MARLA LYNN SWANSON, Plaintiff, vs. EMC MORTGAGE CORPORATION, et al.,

Posted on December 12, 2009. Filed under: Case Law, Foreclosure Defense, Mortgage Law, Predatory Lending | Tags: , , , , |

MARLA LYNN SWANSON, Plaintiff, vs. EMC MORTGAGE CORPORATION, et al., Defendants.

CASE NO. CV F 09-1507 LJO DLB

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

October 29, 2009, Decided

October 29, 2009, Filed


COUNSEL: For Marla Lynn Swanson, Plaintiff: Sharon L. Lapin, LEAD ATTORNEY, Attorney At Law, San Rafael, CA.

For EMC Mortgage Corporation, Mortgage Electronic Registration System, Inc., Defendants: S. Christopher Yoo, LEAD ATTORNEY, Adorno Yoss Alvarado and Smith, Santa Ana, CA.

For Robert E. Weiss INC, Defendant: Cris A Klingerman, LEAD ATTORNEY, Robert E. Weiss, Inc., Covina, CA.

For Brokerleon Inc. DBA: A-ONE Home Loans, Leon Turner Jr., Shantae Michelle Curran, Defendants: SUSAN L. MOORE, LEAD ATTORNEY, Pascuzzi, Moore & Stoker, Attorneys At Law, Apc, Fresno, CA.

JUDGES: Lawrence J. O’Neill, UNITED STATES DISTRICT JUDGE.

OPINION BY: Lawrence J. O’Neill

OPINION

ORDER ON DEFENDANTS’ F.R.Civ.P. 12 MOTION TO DISMISS

(Doc. 17.)

INTRODUCTION

Defendants EMC Mortgage Corporation (“EMC”) and Mortgage Electronic Registration Systems, Inc. (“MERS”) seek to dismiss as meritless and insufficiently plead plaintiff Marla Lynn Swanson’s (“Ms. Swanson’s”) claims arising from a loan, default and mortgage on Ms. Swanson’s Sanger residence (“property”). Ms. Swanson filed no papers to oppose dismissal of her claims against EMC and MERS. This Court considered EMC and MERS’ F.R.Civ.P. 12(b)(6) motion to dismiss on the record and VACATES the November  [*2] 10, 2009 hearing, pursuant to Local Rule 78-230(h). For the reasons discussed below, this Court DISMISSES this action against EMC and MERS.

BACKGROUND

Ms. Swanson’s Loan And Default

Ms. Swanson obtained a $ 308,000 loan from defendant Community Lending, Inc. (“Community Lending”) and which was secured by a deed of trust (“DOT”) encumbering the property and recorded on July 14, 2006. 1 The DOT identifies Ms. Swanson as borrower, Community Lending as lender, Stewart Title of California as Trustee, and MERS as beneficiary.

1   All documents pertaining to Ms. Swanson’s loan and default were recorded with the Fresno County Recorder.

Defendant Robert E. Weiss, Inc. (“Weiss”) was substituted as DOT trustee by a substitution of trustee recorded on February 24, 2009.

A Notice of Default and Election to Sell under Deed of Trust was recorded on February 24, 2009 and indicates that Ms. Swanson was $ 9,804.68 in arrears on her loan as of February 23, 2009.

A second Notice of Default and Election to Sell under Deed of Trust was recorded on March 5, 2009 and indicates that Ms. Swanson was $ 11,984.68 in arrears on her loan as of March 4, 2009.

Ms. Swanson’s Claims

On August 25, 2009, Ms. Swanson filed her complaint  [*3] (“complaint”) to allege federal and California statutory and common law claims. 2 The complaint appears to challenge EMC and/or MERS’ standing to initiate non-judicial foreclosure of the property. The complaint alleges on information and belief “that no legal transfer of the Mortgage Note, Deed of Trust or any other interest in Plaintiff’s Property was effected that gave any of the Defendants the right to be named a trustee, mortgagee, beneficiary or an authorized agent of trustee, mortgagee or beneficiary of Plaintiff’s Mortgage Note, Deed of Trust or any other interest in Plaintiff’s Property.” The complaint further alleges that “Defendants . . . are not the real parties in interest because they are not the legal trustee, mortgagee or beneficiary, nor are they authorized agents of the trustee, mortgagee or beneficiary, nor are they in possession of the Note, or holders of the Note, or non-holders of the Note entitled to payment . . . . Therefore, Defendants instituted foreclosure proceedings against Plaintiff’s Property without rights under the law.”

2   The complaint pursues claims against Ms. Swanson’s mortgage brokers. Such claims are not subject to EMC and MERS’ motion to dismiss.

The  [*4] complaint alleges six claims against EMS and/or MERS which this Court will address below and seeks an injunction against foreclosure, general, statutory and punitive damages, and attorney fees.

DISCUSSION

F.R.Civ.P. 12(b)(6) Standards

EMC and MERS attack the claims against them as meritless, barred by law and lacking supporting facts. EMC and MERS characterize the allegations against them as “conclusory and boilerplate.”

“A trial court may dismiss a claim sua sponte under Fed.R.Civ.P. 12(b)(6). . . . Such dismissal may be made without notice where the claimant cannot possibly win relief.” Omar v. Sea-Land Service, Inc., 813 F.2d 986, 991 (9th Cir. 1987); see Wong v. Bell, 642 F.2d 359, 361-362 (9th Cir. 1981). Sua sponte dismissal may be made before process is served on defendants. Neitzke v. Williams, 490 U.S. 319, 324, 109 S. Ct. 1827, 104 L. Ed. 2d 338 (1989) (dismissals under 28 U.S.C. § 1915(d) are often made sua sponte); Franklin v. Murphy, 745 F.2d 1221, 1226 (9th Cir. 1984) (court may dismiss frivolous in forma pauperis action sua sponte prior to service of process on defendants).

A F.R.Civ.P. 12(b)(6) motion to dismiss is a challenge to the sufficiency of the pleadings set forth in the complaint. “When a federal  [*5] court reviews the sufficiency of a complaint, before the reception of any evidence either by affidavit or admissions, its task is necessarily a limited one. The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974); Gilligan v. Jamco Development Corp., 108 F.3d 246, 249 (9th Cir. 1997). A F.R.Civ.P. 12(b)(6) dismissal is proper where there is either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990); Graehling v. Village of Lombard, Ill., 58 F.3d 295, 297 (7th Cir. 1995).

In resolving a F.R.Civ.P. 12(b)(6) motion, the court must: (1) construe the complaint in the light most favorable to the plaintiff; (2) accept all well-pleaded factual allegations as true; and (3) determine whether plaintiff can prove any set of facts to support a claim that would merit relief. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-338 (9th Cir. 1996). Nonetheless, a court is “free to ignore legal conclusions, unsupported conclusions,  [*6] unwarranted inferences and sweeping legal conclusions cast in the form of factual allegations.” Farm Credit Services v. American State Bank, 339 F.3d 764, 767 (8th Cir. 2003) (citation omitted). A court need not permit an attempt to amend a complaint if “it determines that the pleading could not possibly be cured by allegation of other facts.” Cook, Perkiss and Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964-65, 167 L. Ed. 2d 929 (2007) (internal citations omitted). Moreover, a court “will dismiss any claim that, even when construed in the light most favorable to plaintiff, fails to plead sufficiently all required elements of a cause of action.” Student Loan Marketing Ass’n v. Hanes, 181 F.R.D. 629, 634 (S.D. Cal. 1998). In practice, “a complaint . . . must contain either direct or inferential allegations  [*7] respecting all the material elements necessary to sustain recovery under some viable legal theory.” Twombly, 550 U.S. at 562, 127 S.Ct. at 1969 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)).

In Ashcroft v. Iqbal,     U.S.    , 129 S.Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009), the U.S. Supreme Court recently explained:

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” . . . A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

. . . Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. (Citation omitted.)

For a F.R.Civ.P. 12(b)(6) motion, a court generally cannot consider material outside the complaint. Van Winkle v. Allstate Ins. Co., 290 F.Supp.2d 1158, 1162, n. 2 (C.D. Cal. 2003). Nonetheless, a court may consider exhibits submitted with the complaint. Van Winkle, 290 F.Supp.2d at 1162, n. 2. In addition, a “court may consider evidence on which the complaint ‘necessarily  [*8] relies’ if: (1) the complaint refers to the document; (2) the document is central to the plaintiff’s claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion.” Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). A court may treat such a document as “part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6).” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir.2003). Such consideration prevents “plaintiffs from surviving a Rule 12(b)(6) motion by deliberately omitting reference to documents upon which their claims are based.” Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998). 3 A “court may disregard allegations in the complaint if contradicted by facts established by exhibits attached to the complaint.” Sumner Peck Ranch v. Bureau of Reclamation, 823 F.Supp. 715, 720 (E.D. Cal. 1993) (citing Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir.1987)). Moreover, “judicial notice may be taken of a fact to show that a complaint does not state a cause of action.” Sears, Roebuck & Co. v. Metropolitan Engravers, Ltd., 245 F.2d 67, 70 (9th Cir. 1956); see Estate of Blue v. County of Los Angeles, 120 F.3d 982, 984 (9th Cir. 1997).  [*9] A court properly may take judicial notice of matters of public record outside the pleadings'” and consider them for purposes of the motion to dismiss. Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988) (citation omitted). As such, this Court may consider plaintiffs’ pertinent loan and foreclosure documents.

3   “We have extended the ‘incorporation by reference’ doctrine to situations in which the plaintiff’s claim depends on the contents of a document, the defendant attaches the document to its motion to dismiss, and the parties do not dispute the authenticity of the document, even though the plaintiff does not explicitly allege the contents of that document in the complaint.” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (citing Parrino, 146 F.3d at 706).

Rosenthal Fair Debt Collections Practices Act

The complaint’s second claim attempts to allege EMC’s violation of California’s Rosenthal Fair Debtor Collection Practices Act (“RFDCPA”), Cal. Civ. Code, §§ 1788, et seq. The claim alleges that “Defendants are debt collectors within the meaning of the Rosenthal Act in that they regularly, in the course of their business, on behalf of themselves or others, engage in the  [*10] collection of debt.”

EMC and MERS challenge the claim in that the complaint “does not properly allege that EMC is a debt collector within the meaning of the RFDCPA.”

