Understanding Mortgage Fraud ~ A Comprehensive Guide For Homeowners

31 Wednesday Jul 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Federal Court, Foreclosure Defense, Fraud, Judicial States, MERS, Mortgage Laws, Non-Judicial States, Notary, Note - Deed of Trust - Mortgage, Pro Se Litigation, Scam Artists, Securitization, State Court, Your Legal Rights

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Blank endorsement, Business, MER, mortgage, Mortgage loan, Negotiable instrument, Real estate, Securitization

How Homeowners Can Effectively Determine Various Forms of Fraud in their Mortgage Loan With Defective mortgage documents.

A) Why Titles of Home Foreclosure Sale To Buyers Are Often Defective.

How Can We Deal With the Problem?

Securitization Flow Chart and Structure

B) Transfer of Promissory Note

– – Negotiable instrument under Article 3 of the UCC

– Transferred by:

• Endorsement

• Delivery of the instrument

• Acceptance of delivery

• Negotiation = Endorsement + Delivery + Acceptance

C) Transfer of Mortgage

– – Mortgage is a real estate instrument

Subject to the statute of frauds

Must comply local real estate law

– Transferred by:

• Written assignment

• Delivery of the instrument

• Acceptance of delivery

• Recording of transferred mortgage

• “Assignment” = Written Transfer/Assignment + Delivery + Acceptance + Recording

D) Notarization Requirements

• Most state laws require “strict” compliance

• Signer must admit, by oath or affirmation, in the PRESENCE of notary to having voluntarily signed the document, and signer’s capacity

• Signer must make the OATH or AFFIRMATION before signing

• Must identify the signer by a federal or state issued photographic ID

• Penalties include civil and criminal

• Felony in most states to take a false acknowledgement

• Document is invalid with improper notarization

E) The Alphabet Problem With Securitized Transfers

• The loan closed in the name of the Broker/Lender

• Broker is funded by Warehouse Line of Credit
Warehouse Lender then sells paper to a Special Investment Vehicle (SIV)

• SIV then sells paper the Sponsor/Depositor

• Sponsor or Depositor then transfers to Trust

F) How Many Transfers

• A-Transfer: Consumer to Broker

• B-Transfer: Broker to Warehouse Lender

• C-Transfer: Warehouse Lender to SIV

• D-Transfer: SIV to the Depositor or Sponsor

• E-Transfer: Depositor or Sponsor to Trust

G) How Many Documents

• Four assignments and deliveries and acceptances of the Mortgage

• Four endorsements and deliveries of the Note

• Eight separate notarizations

• Eight UCC-1 financing statements

• Four recordings

• Four filing and transfer fees

H) The Allonge

• A paper attached to a negotiable note

• Purpose is to provide written endorsement

• Only used when back of negotiable instrument is FULL (no room)

• No need for notarization

• Simple signature and title sufficient,as with endorsement on note

I) Similar ABCDE Problem With the Mortgage Instrument

• A. Consumer must sign and deliver to Broker

• B. Broker must assign and deliver to the Warehouse Lender

• C. Warehouse Lender must assign and deliver to the SIV

• D. SIV must assign and deliver to the Depositor

• E. Depositor must assign and deliver to the Trust

• And all these assignments must be recorded!

J) Who Holds the Bearer Paper and Mortgages for the Trust?

• Normally a third-party bank that provides document custody services to the trust

• Provides trailing document filings

• Provides custody chambers for all members

• Executes assignments for members

• Execute endorsements for members

• Executes deliveries and acceptances

• Provide on-line document status certifications

K) What Does Trust Really Hold?

• Electronic data with loan numbers & collateral descriptions

• Electronic image of the original deed of trust

• Electronic image of the original mortgage note

• Rights in the documents by way of UCC-1 financing statements and the pooling & servicing agreements

L) The 3d-PartyOutsource Providers

• Fidelity National Default Services

• First American National Default Services

• National Default Exchange, LP(Barrett Burke Owned Entity

• Promiss Default Solutions(McCalla Raymer Owned Entity)

• National Trustee Services(Morris Schneider Owned Entity)

• LOGS Financial Services(Gerald Shapiro Owned Entity)

M) What Do the Outsource Providers Do for the Servicers?

• Create Assignments

• Create Allonges

• Create Endorsements

• Sign documents as if they were the VP or Secretary of a Bank, SIV, Depositor, Sponsor or the Trust

• Notarize these documents

• Create Lost Note Affidavits

• Create Lost Assignment Affidavits

• Create Lost Allonge Affidavits

• Draft court pleadings and notices

• Draft default correspondence, reports, etc.

N) How to Identify a Defective Endorsement or Allonge

• Allonge can never be used to transfer a mortgage

• Allonge can never be used if there is enough room on the original mortgage note for the written endorsement

• Note is endorsed and not assigned

• Date of the endorsement is before or after the date of the registration of trust

• And much more …

O) Defective Endorsements

• Notary is from Dakota County, Minnesota

• Notary is from Hennepin County, Minnesota

• Notary is from Jacksonville, Florida

• Signor’s company has no offices in notary’s state

• Date of endorsement and date of notarization are different

• Signor’s name is stamped –not written in script

• Signor claims to have signing authority but no authority attached

P) What About the Mortgages?

• Assignments and delivery follow same model as with the notes

• MERS is used to avoid registration of each assignment with local register of deeds

• MERS claims no beneficial interest in the note

• MERS claims no ownership rights in note or mortgage

• MERS claims it is nominee for true owner

• MERS delegates signing authority to all MERS members to sign documents as officers of MERS

• MERS does not supervise any of it’s designated signors

• MERS is not registered as a foreign corporation in most states

Q) How Does Trust Establish Lawful Ownership?

