Sunsites, Inc. v. Fed. Trade Comm’n, 785 F.2d 1431, 1435 (9th Cir. 1986)). Misrepresentation of the material terms of a transaction or the failure to disclose material terms violates the CPA. State v. Ralph Williams’ N.W. Chrysler Plymouth, Inc., 87 Wn.2d, 298, 305-09, 553 P.2d 423 (1976). Whether particular actions are deceptive is a question of law that we review de novo. Leingang v. Pierce County Med. Bureau, 131 Wn.2d 133, 150, 930 P.2d 288 (1997).

State v. Kaiser, 161 Wn. App. 705, 719, 254 P.3d 850 (2011). MERS contends that the only way that a plaintiff can meet this first element is by showing that its conduct was deceptive and that the plaintiffs cannot show this because “MERS fully described its role to Plaintiff through the very contract document that Plaintiff signed.” Resp. Br. of MERS at 46 (Selkowitz). Unfortunately, MERS does not elaborate on that statement, and nothing on the deed of trust itself would alert a careful reader to the fact that MERS would not be holding the promissory note.

The attorney general of this state maintains a consumer protection division and has considerable experience and expertise in consumer protection matters. As amicus, the attorney general contends that MERS is claiming to be the beneficiary “when it knows or should know that under Washington law it must hold the note to be the beneficiary” and seems to suggest we hold that claim is per se deceptive and/or unfair. AG Br. at 14. This contention finds support in Indoor Billboard/Wash., Inc. v. Integra Telecom of Wash., Inc., 162 Wn.2d 59, 170 P.3d 10 (2007), where we found a telephone company had committed a deceptive act as a matter of law by listing a surcharge “on a portion of the invoice that included state and federal tax charges.” Id. at 76. We found that placement had “`the capacity to deceive a substantial portion of the public”` into believing the fee was a tax. Id. (emphasis omitted) (quoting Hangman Ridge, 105 Wn.2d at 785). Our attorney general also notes that the assignment of the deed of trust that MERS uses purports to transfer its beneficial interest on behalf of its own successors and assigns, not on behalf of any principal. The assignment used in Bain’s case, for example, states:

FOR VALUE RECEIVED, the undersigned, Mortgage Electronic Registration Systems, Inc. AS NOMINEE FOR ITS SUCCESSORS AND ASSIGNS, by these presents, grants, bargains, sells, assigns, transfers, and sets over unto INDYMAC FEDERAL BANK, FSB all beneficial interest under that certain Deed of Trust dated 3/9/2007.

Doc. 1, Ex. A to Huelsman Decl. This undermines MERS’s contention that it acts only as an agent for a lender/principal and its successors and it “conceals the identity of whichever loan holder MERS purports to be acting for when assigning the deed of trust.” AG Br. at 14. The attorney general identifies other places where MERS purports to be acting as the agent for its own successors, not for some principal. Id. at 15 (citing Doc. 1, Ex. B). Many other courts have found it deceptive to claim authority when no authority existed and to conceal the true party in a transaction. Stephens v. Omni Ins. Co., 138 Wn. App. 151, 159 P.3d 167 (2007); Floersheim v. Fed. Trade Comm’n, 411 F.2d 874, 876-77 (9th Cir. 1969).

In Stephens, an insurance company that had paid under an uninsured motorist policy hired a collections agency to seek reimbursement from the other parties in a covered accident. Stephens, 138 Wn. App. at 161. The collection agency sent out aggressive notices that listed an “amount due” and appeared to be collection notices for debt due, though a careful scrutiny would have revealed that they were effectively making subrogation claims. Id. at 166-68. The court found that “characterizing an unliquidated [tort] claim as an `amount due’ has the capacity to deceive.” Id. at 168.

While we are unwilling to say it is per se deceptive, we agree that characterizing MERS as the beneficiary has the capacity to deceive and thus, for the purposes of answering the certified question, presumptively the first element is met.

B. Public Interest Impact

MERS contends that plaintiffs cannot show a public interest impact because, it contends, each plaintiff is challenging “MERS’s role as the beneficiary under Plaintiff’s Deed of Trust in the context of the foreclosure proceedings on Plaintiff’s property.” Resp. Br. of MERS at 40 (Selkowitz) (emphasis omitted). But there is considerable evidence that MERS is involved with an enormous number of mortgages in the country (and our state), perhaps as many as half nationwide. John R. Hooge & Laurie Williams, Mortgage Electronic Registration Systems, Inc.: A Survey of Cases Discussing MERS’ Authority to Act, Norton Bankr. L. Advisory No. 8, at 21 (Aug. 2010). If in fact the language is unfair or deceptive, it would have a broad impact. This element is also presumptively met.

