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Lenders Battle Over Loan Titles

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Mortgage lenders, servicers and trustees are fending off an array of challenges to their title on home loans. Appellate courts are handing down favorable rulings in some instances, while other decisions are stripping them of their security.

American Savings Bank, FSB, was unsuccessful in its appeal of a Greenup Circuit Court decision denying its motion to intervene in a foreclosure action in which the subject real property had been sold more than a year earlier.

The Court of Appeals of Kentucky wrote in its Nov. 16 decision that that the circuit court did not err in denying appellant’s motion as untimely. American, which held a second lien on the property, was not notified of a foreclosure filed by the first lien holder, Citizens National Bank, because it’s name was incorrect in court documents.

Bank of America, N.A., was added as a defendant to a lawsuit filed by Stanley G. Silva Jr. in his attempt at reformation of a deed of trust and declaratory relief. BofA appealed its unsuccessful attempt at quieting title and establishing the priority of its deed of trust over the plaintiff’s.

But the Court of Appeals of California, Sixth District, affirmed the lower court’s decision in an uncertified opinion.

A divorce court granted Marilyn Rogers in November 2007 a lien on a property owned by ex-husband William Morgan. The lien served as security for seven years of $3,600 alimony payments owed as part of the divorce decree. Rogers filed a notice of lis pendens the same month has her divorced finalized.

Morgan subsequently took out a first lien with Benefit Bank for $323,000. When Morgan defaulted, Benefit Bank filed a foreclosure action and named Rogers as a defendant. The circuit court ruled in favor of Rogers, affirming her lien position. An Arkansas appeals court overturned the decision, but the state’s supreme court affirmed the trial court’s decision.

The Court of Appeals of Washington affirmed on Oct. 29 a decision by the trial court in favor of Westar Funding Inc. While a $288,000 mortgage taken out in 1994 by John Sanchez with Washington Mutual Bank should have had priority over Westar’s $375,000 loan closed in 2008, the WaMu note had been extinguished through a foreclosure sale then was supposed to restored as a result of a court order — though the order was never recorded. The trial court determined that the Westar was a mortgagee in good faith and had priority.

Deutsche Bank National Trust Co. won its appeal filed with the Court of Appeals of Georgia contending that the trial court erred by concluding Deutsche was not entitled to reformation of a security deed executed in 2006 on a $105,544 loan from Ameriquest Mortgage Co. to Cheryl B. Hobbs. But the appeals court, however, disagreed with Deutsche’s contention that the trial court erred in concluding that Deutsche was not entitled to a judicial foreclosure since it failed to provide notice to Hobbs as required.

Tax Ease Lien Investments 1 LLC and U.S. Bank, N.A., appealed a post-judgment order from the Johnson Circuit Court ruling that the foreclosure sale purchaser American General Home Equity Inc. was required to pay only the amount in excess of its judgment-lien credit on its winning sale. They argue that American General should be required to pay the full amount of its bid for apportionment among the senior lien-holders. The Court of Appeals of Kentucky agreed, and reversed the circuit court’s order and remanded the case.

In Murphy v. Fishman, the Court of Special Appeals of Maryland ruled that a lender’s deed of trust was invalid because, at the time that the loan was made, the borrower’s title to the collateral property was being challenged in a pending lawsuit, Ballard Spahr wrote in a client newsletter. The title to the property was fraudulently conveyed to a son from his mother for no consideration days before she died. The court ruled that “because the lender had constructive notice of the estate lawsuit … at the time it acquired an interest in the property, it was not entitled to the protections to which a bona fide purchaser is entitled, and was not entitled to foreclose on the property. In sum, the lis pendens provided constructive notice, at the time the mortgage was acquired, of the existing interest in the property, thereby precluding the Lender from protection as a bona fide purchaser.”

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