Property Law Developments—Joseph William Singer

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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HUD issues final regulations defining disparate impact claims under the Fair Housing Act

Posted on February 9th, 2013 by Joseph William Singer.
Categories: Antidiscrimination law, Fair Housing Act, Real estate transactions.

The Department of Housing & Urban Development (HUD) has issued final regulations defining the standards to make a claim that a neutral policy has a disparate impact on a protected group in a manner that constitutes unlawful discrimination under the federal Fair Housing Act, 42 U.S.C. §3601 et seq. The regulations are at 24 C.F.R. 100.500 and can be found here. The rule affirms that disparate impact claims are available under the Fair Housing Act and identifies an approach to proving them to respond to the variation that exists among Circuits on what the legal test is for disparate impact in this area. Here is the test:

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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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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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Implied beach easement found from recorded plans and sales statements

Posted on August 8th, 2012 by Joseph William Singer.
Categories: Easements, Real estate transactions, Servitudes.

A Massachusetts court has held that owners of lots near the ocean had an implied easement of access to the beach because recorded plans drafted in 1892 showed an unenumerated lot with access to the ocean and the developer had advertised the lots as “Shore Lots” with a “Cool breeze all the time, good bathing, boating and fishing, nice beach, no undertow, shade trees on several of the lots.” Leahy v. Graveline, 82 Mass.App.Ct. 144, — N.E.2d —, 2012 WL 2819395 (Mass. Land Ct. 2012). The case represents an application of the recent decision in Reagan v. Brissey, 844 N.E.2d 672 (Mass. 2006) that similarly found implied rights to use open land depicted on a subdivision map.

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Court affirms that nonuse does not extinguish an old easement

Posted on July 2nd, 2012 by Joseph William Singer.
Categories: Adverse possession, Easements, Real estate transactions, Servitudes.

The Supreme Judicial Court of the Commonwealth of Massachusetts has reaffirmed that even longstanding non-use of an easement will not extinguish it or cause it to lapse because of prescription. Cater v. Bednarek, — N.E.2d —, 462 Mass. 523 (Mass. 2012). To extinguish an easement by prescription requires acts inconsistent with the easement that put the easement owner on notice that its uses are being disrupted. Moreover, if the servient estate owner makes only part of an easement inaccessible, it is extinguished only as to that part but not the rest. In addition, the court held that, where a deed does not specify the dimensions of the easement, it must be interpreted to establish dimensions that are reasonably necessary for the enjoyment of the dominant estate; the easement is not limited to the purposes for which the dominant estate was used at the time the easement was created. Moreover, if the easement is for access to a public road, it must be interpreted to be wide enough to comply with applicable local regulations on minimum width of roads. Compare the result in this case to the ruling in Cox v. Glenbrook Co., 371 P.2d 647 (Nev. 1962), which interpreted an easement to be limited to one lane when that was the physical layout of the road at the time the easement was created even though such an easement was insufficient as an access road to the dominant estate which consisted of 80 acres.

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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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Easements implied by prior use or by necessity

Posted on June 8th, 2012 by Joseph William Singer.
Categories: Easements, Real estate transactions.

The Massachusetts Land Court has reaffirmed that easements can be implied from prior use if they were used before severance of the two parcels and are “reasonably necessary” for use of the dominant estate while easements by necessity require the dominant estate to be inaccessible but for the easement. Black v. Klaetke, 20 LCR 120, 2012 Mass. LCR LEXIS 56 (Mass. Land Ct. 2012).

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Possibility of reverter enforced by Tennessee court with award of damages for lost rental income

Posted on May 19th, 2012 by Joseph William Singer.
Categories: Estates & future interests, Real estate transactions.

An appeals court in Tennessee correctly interprets a conveyance which provided that the lot “shall automatically revert to Seller in fee simple” if the buyer did not comply with stated conditions created a fee simple determinable with a possibility of reverter. Lasater v. Hawkins, 2011 WL 4790971 (Tenn. Ct. App. 2011). The court not only enforced the condition, finding title to have automatically reverted to the seller but granted the seller (and possibility of reverter owner) five years of rent that the present estate owner had collected since the condition was violated.

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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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Texas joins states prohibiting real estate transfer fees

Posted on May 9th, 2012 by Joseph William Singer.
Categories: Real estate transactions, Restraints on alienation, Servitudes.

Texas joined the other states that have passed statutes prohibiting real estate private transfer fees. 2011 Tex. Gen. Laws 211.

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Bank cannot foreclose if it fails to mediate in good faith as required by state law

Posted on May 9th, 2012 by Joseph William Singer.
Categories: Mortgages, Real estate transactions.

In Pasillas v. HSBC Bank USA, 255 P.3d 1281 (Nev. 2011), the Nevada Supreme Court held that a bank cannot foreclose if it fails to act in good faith to participate in state-mandated mediation with the borrower.

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Automatic reverter creates fee simple determinable

Posted on May 9th, 2012 by Joseph William Singer.
Categories: Estates & future interests, Real estate transactions, Restraints on alienation.

In a straightforward application of traditional doctrine, a Tennessee court ruled that a deed condition that stated that a lot “shall automatically revert to Seller in fee simple” if the buyer does not comply with stated conditions (to install a waterline within a year) creates a fee simple determinable that transfers title automatically. Lasater v. Hawkins, 2011 WL 4790971 (Tenn. Ct. App. 2011)

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New Jersey Supreme Court allows foreclosure despite faulty procedures

Posted on May 9th, 2012 by Joseph William Singer.
Categories: Mortgages, Real estate transactions.