C. Injury

MERS contends that the plaintiffs can show no injury caused by its acts because whether or not the noteholder is known to the borrower, the loan servicer is and, it suggests, that is all the homeowner needs to know. Resp. Br. of MERS at 48-49 (Bain); Resp. Br. of MERS at 41 (Selkowitz). But there are many different scenarios, such as when homeowners need to deal with the holder of the note to resolve disputes or to take advantage of legal protections, where the homeowner does need to know more and can be injured by ignorance. Further, if there have been misrepresentations, fraud, or irregularities in the proceedings, and if the homeowner borrower cannot locate the party accountable and with authority to correct the irregularity, there certainly could be injury under the CPA.^[18]

Given the procedural posture of these cases, it is unclear whether the plaintiffs can show any injury, and a categorical statement one way or another seems inappropriate. Depending on the facts of a particular case, a borrower may or may not be injured by the disposition of the note, the servicing contract, or many other things, and MERS may or may not have a causal role. For example, in Bradford v. HSBC Mortg. Corp., 799 F. Supp. 2d 625 (E.D. Va. 2011), three different companies attempted to foreclose on Bradford’s property after he attempted to rescind a mortgage under the federal Truth in Lending Act, 15 U.S.C. § 1635. All three companies claimed to hold the promissory note. Observing that “[i]f a defendant transferred the Note, or did not yet have possession or ownership of the Note at the time, but nevertheless engaged in foreclosure efforts, that conduct could amount to an [Fair Debt Collection Practices Act, 15 U.S.C. § 1692k] violation,” the court allowed Bradford’s claim to proceed. Id. at 634-35. As amicus notes, “MERS’ concealment of loan transfers also could also deprive homeowners of other rights,” such as the ability to take advantage of the protections of the Truth in Lending Act and other actions that require the homeowner to sue or negotiate with the actual holder of the promissory note. AG Br. at 11 (citing 15 U.S.C. § 1635(f); Miguel v. Country Funding Corp., 309 F.3d 1161, 1162-65 (9th Cir. 2002)). Further, while many defenses would not run against a holder in due course, they could against a holder who was not in due course. Id. at 11-12 (citing RCW 62A.3-302, .3-305).

If the first word in the third question was “may” instead of “does,” our answer would be “yes.” Instead, we answer the question with a qualified “yes,” depending on whether the homeowner can produce evidence on each element required to prove a CPA claim. The fact that MERS claims to be a beneficiary, when under a plain reading of the statute it was not, presumptively meets the deception element of a CPA action.

CONCLUSION

Under the deed of trust act, the beneficiary must hold the promissory note and we answer the first certified question “no.” We decline to resolve the second question. We answer the third question with a qualified “yes;” a CPA action may be maintainable, but the mere fact MERS is listed on the deed of trust as a beneficiary is not itself an actionable injury.

MADSEN, Chief Justice, JOHNSON, JOHNSON, STEPHENS, WIGGINS, OWENS, GONZÁLEZ, and FAIRHURST, JJ., concurs.

[1] The FDIC (Federal Deposit Insurance Corporation), in IndyMac’s shoes, successfully moved for summary judgment in the underlying cases on the ground that there were no assets to pay any unsecured creditors. Doc. 86, at 6 (Summ. J. Mot., noting that “the [FDIC] determined that the total assets of the IndyMac Bank Receivership are $63 million while total deposit liabilities are $8.738 billion.”); Doc. 108 (Summ. J. Order).

[2] According to briefing filed below, Bain’s “[n]ote was assigned to Deutsche Bank by former defendant IndyMac Bank, FSB, and placed in a mortgage loan asset-backed trust pursuant to a Pooling and Servicing Agreement dated June 1, 2007.” Doc. 149, at 3. Deutsche Bank filed a copy of the promissory note with the federal court. It appears Deutsche Bank is acting as trustee of a trust that contains Bain’s note, along with many others, though the record does not establish what trust this might be.

[3] While the merits of the underlying cases are not before us, we note that Bain contends that the real estate agent, the mortgage broker, and the mortgage originator took advantage of her known cognitive disabilities in order to induce her to agree to a monthly payment they knew or should have known she could not afford; falsified information on her mortgage application; and failed to make legally required disclosures. Bain also asserts that foreclosure proceedings were initiated by IndyMac before IndyMac was assigned the loan and that some of the documents in the chain of title were executed fraudulently. This is confusing because IndyMac was the original lender, but the record suggests (but does not establish) that ownership of the debt had changed hands several times.

[4] In 2008, the legislature amended the deed of trust act to provide that trustees did not have a fiduciary duty, only the duty of good faith. Laws of 2008, ch. 153, § 1, codified in part as RCW 61.24.010(3) (“The trustee or successor trustee shall have no fiduciary duty or fiduciary obligation to the grantor or other persons having an interest in the property subject to the deed of trust.”). This case does not offer an opportunity to explore the impact of the amendment. A bill was introduced into our state senate in the 2012 session that, as originally drafted, would require every assignment be recorded. S.B. 6070, 62d Leg., Reg. Sess. (Wash. 2012). A substitute bill passed out of committee convening a stakeholder group “to convene to discuss the issue of recording deeds of trust of residential real property, including assignments and transfers, amongst other related issues” and report back to the legislature with at least one specific proposal by December 1, 2012. Substitute S.B. 6070, 62d Leg., Reg. Sess. (Wash. 2012).

[5] At oral argument, counsel for Bain contended the reason for MERS’s creation was a study in5 1994 concluding that the mortgage industry would save $77.9 million a year in state and local filing fees. Wash. Supreme Court oral argument, Bain v. Mortg. Elec. Registration Sys., No. 86206-1 (Mar. 15, 2012), at approx. 44 min., audio recording by TVW, Washington’s Public Affairs Network, available at http://www.tvw.org. While saving costs was certainly a motivating factor in its creation, efficiency, secondary markets, and the resulting increased liquidity were other major driving forces leading to MERS’s creation. Slesinger & McLaughlin, supra, at 806-07.