The RFDCPA’s purpose is “to prohibit debt collectors from engaging in unfair or deceptive practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts.” Cal. Civ. Code, § 1788.1(b). The RFDCPA defines “debt collector” as “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.” Cal. Civ. Code, § 1788.2(c).

EMC and MERS argue that the RFDCPA does not prevent a creditor to enforce its security interest under a deed of trust because foreclosing on property does not support a claim under the federal Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692, et seq. EMC and MERS note that as a loan servicer, EMC is an authorized agent of the DOT beneficiary to enforce the beneficiary’s security interest under the DOT.

EMC and MERS further fault the RFDCPA claim’s failure to allege facts to support EMC’s RFDCPA violation in that the claim conclusively alleges that “Defendants” “threatened  [*11] to take actions not permitted by law, including . . . collecting on a debt not owed to the Defendants, making false reports to credit reporting agencies, foreclosing upon a void security interest, foreclosing upon a Note of which they were not in possession nor otherwise entitled to payment, falsely stating the amount of a debt, increasing the amount of a debt by including amounts that are not permitted by law or contract, and using unfair and unconscionable means in an attempt to collect a debt.”

EMC and MERS cite to no conclusive authority that non-judicial foreclosure is not debt collection under the RFDCPA. However, “foreclosing on the property pursuant to a deed of trust is not the collection of a debt within the meaning of the FDCPA.” Hulse v. Ocwen Federal Bank, FSB, 195 F.Supp.2d 1188, 1204 (D. Or. 2002). As the fellow district court in Hulse, 195 F.Supp.2d at 1204, explained:

Foreclosing on a trust deed is distinct from the collection of the obligation to pay money. The FDCPA is intended to curtail objectionable acts occurring in the process of collecting funds from a debtor. But, foreclosing on a trust deed is an entirely different path. Payment of funds is not the object of  [*12] the foreclosure action. Rather, the lender is foreclosing its interest in the property.

. . . Foreclosure by the trustee is not the enforcement of the obligation because it is not an attempt to collect funds from the debtor.

Logic suggests that non-judicial foreclosure is not a debt collector’s act under California Civil Code section 1788.2(c). Like the FDCPA, the RFDCPA seeks to prohibit debt collection abuses. A foreclosure action does not address payment of funds. The complaint is void of facts that EMC sought to enforce Ms. Swanson’s obligation by collecting funds from her. The RFDCPA claim’s recitation of alleged wrongs fails to substantiate RFDCPA wrongdoing to warrant the claim’s dismissal against EMC and MERS.

Negligence

The complaint’s (third) negligence claim alleges that EMC and MERS “owed a duty to Plaintiff to perform acts in such a manner as to not cause Plaintiff harm.” The claim alleges “Defendants breached their duty of care to the Plaintiff when they failed to maintain the original Mortgage Note, failed to properly create original documents, failed to make the required disclosures to the Plaintiff and instituted foreclosure proceedings wrongfully.” The claim further alleges  [*13] that EMC and MERS “breached their duty of care to the Plaintiff when they took payments to which they were not entitled, charged fees they were not entitled to charge, and made or otherwise authorized negative reporting of Plaintiff’s creditworthiness to various credit bureaus wrongfully.”

EMC and MERS characterize the claim’s duty “theory” as a “common law duty of care.” EMC and MERS fault the claim’s “conclusory allegations” lacking details as to how EMC and MERS breached such a duty. EMC and MERS note their absence of a lender-borrower relationship with Ms. Swanson and an independent duty “to perform acts in such a manner as to not cause Plaintiff harm.”

“The elements of a cause of action for negligence are (1) a legal duty to use reasonable care, (2) breach of that duty, and (3) proximate [or legal] cause between the breach and (4) the plaintiff’s injury.” Mendoza v. City of Los Angeles, 66 Cal.App.4th 1333, 1339, 78 Cal.Rptr.2d 525 (1998) (citation omitted). “The existence of a duty of care owed by a defendant to a plaintiff is a prerequisite to establishing a claim for negligence.” Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal.App.3d 1089, 1095, 283 Cal.Rptr. 53 (1991). “The  [*14] existence of a legal duty to use reasonable care in a particular factual situation is a question of law for the court to decide.” Vasquez v. Residential Investments, Inc., 118 Cal.App.4th 269, 278, 12 Cal.Rptr.3d 846 (2004) (citation omitted).

“The ‘legal duty’ of care may be of two general types: (a) the duty of a person to use ordinary care in activities from which harm might reasonably be anticipated [, or] (b) [a]n affirmative duty where the person occupies a particular relationship to others. . . . In the first situation, he is not liable unless he is actively careless; in the second, he may be liable for failure to act affirmatively to prevent harm.” McGettigan v. Bay Area Rapid Transit Dist., 57 Cal.App.4th 1011, 1016-1017, 67 Cal.Rptr.2d 516 (1997).

EMC and MERS correctly note the absence of an actionable duty between a lender and borrower in that loan transactions are arms-length and do not invoke fiduciary duties. Absent “special circumstances” a loan transaction “is at arms-length and there is no fiduciary relationship between the borrower and lender.” Oaks Management Corp. v. Superior Court, 145 Cal.App.4th 453, 466, 51 Cal.Rptr.3d 561 (2006); see Downey v. Humphreys, 102 Cal. App. 2d 323, 332, 227 P.2d 484 (1951) [*15] (“A debt is not a trust and there is not a fiduciary relation between debtor and creditor as such.”) Moreover, a lender “owes no duty of care to the [borrowers] in approving their loan. Liability to a borrower for negligence arises only when the lender ‘actively participates’ in the financed enterprise ‘beyond the domain of the usual money lender.'” Wagner v. Benson, 101 Cal.App.3d 27, 35, 161 Cal.Rptr. 516 (1980) (citing several cases). “[A]s a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.” Nymark, 231 Cal.App.3d at 1096, 283 Cal.Rptr. 53.

Public policy does not impose upon the Bank absolute liability for the hardships which may befall the [borrower] it finances.” Wagner, 101 Cal.App.3d at 34, 161 Cal.Rptr. 516. The success of a borrower’s investment “is not a benefit of the loan agreement which the Bank is under a duty to protect.” Wagner, 101 Cal.App.3d at 34, 161 Cal.Rptr. 516 (lender lacked duty to disclose “any information it may have had”).

The complaint alleges no facts of EMC and MERS’ cognizable duty to Ms. Swanson  [*16] to support a negligence claim. “No such duty exists” for a lender “to determine the borrower’s ability to repay the loan. . . . The lender’s efforts to determine the creditworthiness and ability to repay by a borrower are for the lender’s protection, not the borrower’s.” Renteria v. United States, 452 F. Supp. 2d 910, 922-923 (D. Ariz. 2006) (borrowers “had to rely on their own judgment and risk assessment to determine whether or not to accept the loan”). Ms. Swanson’s purported claims arise from her failure to pay her loan and subsequent initiation of foreclosure of the property. The complaint further lacks facts of special circumstances to impose duties on EMC and MERS in that the complaint depicts an arms-length home loan transaction, nothing more. The complaint fails to substantiate a special lending relationship with EMC and MERS or an actionable breach of duty to warrant dismissal of the negligence claim.

Real Estate Settlement Procedures Act

The complaint alleges that on June 10, 2009, a Qualified Written Request (“QWR”) under the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601, et seq., was mailed to EMC and included a demand to rescind the loan under the Truth  [*17] in Lending Act (“TILA”), 15 U.S.C. §§ 1601, et seq. The complaint further alleges that “EMC has yet to properly respond to this Request.” The complaint’s fourth claim alleges that “EMC violated RESPA, 12 U.S.C. § 2605(e)(3), 4 by failing and refusing to provide a proper written explanation or response to Plaintiff’s QWR.”

4 12 U.S.C. § 2605(e)(2) addresses response to a QWR and provides:

Not later than 60 days (excluding legal public holidays, Saturdays, and Sundays) after the receipt from any borrower of any qualified written request under paragraph (1) and, if applicable, before taking any action with respect to the inquiry of the borrower, the servicer shall–

(A) make appropriate corrections in the account of the borrower, including the crediting of any late charges or penalties, and transmit to the borrower a written notification of such correction (which shall include the name and telephone number of a representative of the servicer who can provide assistance to the borrower);

(B) after conducting an investigation, provide the borrower with a written explanation or clarification that includes–

(i) to the extent applicable, a statement of the reasons for which the servicer believes  [*18] the account of the borrower is correct as determined by the servicer; and

(ii) the name and telephone number of an individual employed by, or the office or department of, the servicer who can provide assistance to the borrower; or

(C) after conducting an investigation, provide the borrower with a written explanation or clarification that includes–

(i) information requested by the borrower or an explanation of why the information requested is unavailable or cannot be obtained by the servicer; and

(ii) the name and telephone number of an individual employed by, or the office or department of, the servicer who can provide assistance to the borrower.

No Private Right Of Action For Disclosure Violations

EMC and MERS argue that to the extent the RESPA claim seeks to recover for disclosure violations, the claim is a barred in the absence of a private right of action.

RESPA’s purpose is to “curb abusive settlement practices in the real estate industry. Such amorphous goals, however, do not translate into a legislative intent to create a private right of action.” Bloom v. Martin, 865 F.Supp. 1377, 1385 (N.D. Cal. 1994), aff’d, 77 F.3d 318 (1996). “The structure of RESPA’s various statutory provisions  [*19] indicates that Congress did not intend to create a private right of action for disclosure violations under 12 U.S.C. § 2603 . . . Congress did not intend to provide a private remedy . . .” Bloom, 865 F.Supp. at 1384.

EMC and MERS correctly point out the absence of a private right of action for RESPA disclosure violations to doom the RESPA claim to the extent it is based on disclosure violations.

Absence Of Pecuniary Loss

EMC and MERS further fault the RESPA claim’s failure to allege pecuniary loss.

“Whoever fails to comply with this section shall be liable to the borrower . . . [for] any actual damages to the borrower as a result of the failure . . .” 12 U.S.C. § 2605(f)(1)(A). “However, alleging a breach of RESPA duties alone does not state a claim under RESPA. Plaintiffs must, at a minimum, also allege that the breach resulted in actual damages.” Hutchinson v. Delaware Sav. Bank FSB, 410 F.Supp.2d 374, 383 (D. N.J. 2006).

The RESPA claim fails to allege pecuniary loss from EMC’s alleged failure to respond to Ms. Swanson’s QWR. Such omission is fatal to the claim given its mere reliance on a RESPA violation without more.

