First Circuit allows MERS to assign mortgages to the mortgage holder

Posted on March 3rd, 2013 by Joseph William Singer.
Categories: Consumer protection, Mortgages, Real estate transactions, Title issues.

State courts have disagreed about whether MERS (Mortgage Electronic Registration Systems) has standing to foreclose on property or to assign whatever interest it has in the mortgage to the bank that holds the mortgage currently so that that bank can bring foreclosure proceedings. Some courts have held that MERS has no property interest in the mortgage but is a mere agent for the mortgage owner so it cannot bring foreclosure proceedings itself or assign the mortgage to anyone else.   Bain v. Metropolitan Mortgage Group, Inc., 285 P.3d 34, 36–37 (Wash. 2012) (because MERS does not hold the note, it can neither initiate nonjudicial foreclosure proceedings not assign an interest in the note to a trustee who can do so). But others have held that MERS may initiate foreclosure proceedings in its own name and/or assign the mortgage to someone else.  Gomes v. Countrywide Home Loans Inc., 121 Cal. Rptr. 3d 819, 826–827 (2011) (MERS may initiate nonjudicial foreclosure under deed of trust); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34 (Fla. Dist. Ct. App. 2007) (MERS may foreclose as agent of the note holder); Residential Funding Co., LLC v. Saurman, 805 N.W.2d 183 (Mich. 2011) (MERS had sufficient “interest in the debt” to initiate nonjudicial foreclosure proceedings); Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487, 494–495, 501 (Minn. 2009)(applying Minn. Stat. §507.413 allowing MERS to initiate foreclosure proceedings).

In Culhane v. Aurora Loan Servs. of Neb., — F.3d —, 2013 WL 563374 (1st Cir. 2013), the First Circuit, applying Massachusetts law, has now held that MERS may assign mortgages because it does own a legal interest in the mortgage. In an opinion by Judge Selya, the court held that MERS has the “legal interest” in the mortgage because it is named as the mortgagee but that the bank that actually issued the note and has the right to enforce the mortgage to secure the loan has the “beneficial interest” in the mortgage. The court reasoned  that the party that owns the note or is entitled to enforce it (not necessarily the same party) has the equitable right to the protection of the mortgage giving it a right to foreclose and that MERS is merely holding title to the mortgage for the benefit of that party. At the same time, MERS has a sufficient interest to hold the mortgage title for the benefit of the owner of the “beneficial interest” in the mortgage. It is not clear if that would mean that MERS could bring foreclosure proceedings in its own name or that means that the right to foreclose cannot be separated from rights in the note.

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Foreclosure denied when the lender obtained assignment of the note and mortgage after filing the foreclosure action

Posted on November 3rd, 2012 by Joseph William Singer.
Categories: Consumer protection, Mortgages, Real estate transactions, Title issues.

In Federal Home Loan Mortgage Corp. v. Schwartzwald, 2012 Ohio 5017, 2012 Ohio LEXIS 2628 (Ohio 2012), the Supreme Court of Ohio joined other courts that have refused to allow banks to foreclose if they cannot prove by written evidence at the time of foreclosure that they have a legal right to foreclose. In this case, Federal Home Loan commenced a foreclosure action before it obtained an assignment of the promissory note and mortgage securing the loan, although it attempted to “cure” that defect by obtaining the assignment later. The Supreme Court of Ohio reversed lower court rulings that had decided that the cure would allow the foreclosure to proceed; instead, it held that state law required lawful standing at the time the foreclosure action was brought. It cited cases from other states that denied standing to MERS (Mortgage Electronic Registration Systems) because it did not possess any interest in the note or the mortgage. The court dismissed the foreclosure claim without prejudice, so the lender can refile now that it has obtained a written assignment of the mortgage and lawful possession of the note. The court’s ruling suggests, however, that a bank that cannot provide proof that it “owns” the rights in mortgage and/or the note may not be able to foreclose, leaving to another day the question of whether the lender can use alternate evidence to prove its property rights and how a borrower/homeowner can clear title to the property that appears to still be encumbered by a mortgage.

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Loft landlord denied right to evict until housing is brought up to code

Posted on October 7th, 2012 by Joseph William Singer.
Categories: Consumer protection, Leaseholds.