[6] Available at http://www.npr.org/blogs/money/2010/09/16/XXXXXXXXX/before-toxie-was-toxic.

[7] MERS insists that borrowers need only know the identity of the servicers of their loans.7 However, there is considerable reason to believe that servicers will not or are not in a position to negotiate loan modifications or respond to similar requests. See generally Diane E. Thompson, Foreclosing Modifications: How Servicer Incentives Discourage Loan Modifications, 86 Wash. L. Rev. 755 (2011); Dale A. Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market, and What To Do About It, 37 Pepp. L. Rev. 737, 757-58 (2010). Lack of transparency causes other problems. See generally U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011) (noting difficulties in tracing ownership of the note).

[8] Perhaps presciently, the Senate Bill Report on the 1998 amendment noted that “[p]ractice in this area has departed somewhat from the strict statutory requirements, resulting in a perceived need to clarify and update the act.” S.B. Rep. on Engrossed Substitute S.B. 6191, 55th Leg., Reg. Sess. (Wash. 1998). The report also helpfully summarizes the legislature’s understanding of deeds of trust as creating three-party mortgages:

Background: A deed of trust is a financing tool created by statute which is, in effect, a triparty mortgage. The real property owner or purchaser (the grantor of the deed of trust) conveys the property to an independent trustee, who is usually a title insurance company, for the benefit of a third party (the lender) to secure repayment of a loan or other debt from the grantor (borrower) to the beneficiary (lender). The trustee has the power to sell the property nonjudicially in the event of default, or, alternatively, foreclose the deed of trust as a mortgage.

Id. at 1.

[9] Available at http://www.leg.wa.gov/CodeReviser/Pages/bill_drafting_guide.aspx (last visited Aug. 7, 2012).

[10] Wash. Supreme Court oral argument, supra, at approx. 34 min., 58 sec.

[11] Several portions of chapter 61.24 RCW were amended by the 2012 legislature while this case was under our review.

[12] At oral argument, counsel for MERS was asked to identify its principals in the cases before us and was unable to do so. Wash. Supreme Court oral argument, supra, at approx. 23 min., 23 sec.

[13] The record suggests, but does not establish, that MERS often acted as an agent of the loan servicer, who would communicate the fact of a default and request appointment of a trustee, but is silent on whether the holder of the note would play any controlling role. Doc. 69-2, at 4-5 (describing process). For example, in Selkowitz’s case, “the Appointment of Successor Trustee” was signed by Debra Lyman as assistant vice president of MERS Inc. Doc. 8-1, at 17. There was no evidence that Lyman worked for MERS, but the record suggests she is 1 of 20,000 people who have been named assistant vice president of MERS. See Br. of Amicus National Consumer Law Center at 9 n.18 (citing Christopher L. Peterson, Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory, 53 Wm. & Mary L. Rev. 111, 118 (2011)). Lender Processing Service, Inc., which processed paperwork relating to Bain’s foreclosure, seems to function as a middleman between loan servicers, MERS, and law firms that execute foreclosures. Docs. 69-1 through 69-3.

[14] MERS string cites eight more cases, six of them unpublished that, it contends, establishes that other courts have found that MERS can be beneficiary under a deed of trust. Resp. Br. of MERS (Selkowitz) at 29 n.98. The six unpublished cases do not meaningfully analyze our statutes. The two published cases, Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, 121 Cal. Rptr. 3d 819 (2011), and Pantoja v. Countrywide Home Loans, Inc., 640 F. Supp. 2d 1177 (N.D. Cal. 2009), are out of California, and neither have any discussion of the California statutory definition of “beneficiary.” The Fourth District of the California Court of Appeals in Gomes does reject the plaintiff’s theory that the beneficiary had to establish a right to foreclose in a nonjudicial foreclosure action, but the California courts are split. Six weeks later, the third district found that the beneficiary was required to show it had the right to foreclose, and a simple declaration from a bank officer was insufficient. Herrera v. Deutsche Bank Nat’l Trust Co., 196 Cal. App. 4th 1366, 1378, 127 Cal. Rptr. 3d 362 (2011).

[15] See 18 Stoebuck & Weaver, supra, § 17.3, at 260 (noting that a deed of trust “is a three-party transaction in which land is conveyed by a borrower, the `grantor,’ to a `trustee,’ who holds title in trust for a lender, the `beneficiary,’ as security for credit or a loan the lender has given the borrower”); see also U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011) (holding bank had to establish it was the mortgage holder at the time of foreclosure in order to clear title through evidence of the chain of transactions).

[16] Wash. Supreme Court oral argument, supra, at approx. 8 min., 24 sec.

[17] The trustee, Quality Loan Service Corporation of Washington Inc., has asked that we hold that no cause of action under the deed of trust act or the CPA “can be stated against a trustee that relies in good faith on MERS’ apparent authority to appoint a successor trustee, as beneficiary of the deed of trust.” Br. of Def. Quality Loan Service at 4 (Selkowitz). As this is far outside the scope of the certified question, we decline to consider it.

[18] Also, while not at issue in these cases, MERS’s officers often issue assignments without18 verifying the underlying information, which has resulted in incorrect or fraudulent transfers. See Zacks, supra, at 580 (citing Robo-Signing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing: Hearing Before Subcomm. on H. and Cmty. Opportunity H. Fin. Servs. Comm., 111th Cong. 105 (2010) (statement of R.K. Arnold, President and CEO of MERSCORP, Inc.)). Actions like those could well be the basis of a meritorious CPA claim.

