Saturday, May 3, 2014

FYI: MA App Ct Reverses Dismissal Of Borrower's Challenge to Authority of Person Signing One Assignment of Mortg in Chain of Assignments

The Massachusetts Appellate Court recently reversed the dismissal of a borrower’s complaint alleging that a foreclosing mortgagee lacked authority to foreclose because one of the assignments of mortgage failed to state the signatory’s capacity to execute the assignment for the assigning entity.  A copy of the opinion is attached.

 

On January 11, 2006, the borrowers (“Borrowers”) executed a mortgage conveying the property to MERS as nominee for Lender A and Lender A’s successors and assigns, to secure payment of a promissory note in favor of Lender A.  The mortgage was duly filed for registration with the registry district of the Land Court. 

 

By instrument dated May 21, 2008 (“First Assignment”), MERS assigned the mortgage to Lender B.  Thereafter, by instrument dated February 12, 2009 (“Second Assignment”), Lender B assigned the mortgage to Lender C.  Both assignments were duly filed for registration with the registry district of the Land Court.

 

On October 15, 2009, Lender C foreclosed on the property and thereafter executed, and filed for registration, a foreclosure deed purporting to convey the property to itself.  Lender C then commenced a summary process in the district court, which action concluded with the entry of an agreement for judgment between the parties, in which the Borrowers agreed to surrender possession of the property to Lender C but reserved their right to challenge Lender C’s title to the property.

 

By complaint dated March 9, 2010, after commencement but before conclusion of Lender C’s summary process action, the Borrowers filed suit seeking declaratory and injunctive relief based on the allegation that Lender C did not hold a valid interest in the mortgage at the time of foreclosure.  The lower court granted Lender C’s motion to dismiss, and this appeal followed.

 

The Appellate Court first considered Lender C’s argument that the Borrowers lacked standing to sue.  In rejecting the argument, the Court held that even though the Borrowers were not party to the assignments, their claim against Lender C is based on its authority to foreclose derived from the assignments.  Therefore, the Appellate Court held that Borrowers may challenge the validity of the assignments by which Lender C claims to have acquired the mortgage.

 

The Appellate Court also rejected Lender C’s argument that the Borrowers may not bring an untimely challenge to Lender C’s title because the certificate of title was issued prior to the lawsuit. 

 

Under Massachusetts law, “any person deprived of land, or of any estate or interest therein” may challenge a judgment of registration obtained by fraud within one year after entry of judgment, provided that no innocent purchaser for value has acquired an interest during the intervening time.  See G.L. c. 185, § 45.  Following the original judgment of registration, “any subsequent registration procured by the presentation of a forged deed or other instrument shall be null and void.”  G.L. c. 185, § 62.  Furthermore, any “registered owner or other person in interest” may bring a motion to correct a certificate of title upon various grounds, including “that any error or omission was made in entering a certificate or any memorandum thereon,” provided that “nothing shall be done or ordered by the court which shall impair the title or other interest of a purchaser holding a certificate for value and in good faith.”  G.L. c. 185, § 114. 

 

Stated simply, Lender C was required to establish its title to the mortgage as the foreclosing mortgagee.  Therefore, the Court held that Lender C may be subject to a challenge as to its certificate of title based on a break in the chain of mortgage assignments.

 

The Appellate Court then considered the Borrowers’ argument that MERS lacked the authority to assign the mortgage unless it provided that it was authorized by the owner of the debt. 

 

In rejecting the argument, the Court explained that nothing in Massachusetts law requires a foreclosing mortgagee to demonstrate that prior holders of the record legal interest in the mortgage held the note at the time each assigned its interest in the mortgage.  All that is required from a foreclosing mortgagee is to demonstrate an unbroken chain of assignments, and that it held the note at the time the foreclosure was commenced.

 

Finally, the Court turned to the Borrowers’ argument that the Second Assignment was deficient because it did not demonstrate the authority of the individual who executed it on behalf of Lender B.  The Second Assignment identified the name of the signatory beneath Lender B’s corporate name, but there was no designation of the signatory’s office or other capacity next to her signature.