Fraud

The complaint’s (sixth) fraud claim alleges that “EMC misrepresented  [*20] to Plaintiff that EMC has the right to collect monies from Plaintiff on its behalf or on behalf of others when Defendant EMC had no legal right to collect such monies.” The claim further alleges that “MERS misrepresented to Plaintiff on the Deed of Trust that it is a qualified beneficiary with the ability to assign or transfer the Deed of Trust and/or the Note and/or substitute trustees under the Deed of Trust. Further, Defendant MERS misrepresented that it followed the applicable legal requirements to transfer the Note and Deed of Trust to subsequent beneficiaries.”

Absence Of Particularity

EMC and MERS challenge the fraud claim’s failure to satisfy F.R.Civ.P. 9(b) requirements to allege fraud with particularity.

The elements of a California fraud claim are: (1) misrepresentation (false representation, concealment or nondisclosure); (2) knowledge of the falsity (or “scienter”); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Court, 12 Cal.4th 631, 638, 49 Cal.Rptr.2d 377, 909 P.2d 981 (1996). The same elements comprise a cause of action for negligent misrepresentation, except there is no requirement of intent to induce reliance.  [*21] Cadlo v. Owens-Illinois, Inc., 125 Cal. App. 4th 513, 519, 23 Cal. Rptr. 3d 1, 23 Cal.Rtpr.3d 1 (2004).

“[T]o establish a cause of action for fraud a plaintiff must plead and prove in full, factually and specifically, all of the elements of the cause of action. Conrad v. Bank of America, 45 Cal.App.4th 133, 156, 53 Cal.Rptr.2d 336 (1996). There must be a showing “that the defendant thereby intended to induce the plaintiff to act to his detriment in reliance upon the false representation” and “that the plaintiff actually and justifiably relied upon the defendant’s misrepresentation in acting to his detriment.” Conrad, 45 Cal.App.4th at 157, 53 Cal.Rptr.2d 336.

F.R.Civ.P. 9(b) requires a party to “state with particularity the circumstances constituting fraud.” 5 In the Ninth Circuit, “claims for fraud and negligent misrepresentation must meet Rule 9(b)‘s particularity requirements.” Neilson v. Union Bank of California, N.A., 290 F.Supp.2d 1101, 1141 (C.D. Cal. 2003). A court may dismiss a claim grounded in fraud when its allegations fail to satisfy F.R.Civ.P. 9(b)‘s heightened pleading requirements. Vess, 317 F.3d at 1107. A motion to dismiss a claim “grounded in fraud” under F.R.Civ.P. 9(b) for failure to  [*22] plead with particularity is the “functional equivalent” of a F.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim. Vess, 317 F.3d at 1107. As a counter-balance, F.R.Civ.P. 8(a)(2) requires from a pleading “a short and plain statement of the claim showing that the pleader is entitled to relief.”

5 F.R.Civ.P. 9(b)‘s particularity requirement applies to state law causes of action: “[W]hile a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003) (quoting Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1995)(italics in original)).

F.R.Civ.P. 9(b)‘s heightened pleading standard “is not an invitation to disregard Rule 8‘s requirement of simplicity, directness, and clarity” and “has among its purposes the avoidance of unnecessary discovery.” McHenry v. Renne, 84 F.3d 1172, 1178 (9th Cir. 1996). F.R.Civ.P. 9(b) requires “specific” allegations of fraud “to give defendants notice of the particular misconduct which is  [*23] alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). “A pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations.” Neubronner v. Milken, 6 F.3d 666, 671-672 (9th Cir. 1993) (internal quotations omitted; citing Gottreich v. San Francisco Investment Corp., 552 F.2d 866, 866 (9th Cir. 1997)). The Ninth Circuit Court of Appeals has explained:

Rule 9(b) requires particularized allegations of the circumstances constituting fraud. The time, place and content of an alleged misrepresentation may identify the statement or the omission complained of, but these circumstances do not “constitute” fraud. The statement in question must be false to be fraudulent. Accordingly, our cases have consistently required that circumstances indicating falseness be set forth. . . . [W]e [have] observed that plaintiff must include statements regarding the time, place, and nature of the alleged fraudulent activities, and that “mere conclusory allegations of fraud are  [*24] insufficient.” . . . The plaintiff must set forth what is false or misleading about a statement, and why it is false. In other words, the plaintiff must set forth an explanation as to why the statement or omission complained of was false or misleading. . . .

In certain cases, to be sure, the requisite particularity might be supplied with great simplicity.

In Re Glenfed, Inc. Securities Litigation, 42 F.3d 1541, 1547-1548 (9th Cir. 1994) (en banc) (italics in original) superseded by statute on other grounds as stated in Marksman Partners, L.P. v. Chantal Pharm. Corp., 927 F.Supp. 1297 (C.D. Cal. 1996); see Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997) (fraud allegations must be accompanied by “the who, what, when, where, and how” of the misconduct charged); Neubronner, 6 F.3d at 672 (“The complaint must specify facts as the times, dates, places, benefits received and other details of the alleged fraudulent activity.”)

As to multiple fraud defendants, a plaintiff “must provide each and every defendant with enough information to enable them ‘to know what misrepresentations are attributable to them and what fraudulent conduct they are charged with.'” Pegasus Holdings v. Veterinary Centers of America, Inc., 38 F.Supp.2d 1158, 1163 (C.D. Ca. 1998) [*25] (quoting In re Worlds of Wonder Sec. Litig., 694 F.Supp. 1427, 1433 (N.D. Ca. 1988)). “Rule 9(b) does not allow a complaint to merely lump multiple defendants together but ‘require[s] plaintiffs to differentiate their allegations when suing more than one defendant . . . and inform each defendant separately of the allegations surrounding his alleged participation in the fraud.'” Swartz v. KPMG LLP, 476 F.3d 756, 764-765 (9th Cir. 2007) (quoting Haskin v. R.J. Reynolds Tobacco Co., 995 F.Supp. 1437, 1439 (M.D. Fla. 1998)). “In the context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, ‘identif[y] the role of [each] defendant[] in the alleged fraudulent scheme.” Swartz, 476 F.3d at 765 (quoting Moore v. Kayport Package Express, Inc., 885 F.2d 531, 541 (9th Cir. 1989)).

Moreover, in a fraud action against a corporation, a plaintiff must “allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” Tarmann v. State Farm Mut. Auto. Ins. Co. 2 Cal.App.4th 153, 157, 2 Cal.Rptr.2d 861 (1991).

The complaint is severely lacking and fails  [*26] to satisfy F.R.Civ.P. 9(b) “who, what, when, where and how” requirements as to EMC, MERS and the other defendants. The complaint makes no effort to allege names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. The complaint fails to substantiate the circumstances alleging falseness attributable to EMC or MERS. The complaint lacks facts to support each fraud element. The fraud claim’s deficiencies are so severe to suggest no potential improvement from an attempt to amend.

MERS California License

The fraud claim disputes that MERS is a qualified DOT beneficiary. Ms. Swanson appears to base such notion on grounds that MERS is not qualified to conduct business in California. The complaint alleges that “MERS was not registered to do business in California.”

MERS contends that “its activities pursuant to the DOT are not considered instrastate business that will require it to be licensed in California.” MERS points to California Corporations Code section 191(c)(7) which provides that a “foreign corporation shall not be considered to be transacting instrastate business” by “[c]reating  [*27] evidences of debt or mortgage, liens or security interests on real or personal property.” California Corporations Code section 191(d)(3) exempts from doing “business in the state” the “enforcement of any loans by trustee’s sale.” Moreover, a foreign corporation does not transact instrastate business by “defending any action or suit.”

MERS demonstrates that it was qualified to conduct California business to defeat a fraud claim to the effect MERS was not.

DOT Beneficiary Authority

The fraud claim disputes that MERS has authority to pursue non-judicial foreclosure. MERS notes that the DOT names MERS as a beneficiary to defeat the complaint’s attempt to allege that MERS lacks a right to foreclose.

“Financing or refinancing of real property is generally accomplished in California through a deed of trust. The borrower (trustor) executes a promissory note and deed of trust, thereby transferring an interest in the property to the lender (beneficiary) as security for repayment of the loan.” Bartold v. Glendale Federal Bank, 81 Cal.App.4th 816, 821, 97 Cal.Rptr.2d 226 (2000). A deed of trust “entitles the lender to reach some asset of the debtor if the note is not paid.” Alliance Mortgage Co. v. Rothwell, 10 Cal.4th 1226, 1235, 44 Cal.Rptr.2d 352, 900 P.2d 601 (1995).  [*28] If a borrower defaults on a loan and the deed of trust contains a power of sale clause, the lender may non-judicially foreclose. See McDonald v. Smoke Creek Live Stock Co., 209 Cal. 231, 236-237, 286 P. 693 (1930).

Under California Civil Code section 2924(a)(1), a “trustee, mortgagee or beneficiary or any of their authorized agents” may conduct the foreclosure process. Under California Civil Code section 2924(b)(4), a “person authorized to record the notice of default or the notice of sale” includes “an agent for the mortgagee or beneficiary, an agent of the named trustee, any person designated in an executed substitution of trustee, or an agent of that substituted trustee.” “Upon default by the trustor, the beneficiary may declare a default and proceed with a nonjudicial foreclosure sale.” Moeller, 25 Cal.App.4th at 830, 30 Cal.Rptr.2d 777.

“If the trustee’s deed recites that all statutory notice requirements and procedures required by law for the conduct of the foreclosure have been satisfied, a rebuttable presumption arises that the sale has been conducted regularly and properly.” Nguyen v. Calhoun, 105 Cal.App.4th 428, 440, 129 Cal.Rptr.2d 436 (2003). The California Court of Appeal  [*29] has explained non-judicial foreclosure under California Civil Code sections 2924-2924l:

The comprehensive statutory framework established to govern nonjudicial foreclosure sales is intended to be exhaustive. . . . It includes a myriad of rules relating to notice and right to cure. It would be inconsistent with the comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to incorporate another unrelated cure provision into statutory nonjudicial foreclosure proceedings.

Moeller v. Lien, 25 Cal.App.4th 822, 834, 30 Cal.Rptr.2d 777 (1994).