 

[ipaper docId=103057704 access_key=key-29s90u4q4pnumc7rlzu8 height=600 width=600 /]

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

DEFICIENCY FROM SHORT PAYOFFS AND DEEDS-IN-LIEU OF FORECLOSURE

We have updated the Guide to reinforce the requirement that the Servicer, for itself and on behalf of Freddie Mac, must waive all rights to pursue payment of the remaining balance owed by the Borrower under a Freddie Mac-owned Mortgage for all approved short payoffs and deed-in-lieu of foreclosure transactions that have closed in accordance with the Guide and applicable law.

Sections B65.41, Closing, Reporting and Remittance Requirements, and B65.48, Closing, Reporting and
Remittance Requirements, have been updated to reflect this additional information.

[ipaper docId=82005758 access_key=key-1fyhr5ku2oigp3qa2kq1 height=600 width=600 /]

 

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

HOUSTON, Jan. 5, 2012 /PRNewswire/ — Gibbs & Bruns LLP announced today that its clients have issued instructions to US Bank and HSBC, as Trustees, to open investigations of ineligible mortgages in pools securing over $19 billion of Residential Mortgage Backed Securities (RMBS) issued by various affiliates of Wells Fargo.  Collectively, Gibbs & Bruns’ clients hold over 25% of the Voting Rights in 48 Trusts that issued these RMBS. 

“Our clients continue to seek a comprehensive solution to the problems of ineligible mortgages in RMBS pools and deficient servicing of those loans.  Today’s action is another step toward achieving that goal,” said Kathy D. Patrick of Gibbs & Bruns LLP, lead counsel for the Holders.     

The Holders anticipate that they may provide additional instructions to Trustees, as needed, to further the investigations.  The securities that are the subject of these instruction letters include: 

ABOUT GIBBS & BRUNS LLP
Gibbs & Bruns is a leading boutique law firm engaging in high-stakes business and commercial litigation.  The firm is renowned for its representation of both plaintiffs and defendants in complex matters, including significant securities and institutional investor litigation, director and officer liability, contract disputes, fraud and fiduciary claims, energy, oil and gas litigation, construction litigation, insurance litigation, trust & estate litigation, antitrust litigation, legal and professional malpractice, and partnership disputes. Gibbs & Bruns is routinely recognized as a top commercial litigation firm in the US.  For more information, visit www.gibbsbruns.com.

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

NEW YORK SUPREME COURT – QUEENS COUNTY

WELLS FARGO BANK, N.A., as Trustee for
the Certificateholders of Soundview
Home Loan Trust 2007-OPT5, etc.

Plaintiff,

-against-

JOHN A. GALLO; ET AL.,

 

EXCERPTS:

A copy of a “GAP NOTE”, which John A. Gallo obtained from Option
One Mortgage Corporation, in the sum $24,654.98, dated August 13,
2007.

A copy of a “GAP MORTGAGE” dated August 13, 2007, on the subject
real property given by John A. Gallo to Option One Mortgage
Corporation, which refers to the note of August 13, 2007 in the sum
of $27,555.49. The gap mortgage was recorded on October 18, 2007.

A copy of an allonge, which refers to the note dated August 13,
2007, made by John A. Gallo, and states that the loan amount of
$335,000.00.

A consolidated note dated August 13, 2007 given by John A. Gallo to
Option One Mortgage Corporation, in the sum of $335,000.00. Said
note recites that it “AMENDS AND RESTATES IN THEIR ENTIRETY, AND IS
GIVEN IN SUBSTITUTION FOR THE NOTES DESCRIBED IN EXHIBIT A OF THE
NEW YORK CONSOLIDATION, EXTENSION, AND MODIFICATION AGREEMENT
[CEMA] DATED THE SAME DATE AS THIS NOTE”.

A copy of the CEMA, dated August 13, 2007, between John A. Gallo,
and the lender One Option Mortgage Corporation, which recites that
the total unpaid principal balance of the notes is $335,000.00, and
that $27,555.49 was advanced to the borrower or on his account,
immediately prior to the consolidation.

An assignment dated November 17, 2007, and recorded on January 31,
2008, by H & R Block Mortgage Corporation to Option One Mortgage
Corporation, of the mortgage pertaining to the subject property
dated and recorded on August 3, 2006 given by John A. Gallo to H &
R Block Mortgage Corporation.

An assignment of the mortgage on the subject property by Sand
Canyon Corporation, formerly known as Option One Mortgage
Corporation to Wells Fargo, dated December 18, 2009, and recorded
on January 11, 2010.

Plaintiff has also submitted an affidavit from Michelle
Halyard, a vice president of American Home Mortgage Servicing Inc.,
who states that this entity is the loan servicing agent and
attorney in fact for Wells Fargo. She states that Mr. Gallo failed
to make all of the monthly payments of due as required by the note
and mortgage, and sets forth the date of default as April 1, 2009
and recites that amounts due for principal, interest, late charges
and advances for taxes, hazard insurance, appraisal and inspections
for a total of $370,428.92. Plaintiff has also submitted a copy of
the May 16, 2008 limited power of attorney appointing Option One
issued in connection with the servicing of certain mortgage loans.

 […]

Therefore, as plaintiff may not rely upon the consolidated
note and as it has not established that it was in possession of
the original note at the time it commenced the within action, it
lacks standing to maintain this foreclosure action.