 

As you may recall, in Massachusetts, an instrument transferring interest in land held by a business corporation and executed by an individual officer will bind the corporation under Massachusetts law only if the officer is authorized or directed by the board of directors to do so.  See G.L. c. 156D, § 8.41.  Recordation of such an instrument in turn requires evidence of the authorizing vote and incumbency of the officer, typically in the form of a certificate by the secretary or clerk of the corporation.  However, in the case of instruments affecting a recorded mortgage, the formal requirements are markedly more relaxed.

 

Pursuant to G.L. c. 183, § 54B, such instruments shall bind the entity assigning or discharging the mortgage if “executed before a notary public, justice of the peace or other officer entitled by law to acknowledge instruments, whether executed within or without the commonwealth, by a person purporting to hold the position of president, vice president, treasurer, clerk, secretary, cashier, loan representative, principal, investment, mortgage or other officer, agent, asset manager, or other similar office or position, including assistant to any such officer or position, of the entity holding such mortgage,” without need of any vote affirming such authority or further evidence of their status as such an officer.  See G.L. c. 183, § 54B.

 

Even under these relaxed requirements, however, the Appellate Court held that the Second Assignment fell short.  According to the Court, the absence of any indication that the signatory is or was an officer of Lender B failed to satisfy the very broad latitude afforded by § 54B.  As the Court explained, “nowhere on the face of the instrument is there any indication or evidence that [the signatory] was, or in any manner purported to be, an officer or other authorized agent of [Lender B].” 

 

Accordingly, the Appellate Court reversed the judgment of dismissal and remanded for further proceedings. 

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:
(312) 551-9320
Fax:
(312) 284-4751
Mobile:
(312) 493-0874
Email:
RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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Friday, May 2, 2014

FYI: 1st Cir Rejects Assignee Liability Allegations by Borrower, Reiterates Prior Holding That MERS Could Assign Mortgage

The U.S. Court of Appeals for the First Circuit recently rejected arguments that:  (1) MERS lacked authority to assign interest in a mortgage; and  (2) subsequent mortgage assignees may be liable for allegedly predatory loan terms crafted by the original lender.

 

A copy of the opinion is available at: http://media.ca1.uscourts.gov/pdf.opinions/13-1557P-01A.pdf

 

On May 2, 2007, Borrower refinanced his home with a $276,250 promissory note provided by a MERS member lender (“original lender”).  The loan was secured by a mortgage that identified MERS as the mortgagee and nominee.  In October 2010, Borrower sent a letter to the loan servicer seeking to rescind the loan under the Massachusetts Consumer Credit Cost Disclosure Act (“MCCCDA”).  Borrower argued that a $244.48 credit reporting fee he paid far exceeded the accepted $50.00 market rate, amounting to a statutory violation sufficient for recession.

 

Borrower defaulted on the loan and the property was sold at foreclosure.  Borrower filed suit in state court, alleging wrongful foreclosure by a party without legal interest in his mortgage and unfair business practices against an earlier mortgage holder that unsuccessfully tried to foreclose.  All of the Borrower’s claims are predicated on the theory that MERS lacked the authority transfer his mortgage.  The case was removed to federal court and the Borrower’s claims were dismissed by summary judgment.

 

On appeal, Borrower argued that MERS possessed a bare legal interest in his mortgage and lacked authority to transfer the mortgage, thereby according to Borrower rendering both the initial and all subsequent assignments of mortgage invalid.  The Court rejected this argument because it willfully disregarded the holding in Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282 (1st Cir. 2013), where the First Circuit ruled unequivocally that MERS may possess and assign a legal interest in a mortgage.  Culhane, 708 F.3d at 292-93.  Therefore, the Court held that Borrower’s claims for wrongful foreclosure and unfair and deceptive business under Mass. Gen. Law. Chapter 93A were properly dismissed by the district court.