MERS correctly notes that as DOT beneficiary, MERS is empowered to commence foreclosure proceedings, including causing the trustee to execute a notice of default to start foreclosure. The DOT contains a power of sale to authorize non-judicial foreclosure. MERS demonstrates that it is a qualified DOT beneficiary to defeat a fraud claim to the effect it is not.

In short, the fraud claim’s severe deficiencies warrant its dismissal without leave to amend.

Unfair Business Practices

The complaint’s seventh claim alleges EMC and MERS’ acts “constitute unlawful, unfair, and/or fraudulent business practices, as defined in California Business and Professions Code § 17200 et seq. [*30] (Unfair Competition Law [‘UCL’]).”

Standing

EMC and MERS contend that Ms. Swanson lacks standing to pursue a UCL claim.

California Business and Professions Code section 17204 limits standing to bring a UCL claim to specified public officials and a private person “who has suffered injury in fact and has lost money or property as a result of the unfair competition.”

Business and Professions Codesection 17203 addresses UCL relief and provides in pertinent part:

Any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may make such orders or judgments . . . as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition. (Bold added.)

EMC and MERS correctly note the complaint’s absence of facts of Ms. Swanson’s money or property allegedly lost due to a UCL violation. The UCL claim offers an insufficient, bare allegation that “Plaintiff has suffered various damages and injuries according to proof at trial.” The complaint lacks sufficient allegations of Ms. Swanson’s standing to warrant dismissal of the UCL  [*31] claim.

Unfair, Fraudulent Or Deceptive Business Practices

EMC and MERS take issue with the complaint’s attempt to allege an illegal business practice under the UCL.

The UCL prohibits “unlawful” practices “forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made.” Saunders v. Superior Court, 27 Cal. App. 4th 832, 838, 33 Cal. Rptr. 2d 438 (1999). According to the California Supreme Court, the UCL “borrows” violations of other laws and treats them as unlawful practices independently actionable under the UCL. Farmers Ins. Exchange v. Superior Court, 2 Cal.4th 377, 383, 6 Cal.Rptr.2d 487, 826 P.2d 730 (1992).

“Unfair” under the UCL “means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163, 187, 83 Cal. Rptr. 2d 548, 973 P.2d 527 (1999).

The “fraudulent” prong under the UCL requires a plaintiff to “show deception to some members of the public, or harm to the public interest,” Watson Laboratories, Inc. v. Rhone-Poulenc Rorer, Inc., 178 F.Supp.2d 1099, 1121 (C.D. Ca. 2001),  [*32] or to allege that “members of the public are likely to be deceived.” Medical Instrument, 2005 U.S. Dist. LEXIS 41411, 2005 WL 1926673, at *5.

“The California Supreme Court has held that ‘something more than a single transaction,’ either on-going wrongful business conduct or a pattern of wrongful business conduct, must be alleged in order to state a cause of action under the Unfair Business Practices Act.” Newman v. Checkrite California, 912 F.Supp. 1354, 1375 (E.D. Ca. 1995). “The use of the phrase ‘business practice’ in section 17200 indicates that the statute is directed at ongoing wrongful conduct.” Hewlett v. Squaw Valley Ski Corp., 54 Cal.App.4th 499, 519, 63 Cal.Rptr.2d 118 (1997). “[T]he ‘practice’ requirement envisions something more than a single transaction . . .; it contemplates a ‘pattern of conduct’ [citation], ‘on-going . . . conduct’ [citation], ‘a pattern of behavior’ [citation], or ‘a course of conduct.’ . . .” State of California ex rel. Van de Kamp v. Texaco, Inc., 46 Cal.3d 1147, 1169-1170, 252 Cal.Rptr. 221, 762 P.2d 385 (1988).

“A plaintiff alleging unfair business practices under these statutes [UCL] must state with reasonable particularity the facts supporting the statutory elements of the violation.” Khoury v. Maly’s of California, Inc., 14 Cal.App.4th 612, 619, 17 Cal.Rptr.2d 708 (1993).

EMC  [*33] and MERS are correct that the complaint is “insufficient to establish that Defendants engaged in any ‘unfair’ business practices within the meaning of section 17200.” The complaint lacks reasonable particularity of facts to support an UCL claim. The claim’s bare mention of “unlawful, unfair and/or fraudulent business practices” provides not the slightest inference that Ms. Swanson has a viable UCL claim. The complaint points to no predicate violation of law. Similar to the fraud claim, the UCL claim lacks particularity of fraudulent circumstances, such as a misrepresentation, for a UCL claim. The complaint lacks allegations of ongoing wrongful business conduct or a pattern of such conduct. The UCL claim lacks facts to hint at a wrong subject to the UCL to warrant the claim’s dismissal.

Wrongful Foreclosure

The complaint’s tenth claim appears to fault EMC and MERS for failure “to suspend the foreclosure action to allow the Plaintiff to be considered for alternative foreclosure prevention options.” The wrongful foreclosure claim references absence of “possession of the Note,” failure “to properly record and give proper notice of the Notice of Default,” and “failure to comply with the statutory  [*34] requirements [to deny] Plaintiff the opportunity to exercise her statutory rights.”

EMC and MERS criticize the wrongful foreclosure claim as premature in that the property has not been foreclosed upon. EMC and MERS point to the absence of recording a trustee’s deed upon sale.

EMC and MERS are correct that in the absence of a foreclosure sale, they cannot be liable for “wrongful foreclosure.” Moreover, “a trustee or mortgagee may be liable to the trustor or mortgagor for damages sustained where there has been an illegal, fraudulent or wilfully oppressive sale of property under a power of sale contained in a mortgage or deed of trust.” Munger v. Moore, 11 Cal.App.3d 1, 7, 89 Cal.Rptr. 323 (1970). The complaint lacks facts of EMC and/or MERS’ alleged illegal or fraudulent activity to impose tort liability based on their conduct in connection with foreclosure of the property.

The wrongful foreclosure claim gives rise to no cognizable claim. It fails with Ms. Swanson’ other claims. Ms. Swanson’s attempt to manufacture a claim based on “possession of the Note” fails.

“Under Civil Code section 2924, no party needs to physically possess the promissory note.” Sicairos v. NDEX West, LLC, 2009 U.S. Dist. LEXIS 11223, 2009 WL 385855, *3 (S.D. Cal. 2009) [*35] (citing Cal. Civ. Code, § 2924(a)(1)). Rather, “[t]he foreclosure process is commenced by the recording of a notice of default and election to sell by the trustee.” Moeller, 25 Cal.App.4th at 830, 30 Cal.Rptr.2d 777. An “allegation that the trustee did not have the original note or had not received it is insufficient to render the foreclosure proceeding invalid.” Neal v. Juarez, 2007 U.S. Dist. LEXIS 98068, 2007 WL 2140640, *8 (S.D. Cal. 2007).

The wrongful foreclosure claim is illogical to warrant its dismissal.

Attempt At Amendment And Malice

Ms. Swanson’s claims against EMC and MERS are insufficiently pled and barred as a matter of law. Ms. Swanson is unable to cure her claims by allegation of other facts and thus is not granted an attempt to amend.

Moreover, this Court is concerned that Ms. Swanson has brought this action in absence of good faith and that Ms. Swanson exploits the court system solely for delay or to vex EMC and MERS. The test for maliciousness is a subjective one and requires the court to “determine the . . . good faith of the applicant.” Kinney v. Plymouth Rock Squab Co., 236 U.S. 43, 46, 35 S. Ct. 236, 59 L. Ed. 457 (1915); see Wright v. Newsome, 795 F.2d 964, 968, n. 1 (11th Cir. 1986); cf. Glick v. Gutbrod, 782 F.2d 754, 757 (7th Cir. 1986) [*36] (court has inherent power to dismiss case demonstrating “clear pattern of abuse of judicial process”). A lack of good faith or malice also can be inferred from a complaint containing untrue material allegations of fact or false statements made with intent to deceive the court. See Horsey v. Asher, 741 F.2d 209, 212 (8th Cir. 1984). An attempt to vex or delay provides further grounds to dismiss this action against EMC and MERS.

CONCLUSION AND ORDER

For the reasons discussed above, this Court:

1. DISMISSES with prejudice this action against EMS and MERS; and

2. DIRECTS the clerk to enter judgment against plaintiff Marla Lynn Swanson and in favor of defendants EMC Mortgage Corporation and Mortgage Electronic Registration Systems, Inc. in that there is no just reason to delay to enter such judgment given that Ms. Swanson’s claims against defendants EMC Mortgage Corporation and Mortgage Electronic Registration Systems, Inc. are clear and distinct from claims against the other defendants. See F.R.Civ.P. 54(b).

IT IS SO ORDERED.

Dated: October 29, 2009

/s/ Lawrence J. O’Neill

UNITED STATES DISTRICT JUDGE

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The next financial tsunami unleashed by toxic mortgages

Posted on October 23, 2009. Filed under: Banking, Foreclosure Defense, Fraud, Housing, Mortgage Audit, Mortgage Fraud, Mortgage Law, Predatory Lending | Tags: , , , , , , , , , , , |

By PAM MARTENS

The financial tsunami unleashed by Wall Street’s esurient alchemy of spinning toxic home mortgages into triple-A bonds, a process known as securitization, has set off its second round of financial tremors.

After leaving mortgage investors, bank shareholders, and pension fiduciaries awash in losses and a large chunk of Wall Street feeding at the public trough, the full threat of this vast securitization machine and its unseen masters who push the levers behind a tightly drawn curtain is playing out in courtrooms across America.

Three plain talking judges, in state courts in Massachusetts and Kansas, and a Federal Court in Ohio, have drilled down to the “straw man” aspect of securitization. The judges’ decisions have raised serious questions as to the legality of hundreds of thousands of foreclosures that have transpired as well as the legal standing of the subsequent purchasers of those homes, who are more and more frequently the Wall Street banks themselves.

Adding to the chaos, the Financial Accounting Standards Board (FASB) has made rule changes that will force hundreds of billions of dollars of these securitizations back onto the Wall Street banks balance sheets, necessitating the need to raise capital just as the unseemly courtroom dramas are playing out.