The New York Court of Appeals has held that a loft owner who has not complied with regulations designed to ensure that lofts are habitable cannot collect rent or evict the residential tenant from her home. Chazon v. Maugenest, 971 N.E.2d 852 (N.Y. 2012). In one sense this is a straight-forward application of modern landlord/tenant law. The case is unusual because the tenant has been living in the loft without paying rent for nine years and because the tenant’s initial occupation was illegal since the property had been formerly used for commercial purposes and rented to a residential tenant in violation of New York City ordinances. The Court felt it had no discretion given the clear language of the loft law. That law had been intended to induce loft landlords to upgrade the property to make it habitable but hundreds of such landlords have still not complied with it despite the fact that it has been in effect for 30 years. The court held that the clear language of the loft law would apply even if the landlord’s violations were procedural rather than substantive.

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Washington Supreme Court holds MERS cannot initiate private deed of trust foreclosures

Posted on August 20th, 2012 by Joseph William Singer.
Categories: Consumer protection, Mortgages, Real estate transactions.

In Washington state, lenders typically use the deed of trust form for mortgages where the lender is the “beneficiary” of the trust and the “trustee” has the power to act to protect the beneficiary’s interest by foreclosing on the property if the borrower defaults on the note (the underlying loan). MERS is typically listed as the beneficiary of the deed of trust rather than the lender that actually issued the loan  (and signed the note) in order to avoid having to record future assignments of the mortgage; the deed of trust is recorded listing MERS as the beneficiary rather than the lender that issued the note to the borrower/homeowner. Interpreting the meaning of the word “beneficiary” in state foreclosure statutes, the Washington Supreme Court agreed with other courts that have held that MERS is not actually the beneficiary of the note and thus has no power to initiate a nonjudicial foreclosure of the property upon default of the payments. Bain v. Metropolitan Mortgage Group, Inc., 2012 WL 3517326 (Wash. 2012).

The court refused to say what the consequences of this ruling would be, although it did suggest that the proper party to bring the foreclosure is the current holder of the note who actually possesses the note or can demonstrate the chain of transactions that makes it the beneficiary of the note. The court also suggested that MERS might act as an agent of the actual beneficiary but only if it could identify the principal and prove that it had been granted agency power to act on behalf of that principal.

The court also held that the facts might present a violation of the state consumer protection act because MERS misrepresented itself as the beneficiary to the borrower, thus engaging in a deceptive business practice. Whether the statute was violated depended on whether the borrower could show that she was injured by the deceptive statement. This is a potentially explosive ruling because MERS’s entire business model depends on listing it, rather than the lender, as the “mortgagee” or “beneficiary” of the deed of trust. On the other hand, the court finds no consumer protection violation unless the borrower can show injury and MERS could avoid causing injury by keeping track of who holds the note and revealing that information to the borrower. This would represent a significant change in MERS’s original business model since it typically only would reveal to borrowers the identity of the loan servicer, not the current holder of the note and not the chain of assignments from the original lender.

 

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Homeowners’ Association sign regulations violate free speech rights under state constitution

Posted on June 26th, 2012 by Joseph William Singer.
Categories: Consumer protection, Real estate transactions, Servitudes.

The Supreme Court of New Jersey held in Mazdabrook Commons Homeowners’ Ass’n v. Khan, — A.3d —, 2012 WL 2120868 (N.J. 2012), that the free speech clause of the state constitution guarantees the right to post political signs on one’s property and that any covenants or rules of a homeowners association to the contrary are unenforceable. The owner in this case posted a sign inside the window of his townhouse and a second sign inside his door. Those signs supported his own candidacy for town council. The Association’s rules banned all signs other than “for sale signs.” The court distinguished its earlier ruling in Committee for a Better Twin Rivers v. Twin Rivers Homeowners’ Ass’n, 929 A.2d 1060 (N.J. 2007), which upheld minor restrictions on sign placement by property owners who were members of the association and did not involve an election to a state or local public office as was the the case in Mazdabrook. Conversely, because the sign was on Khan’s own property, and not common property managed by the association, his interests were stronger. The ruling was premised on prior cases interpreting New Jersey’s free speech clause to apply to private actors on private property in at least some instances, a ruling at odds with the First Amendment which only applies to the federal government or “state actors” through the Fourteenth Amendment.

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Mass high court prospectively requires banks to physically possess the note as well as the mortgage in order to foreclose

Posted on June 23rd, 2012 by Joseph William Singer.
Categories: Consumer protection, Due process, Mortgages, Real estate transactions, Title issues.