[ipaper docId=76277397 access_key=key-g2rjreovpt33g9od1y0 height=600 width=600 /]

 

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

Mortgage lenders contributed to the financial crisis by issuing or underwriting loans to people who would have a difficult time paying them back, inflating a housing bubble that was bound to pop. Lax regulation allowed banks to stretch their mortgage lending standards and use aggressive tactics to rope borrowers into complex mortgages that were more expensive than they first appeared. Evidence has also surfaced that lenders were filing fraudulent documents to push some of these mortgages through, and, in some cases, had been doing so as early as the 1990s. A 2005 Los Angeles Times investigation of Ameriquest – then the nation’s largest subprime lender – found that “they forged documents, hyped customers’ creditworthiness and ‘juiced’ mortgages with hidden rates and fees.” This behavior was reportedly typical for the subprime mortgage industry. A similar culture existed at Washington Mutual, which went under in 2008 in the biggest bank collapse in U.S. history.

Countrywide, once the nation’s largest mortgage lender, also pushed customers to sign on for complex and costly mortgages that boosted the company’s profits. Countrywide CEO Angelo Mozilo was accused of misleading investors about the company’s mortgage lending practices, a charge he denies.  Merrill Lynch and Deutsche Bank both purchased subprime mortgage lending outfits in 2006 to get in on the lucrative business. Deutsche Bank has also been accused of failing to adequately check on borrowers’ financial status before issuing loans backed by government insurance. A lawsuit filed by U.S. Attorney Preet Bharara claimed that, when employees at Deutsche Bank’s mortgage received audits on the quality of their mortgages from an outside firm, they stuffed them in a closet without reading them. A Deutsche Bank spokeswoman said the claims being made against the company are “unreasonable and unfair,” and that most of the problems occurred before the mortgage unit was bought by Deutsche Bank.

Where they are now: Few prosecutions have been brought against subprime mortgage lenders. Ameriquest went out of business in 2007, and Citigroup bought its mortgage lending unit. Washington Mutual was bought by JP Morgan in 2008. A Department of Justice investigation into alleged fraud at WaMu closed with no charges this summer. WaMu also recently settled a class action lawsuit brought by shareholders for $208.5 million. In an ongoing lawsuit, the FDIC is accusing former Washington Mutual executives Kerry Killinger, Stephen Rotella and David Schneider of going on a “lending spree, knowing that the real-estate market was in a ‘bubble.’” They deny the allegations.

Bank of America purchased Countrywide in January of 2008, as delinquencies on the company’s mortgages soared and investors began pulling out. Mozilo left the company after the sale. Mozilo settled an SEC lawsuit for $67.5 million with no admission of wrongdoing, though he is now banned from serving as a top executive at a public company. A criminal investigation into his activities fizzled out earlier this year. Bank of America invited several senior Countrywide executives to stay on and run its mortgage unit. Bank of America Home Loans does not make subprime mortgage loans. Deutsche Bank is still under investigation by the Justice Department.

Mortgage securitizers

In the years before the crash, banks took subprime mortgages, bundled them together with prime mortgages and turned them into collateral for bonds or securities, helping to seed the bad mortgages throughout the financial system. Washington Mutual, Bank of America, Morgan Stanley and others were securitizing mortgages as well as originating them. Other companies, such as Bear Stearns, Lehman Brothers, and Goldman Sachs, bought mortgages straight from subprime lenders, bundled them into securities and sold them to investors including pension funds and insurance companies.

Where they are now: This spring, New York’s Attorney General launched a probe into mortgage securitization at Bank of America, JP Morgan, UBS, Deutsche Bank, Goldman Sachs and Morgan Stanley during the housing boom. Morgan Stanley settled with Nevada’s Attorney General last month following an investigation into problems with the securitization process.

As part of a proposed settlement with the 50 state attorneys general over foreclosure abuses, several big banks were offered immunity from charges related to improper mortgage origination and securitization. California and New York have withdrawn from those talks.

The people who created and dealt CDOs

Once mortgages had been bundled into mortgage-backed securities, other bankers took groups of them and bundled them together into new financial products called Collateralized Debt Obligations. CDOs are composed of tiers with different levels of risk. As we’ve reported, a hedge fund named Magnetar worked with banks to fill CDOs with the riskiest possible materials, then used credit default swaps to bet that they would fail. Magnetar says that the majority of its short positions were against CDOs it didn’t own. Magnetar also says it didn’t choose what went its own CDOs, though people involved in the deals who spoke to ProPublica contradict this account.

American International Group’s London-based financial products unit was among the entities that provided credit default swaps on CDOs. Though the business of insuring the risky securities made AIG large short-term profits, it eventually brought the company to the brink of collapse, prompting an $85 billion government bailout.

Merrill Lynch, Citigroup, UBS, Deutsche Bank, Lehman Brothers and JPMorgan all made CDO deals with Magnetar. The hedge fund invested in 30 CDOs from the spring of 2006 to the summer of 2007. The bankers who worked on these deals almost always reaped hefty bonuses. From our story:

Even today, bankers and managers speak with awe at the elegance of the Magnetar Trade. Others have become famous for betting big against the housing market. But they had taken enormous risks. Meanwhile, Magnetar had created a largely self-funding bet against the market.