In US Bank Nat’l Ass’n v. Guillaume, 38 A.3d 570 (N.J. 2012), the Supreme Court of New Jersey applied the equitable doctrine of substantial compliance to allow a bank to foreclose despite its failure to include the name and address of the actual lender on the notice of intent to foreclose as required by state law. The notice actually only included the name of the mortgage service, not the mortgage lender. Dismissal without prejudice is not the exclusive remedy for the service of a notice of intention to foreclose that does not satisfy Fair Foreclosure Act’s requirement that a notice of intention include the name and address of the actual lender. Instead, the trial court may dismiss the action without prejudice, order the service of a corrected notice, or impose another remedy appropriate to the circumstances of the case; overruling Bank of N.Y. v. Laks, 27 A.3d 1222 (N.J. Super. Ct. App. Div. 2011).

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Washington state requires mediation before foreclosure

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

Washington state passed the Foreclosure Fairness Act, 2011 Wash. Legis. Serv. 58, requiring telephone notification and a 60-da6 opportunity to meet with the lender before foreclosure proceedings can begin. read article

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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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Michigan Supreme Court holds that MERS has standing to foreclose

Posted on January 2nd, 2012 by Joseph William Singer.
Categories: Mortgages, Real estate transactions.

Contrary to the ruling of some other courts, the Michigan Supreme Court held that MERS (Mortgage Electronic Registration Systems) has standing to foreclose on properties for which it is the record holder of the mortgage even if it does not “own’ the note or the right to moneys under the note. The court held that because MERS is the “holder of the mortgage, MERS owned a security lien on the properties, the continued existence of which was contingent upon the satisfaction of the indebtedness.” The court concluded that the legislature would want the record mortgage holder to have the right to foreclose on the property. The case is Residential Funding Co. v. Saurman, 805 N.W.2d 183 (Mich. 2011).

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Oral agreement to buy property does not create a compensable property interest when the property is condemned

Posted on November 21st, 2011 by Joseph William Singer.
Categories: Real estate transactions, Statute of frauds, Takings.

The Nebraska Supreme Court ruled that a potential buyer who had an oral contract to buy real estate did not have a right to just compensation when the property was condemned by public authorities. American Central City, Inc. v. Joint Antelope Valley Auth., 2011 WL 2420787 (Neb. 2011). Although oral agreements to buy property are enforceable despite the statute of frauds in cases of part performance, the Nebraska Supreme Court ruled that the potential buyer’s sole remedy was against the seller of the property rather than the public authorities that took the property by eminent domain.

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Court enforces acceleration clause in a commercial lease without regard to whether landlord mitigated damages

Posted on November 12th, 2011 by Joseph William Singer.
Categories: Leaseholds, Real estate transactions.

Many courts uphold acceleration clauses in commercial leases that require tenants to pay the rest of the rent due for the remainder of the lease term if the tenant breaches the lease. Such clauses are usually not enforced in the context of residential leases because they disclaim the duty to mitigate damages. The only issue for acceleration clauses in commercial leases is whether the amount exceeds a reasonable estimate of the likely damages from breach and thus constitute an invalid “penalty” rather than a valid liquidated damages clause. See, e.g., Cummings Properties, LLC v. National Communications Corp., 869 N.E.2d 617 (Mass. 2007). Many courts make this determination by assuming that the landlord still has a duty to mitigate damages by attempting to relet the premises and thus the remaining rent will be invalid if it far exceeds the damages that would be sustained if the landlord found a replacement tenant. See HealthSouth Rehabilitation Corp. v. Falcon Management Co., 799 So. 2d 177 (Ala. 2001). However, some courts hold that the duty to mitigate damages is irrelevant in this context. NPS, LLC v. Minihane, 886 N.E.2d 670 Mass. 2008). The Massachusetts Appeals Court recently explained that this means that it does not matter when the breach occurs during the course of the lease, i.e., at the beginning when many months or years of rent are left and the landlord might be able to obtain a replacement tenant and mitigate damages, or at the end of the lease when replacement of the tenant might be impossible within the remaining time. The only thing that matters is whether the figure chosen by the parties in the acceleration clause (the remaining rent for the lease term) is a reasonable estimate of the damages that might be sustained upon the tenant’s breach. Although this is a difficult determination to make, the court explained that acceleration clauses in commercial leases are presumptively enforceable and should be disregarded only if they are clearly unreasonable. Panagakos v. Collins, 80 Mass. App. Ct. 697, 2011 WL 5067707 (Mass. App. Ct. 2011).

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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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Register of Deeds in Essex County, Massachusetts refuses to record robo-signed documents

Posted on September 28th, 2011 by Joseph William Singer.
Categories: Mortgages, Real estate transactions, Statute of frauds, Title issues.

A dispute has arisen between South Essex Register of Deeds John O’Brien and the Massachusetts Real Estate Bar Association (REBA) over O’Brien’s refusal to allow seemingly “robo-signed” mortgage documents to be recorded in the Registry of Deeds. REBA contends that state law allows the recording of any document “purporting” to be signed by an authorized signatory to a mortgage or a mortgage assignment. Mass. Gen. Laws ch. 183, § 54B. But Register O’Brien points to 1,300 documents received that were signed “Linda Green” but which exhibit different handwriting styles and different titles, and some were filed after 2010 when it was believed that Green stopped working for a mortgage company. O’Brien takes the position that he will not record documents signed by “known robo-signers” and he will also forward suspicious documents to the Attorney General’s office for investigation of mortgage fraud. Scott Pitman & MIchael Pill, To record or not to record robo-signed documents? 40 Mass. Lawyers Weekly 9 (Sept. 26, 2011).

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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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