The problems grew out of the steps required to structure a mortgage securitization. In order to meet the test of an arm’s length transaction, pass muster with regulators, conform to accounting rules and to qualify as an actual sale of the securities in order to be removed from the bank’s balance sheet, the mortgages get transferred a number of times before being sold to investors. Typically, the original lender (or a sponsor who has purchased the mortgages in the secondary market) will transfer the mortgages to a limited purpose entity called a depositor. The depositor will then transfer the mortgages to a trust which sells certificates to investors based on the various risk-rated tranches of the mortgage pool. (Theoretically, the lower rated tranches were to absorb the losses of defaults first with the top triple-A tiers being safe. In reality, many of the triple-A tiers have received ratings downgrades along with all the other tranches.)

Because of the expense, time and paperwork it would take to record each of the assignments of the thousands of mortgages in each securitization, Wall Street firms decided to just issue blank mortgage assignments all along the channel of transfers, skipping the actual physical recording of the mortgage at the county registry of deeds.

Astonishingly, representatives for the trusts have been foreclosing on homes across the country, evicting the families, then auctioning the homes, without a proper paper trail on the mortgage assignments or proof that they had legal standing. In some cases, the courts have allowed the representatives to foreclose and evict despite their admission that the original mortgage note is lost. (This raises the question as to whether these mortgage notes are really lost or might have been fraudulently used in multiple securitizations, a concern raised by some Wall Street veterans.)

But, at last, some astute judges have done more than take a cursory look and render a shrug. In a decision handed down on October 14, 2009, Judge Keith Long of the Massachusetts Land Court wrote:

“The blank mortgage assignments they possessed transferred nothing…in Massachusetts, a mortgage is a conveyance of land. Nothing is conveyed unless and until it is validly conveyed. The various agreements between the securitization entities stating that each had a right to an assignment of the mortgage are not themselves an assignment and they are certainly not in recordable form…The issues in this case are not merely problems with paperwork or a matter of dotting i’s and crossing t’s. Instead, they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts legislature. To accept the plaintiffs’ arguments is to allow them to take someone’s home without any demonstrable right to do so, based upon the assumption that they ultimately will be able to show that they have that right and the further assumption that potential bidders will be undeterred by the lack of a demonstrable legal foundation for the sale and will nonetheless bid full value in the expectation that that foundation will ultimately be produced, even if it takes a year or more. The law recognizes the troubling nature of these assumptions, the harm caused if those assumptions prove erroneous, and commands otherwise.” [Italic emphasis in original.] (U.S. Bank National Association v. Ibanez/Wells Fargo v. Larace)

A month and a half before, on August 28, 2009, Judge Eric S. Rosen of the Kansas Supreme Court took an intensive look at a “straw man” some Wall Street firms had set up to handle the dirty work of foreclosure and serve as the “nominee” as the mortgages flipped between the various entities. Called MERS (Mortgage Electronic Registration Systems, Inc.) it’s a bankruptcy-remote subsidiary of MERSCORP, which in turn is owned by units of Citigroup, JPMorgan Chase, Bank of America, the Mortgage Bankers Association and assorted mortgage and title companies. According to the MERSCORP web site, these “shareholders played a critical role in the development of MERS. Through their capital support, MERS was able to fund expenses related to development and initial start-up.”

In recent years, MERS has become less of an electronic registration system and more of a serial defendant in courts across the land. In a May 2009 document titled “The Building Blocks of MERS,” the company concedes that “Recently there has been a wave of lawsuits filed by homeowners facing foreclosure which challenge MERS standing…” and then proceeds over the next 30 pages to describe the lawsuits state by state, putting a decidedly optimistic spin on the situation.

MERS doesn’t have a big roster of employees or lawyers running around the country foreclosing and defending itself in lawsuits. It simply deputizes employees of the banks and mortgage companies that use it as a nominee. It calls these deputies a “certifying officer.” Here’s how they explain this on their web site: “A certifying officer is an officer of the Member [mortgage company or bank] who is appointed a MERS officer by the Corporate Secretary of MERS by the issuance of a MERS Corporate Resolution. The Resolution authorizes the certifying officer to execute documents as a MERS officer.”

Kansas Supreme Court Judge Rosen wasn’t buying MERS’ story. In fact, Wall Street was probably not too happy to land before Judge Rosen. In January 2002, Judge Rosen had received the Martin Luther King “Living the Dream” Humanitarian Award; he previously served as Associate General Counsel for the Kansas Securities Commissioner, and as Assistant District Attorney in Shawnee County, Kansas. Judge Rosen wrote:

“The relationship that MERS has to Sovereign [Bank] is more akin to that of a straw man than to a party possessing all the rights given a buyer… What meaning is this court to attach to MERS’s designation as nominee for Millennia [Mortgage Corp.]? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant — their description depended on which part they were touching at any given time. Counsel for Sovereign stated to the trial court that MERS holds the mortgage ‘in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not.’ ” (Landmark National Bank v. Boyd A. Kesler)

Lawyers for homeowners see a darker agenda to MERS. Timothy McCandless, a California lawyer, wrote on his blog as follows:

“…all across the country, MERS now brings foreclosure proceedings in its own name — even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers’ discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer’s home. While up against the wall of foreclosure, consumers that try to assert predatory lending defenses are often forced to join the party — usually an investment trust — that actually will benefit from the foreclosure. As a simple matter of logistics this can be difficult, since the investment trust is even more faceless and seemingly innocent than MERS itself. The investment trust has no customer service personnel and has probably not even retained counsel. Inquiries to the trustee — if it can be identified — are typically referred to the servicer, who will then direct counsel back to MERS. This pattern of non-response gives the securitization conduit significant leverage in forcing consumers out of their homes. The prospect of waging a protracted discovery battle with all of these well funded parties in hopes of uncovering evidence of predatory lending can be too daunting even for those victims who know such evidence exists. So imposing is this opaque corporate wall, that in a ‘vast’ number of foreclosures, MERS actually succeeds in foreclosing without producing the original note — the legal sine qua non of foreclosure — much less documentation that could support predatory lending defenses.”

One of the first judges to hand Wall Street a serious slap down was Christopher A. Boyko of U.S. District Court in the Northern District of Ohio. In an opinion dated October 31, 2007, Judge Boyko dismissed 14 foreclosures that had been brought on behalf of investors in securitizations. Judge Boyko delivered the following harsh rebuke in a footnote:

“Plaintiff’s ‘Judge, you just don’t understand how things work,’ argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process…There is no doubt every decision made by a financial institution in the foreclosure is driven by money. And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit – to the contrary, they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers…” (In Re Foreclosure Cases)

While the illegal foreclosure filings, investor lawsuits over securitization improprieties, and predatory lending challenges play out in courts across the country, a few sentences buried deep in Citigroup’s 10Q filing for the quarter ended June 30, 2009 signals that we’ve seen merely a few warts on the head of the securitization monster thus far and the massive torso remains well hidden in murky water.

Citigroup tells us that the Financial Accounting Standards Board (FASB) has issued a new rule, SFAS No. 166, and this is going to have a significant impact on Citigroup’s Consolidated Financial Statements “as the Company will lose sales treatment for certain assets previously sold to QSPEs [Qualifying Special Purpose Entities], as well as for certain future sales, and for certain transfers of portions of assets that do not meet the definition of participating interests. Just when might we expect this new land mine to go off? “SFAS 166 is effective for fiscal years that begin after November 15, 2009.” There’s more bad news. The FASB has also issued SFAS 167 and, long story short, more of those off balance sheet assets are going to move back onto Citi’s books.

Bottom line says Citi:

“… the cumulative effect of adopting these new accounting standards as of January 1, 2010, based on financial information as of June 30, 2009, would result in an estimated aggregate after-tax charge to Retained earnings of approximately $8.3 billion, reflecting the net effect of an overall pretax charge to Retained earnings (primarily relating to the establishment of loan loss reserves and the reversal of residual interests held) of approximately $13.3 billion and the recognition of related deferred tax assets amounting to approximately $5.0 billion….” [Emphasis in original.]

I’m trying to imagine how the American taxpayer is going to be asked to put more money into Citigroup as it continues to bleed into infinity.

Citigroup is far from alone in financial hits that will be coming from the Qualifying Special Purpose Entities. Regulators are receiving letters from Citigroup and other Wall Street firms pressing hard to rethink when this change will take effect.

Putting aside for the moment the massive predatory lending frauds bundled into mortgage securitizations, inadequate debate has occurred on whether securitization of home mortgages (other than those of government sponsored enterprises) should be resuscitated or allowed to die a welcome death. If we understand the true function of Wall Street, to efficiently allocate capital, the answer must be a resounding no to this racket.

Trillions of dollars of bundled home mortgage loans and derivative side bets tied to those loans were being manufactured by Wall Street without any one asking the basic question: why is all this capital being invested in a dormant structure? Houses don’t think and innovate. Houses don’t spawn new technologies, patents, new industries. Houses don’t create the jobs of tomorrow.

Also, by acting as wholesale lenders to the unscrupulous mortgage firms (some in house at Wall Street firms), Wall Street was not responding to legitimate consumer demand, it was creating an artificial demand simply to create mortgage product to feed its securitization machine and generate big fees for itself. Now we see the aftermath of that inefficient allocation of capital: a massive glut of condos and homes pulling down asset prices in neighborhoods as well as in those ill-conceived securitizations whose triple-A ratings have been downgraded to junk.

There’s no doubt that one of the contributing factors to the depression of the 30s and the intractable unemployment today stem from a massive misallocation of capital to both bad ideas and fraud. Today’s Wall Street, it turns out, is just another straw man for a rigged wealth transfer system.

Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article other than that which the U.S. Treasury has thrust upon her and fellow Americans involuntarily through TARP. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com

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Marcy Kaptur to Banks: “Produce The Note”

Posted on October 12, 2009. Filed under: Foreclosure Defense, Fraud, Loan Modification, Mortgage Audit, Mortgage Fraud, Mortgage Law, Politics, Predatory Lending, right to rescind, Truth in Lending Act | Tags: , , , , , , , , , , , , , , , , |

Fight Club entered popular culture in 1999 when director David Fincher adapted Chuck Palahniuk’s novel into a film that reflected the zeitgeist of modern America with its empty culture, obsession with aesthetic beauty, and slavish under and middle classes.

Warning: Decade-old spoiler coming up.

The film ends with the agents of “Project Mayhem,” protagonist Tyler Durden’s followers, destroying the headquarters of the major credit card companies with many tons of explosives. Durden’s theory is that without the records of debt, everyone gets a fresh start. They are no longer slaves to the banks, and they are free.

