Varied Strategies Used in Foreclosures Litigation

Mortgage News

Mortgage Daily Staff

                                                 March 24, 2011

Hot issues in foreclosure litigation include standing, Mortgage Electronic Registration Systems Inc. and the Servicemembers Civil Relief Act. A high volume of foreclosure-related cases has been keeping appeals courts busy. Attorneys for borrowers have been using some unusual tactics.

A California state appeals court has ruled that MERS can foreclose in California. “Under California law MERS may initiate a foreclosure as the nominee, or agent, of the noteholder,” California Court of Appeal Justice Joan K. Irion in San Diego wrote in a Feb. 18 ruling. The case is Gomes v. Countrywide Home Loans Inc.

The court upheld a ruling against Jose Gomes, who filed a lawsuit in 2009 for, among other things, “wrongful initiation of foreclosure.” Gomes claimed that MERS did not have authority to initiate foreclosures in the Golden State because the current owner of his mortgage note had not authorized MERS to proceed with the action after he defaulted. Gomes borrowed $331,000 in 2004 and was sent a notice of default in 2009. The notice of default was sent by ReconTrust, which identified itself as an agent for MERS. Accompanying the notice of default was a declaration signed by a Countrywide employee, which was acting as the loan servicer.

In ruling against the homeowner, the court said that Gomes agreed, by signing the deed of trust securing the promissory note for the loan, that MERS had the authority to foreclose. The deed of trust specifically stated that the borrower understood that MERS only held legal title to the interests granted by the borrower but, if necessary to comply with law or custom, MERS (as nominee for the lender and lender’s successors and assigns) had the right to exercise any or all of those interests, including the right to foreclose.

The court also called the lawsuit “speculative,” basically declaring it to be fishing expedition to determine whether MERS had the right to foreclose. “Gomes has not asserted any factual basis to suspect that MERS lacks authority to proceed with the foreclosure. He simply seeks the right to bring a lawsuit to find out whether MERS has such authority. No case law or statute authorizes such a speculative suit.”

The plaintiff’s attorney has said he will appeal the decision.

That wasn’t the only ruling out of a California state court upholding MERS’ right to foreclose. On Feb. 15, the appeals court ruled for MERS in a similar case brought by Nancy G. Jimenez.

Minnesota has a law upholding MERS’ right to bring foreclosure actions while in Arizona, a state judge last year dismissed a class action by homeowners, ruling that the MERS system is not fraudulent.

Fannie Mae changed its policy in May 2010, ruling that MERS should not be named as a plaintiff in any foreclosure action on a mortgage loan owned or securitized by Fannie. The loan’s servicer should foreclose, Fannie said. MERS said in a Feb. 16 announcement that it will propose a rule change to stop members from foreclosing in its name.

On Wednesday, Freddie Mac advised its approved servicers in Bulletin No. 2011-5 that foreclosures can no longer be processed in MERS’ name.

Patton Boggs LLP recently wrote to its clients that the recent decision by the U.S. Bankruptcy Court for the Eastern District of New York in In Re: Ferrel L. Agard, 2011 WL 499959, has called into question the legality of the assignment and recordation practices of MERS. The law firm noted that roughly half of all residential mortgage pass through MERS.

“The decision in the Chapter 7 personal bankruptcy case came in response to a motion seeking relief from automatic stay filed by U.S. Bank, the servicer of the RMBS trust into which the bankruptcy petitioner’s residential mortgage was sold,” Patton Boggs wrote. “The Court granted U.S. Bank’s motion, but only on the grounds that a prior state court foreclosure judgment conclusively established that U.S. Bank was a creditor whose lien was secured by the property.”

Two Florida borrowers, through the Florida law firm of Forizs & Dogali, P.A., filed a class action lawsuit in January in federal district court in Tampa against Bank of America alleging improper action during mortgage foreclosures.

The plaintiffs include only borrowers who claim they were improperly foreclosed out of homes which are now, after foreclosure sales, owned by Bank of America. The complaint seeks to restore the borrowers’ rights in their homes and to establish that Bank of America’s claim of ownership can be invalidated.

