Monday, October 29, 2012

FYI: 10th Cir Sanctions BK Trustee's Counsel In Unsuccessful Challenge to Foreclosure Standing

The U.S. Court of Appeals for the Tenth Circuit recently sanctioned an attorney for arguing that a note holder's loan servicer lacked standing to foreclose under a deed of trust that named MERS as beneficiary as the lender's nominee, where the attorney unsuccessfully asserted identical arguments in four prior cases in which he participated and ignored appellate decisions rejecting his "split-note" arguments.
A copy of the opinion is available at:
A borrower ("Borrower") obtained a home mortgage loan (the "First Mortgage") from a mortgage lender ("Lender") that was secured by a deed of trust against Borrower's property in Utah.  The trust deed designated Mortgage Electronic Registration Systems, Inc. ("MERS") as the beneficiary of the trust deed as nominee for Lender and Lender's successors and assigns.  The First Mortgage was later securitized and sold on the secondary mortgage market, and MERS ultimately assigned its interest in the trust deed to the loan owner's loan servicer ("Servicer").
Borrower also had obtained a second mortgage from a bank ("Second Mortgage Lender") that was junior to the First Mortgage and secured by a deed of trust against the same property.  Second Mortgage Lender never transferred or sold the second mortgage note or deed of trust.     
Borrower subsequently defaulted on the First Mortgage, and Servicer commenced a foreclosure action against Borrower.  In an attempt to thwart the foreclosure, Borrower filed suit against both the Second Mortgage Lender and Servicer, asserting in part that they each lacked any enforceable interests in their respective trust deeds because the  "investors were not assigned the trust deeds and 'the obligations of the Notes  . . . have become unsecured."  Among other things, Borrower also alleged that he was unable to discharge his obligations on the notes because both Servicer and Second Mortgage Lender had failed to provide him with information about the interests of "persons to whom the Notes and/or Trust Deeds may be assigned."
The district court granted summary judgment in favor of Servicer and Second Mortgage Lender.  Borrower appealed, but filed for bankruptcy protection during the pendency of the appeal.  Consequently, a bankruptcy trustee ("Trustee") was substituted as appellant. 
On appeal, Trustee's attorney asserted that Servicer and Second Mortgage Lender lacked standing to foreclose, arguments which the Tenth Circuit and the Utah Court of Appeals had rejected in cases in which the attorney himself had participated.  Servicer moved for sanctions against Trustee's attorney under 28 U.S.C. § 1927 for unreasonably prolonging the foreclosure proceedings.
The Tenth Circuit affirmed the grant of summary judgment in favor of Servicer and Second Mortgage Lender, and imposed sanctions on Trustee's attorney, as Servicer had requested.
Noting, first, that Second Mortgage Lender never transferred the note or deed of trust related to the second mortgage, the court ruled that, since Trustee never provided any explanation as to why summary judgment was improper in this case, Trustee had waived any arguments of error as to Second Mortgage Lender.   
Next, pointing out that Trustee's attorney repeatedly raised the identical standing arguments in other foreclosure cases and lost, the court noted that, like the trust deeds in those cases, the deed of trust in this case expressly named MERS as the beneficiary of the trust deed as nominee for Lender and Lender's successors and assigns.  Thus, as in the previous cases, the Court ruled that the trust deed granted Servicer the right to foreclose, that Servicer therefore had standing to foreclose, and that the transfer and securitization of the note did not deprive Servicer of its authority to do so.  See, e.g., Commonwealth Prop. Advocates, LLC v. Mortg. Elec. Registration Sys., Inc., 680 F.3d 1194, 1202 (10th Cir. 2011).
Turning to Servicer's motion for sanctions against Trustee's attorney, the Court noted that Trustee's attorney had made the same arguments in four prior appeals involving identical issues and claims and that he ignored Tenth Circuit and Utah Court of Appeals' decisions rejecting his arguments.   See, e.g., Scarborough v. LaSalle Bank, N.A., 460 F. App'x 743 (10th Cir. 2012); Commonwealth Prop. Advocates v. U.S. Bank, N.A., 459 F. App'x 770 (10th Cir. 2012).
Expressing annoyance with Trustee's attorney, the court awarded sanctions against him, stating "[w]e . . . cannot find a single, cogent argument to justify his pursuit of this appeal in the face of our previous decisions, particularly in light of the fact that he represented the appellants in those cases."  
Accordingly, the Court affirmed summary judgment and remanded for a determination of the amount of costs, expenses and attorneys' fees incurred by Servicer to be paid by Trustee's attorney.

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
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