This concept resonated hugely with Americans, and not just the douche bag frat boys who taped Brad Pitt’s six-pack to their dorm walls. Citizens are working harder for less these days, and the American ennui originating from Reagan’s tyrannical reign of deregulation, union busting, and middle-class rape has now exploded into severe disillusionment and anger. Americans are being crushed by debt, can’t afford health care, and have less job security than ever.

Even the dimmest Americans know they’re getting screwed by Wall Street fat cats, and nothing could have made that reality clearer than the bailouts: $1 trillion dollars of taxpayer money that went to line the pockets of the guys and gals who crashed the economy.

And if that wasn’t bad enough, once the fat cats and credit card companies’ armies of Repo Men were through collecting the contents of the houses, they came back for the houses themselves. The banks tried to sell the old, familiar lie that “irresponsible people” i.e. “black people” went and got themselves into a mess they couldn’t dig themselves out of, which was almost always a lie. Subprime lenders issued mortgages in a predatory fashion, frequently lied, and used creative math to convince people they could afford mortgages with hidden, adjustable interest rates.

Those that can afford to play Capitalism: The Game prosper, while the rest of society suffers. Of course, those of us who don’t work for the Big 4 banks in the Too Big To Fail gang, wither and die. Today, The New York Times announced the 100th small bank failure of 2009. Don’t expect any mourning. The bank isn’t named “JPMorgan Chase.”

It’s projected that by 2012, there will be eight million home foreclosures in the United States. Lots of politicians are siding with the banks during the foreclosure epidemic, but a few brave souls are standing up to the Wall Street criminals.

More…

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Massive Relief for Homeowners and Trouble for Banks

Posted on September 23, 2009. Filed under: Bailout, Banking, Case Law, Foreclosure Defense, Mortgage Audit, Mortgage Law, Predatory Lending | Tags: , , , , , , , , , , , , |

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose — on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.

Eliminating the “Straw Man” Shielding Lenders and Investors from Liability

The development of “electronic” mortgages managed by MERS went hand in hand with the “securitization” of mortgage loans — chopping them into pieces and selling them off to investors. In the heyday of mortgage securitizations, before investors got wise to their risks, lenders would slice up loans, bundle them into “financial products” called “collateralized debt obligations” (CDOs), ostensibly insure them against default by wrapping them in derivatives called “credit default swaps,” and sell them to pension funds, municipal funds, foreign investment funds, and so forth. There were many secured parties, and the pieces kept changing hands; but MERS supposedly kept track of all these changes electronically. MERS would register and record mortgage loans in its name, and it would bring foreclosure actions in its name. MERS not only facilitated the rapid turnover of mortgages and mortgage-backed securities, but it has served as a sort of “corporate shield” that protects investors from claims by borrowers concerning predatory lending practices. California attorney Timothy McCandless describes the problem like this:

via Ellen Brown: Landmark Decision Promises Massive Relief for Homeowners and Trouble for Banks.

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No bar to attorneys’ fees under TILA

Posted on September 15, 2009. Filed under: Case Law, Foreclosure Defense, Legislation, Mortgage Audit, right to rescind, Truth in Lending Act | Tags: , , , , , , , |

A car buyer whose damages under the Truth in Lending Act were slashed by the Supreme Court is nevertheless entitled to attorneys’ fees for that portion of his otherwise “successful action,” the 4th U.S. Circuit Court of Appeals has held.

The decision affirms a fee award of more than $80,000 to Bradley Nigh, who claimed Koons Buick Pontiac GM Inc. pressured him into signing multiple loan documents and purchasing an “alarm silencer” he hadn’t ordered.A federal jury in Alexandria, Va., awarded Nigh about $25,000, or twice the financing charges he had paid, in May 2001.

Koons appealed to the 4th Circuit, which affirmed, and then to the Supreme Court, which likewise affirmed on liability but capped the TILA damages at $1,000.Koons appealed again after the U.S. District Court awarded Nigh fees on remand. Last week, the 4th Circuit affirmed. Despite the cap, the 4th Circuit said, Nigh brought a “successful action” under TILA, receiving the maximum amount allowed by the federal law.

Congress, which set the $1,000 cap, likewise included the fee-shifting provisions because it believes it is in the best interest of society for big companies to act honestly, Judge Roger Gregory wrote for the appeals court; but unless the injured consumer has hope of having his costs covered by the guilty defendant, he will never bring the case.

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Minnesota Supreme Court Upholds MERS

Posted on August 14, 2009. Filed under: Banking, Case Law, Foreclosure Defense, Housing, Loan Modification, Mortgage Law | Tags: , , , , , , , , , |

St. Paul, Minn. — The Minnesota Supreme Court today ruled against five Hennepin County homeowners who said an electronic mortgage registration system made it virtually impossible to defend themselves against home foreclosures.

The system, called Mortgage Electronic Registration Systems, or MERS, is a registry involved in 40 percent of all foreclosures in the Twin Cities.

MERS was created by the nation’s largest mortgage lenders, such as Chase, Citigroup, and Countrywide, to streamline the foreclosure process after the 1993 savings and loan crisis. MERS essentially privatized part of the mortgage recording system.

But some legal aid lawyers argued the process kept homeowners in the dark about which institutions actually held their mortgages.

The Hennepin County homeowners in the case contended that state law required MERS to identify which institutions held the mortgages, and list them in a published foreclosure notice.

They wanted to know details of the mortgage sales — including who held promissory notes to the property and who held legal title.

Writing for the 6-1 Supreme Court majority, Justice Paul Anderson wrote that Minnesota law requires MERS to record who’s assigned legal title, but not who’s assigned the promissory notes.

He also made a reference to the movie “It’s a Wonderful Life,” writing that it’s not hard to have nostalgia for earlier times, but that in many mortgage transactions, “a George Bailey no longer sits in the corner office of the Building and Loan Association in Bedford Falls.”

Anderson said the mortgage banking industry has changed, and with it certain problems have become evident. But he said to remedy those shortcomings goes beyond the court’s authority.

Legal Aid attorney Amber Hawkins, who brought the case, says the decision is disappointing for homeowners facing foreclosure and makes it harder to avoid the same problems again.

“The public will never know the chain of ownership in these bad loans,” said Hawkins. “We will never be able to go back and figure out who were the players. Who had interest in these loans? Who benefitted from these foreclosures?”

William Hultman, a senior vice president at MERS, would not answer questions but did release a short statement.

“We are pleased with the justices’ decision in this case. Now that the ruling has been issued, we are moving forward and continuing to focus on meeting the needs of the homeowners by lowering the cost of purchasing a home.”

Justice Alan Page was the lone dissenter in the court’s decision. He said the Legislature could not have been more clear in requiring that all assignments of a mortgage be recorded before a mortgage can be foreclosed upon.

He said by allowing the identities of promissory note-holders to remain hidden, the court essentially eliminates a homeowner’s ability to assert a wide range of defenses to foreclosure. And as a result, neither borrowers nor lenders will ever be able to hold anyone accountable in the chain of transfers.

http://minnesota.publicradio.org/display/web/2009/08/13/mers-ruling/

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U.S. partners in home loan modifications accused of broad abuses

Posted on August 9, 2009. Filed under: Foreclosure Defense, Fraud, Housing, Legislation, Loan Modification, Mortgage Audit, Mortgage Fraud, Mortgage Law, Predatory Lending | Tags: , , , , , , , , , , , , , , , , , |

WASHINGTON — Billions of dollars that the government is spending to help financially pressed homeowners avert foreclosure are passing through — and enriching — companies accused of preying on the people they are supposed to help, an Associated Press investigation has found.The companies, known as mortgage servicers, collect monthly payments from homeowners and funnel the money to the banks or investors who hold the loans. As the link between borrowers and lenders, they’re in the best position to rework the terms of loans under the government’s$50 billion mortgage-modification program.The servicers are paid by the government if the changes keep home-owners from falling behind on payments for at least three months.But the industry has a checkered history. At least 30 servicers have been accused in lawsuits of harassing borrowers, imposing illegal fees and charging for unnecessary insurance policies. More recently, the companies also have been criticized for not helping homeowners quickly enough.The biggest players in the servicing industry — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. — all face litigation.But the industry’s smaller players, which specialize in riskier subprime loans and loans already in default, face harsher accusations that they systematically abused borrowers.

More…

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DEUTSCHE BANK NATIONAL TRUST COMPANY v. ROLANDO CAMPBELL, et al.

Posted on July 8, 2009. Filed under: Banking, bankruptcy, Case Law, Foreclosure Defense, Legislation, Loan Modification, Mortgage Audit, Mortgage Law | Tags: , , , , , , , , , , , , , , , , , , |

Deutsche Bank has some explaining to do.  Why would they buy a nonperforming loan from MERS 142 days after a payment default?

The instant foreclosure application states that defendant CAMPBELL defaulted on his mortgage payments by failing to make his April 1, 2007 and subsequent monthly loan payments. Yet, on August 20, 2007, 142 days subsequent to defendant CAMPBELL’s alleged May 1, 2007 payment default, plaintiff DEUTSCHE BANK was willing to take an assignment of the instant nonperforming loan from MERS, as nominee for FIRST FRANKLIN. Thus, the Court requires, upon renewal of this motion for summary judgment and an order of reference, a satisfactory explanation from an officer of the FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11 as to why DEUTSCHE BANK purchased a nonperforming mortgage loan from MERS, as nominee for FIRST FRANKLIN.

DEUTSCHE BANK NATIONAL TRUST COMPANY, as trustee for First Franklin Mortgage Loan Trust 2006-FF 11, 3476 Stateview Boulevard Fort Mill, SC 29715, Plaintiff,
v.
ROLANDO CAMPBELL, et al., Defendants.
31764/07
Supreme Court of the State of New York, Kings County.
Decided December 16, 2008.
Tracy M Fourtner, Esq., Steven Baum PC, Buffalo NY, Plaintiff.
ARTHUR M. SCHACK, J.
Plaintiff’s motion for summary judgment and an order of reference for the premises located at 780 New Jersey Avenue, Brooklyn, New York (Block 4299, Lot 43, County of Kings) is denied without prejudice, with leave to renew upon providing the Court with: a copy of a valid assignment of the instant mortgage to plaintiff DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11 (DEUTSCHE BANK); a satisfactory explanation of the conflict of interest by plaintiff’s counsel, Steven J. Baum, P.C., with respect to the August 20, 2007 assignment of the instant mortgage and note from MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (MERS), as nominee for FIRST FRANKLIN, A DIVISION OF NATIONAL CITY BANK OF IN (FIRST FRANKLIN), by Darleen Karaszewski, Esq., the assignor, an attorney employed by Steven J. Baum, P.C., plaintiff’s counsel, and the simultaneous representation by Steven J. Baum, P.C., of assignee plaintiff DEUTSCHE BANK; and, an affidavit by an officer of the FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11, explaining why plaintiff DEUTSCHE BANK purchased the instant nonperforming loan.