When banks found CDOs hard to sell, some of them, notably Merrill Lynch and Citibank, bought each other’s CDOs, creating the illusion of true investors when there were almost none. That was one way they kept the market for CDOs going longer than it otherwise would have. Eventually CDOs began purchasing risky parts of other CDOs created by the same bank. Take a look at our comic strip explaining self-dealing, and our chart detailing which banks bought their own CDOs.

Goldman Sachs and Morgan Stanley also made similar deals in which they created, then bet against, risky CDOs. The hedge fund Paulson & Co helped decide which assets to put inside Goldman’s CDOs.

Where they are now: Overall, the banks and individuals involved in CDO deals haven’t been convicted on criminal charges. The civil suits against them have produced fines that aren’t very big compared to the profits they made in the leadup to the financial crisis. JP Morgan paid $153.6 million to settle an SEC suit alleging they hadn’t disclosed to investors that Magnetar was betting against Morgan’s CDO. Citigroup just agreed to pay a $285 million fine to the SEC for betting against one of its mortgage-related CDOs. The lawsuit doesn’t mention dozens of similar deals made by Citi.

Magnetar is still thriving (the deals they made weren’t illegal according to the rules at the time). In 2007, Magnetar’s founder took home $280 million, and the fund had $7.6 billion under management. The SEC is considering banning hedge funds and banks from betting against securities of their own creation. As of May 2010, federal prosecutors were investigating Morgan Stanley over their CDO deals, and Goldman Sachs paid $550 million last year to settle a lawsuit related to one of theirs. Only one Goldman employee, Fabrice Tourre, has been charged criminally in connection to the deals.

Though recorded phone calls suggest that former AIG CEO Joseph Cassano misled investors about the credit default swaps that contributed to his company’s troubles, the evidence wasn’t airtight, and federal probes against him fell apart in 2010. Cassano’s lawyers deny any wrongdoing.

The ratings agencies

Standard and Poor’s, Moody’s and Fitch gave their highest rating to investments based on risky mortgages in the years leading up to the financial crisis. A Senate investigations panel found that S&P and Moody’s continued doing so even as the housing market was collapsing. An SEC report also found failures at 10 credit rating agencies.

Where they are now: The SEC is considering suing Standard and Poor’s over one particular CDO deal linked to the hedge fund Magnetar. The agency had previously considered suing Moody’s, but instead issued a report criticizing all of the rating agencies generally. Dodd-Frank created a regulatory body to oversee the credit rating agencies, but its development has been stalled by budgetary constraints.

The regulators

The Financial Crisis Inquiry Commission [PDF] concluded that the Securities and Exchange Commission failed to crack down on risky lending practices at banks and make them keep more substantial capital reserves as a buffer against losses. They also found that the Federal Reserve failed to stop the housing bubble by setting prudent mortgage lending standards, though it was the one regulator that had the power to do so.

An internal SEC audit faulted the agency for missing warning signs about the poor financial health of some of the banks it monitored, particularly Bear Stearns. [PDF] Overall, SEC enforcement actions went down under the leadership of Christopher Cox, and a 2009 GAO report found that he increased barriers to launching probes and levying fines.

Cox wasn’t the only regulator who resisted using his power to rein in the financial industry. The former head of the Federal Reserve, Alan Greenspan, reportedly refused to heighten scrutiny of the subprime mortgage market. Greenspan later said before Congress that it was a mistake to presume that financial firms’ own rational self-interest would serve as an adequate regulator. He has also said he doubts the financial crisis could have been prevented.

The Office of Thrift Supervision, which was tasked with overseeing savings and loan banks, also helped to scale back their own regulatory powers in the years before the financial crisis. In 2003 James Gilleran and John Reich, then heads of the OTS and Federal Deposit Insurance Corporation respectively, brought a chainsaw to a press conference as an indication of how they planned to cut back on regulation. The OTS was known for being so friendly with the banks — which it referred to as its “clients” — that Countrywide reorganized its operations so it could be regulated by OTS. As we’ve reported, the regulator failed to recognize serious signs of trouble at AIG, and didn’t disclose key information about IndyMac’s finances in the years before the crisis. The Office of the Comptroller of the Currency, which oversaw the biggest commercial banks, also went easy on the banks.

Where they are now: Christopher Cox stepped down in 2009 under public pressure. The OTS was dissolved this summer and its duties assumed by the OCC. As we’ve noted, the head of the OCC has been advocating to weaken rules set out by the Dodd Frank financial reform law. The Dodd Frank law gives the SEC new regulatory powers, including the ability to bring lawsuits in administrative courts, where the rules are more favorable to them.

The politicians

Two bills supported by Phil Gramm and signed into law by Bill Clinton created many of the conditions for the financial crisis to take place. The Gramm-Leach-Bliley Act of 1999 repealed all the remaining parts of Glass-Steagall, allowing firms to participate in traditional banking, investment banking, and insurance at the same time. The Commodity Futures Modernization Act, passed the year after, deregulated over-the-counter derivatives – securities like CDOs and credit default swaps, that derive their value from underlying assets and are traded directly between two parties rather than through a stock exchange. Greenspan and Robert Rubin, Treasury Secretary from 1995 to 1999, had both opposed regulating derivatives.  Lawrence Summers, who went on to succeed Rubin as Treasury Secretary, also testified before the Senate that derivatives shouldn’t be regulated.

