Wednesday, July 2, 2014

FYI: 1st Cir Soundly Rejects Borrower's Challenges to MERS Assignments, "Robosigning," Securitization, and Under Eaton v. Fannie Mae

The U.S. Court of Appeals for the First Circuit recently affirmed the dismissal of a complaint alleging wrongful foreclosure, ruling that:  (1) MERS’s authority to transfer mortgages is well established under Massachusetts law;  (2) the borrower lacked standing to challenge the foreclosing party’s possession of the mortgage because violation of an asset securitization trust’s pooling and servicing agreement only renders an assignment voidable, not void; and  (3) the foreclosing party here was not required to have possession of both the note and mortgage at the time of foreclosure because Eaton v. Fed. Nat’l Mortg. Ass’n, 462 Mass. 569 (2012) does not allow for retroactive effect.


A copy of the opinion is available at:


On January 31, 2007, borrower (“Borrower”) obtained a $370,000 loan secured with a promissory note and mortgage on the Borrower’s home.  The mortgage listed MERS as the mortgagee and nominee for the lender and lender’s successors and assigns. 


On December 1, 2009, MERS assigned the mortgage to Deutsche Bank Trust Company Americas as Trustee for an unspecified trust.  Six days later, Deutsche Bank, acting as trustee for the unspecified trust, filed suit in Massachusetts Land Court to foreclose on the property.


Subsequently, MERS again assigned Borrower’s mortgage, this time to Deutsche Bank Trust Company Americas as Trustee for a specified trust (“Trustee”).  Thereafter, on July 15, 2010, Trustee against sought authority to foreclose from the Massachusetts Land Court.


On March 2011, Borrower’s mortgage was assigned a third time.  Deutsche Bank Trust Company Americas as Trustee for the unspecified trust assigned the mortgage to Trustee (which was named as trustee for a specified trust).  This assignment was labeled “confirmatory” and recorded.


Trustee conducted a foreclosure sale on May 25, 2011, ultimately purchasing the Borrower’s property.  After filing a foreclosure deed, Trustee determined that the first foreclosure sale may have been void for failure to provide Borrower with the required fourteen days’ notice required under Mass. Gen. Laws ch. 244, § 14.  Trustee conducted a second foreclosure sale on March 8, 2012, and was again the highest bidder.  Trustee recorded its deed of foreclosure on April 18, 2012.


Borrower filed suit in state court, asserting claims for: (1) unfair and deceptive business practices pursuant to Mass. Gen. Laws § 93A (“Chapter 93A”); (2) wrongful foreclosure based on the May 25, 2011 foreclosure sale; (3) wrongful foreclosure based on the March 8, 2012 foreclosure sale; and (4) slander of title.  The district court dismissed the Borrower’s suit because his theories as to why Trustee supposedly lacked authority to foreclose failed to state a claim capable of relief.


On appeal, Borrower argued that Trustee lacked authority to foreclose because: (1) MERS lacked legal authority to transfer his mortgage because it only “tracks” the sale of mortgage notes and did not undertake assignments; (2) the assignments were executed by a “robo-signer” without proper authority; (3) the assignments violated the trust’s pooling and servicing agreement (“PSA”); (4) Trustee did not legally possess Butler’s promissory note at the time of foreclosure; and (5) Trustee admitted that the first foreclosure was invalid.


The First Circuit rejected Borrower’s contention that MERS, as “nominee” for the noteholder, could not independently undertake a mortgage transfer.   This argument had been previously raised and repeatedly rejected by the First Circuit previously.  See Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 291-93 (1st Cir. 2013) (MERS possesses the ability to transfer its interest in a mortgage); Woods v. Wells Fargo Bank, N.A., 733 F.3d 349, 355 (1st Cir. 2013) (“Culhane made clear that MERS’s status as an equitable trustee does not circumscribe the transferability of its legal interest.”).


In addition, the First Circuit also rejected the Borrower’s argument that MERS only “tracks” the assignments but did not undertake assignments.  Borrower relied on the 2011 “MERS Case Law Outline” – a document prepared by MERS to familiarize users with its legal structure – and argued that MERS itself disclaimed any role as an assignor.  The argument failed because the fact that MERS separately tracked the transfers of promissory notes does not call into question the sufficiency of written assignments duly recorded in county records, much less its ability to make assignments.


The First Circuit next considered the Borrower’s “robo-signing” allegations.  Critically, the Court noted that Borrower neither defined the term “robo-signer” nor advanced any particular legal theory as to why a “robo-signed” document is necessarily invalid.  Despite these deficiencies, the Court had previous rejected a nearly identical claim and held that “the bare allegations of ‘robo-signing’ does nothing to undermine the validity” of an assignment.  See Wilson v. HSBC Mortg. Servs., Inc., 2014 WL 563457, at *10 (1st Cir. 2014).


Moreover, the precise requirements for a valid mortgage assignment are set forth by statute in Massachusetts:


Notwithstanding any law to the contrary … [an] assignment of [a] mortgage … executed before a notary public … by a person purporting to hold the position of president, vice president, … or other officer … of the entity holding such mortgage, or otherwise purporting to be an authorized signatory for such entity … shall be binding upon such entity …


Mass. Gen. Laws ch. 183, § 54B.


MERS’s assignments in this case conformed to the statutory requirements:  the signatory to the assignments was identified as a vice president of MERS, and signed both assignments in the presence of a notary public.  Therefore, Borrower failed to allege any cognizable theory as to how his “robo-signer” allegations would invalidate the mortgage transfer under Massachusetts law.


Next, the First Circuit turned to the argument that Trustee lacked valid possession of Borrower’s mortgage because it had received the assignment of the mortgage without first passing through three predetermined parties, and the assignment was made two years after the trust’s closing date, both of which allegedly violated the trust’s PSA. 


Borrower relied on an unpublished case, Wells Fargo Bank, N.A. v. Erobobo, 2013 WL 1831799 (N.Y. Sup. Ct. 2013) which ruled that contravention of a trust’s PSA rendered a mortgage assignment void.  However, the Borrower had made no mention of the applicability of New York state law in the lower court and therefore the First Circuit determined that Borrower waived this unseasonably late argument. 


Moreover, the First Circuit held that Massachusetts law is clear that claims alleging disregard of a trust’s PSA are considered voidable, not void.  Because Borrower only presented facts to show the assignment may be voidable under Massachusetts law, the Court held that he lacks standing to challenge Trustee’s possession of the mortgage on this ground.


Similarly, Borrower’s argument that Trustee admittedly lacked possession of the note at the time of foreclosure also failed to state a claim.  Borrower relied on Eaton v. Fed. Nat’l Mortg. Ass’n, 462 Mass. 569 (2012), which established that a party must possess both the mortgage and underlying note to foreclose on real property in Massachusetts.  However, Eaton does not allow for retroactive effect other than for individuals with cases on appeal at the same time as Eaton.  See e.g., Galiastro v. Mortg. Elec. Reg. Sys., Inc., 467 Mass. 160 (2014).  The Court held that, because the Notice of Foreclosure was provided to Borrower years before Eaton, the Borrower could not rely on Eaton to challenge the foreclosure here.


Finally, the First Circuit turned to the argument that there was a judicial admission as to the invalidity of the first foreclosure because Trustee stated that the “the [first] foreclosure sale may have been void because [Borrower] may not have received the fourteen (14) days’ notice of sale required.”  In rejecting the argument, the Court explained that a judicial admission must be clear.  A statement that a foreclosure sale “may” be void cannot be treated as an unambiguous admission of the validity of the sale.


Accordingly, the First Circuit affirmed the judgment of dismissal.






Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
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