Background
Defendant ROLANDO CAMPBELL borrowed $420,000.00 from FIRST FRANKLIN on May 1, 2006. The note and mortgage were recorded in the Office of the City Register, New York City Department of Finance on June 2, 2006, at City Register File Number (CRFN) 2006000308921. MERS, the nominee of FIRST FRANKLIN for the purpose of recording the mortgage, purportedly assigned the mortgage and note to plaintiff DEUTSCHE BANK on August 20, 2007, effective August 10, 2007, with the assignment recorded on September 11, 2007, at CRFN 2007000467191. The assignment was executed by “Darleen Karaszewski, Esq. On [sic] behalf of MERS, by Corporate Resolution dated 7/19/07.” Neither a corporate resolution nor a power of attorney to Ms. Karaszewski were recorded with the assignment. Thus, the assignment is invalid and plaintiff DEUTSCHE BANK lacks standing to bring the instant foreclosure action.

Further, the assignor, Ms. Karaszewski, according to the Office of Court Administration’s Attorney Registration, has as her business address, “Steven Baum, P.C., 220 Northpointe Parkway, Suite G, Amherst, NY 14228-1894.” Two days after Ms. Karaszweski executed the invalid MERS assignment, August 22, 2007, plaintiff’s counsel, Steven J. Baum, P.C., commenced the instant action on behalf of purported assignee DEUTSCHE BANK, with the filing of a notice of pendency, and the summons and complaint in the Kings County Clerk’s Office. The Court is concerned that the simultaneous representation by Steven J. Baum, P.C. of both MERS and DEUTSCHE BANK is a conflict of interest in violation of 22 NYCRR § 1200.24, the Disciplinary Rule of the Code of Professional Responsibility, entitled “Conflict of Interest; Simultaneous Representation.”

The instant foreclosure application states that defendant CAMPBELL defaulted on his mortgage payments by failing to make his April 1, 2007 and subsequent monthly loan payments. Yet, on August 20, 2007, 142 days subsequent to defendant CAMPBELL’s alleged May 1, 2007 payment default, plaintiff DEUTSCHE BANK was willing to take an assignment of the instant nonperforming loan from MERS, as nominee for FIRST FRANKLIN. Thus, the Court requires, upon renewal of this motion for summary judgment and an order of reference, a satisfactory explanation from an officer of the FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11 as to why DEUTSCHE BANK purchased a nonperforming mortgage loan from MERS, as nominee for FIRST FRANKLIN.

Discussion
The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case. (Alvarez v Prospect Hospital, 68 NY2d 320, 324 [1986]; Zuckerman v City of New York, 49 NY2d 557, 562 [1980]; Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404 [1957]). Failure to make such a showing requires denial of the motion, regardless of the sufficiency of the opposing papers. (Matter of Redemption Church of Christ v Williams, 84 AD2d 648, 649 [3d Dept 1981]; Greenberg v Manlon Realty, 43 AD2d 968, 969 [2d Dept 1974];Winegrad v New York University Medical Center, 64 NY2d 851 [1985]).

CPLR 3212 (b) requires that for a court to grant summary judgment the court must determine if the movant’s papers justify holding as a matter of law “that there is no defense to the cause of action or that the cause of action or defense has no merit.” The evidence submitted in support of the movant must be viewed in the light most favorable to the non-movant. (Marine Midland Bank, N.A. v Dino & Artie’s Automatic Transmission Co., 168 AD2d 610 [2d Dept 1990]). Once the movant has established his or her prima facie case, the party opposing a motion for summary judgment bears the burden of “produc[ing] evidentiary proof in admissible form sufficient to require a trial of material questions of fact . . . mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient” (Zuckerman v City of New York, supra at 562; see also Romano v St. Vincent’s Medical Center of Richmond, 178 AD2d 467, 470 [2d Dept 1991]; Tessier v New York City Health & Hospitals Corp., 177 AD2d 626 [2d Dept 1991]).

Summary judgment shall be granted only when there are no issues of material fact and the evidence requires the court to direct judgment in favor of the movant as a matter of law. (Friends of Animals, Inc., v Associated Fur Mfrs., 46 NY2d 1065 [1979]).

Plaintiff, in the instant action, moved for summary judgment and an order of reference on July 9, 2008. Defendant CAMPBELL appeared pro se, with opposition papers, in the Foreclosure Motion Part on August 7, 2008. The motion was adjourned to October 3, 2008 for oral argument before me. On October 3, 2008 the matter was adjourned to December 12, 2008.

Plaintiff appeared on December 12, 2008 for oral argument, but defendant CAMPBELL defaulted. However, the Court is required to review, as noted above, the motion papers to determine if plaintiff made a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case. (Alvarez v Prospect Hospital, supra; Zuckerman v City of New York, supra; Sillman v Twentieth Century-Fox Film Corp., supra). The Court’s review of plaintiff’s moving papers demonstrates that plaintiff DEUTSCHE BANK fails to make such a showing. Therefore, the Court denies the instant motion.

Plaintiff DEUTSCHE BANK must have “standing” to bring this action. The Court of Appeals (Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d, 901, 812 [2003]), cert denied 540 US 1017 [2003]) held that “[s]tanding to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked. The plaintiff who has standing, however, may cross the threshold and seek judicial redress.” In Carper v Nussbaum, 36 AD3d 176, 181 (2d Dept 2006), the Court held that “[s]tanding to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request.

” If a plaintiff lacks standing to sue, the plaintiff may not proceed in the action. (Stark v Goldberg, 297 AD2d 203 [1d Dept 2002]). “Since standing is jurisdictional and goes to a court’s authority to resolve litigation [the court] can raise this matter sua sponte.” (Axelrod v New York State Teachers’ Retirement System, 154 AD2D 827, 828 [3d Dept 1989]).

In the instant action, the August 20, 2007 assignment from MERS to DEUTSCHE BANK is defective. Therefore, DEUTSCHE BANK has no standing to bring this action. The recorded assignment by “Darleen Karaszewski, Esq. On [sic] behalf of MERS, by Corporate Resolution dated 7/19/07,” has neither the corporate resolution nor a power of attorney attached and recorded.

Real Property Law (RPL) § 254 (9) states: Power of attorney to assignee. The word “assign” or other words of assignment, when contained in an assignment of a mortgage and bond or mortgage and note, must be construed as having included in their meaning that the assignor does thereby make, constitute and appoint the assignee the true and lawful attorney, irrevocable, of the assignor, in the name of the assignor, or otherwise, but at the proper costs and charges of the assignee, to have, use and take all lawful ways and means for the recovery of the money and interest secured by the said mortgage and bond or mortgage and note, and in case of payment to discharge the same as fully as the assignor might or could do if the assignment were not made. [Emphasis added]

To have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage. “No special form or language is necessary to effect an assignment as long as the language shows the intention of the owner of a right to transfer it [Emphasis added].” (Tawil v Finkelstein Bruckman Wohl Most & Rothman, 223 AD2d 52, 55 [1d Dept 1996]; see Suraleb, Inc. v International Trade Club, Inc., 13 AD3d 612 [2d Dept 2004]).

To foreclose on a mortgage, a party must have title to the mortgage. The instant assignment is a nullity. The Appellate Division, Second Department (Kluge v Fugazy, 145 AD2d 537, 538 [2d Dept 1988]), held that a “foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity.” The Appellate Division, First Department, citing Kluge v Fugazy, (Katz v East-Ville Realty Co., 249 AD2d 243 [1st Dept 1998]), instructed that “[p]laintiff’s attempt to foreclose upon a mortgage in which he had no legal or equitable interest was without foundation in law or fact.”

It is clear that plaintiff DEUTSCHE BANK, with the invalid assignment of the instant mortgage and note from MERS, lacks standing to foreclose on the instant mortgage. The Court, in Campaign v Barba (23 AD3d 327 [2d Dept 2005]), held that “[t]o establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence of the mortgage and the mortgage note, ownership of the mortgage, and the defendant’s default in payment [Emphasis added].” (See Household Finance Realty Corp. of New York v Wynn, 19 AD3d 545 [2d Dept 2005]; Sears Mortgage Corp. v Yahhobi, 19 AD3d 402 [2d Dept 2005]; Ocwen Federal Bank FSB v Miller, 18 AD3d 527 [2d Dept 2005]; U.S. Bank Trust Nat. Ass’n v Butti, 16 AD3d 408 [2d Dept 2005]; First Union Mortgage Corp. v Fern, 298 AD2d 490 [2d Dept 2002]; Village Bank v Wild Oaks Holding, Inc., 196 AD2d 812 [2d Dept 1993]).

Even if plaintiff can cure the assignment defect, plaintiff’s counsel then has to address the conflict of interest in the representation of both the assignor of the instant mortgage, MERS, and the assignee of the instant mortgage, DEUTSCHE BANK. 22 NYCRR § 1200.24, of the Disciplinary Rules of the Code of Professional Responsibility, entitled “Conflict of Interest; Simultaneous Representation,” states in relevant part:
(a) A lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under subdivision (c) of this section. (b) A lawyer shall not continue multiple employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the lawyer’s representation of another client, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under subdivision (c) of this section.(c) in the situations covered by subdivisions (a) and (b) of this section, a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer can competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved. [Emphasis added]
The Court needs to know if both MERS and DEUTSCHE BANK were aware of the simultaneous representation by plaintiff’s counsel, Steven J. Baum, P.C., and whether both consented. If plaintiff moves to renew its motion for summary judgment and an order of reference, the Court needs an affirmation by Steven J. Baum, Esq., the principal of Steven J. Baum, P.C., explaining if both MERS and DEUTSCHE BANK consented to simultaneous representation in the instant action with “full disclosure of the implications of the simultaneous representation and the advantages and risks involved.