In Eaton v. Fed. Nat’l Mortgage Ass’n (Fannie Mae), 2012 Mass. LEXIS 488 (Mass. June 22, 2012), the Supreme Judicial Court of Massachusetts held that a foreclosing party must be in physical possession of both the note and the mortgage (or be acting on behalf of someone who does) when bringing a foreclosure proceeding. However, the ruling applies only prospectively to foreclosures that occur in the future, with the exception that the plaintiff in Eaton that convinced the Court to clarify this rule can take the benefit of it. The refusal to apply the rule retroactively was based on the belief that the law may have been unclear beforehand and that it was the case that many people acted without regard for this principle in the past.

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Websites are public accommodations so Netflix must provide close captioning on web-streamed movies

Posted on June 23rd, 2012 by Joseph William Singer.
Categories: Antidiscrimination law, Consumer protection.

A federal judge in Massachusetts ruled that websites are “places of public accommodation” regulated by the Americans with Disabilities Act (42 U.S.C. §12182(a)), and thus the online movie service Netflix was required to provide closed captioning for all it “Watch Instantly” content. Nat’l Ass’n of the Deaf v. Netflix, Inc., 2012 U.S. Dist. LEXIS 84518 (D. Mass. June 19, 2012). The court’s judgment rested on the First Circuit’s conclusion that “places of public accommodation” under the ADA were not limited to “actual physical structures.” Carparts Distrib. Ctr. v. Auto. Wholesaler’s Ass’n, 37 F.3d 12, 19 (1st Cir. 1994).

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Court rules that designated open space on plat is insufficient to establish an easement absent proof the developer induced buyers to purchase in reliance on promises of open space.

Posted on May 19th, 2012 by Joseph William Singer.
Categories: Consumer protection, Easements, Estates & future interests, Real estate transactions, Statute of frauds.

Disagreeing with the ruling of the Massachusetts Supreme Judicial Court in Reagan v. Brissey, 844 N.E.2d 672 (Mass. 2006), an appeals court in New Mexico held that open space designated on a recorded plat is not sufficient to create an easement of access by owners of lots on the map in the absence of evidence the developer made representations to buyers inducing them to buy in reliance on promises those lots would remain open. The mere presence of open space on the map was insufficient to prevent the developer from selling that open space for development purposes. Agua Fria Save The Open Space Ass’n v. Rowe, 255 P.3d 390 (N.M. 2011)

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Covenants no longer strictly construed to reduce encumbrances on land but are now interpreted to achieve the intent of the parties

Posted on May 19th, 2012 by Joseph William Singer.
Categories: Consumer protection, Real estate transactions, Servitudes.

A New Mexico Appeals Court joined the modern trend in rejecting the interpretive rule that covenants should be narrowly construed, instead adopting the modern approach of interpreting the grant to achieve the grantor’s intent. Agua Fria Save The Open Space Ass’n v. Rowe, 255 P.3d 390 (N.M. 2011). When the language of the grant is unclear, “evidence of the circumstances surrounding the making of the contract and of any relevant usage of trade, course of dealing, and course of performance” is relevant in interpreting the government documents. 255 P.2d at 395.

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More states prohibit transfer fee obligations

Posted on February 26th, 2012 by Joseph William Singer.
Categories: Consumer protection, Estates & future interests, Real estate transactions.

Statutes have been passed in Pennsylvania, South Dakota, Virginia and Washington prohibiting transfer fee obligations which requires payments of fees to a prior seller every time the property is sold. 2011 Pa. Laws 8; 2011 S.D. Sess. Laws 196; 2011 Va. Acts 706; 2011 Wash. Legis. Serv. 36.

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Banks as landlords

Posted on February 26th, 2012 by Joseph William Singer.
Categories: Consumer protection, Leaseholds, Mortgages, Real estate transactions.

Banks that have obtained title to foreclosed properties traditionally would sell them quickly but the current real estate malaise resulting from the subprime crisis has made it difficult for them to do so. The result is that many properties remain on the books of the banks. Under state property law, the banks have the obligations all landowners have to comply with housing codes and the warranty of habitability. But many banks do not have established procedures for keeping track of all the individual properties they own, especially when the mortgages to those properties were securitized, making the owner of the trust that owns those mortgages the effective landlord of thousands of homes. Both localities and tenants are having to deal with the failure of banks to comply with regulations mandating maintenance of rental properties. read article.