It’s worth noting the substantial lobbying efforts that accompanied the deregulation process. According to the FCIC [PDF], between 1999 and 2008 the financial industry spent $2.7 billion lobbying the federal government, and donated more than $1 billion to political campaigns. While deregulation took place mainly under Clinton’s watch, George W. Bush is faulted for not doing more to catch the out-of-control housing market.

As president of the New York Fed from 2003 to 2009, Timothy Geithner also missed opportunities to prevent major financial firms from self-destructing. As we reported in 2009:

Although Geithner repeatedly raised concerns about the failure of banks to understand their risks, including those taken through derivatives, he and the Federal Reserve system did not act with enough force to blunt the troubles that ensued. That was largely because he and other regulators relied too much on assurances from senior banking executives that their firms were safe and sound.

Henry Paulson, Treasury Secretary from 2006 to 2009, has been criticized for being slow to respond to the crisis, and introducing greater uncertainty into the financial markets by letting Lehman Brothers fail. In a 2008 New York Times interview, Paulson said he had no choice.

Where they are now: Gramm has been a vice chairman at UBS since he left Congress in 2002. Greenspan is retired. Summers served as a top economic advisor to Barack Obama until November 2010; since then, he’s been teaching at Harvard. Geithner is currently serving as Treasury Secretary under the Obama administration.

Executives of big investment banks

Executives at the big banks also took actions that contributed to the destruction of their own firms. According to the Financial Crisis Inquiry Commission report [PDF], the executives of the country’s five major investment banks — Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley – kept such small cushions of capital at the banks that they were extremely vulnerable to losses. A report compiled by an outside examiner for Lehman Brothers found that the company was hiding its bad investments off the books, and Lehman’s former CEO Richard S. Fuld Jr. signed off on the false balance sheets. Fuld had testified before Congress two years before that the actions he took prior to Lehman Brothers’ collapse “were both prudent and appropriate” based on what he knew at the time. Other banks also kept billions in potential liabilities off their balance sheets, including Citigroup, headed by Vikram Pandit.

In 2010, we detailed how a group of Merrill Lynch executives helped blow up their own company by retaining supposedly safe – but actually extremely risky –  portions of the CDOs they created, paying a unit within the firm to buy them when almost no one else would.

The New York Times’ Gretchen Morgenson described how the administrative decisions of some top Merrill executives helped put the company in a precarious position, based on interviews with former employees.

Where they are now: In 2009, two Bear Stearns hedge fund managers were cleared of fraud charges over allegedly lying to investors. A probe of Lehman Brothers stalled this spring. Merrill Lynch was sold to Bank of America in the fall of 2008. As for the executives who helped crash the firm, as we reported in 2010, “they walked away with millions. Some still hold senior positions at prominent financial firms.” Dick Fuld is still working on Wall Street, at an investment banking firm. Vikram Pandit remains the CEO of Citigroup.

Fannie Mae and Freddie Mac

The government-sponsored mortgage financing companies Fannie Mae and Freddie Mac bought risky mortgages and guaranteed them. In 2007, 28 percent of Fannie Mae’s loans were bought from Countrywide. The FCIC found [PDF] that Fannie and Freddie entered the subprime game too late and on too limited a scale to have caused the financial crisis. Non-agency-securitized loans had an increased share of the market in the years immediately preceding the crisis.

Many believe that The Community Reinvestment Act, a government policy promoting homeownership for low-income people, was responsible for the growth of the subprime mortgage industry. This idea has largely been discredited, since most subprime loans were made by companies that weren’t subject to the act.

Still, Fannie and Freddie engaged in reckless behavior and sustained heavy losses as a result. The SEC slammed Fannie Mae for improper accounting under the leadership of Frank Raines in the years preceding the financial crisis. A report by the Office of Federal Housing Enterprise Oversight found that Fannie and Freddie didn’t accurately disclose the risks they were taking and “deliberately and intentionally manipulat[ed] accounting to hit earnings targets.” [PDF]

Richard Syron and Daniel Mudd were at the helm of Freddie and Fannie, respectively, when they began to buy large numbers of subprime loans. Current and former Freddie Mac employees have accused Syron of ignoring warnings about the health of the loans the company was buying. Syron and Mudd maintain they could not have foreseen the rapid decline in the housing market.

Where they are now: As borrowers defaulted on mortgages they’d insured, Fannie and Freddie received a nearly $200 billion federal government bailout, and the government took over their operations. They are close to a settlement in an SEC lawsuit, and will neither admit nor deny that they failed to inform investors about risks of exposure to subprime mortgages. The Dodd Frank financial reform law stated that serious reforms of Fannie and Freddie are needed, but didn’t address how they should be carried out. A report from Treasury Secretary Geithner called for the government to “ultimately wind down” the two mortgage giants. [PDF] In the meantime, taxpayers have been shouldering their legal fees. Former Freddie and Fannie executives Richard Syron and Daniel Mudd received Wells notices this spring, a sign that the SEC is considering legal action against them.

 

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

Via NAKED CAPITALISM-

Wow, Jones Day just created a huge mess for its client and banks generally if anyone is alert enough to act on it.

The lawsuit in question is American Home Mortgage Servicing Inc. v Lender Processing Services. It hasn’t gotten all that much attention (unless you are on the LPS deathwatch beat) because to most, it looks like yet another beauty contest between Cinderella’s two ugly sisters.

[NAKED CAPITALISM]

.

Looks to me like the year was changed from 2009 to 2008 below…VERY SUSPICIOUS!