” The Appellate Division, Fourth Department, the Department in which both Ms. Karaszewski and Mr. Baum are registered, (In re Rogoff, 31 AD3d 111 [2006]) censured an attorney, for inter alia, violating 22 NYCRR § 1200.24, by representing both a buyer and sellers in the sale of a motel.

The Court, at 112, found that the attorney, “failed to make appropriate disclosures to either the sellers or the buyer concerning dual representation.” Further, the Court, at 113, censured the attorney, after it considered the matters submitted by respondent in mitigation, including: that respondent undertook the dual representation at the insistence of the buyer, had no financial interest in the transaction and charged the sellers and the buyer one half of his usual fee. Additionally, we note that respondent cooperated with the Grievance Committee and has expressed remorse for his misconduct.

Next, if a power of attorney is used for an agent to act as MERS’ assignor of the instant mortgage and loan to DEUTSCHE BANK, the power of attorney presented to the Court must be an original or a copy certified by an attorney, pursuant to CPLR § 2105. CPLR § 2105 states that “an attorney admitted to practice in the court of the state may certify that it has been compared by him with the original and found to be a true and complete copy.” (See Security Pacific Nat. Trust Co. v Cuevas, 176 Misc 2d 846 [Civ Ct, Kings County 1998]).

Last, the Court requires a satisfactory explanation from an officer of the FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF 11 as to why in the middle of our national subprime mortgage financial crisis, plaintiff DEUTSCHE BANK purchased from MERS, as nominee of FIRST FRANKLIN, the instant nonperforming loan. The Court wonders if DEUTSCHE BANK violated a corporate fiduciary duty to the noteholders of the FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11with the purchase of a loan that defaulted 142 days prior to its assignment from MERS to FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11, rather than keep the mortgage loan on FIRST FRANKLIN’s books.

The Court is not sure that the noteholders of the FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11 are aware that DEUTSCHE BANK purchased the instant “toxic” nonperforming mortgage loan for the Trust. It could well be that MERS, as nominee for FIRST FRANKLIN, with the acquiescence of DEUTSCHE BANK, transferred the instant nonperforming loan, as well as others, to the FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11, as part of what former Federal Reserve Board Chairman Alan Greenspan referred to in his October 23, 2008 testimony, before the House Oversight Committee, as “a once in a century credit tsunami.”

Conclusion
Accordingly, it is
ORDERED that the motion of plaintiff DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11, for summary judgment and an order of reference for the premises located at 780 New Jersey Avenue, Brooklyn, New York (Block 4299, Lot 43, County of Kings) is denied without prejudice, and it is further

ORDERED that leave is granted to plaintiff DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11, to renew its motion for summary judgment and an order of reference for the premises located at 780 New Jersey Avenue, Brooklyn, New York (Block 4299, Lot 43, County of Kings), upon presentation to the Court, within sixty (60) days of this decision and order of: (1) a valid assignment of the instant mortgage and note to plaintiff,
DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11; (2) an affirmation from Steven J. Baum, Esq., the principal of Steven J. Baum, P.C., explaining if both MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., the assignor of the instant mortgage and note, and DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11, the assignee of the instant mortgage and note, pursuant to 22 NYCRR § 1200.24, consented to simultaneous representation in the instant action, with “full disclosure of the implications of the simultaneous representation and the advantages and risks involved” explained to them; and, (3) an affidavit from an officer of the FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11, explaining why plaintiff DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR FIRST FRANKLIN MORTGAGE LOAN TRUST 2006-FF11 purchased a nonperforming loan from MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., as nominee for FIRST FRANKLIN, A DIVISION OF NATIONAL CITY BANK OF IN.
This constitutes the Decision and Order of the Court.

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Washington Mutual v. Raymond & Rhonda Payne

Posted on July 8, 2009. Filed under: Case Law, Foreclosure Defense, Housing, Mortgage Law | Tags: , , , , , , , , , , , , , , , , |

WASHINGTON MUTUAL BANK, NA, Plaintiff,
v.
RAYMOND R. PAYNE AND RHONDA K. PAYNE, Defendants.

Supreme Court, Suffolk County.
Decided June 15, 2009.
Shapiro & DiCaro, LLP, Rochester, NY, Attys. for Plaintiff.
David Gevanter, ESQ., Hicksville, NY, Attys. for Defendants.
THOMAS F. WHELAN, J.
ORDERED that this motion (#004) by defendant, Raymond R. Payne, for an order staying the public sale of the subject premises, vacating the judgment of foreclosure and sale and dismissing the complaint is considered under CPLR 5015 and is denied.

The plaintiff obtained a judgment of foreclosure and sale in this action on December 1, 2003. Prior thereto, the default on the part of the mortgagor defendants (Raymond and Rhonda Payne) was fixed and determined in an order appointing a referee to compute amounts due under the mortgage. For reasons not reflected in the record adduced on the instant motion, the public sale contemplated by the December 1, 2003 judgment has not yet been consummated.
By prior motion returnable February 23, 2007, the mortgagor/defendants, Raymond R. Payne and Rhonda Payne, moved to stay any impending sale of the premises, for a vacatur of the judgment of foreclosure and sale and dismissal of the complaint on the grounds that the plaintiff failed to acquire personal jurisdiction over them by due service of the summons and complaint. By order dated September 28, 2007, this court denied that application without a hearing, finding that the same was unmeritorious.
By the instant motion, defendant, Raymond R. Payne, moves again for a stay of the impending sale of the subject premises, an order vacating the judgment of foreclosure and sale and dismissal of the complaint pursuant to CPLR 5015. Although the order to show cause by which this motion was interposed lists several grounds for the requested relief, including improper service of the summons and complaint, the gravamen of the defendant’s demands for relief rest upon claims that the plaintiff lacked standing to commence and maintain this action due to its lack of ownership of the subject note and mortgage at the time of commencement of this action. For the reasons set forth below the motion is denied.
Recent case authorities emanating from the Second Department have held that the issue of the plaintiff’s standing is not a matter of subject matter jurisdiction but rather, is more akin to the issue of the plaintiff’s capacity to sue. In Wells Fargo Bank Minnesota National Association v Mastropaolo, 42 AD3d 239, 837 NYS2d 247 (2d Dept 2003), the Appellate Division, Second Department, instructed that “[w]here standing is put into issue by a defendant’s answer, a plaintiff must prove its standing if it is to be entitled to relief (see TPZ Corp. v Dabbs, 25 AD3d 787, 789, 808 NYS2d 746 [2d Dept 2006]; see also Society of Plastics Indus. v County of Suffolk, 77 NY2d 761, 769, 570 NYS2d 778 [1991] [standing is an aspect of justiciability which, when challenged, must be considered at the outset of any litigation’ [emphasis added])”.
Continuing, the Court in Mastropaolo instructed that “where a defendant does not challenge a plaintiff’s standing, the plaintiff may be relieved of its obligation to prove that it is the proper party to seek the requested relief”. The Court went on to hold that “an argument that a plaintiff lacks standing, if not asserted in the defendant’s answer or in a pre-answer motion to dismiss the complaint, is waived pursuant to CPLR 3211(e)” [citations omitted]). (see Wells Fargo Bank Minn., NA v Mastropaolo, 42 AD3d 239, 242, 837 NYS2d 247, 250).
More recently, the Appellate Division, Second Department held that a defaulting defendant who moves for vacatur of a judgment of foreclosure and sale and a dismissal of the complaint on the grounds that the plaintiff was without standing to prosecute its claims for foreclosure and sale due to its lack of ownership of the note and mortgage, could not prevail on such application because said defendant waived the standing defense by failing to assert it in an answer or by way of a pre-answer motion to dismiss under CPLR 3211 (see HSBC Bank v Dammond, 59 AD3d 679, 875 NYS2d 490
Page 3
[2d Dept 2009]).

Since the moving defendant here has taken the same position as the unsuccessful movant in Dammond, this court denies defendant’s motion to vacate the judgment of foreclosure and sale on the grounds that the plaintiff lacked standing to prosecute that claim.
To the extent that this motion may be read as one for a stay of the sale, a vacatur of the December 3, 2003 judgment and a dismissal of the complaint on the grounds of lack of personal jurisdiction, it is denied. This second application for such for relief by the moving defendant, Raymond R. Payne, is procedurally improper and substantively insufficient in light of his prior, unsuccessful application for the same relief and the absence of any proof whatsoever, in support thereof.

Equally unavailing are the vague and conclusory claims of fraud which said defendant now asserts by his counsel against the plaintiff (see Wells Fargo Bank v Linzenberg, 50 AD3d 674, 853 NYS2d 912 [2d Dept 2008]; Aames Capital Corp. v Davidsohn, 24 AD3d 474, 808 NYS2d 229 [2d Dept 2005]).

In view of the foregoing, the instant motion is in all respects denied.

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States gain more power over banks

Posted on June 30, 2009. Filed under: Case Law, Legislation, Mortgage Fraud, Predatory Lending, Truth in Lending Act | Tags: , , , , , , , , , , , , , , , , |

Reporting from Washington — The Supreme Court ruled Monday that states could enforce some of their consumer protection laws against national banks, a move that could lead to tougher oversight than federal regulators have provided in recent years.

The 5-4 decision in a case involving attempts by New York’s attorney general to enforce fair-lending laws was praised by consumer and civil rights groups, who have accused federal regulators of being lax in policing banks chartered by the federal government.

“This puts more consumer cops on the consumer crime beat,” said Edmund Mierzwinski, consumer program director at the U.S. Public Interest Research Group. “The federal regulators have demonstrated they’re just having doughnuts in the coffee shop.”

Banking trade groups, however, warned that the ruling could lead to a confusing patchwork of enforcement levels in states that could cause national banks to offer fewer products, such as credit cards.

“This will make it difficult to serve consumers in today’s high-tech, mobile society where people and bank services move constantly across state lines,” said Edward L. Yingling, president of the American Bankers Assn.

The ruling has limited effect because it applies only to a small number of state laws, such as those dealing with discrimination in lending practices, including predatory lending. Most other state laws affecting national banks are enforced by federal officials.

And it only affects the approximately 1,600 national banks, not the larger number of state banks that are subject to the laws of the states in which they’re chartered.

But it is significant because it reverses a trend of states losing legal battles with federal officials over banking regulatory oversight.

The case’s importance also could be amplified by President Obama’s recent proposal to create a Consumer Financial Protection Agency that would allow states to enact and enforce tougher consumer protection laws than the federal government.

via States gain more power over banks – Los Angeles Times.

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