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Massachusetts high court voids title when a buyer purchases property from an owner who obtained title through an improper foreclosure

Posted on October 19th, 2011 by Joseph William Singer.
Categories: Consumer protection, Mortgages, Real estate transactions, Statute of frauds.

In an important but almost inevitable case, Bevilacqua v. Rodriguez,  2011 WL 4908845 (Mass. 2011), the Supreme Judicial Court of the Commonwealth of Massachusetts held that a lender who does not follow proper procedures to foreclose on property cannot pass good title to a subsequent purchaser. The court’s earlier ruling in U.S. Bank Nat’l Ass’n v. Ibanez, 941 N.E.2d 40 (Mass. 2011) had held that a nonjudicial foreclosure cannot lawfully happen unless the party conducting the foreclosure can show requisite assignments of the mortgage given it the right to foreclose. In Bevilacqua, the original buyer Rodriguez granted a mortgage to MERS (Mortgage Electronic Registration Systems, Inc.) as nominee for the real lender Finance America, LLC. At the time of the private foreclosure proceedings, MERS had not formally assigned the mortgage from the original lender to U.S. Bank National Association (US Bank); for that reason, the foreclosure brought by US Bank was invalid. The buyer at the foreclosure sale (also US Bank as trustee for a securitized pool of mortgages) could not therefore transfer good title to the property. Thus the buyer Bevilacqua had no title to the property and no standing to bring a quiet title action against the original owner/borrower. The court did suggest that the buyer could sue the bank from whom he tried to obtain title in order to get relief either in the form of damages or actions would satisfy the statute of frauds and actually result in a clear transfer of title from the original owner to the subsequent buyer.

 

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More states prohibit transfer fee covenants

Posted on September 14th, 2011 by Joseph William Singer.
Categories: Consumer protection, Real estate transactions, Restraints on alienation, Servitudes, Title issues.

Idaho, Indiana, Mississippi and Montana have all passed statutes prohibiting enforcement of any transfer fee covenants entered into after the dates the legislation goes into effect. See 2011 Idaho Sess. Laws 107; 2011 Ind. Acts 136; 2010 Miss. Gen. Laws 348; 2011 Mont. Laws 259. Transfer fee covenants are promises inserted in deeds to pay a fee to the original seller of the property any time it is sold in the future. Such fees were abolished in New York State in 1852 in the case of DePeyster v. Michael, 6 N.Y. 467 (1852) as a vestige of feudalism.

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Massachusetts Attorney General settles lawsuit with subprime mortgage lender, requiring $115 million of loan modifications

Posted on August 10th, 2011 by Joseph William Singer.
Categories: Antidiscrimination law, Consumer protection, Fair Housing Act, Mortgages, Real estate transactions.

Attorney General Martha Coakley announced that the Commonwealth of Massachusetts settled a lawsuit with a subprime mortgage lender that originated subprime mortgages it knew were likely to fail and which not only targeted African American and Latino borrowers but gave its employees discretion to charge higher fees to such borrowers. The company will pay a penalty of almost $10 million to the Commonwealth and will direct its mortgage servicer to modify $115 million in loans either by writing down the principal balance of lowering interest rates. read article The settlement is based on the legal ruling in the earlier case of Commonwealth v. Fremont Inv. & Loan, 897 N.E.2d 548 (Mass. 2008), which held that it might violate the state consumer protection act to market mortgages that were almost certain to end in foreclosure.

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Bank not liable for fraud when it loaned money it knew the borrower could not repay

Posted on March 20th, 2011 by Joseph William Singer.
Categories: Consumer protection, Mortgages.

In Perlas v. GMAC Mortgage, 113 Cal. Rptr. 3d 790 (Ct. App. 2010), a bank made $417,000 worth of loans to borrowers with a gross income of only $50,000. Although that income was inadequate to make the mortgage payments, and the bank found that the borrower “qualified” for the loan, the court held that the bank did not engage in fraud. Qualification, the judge noted, does not imply affordability and the bank had no duty to the borrower to disclose the fact that the borrowers could not afford to make the loan payments. Contract this case with Commonwealth v. Fremont, 897 N.E.2d 548 (Mass. 2008) which held that granting such a loan might constitute an “unfair” practice in violation of the state consumer protection statute.

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