 

[ipaper docId=113924002 access_key=key-bo4zjmcs0z1kverjrx2 height=600 width=600 /]

 

 

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

IN THE SUPREME COURT OF THE STATE OF NEVADA

GEORGE M. FOUST AND BECKY H.
FOUST, AS HUSBAND AND WIFE,
Appellants,

vs.

WELLS FARGO, N.A., STATE OF
INCORPORATION PRESENTLY
UNKNOWN; MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC.; AND AMERICAN
HOME SERVICING MORTGAGES,
INC., A DELAWARE CORPORATION,
Respondents.

ORDER OF REVERSAL AND REMAND

This is an appeal from a district court order dismissing a complaint as to respondents, certified as final under NRCP 54(b), in a foreclosure action. Eighth Judicial District Court, Clark County; Timothy C. Williams, Judge.

EXCERPTS:

On January 30, 2009, Wells Fargo signed a document substituting AHMSI Default Services, Inc. (AHMSI Default), as a substitute trustee, but did not have this document acknowledged until February 2, 2009. Also on January 30, 2009, AHMSI Default, acting as a substitute trustee for Wells Fargo, signed and acknowledged a notice of default against the Fousts, and recorded the same on February 2, 2009. However, Wells Fargo’s status as of January 30, 2009, is unclear.

According to the record, American Home Mortgage Servicing, Inc., executed an assignment of the deed of trust to Wells Fargo on February 20, 2009, which was recorded on February 25, 2009. It included a provision stating “Misc. Comments: EFFECTIVE DATE OF ASSIGNMENTS: 01/02/2009.” This effective date is prior to the date on which Wells Fargo substituted AHMSI Default as trustee.

[…]

The issues the Fousts raise on appeal are: (1) whether AHMSI Default wrongfully commenced a foreclosure against them because AHMSI Default was not a proper substitute trustee, as Wells Fargo was not entitled to enforce the note; and (2) whether Wells Fargo was assigned the deed of trust prior to the date on which AHMSI Default entered the notice of default. We conclude that the district court erred in granting the motion to dismiss because the Fousts presented a claim upon which relief could be granted. Thus, we reverse and remand this matter to the district court for further proceedings consistent with this order.

Standard of review

We review the district court’s legal conclusions, including a determination that a plaintiff has failed to state any legitimate causes of action under NRCP 12(b)(5), de novo. See Buzz Stew, LLC v. City of N. Las Vegas, 124 Nev. 224,  228, 181 P.3d 670, 672 (2008). In reviewing motions to dismiss pursuant to NRCP 12(b)(5), we accept all facts in the complaint as true, construe the pleadings liberally, and draw all possible inferences in favor of the nonmoving party: Id.; Blackjack Bonding v. Las Vegas Mun. Ct., 116 Nev. 1213, 1217, 14 P.3d 1275, 1278 (2000). This standard of review is rigorous, and the plaintiffs “complaint should be dismissed only if it appears beyond a doubt that it could prove no set of facts, which, if true, would entitle it to relief.” Buzz Stew, 124 Nev. at 227-28, 181 P.3d at 672.

The Fousts stated a claim upon which relief can be granted

This appeal focuses on the Fousts’ fifth cause of action, in which the Fousts alleged that Wells Fargo may not own the note and mortgage and, therefore, lacked standing to foreclose. Construing this allegation liberally and drawing all possible inferences in favor of the Fousts, the first amended complaint presents a claim upon which relief could be granted.

While deeds of trust and mortgage notes work together in the context of mortgage lending, they are distinct documents with separate functions. Leyva v. National Default Servicing Corp., 127 Nev. „ P.3d , (Adv. Op. No. 40, July 7, 2011). We do not analyze those distinctions here, but possessing only the deed of trust does not create an entitlement to enforce the underlying note. See In re Veal, No. 09-14808, 2011 WL 2304200, at *12 (B.A.P. 9th Cir. June 10, 2011). To enforce a debt secured by a deed of trust and mortgage note, a person must be entitled to enforce the note pursuant to Article 3 of the Uniform Commercial Code. Id. at *7; see also Restatement (Third) of Property: Mortgages § 5.4(c) (1997) (“A mortgage may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation the mortgage secures.”). “Article 3 is codified in NRS 104.3101-.3605.” Levva, 127 Nev. at n.6, P.3d at n.6. If Wells Fargo was not entitled to enforce the note, then the substitution of AHMSI Default as trustee and the subsequent foreclosure notice against the Fousts may have been in error.

Therefore, the central inquiry on remand is whether Wells Fargo was entitled to enforce the note. 5

[ipaper docId=61586486 access_key=key-i7h01aw8cljs5u6snq2 height=600 width=600 /]

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

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

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

Cite as: Leyva v. National Default Servicing Corp.

127 Nev. Adv. Op. No. 40

July 7, 2011

IN THE SUPREME COURT OF THE STATE OF NEVADA

No. 55216

MOISES LEYVA,

Appellant,

vs.

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

Respondents.

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

Reversed and remanded.

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

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

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

BEFORE THE COURT EN BANC.

OPINION

By the Court, HARDESTY, J.:

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

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

FACTS AND PROCEDURAL HISTORY

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

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

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

Absent timely appeal, a Letter of Certification shall enter.

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

DISCUSSION

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

Leyva was a proper party to the mediation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mortgage note

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

*****************************

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

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