Plaintiffs Teresa O’Neal and Michael Delgado allege that the bank used false and forged affidavits documents to obtain the properties. The Plaintiffs propose that all foreclosure sales based upon such documents should be invalidated.

In a telephone interview with, plaintiffs’ attorney Lee Atkinson said about 1,200 to 1,400 titles are involved. Bank of America has filed a motion asking the court to dismiss the lawsuit.

BofA is accused by Layton, Utah, Mayor Steve Curtis of starting the foreclosure process on his property while he was working on a modification, according to KSL Broadcasting.

In another Utah case — a class action against MERS, BofA, Countrywide Home Loans and several other defendants — U.S. District Chief Judge Tena Campbell recused herself, KCSG News reported.

July Canada sued BofA on March 17 in Marion County, Ind., over an alleged wrongful foreclosure, reported. Canada claims she was working on a deed-in-lieu with the bank when her property was sold at a foreclosure sale.

The issue of standing — whether or not there is a legal right to bring a lawsuit — brought a victory for two Florida borrowers.

In Chase Home Finance v. Evan, a circuit judge ruled on Dec. 17, 2011, after a bench trial that U.S. Bank had not proved that it was the owner of the mortgage note at the time of the trial — a claim made with increasing regularity and success by foreclosure defense attorneys. Phillip and Viva Evans case was probably bolstered after U.S. Bank , N.A., reportedly filed an affidavit acknowledging that the original promissory note was missing and could not be located.

A federal law that has its roots in the Civil War has apparently stymied some lenders. A lawsuit involving a Michigan military veteran settled on March 8. Sergeant James Hurley said his lender, Deutsche Bank and Saxon Mortgage, a subsidiary of Morgan Stanley, illegally foreclosed on him in violation of the Servicemembers Civil Relief Act. A federal judge agreed.

Hurley was deployed to Iraq in 2004 and 2005. While overseas, his home was lost to foreclosure and his family was forced to move out.

The SCRA is designed to protect active military personnel from civil matters like foreclosure. Its origins can be traced back as the Civil War when Congress passed a total moratorium on civil actions brought against Union soldiers and sailors. Any legal action involving a civil matter such as divorce, bankruptcy or foreclosure was put on hold until after the soldier or sailor returned from the war. But, the law isn’t a musty relic from times gone by. President Bush signed into law a new version of the SCRA on Dec. 19, 2003, that included added protections for military personnel including a ceiling on the mortgage interest rate that can be charged when a veteran is deployed.

The Justice Department is investigating allegations that a mortgage subsidiary of Morgan Stanley foreclosed on almost two dozen military families from 2006 to 2008 in violation of the SCRA. And, JPMorgan Chase, according to several news reports, recently admitted that it inadvertently foreclosed upon several members of the military who may have been protected under the SCRA and has put into place a special division to handle military lending.

Chase made the move after a Marine captain filed a class action lawsuit claiming violation of the federal law. Chase said that, in addition to cash settlements to about 4,000 military mortgage holders who were overcharged on their interest rate, it will put 14 families back into the homes they lost to foreclosure.

A ruling by the Massachusetts Supreme Court upheld a Land Court ruling that overturned two foreclosures on loans that had been part of subprime securitizations. But Amherst Securities noted that this may sound bad, it’s not as serious as it sounds because the ruling does not question the validity of securitizations, it allows for assignment in blank and it provides a guide for what the banks would have needed to show to prove they owned the mortgages.

U.S. Bank issued a statement about the Massachusetts ruling indicating that it is only a trustee on the loan.

Another announcement from American Home Mortgage Servicing Inc. said that the affirmations by the Massachusetts Supreme Judicial Court “effectively rejected many grounds for the lower court’s decisions, and generally represents a good result for the mortgage loan securitization industry.”

An order denying Scott and Shelley Mattfeld’s motion for relief from a default judgment of foreclosure in favor of PHH Mortgage Corp. was overturned by the Court of Appeals of Wisconsin, District II. The appeals court agreed with the Mattfeld’s contention that because of defects in the service of the summons and complaint, the circuit court lacked the personal jurisdiction necessary to enter a default judgment.