 

Borrower next argued that the investor and current servicer were liable for unfair loan terms and predatory lending practices allegedly engaged in by the original lender.  Specifically, the Borrower claimed that the credit reporting fee he paid at loan origination amounted to a statutory violation.  See Mass. Gen Laws ch. 93A, § 2; Id. ch. 183, § 28C (the “Borrower’s Interest Act”).  The Borrower relied on Drakopoulos v. U.S. Bank Nat’l Ass’n, 465 Mass. 775, 991 N.E.2d 1086 (2013), which recognized that the Massachusetts Predatory Home Loan Practices Act (“MPHLPA”), Mass. Gen. Laws. Ch. 183c, expanded the common law of assignee liability in the limited instance of certain “high cost” loans.  See Drakopoulos, 991 N.E.2d at 1092.

 

The First Circuit rejected Borrower’s argument because his complaint alleged no violation of the MPHLPA, and thus could not take advantage of the MPHLPA’s broad grant of assignee liability.  Moreover, neither Chapter 93A nor the Borrower’s Interest Act allegations served as an independent ground for extending liability to his claims.  Therefore, the Court held, Borrower could not hold the investor and servicer responsible for the allegedly predatory practices of their predecessor-in-interest without such statutorily created liability. 

 

The First Circuit also rejected Borrower’s claim for rescission based on an alleged violation of MCCCDA § 10(i)(2), which allows that the under-reporting of a finance charge by more than $35.00 may amount to a statutory violation.  The Court held that, even if Borrower demonstrated that $50.00 for a credit report is the accepted market rate, which he failed to do, the right to rescission is cut off by a foreclosure sale as a matter of law.  The Court noted that, although damages may be available for the failure of a mortgage holder to duly undertake consideration of a rescission request, the Borrower’s purported basis for recession was without merit and he failed to establish any basis for damages.  In the Court’s own words, Borrower “failed to sufficiently plead any valid basis to rescind his mortgage loan at any time” and thus presented no genuine issue of material fact.

 

Accordingly, the Court affirmed the district court’s granting of summary judgment dismissing Borrower’s claims.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:
(312) 551-9320
Fax:
(312) 284-4751
Mobile:
(312) 493-0874
Email:
RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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Tuesday, April 29, 2014

FYI: VA Sup Ct Allows Claim for Damages Against Lender and Substitute Trustee for Lack of Face-to-Face Meeting as to FHA Mortgage Loan

The Supreme Court of Virginia recently reversed the dismissal of a borrower’s claims for damages under her FHA deed of trust for a failure to hold a face-to-face meeting prior to foreclosure.  Because the deed of trust incorporated federal HUD regulations, including 24 C.F.R. § 203.604(b), the Court held that the lender was required to make reasonable efforts to arrange a face-to-face meeting with the borrower as a condition precedent to foreclosure. 

 

As the complaint alleged that lender failed to do so, the Court determined that the borrower sufficiently stated a breach of contract claim against the lender, as well as a breach of fiduciary duty claim against the substitute trustee who conducted the foreclosure sale.

 

A copy of the opinion is available at: http://www.courts.state.va.us/opinions/opnscvwp/1130494.pdf

 

After a borrower (“Borrower”) defaulted on her mortgage loan, and after a six-month forbearance period, the loan owner (“Lender”) informed her that it would be foreclosing on her home (“Property”).  Following an intervening bankruptcy petition, which was soon dismissed, Borrower made several monthly payments but failed to bring the loan current.  Ultimately, in May 2011, Lender again informed her that her loan was “in foreclosure.”

 

Six months later, the Substitute Trustee sold the Property at foreclosure sale to an independent third-party (Purchaser).  Days prior to the sale, Borrower had informed an agent of the Purchaser that the Property was “in litigation.”  Although the city had assessed the Property at $223,000 for tax purposes, the property sold for $115,200.