A denied motion to set aside a default foreclosure judgment in favor of Fannie Mae against Sandra Maiden was reversed by the Court of Civil Appeals of Alabama. Maiden

The District Court of Appeal of Florida, Fourth District reversed a trial court’s denial of a motion to vacate amended notice of voluntary dismissal with prejudice. The borrower in the case was Zane G. Haecherl.

Among five settlements last year by Citigroup Inc. over faulty assignments was a bankrupt New York borrower, Bloomberg News reported. The assignments were reportedly signed by an employee at Orion Financial Group Inc. in Southlake, Texas.

In a California case, an 89-year-old Pacifica widow whose trust in the contractor that worked on her house was rewarded with a home-equity loan of which she had no knowledge prevailed in court with the help of two attorneys.

Pauline Reade faced foreclosure after she learned that the documents she signed for a permit to get a backyard shed repaired included paperwork for a loan against her house. Reade said she was not aware that she was mortgaging her home. With the help of the Legal Aid Society of San Mateo County, a lawsuit was filed to stop the foreclosure. The lawsuit was filed against handyman Fetuu Tupoufutuna as well as Deutsche Bank National Trust Co., GMAC Mortgage and MERS.

As part of the settlement worked out in San Mateo County Superior Court, the lien on Pauline Reade’s house was lifted and she won’t have to repay the $420,000 loan against her home.

Case Info:

Gomes v. Countrywide Home Loans Inc.
Case No. D057005, (California Court of Appeal for the Fourth Appellate District, San Diego).

Nancy G. Jimenez v. Mortgage Electronic Registration Systems, Inc., et al.
Case No. D056325 (Court Of Appeal, Fourth Appellate District, Division One, State Of California).

Teresa O’Neal et al v. Bank of America.
Case No. 8-11-CV-000107 (United States District Court, Middle District of Florida, Tampa, Florida).

Wright et al v. Bank of America, N.A. et al.
Case No.30-2011-00449059-CU-MT-CXC, Filed February 9 (Orange County Superior Court).

Chase Home Finance v. Evans.
Case No. 08-4436-CA-G (Circuit Court of the Fifth Judicial Circuit, Marion County, Florida).

Hurley v. Deutsche Bank et al.
Case No. 1:08cv361 (United States District Court for the Western District of Michigan).

Pauline Reade v. Fetuu Topoufutuna, Hilltop Mortgage, Alliance Title Company, GMAC Financial Services, Mortgage Electronic Registration Systems, Inc., Paul Financial, et al.
Case No. CIV 483083, Filing Date: Sept. 28, 2010 (Superior Court of the State of California, San Mateo County).

U.S. Bank National Association, trustee, v. Ibanez.
Case No. 10694 (Massachusetts Supreme Court).

Locker v. Ally Bank.
Case No. BC409444 (Superior Court of Los Angeles)

Case No. CA 10-887 (Court of Appeals of Arkansas, Division II).

No. 2010AP612 (Court of Appeals of Wisconsin, District II).

Sandra Maiden v. Federal National Mortgage Association.
Case No. 2090942 (Court of Civil Appeals of Alabama).

WELLS FARGO BANK, NA, Appellant, v. ZANE G. HAECHERL, Appellee.
Case No. 4D09-4569 (District Court of Appeal of Florida, Fourth District).

Mortgage Daily Staff

Related Posts

Third-Quarter 2012 Mortgage Litigation Index

Lawsuits involving excessive fees, servicing fees and loan fees beyond state maximums. Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story Fannie Mae and Freddie Mac Orangeburg County, Richland County, South...

Net Branch Lawsuits

Litigation involving net branch operations. Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story PHH Mortgage Corp. Mathews Supreme Court of Virginia na Court held that the term "branch office" includes not only...

Whistleblower Lawsuits

Litigation related to loan servicing, including escrow issues, transfer of servicing and servicing borrowers in bankruptcy and foreclosure.   Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story Bank of...

Mortgage Servicing Lawsuits

Litigation related to loan servicing, including escrow issues, transfer of servicing and servicing borrowers in bankruptcy and foreclosure. Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story BAC Home Loan...

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming paperwork has been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and furniture need to...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand-new mortgage loan can be a difficult task, especially for first-time homeowners.   After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first...


Don’t worry, we don’t spam