 

Following the sale, Borrower sued her Lender, Substitute Trustee, and Purchaser, claiming that the deed of trust incorporated certain HUD regulations, including 24 C.F.R. § 203.604(b), relating to acceleration and foreclosure.  Borrower claimed that, under those regulations, the foreclosure could not proceed until (a) she was three months in arrears, and (b) the Lender had made reasonable efforts to arrange a face-to-face meeting with her.

 

Borrower sought monetary damages for breach of contract and breach of fiduciary duty against the Lender and Substitute Trustee respectively.  Borrower also sought to rescind the foreclosure due to the alleged insufficiency of price compared to the Property’s assessed value, and sought to quiet title in her favor.  In response, Defendants filed demurrers challenging the sufficiency of the complaint, which the trial court sustained.  The action was dismissed and the present appeal followed.

 

As you may recall, the Department of Housing and Urban Development (HUD) requires that, for FHA mortgage loans, absent certain exceptions not relevant here, “[t]he mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid.”  24 C.F.R. § 203.604(b).  Further, HUD requires that the mortgagee ensure that all servicing requirements – including the face-to-face interview – have been met “[b]efore initiating foreclosure.”  24 C.F.R. § 203.606(a). 

 

Just as in Mathews v. PHH Mortgage Corp., 283 Va. 723, 724 S.E.2d 196 (2012), Borrower’s deed of trust “incorporated certain [HUD] regulations… and mandated that foreclosure was not permitted where it violated such HUD regulations.”  Slip op. at 9.  In Mathews, the Court determined that a trustee’s power to foreclose “does not accrue until its conditions precedent have been fulfilled.  The fact that a borrower is in arrears does not allow the trustee to circumvent the conditions precedent.”  Mathews, 283 Va. at 731, 724 S.E.2d at 199. 

 

In the present case, the Court first noted that the pleadings established that Borrower was more than three months in arrears on her mortgage.  Also, as to Borrower’s claim that Lender breached their forbearance agreement, the Court upheld the trial court’s finding that Borrower did not allege that she tendered a lump sum for all amounts owed.  Thus, these allegations were not sufficient to establish a claim.

 

However, the Virginia Supreme Court reversed the dismissal of the breach of contract claim, holding that the deed of trust “required [Lender] to have or make reasonable efforts to arrange a face-to-face meeting with [Borrower] as a condition precedent to foreclosure.”  Borrower plead that Lender “did neither.”

 

The Court also reversed the dismissal of the breach of fiduciary duty claim, observing that the Borrower sufficiently plead that the Substitute Trustee breached its fiduciary duty by “holding a foreclosure sale before the requirement was fulfilled.”

 

The Court affirmed the dismissal of Borrower’s related rescission claims, as insufficiently plead.  Observing that Borrower is attempting to set aside a completed foreclosure sale to an independent third party, the Court held that “[a]bsent evidence of fraud, a sale will not be set aside for an inadequate price.”  Musgrove v. Glasgow, 212 Va. 852, 854, 188 S.E.2d 94, 96 (1972).  Further, the Court rejected Borrower’s argument that the Purchaser was not a bona fide purchaser because it was on notice that she disputed the sale.  Borrower’s pre-sale conversation with the Purchaser was “simply not enough to negate [his] status as a bona fide good faith purchaser.”

 

Additionally, the Court upheld the dismissal of Borrower’s quiet title claim.  “[T]o survive demurrer in the foreclosure context, the former homeowner must plead that she fully satisfied all legal obligations to the real party in interest.”  See Tapia v. U.S. Bank, N.A., 718 F.Supp.2d 689, 700 (E.D. Va. 2010), aff’d 441 Fed. Appx. 166 (4th Cir. 2011).  Here, Borrower’s allegations reveal that she has not satisfied all legal obligations to Lender.

 

Accordingly, the Court affirmed in part, and reversed in part, the trial court’s sustaining of Defendants’ demurrers, and remanded for further proceedings.

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:
(312) 551-9320
Fax:
(312) 284-4751
Mobile:
(312) 493-0874
Email:
RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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