• Unbroken chain of note endorsements and acceptances from A to B, B to C, C to D, and D to E

• Unbroken chain of mortgage assignments and deliveries and acceptances from A to B, B to C, C to D, and D to E

• Unbroken chain of UCC-1 financing filings throughout the chain

• Unbroken chain of recorded mortgage assignments

R) But What Is Filed In a Typical Foreclosure?

• Complaint alleging that the borrower (A) executed a note and mortgage in favor of the plaintiff (E)

• Note and mortgage from borrower (A) to originating lender (B) attached

• Sometimes a purported mortgage assignment from (B) to (E) attached, also purporting to assign the note

• This assignment always defective, often not recorded

S) The Paper Trail and The Lack of Truth in Labeling

• Electronic data

• Fake dates & forged signatures

• False notarization

• False assignments

• Fake endorsements

• Fraudulent lost note affidavits

• Recreated documents & records

• Allonges and more

T) Is the Trust Really Secured?

• MAYBE –But it would be very difficult for any securitized trust to produce a valid set of original and unbroken assignments and endorsements

• Even if the trust produces ALLof the required documents, there is still the issue of the legality of the role of MERS on all required documents for recording

To Learn How You Can Effectively Use Some of These As Solid Arguments to Effectively Defend and Save Your Home Visit: http://www.fightforeclosure.net

How Pro Se Foreclosure Defense Litigants Can Effectively Defend & Save Their Homes

25 Thursday Jul 2013

Posted by BNG in Affirmative Defenses, Appeal, Case Laws, Case Study, Discovery Strategies, Federal Court, Foreclosure Defense, Judicial States, Legal Research, Litigation Strategies, MERS, Mortgage Laws, Non-Judicial States, Note - Deed of Trust - Mortgage, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Courts of New York, HSBC Bank USA, Law, Mortgage loan, New York, Plaintiff, Pro se legal representation in the United States, standing, United States

I General Answer Issues

• Be sure to raise lack of standing as a defense in the homeowner’s answer if the plaintiff’s ownership of the note and mortgage is questionable. Standing/capacity to sue may be waived if not raised in the answer.

• Late Answers:

• Pro se homeowners often do not file answers and do not seek attorneys until they receive notice of the settlement conference. In these circumstances, homeowner attorneys should serve and file a late answer. If the plaintiff rejects the answer, file a motion to compel acceptance of the late answer.

• A court may permit a defendant to file a late answer “upon a showing of reasonable excuse for delay or default.” CPLR § 3012(d); Cirillo v.Macy’s, Inc., 61 A.D.3d 538, 540, 877 N.Y.S.2d 281, 283 (1st Dep’t 2009).

• Mortgagor’s belief that foreclosure action was stayed during ongoing settlement negotiations with mortgagee was reasonable excuse for filing late answer. HSBC Bank USA, N.A. v. Cayo, 2011, 34 Misc.3d 850, 934 N.Y.S.2d 792.

• Courts have routinely permitted service of a late answer where the delay was not willful, the defendant has meritorious defenses, and service of the answer does not unfairly prejudice the plaintiff. See, e.g., Nickell v. Pathmark Stores, Inc., 44 A.D.3d 631, 632, 843 N.Y.S.2d 177, 178 (2d Dep’t 2007); Jolkovsky v. Legeman, 32 A.D.3d 418, 419, 819 N.Y.S.2d 561, 562 (2d Dep’t 2006); Watson v. Pollacchi, 32 A.D.3d 565, 565-66, 819 N.Y.S.2d 612, 613 (3d Dep’t 2006); Nason v. Fisher, 309 A.D.2d 526, 526, 765 N.Y.S.2d 32, 33 (1st Dep’t 2003)

• Allowance of a late answer is consistent with New York’s strong public policy in favor of a determination of controversies on the merits. See, e.g., Jones v. 414 Equities LLC, 57 A.D.3d 65, 81, 866 N.Y.S.2d 165, 178 (1st Dep’t 2008);Hosten v. Oladapo, 52 A.D.3d 658, 658-59, 858 N.Y.S.2d 915, 916 (2d Dep’t 2008); Kaiser v. Delaney, 255 A.D.2d 362, 362, 679N.Y.S.2d 686, 687 (2d Dep’t 1998).

Where the defendant has answered but not asserted a standing defense, a motion for leave to amend to assert a standing defense should be granted if such amendment causes no prejudice to plaintiff. U.S. Bank Natl. Assn. v. Sharif, 89 A.D.3d 723, 933 N.Y.S.2d 293, 2011 N.Y. Slip Op. 07835 (2d Dep’t Nov. 1, 2011) (motions for leave to amend should be freely granted absent prejudice or surprise from the delay in seeking leave; reversing denial of leave and holding that trial court should have dismissed for lack of standing upon plaintiff’s failure to submit either written assignment of note or evidence of physical delivery).

• New York law permits reciprocal attorney’s fees for homeowner’s attorney in defending against foreclosure on residential mortgages: RPL § 282.

II. Affirmative Defenses and Counter Claims

A. Standing and Capacity To Sue

• Many documents needed to establish standing were “robo-signed”

• Sloppiness in assigning mortgages to mortgage securitization trusts often makes it difficult for plaintiff trusts (or servicers) to establish standing.

1. The Difference Between Standing and Capacity to Sue

a. Standing Is Jurisdictional

• U.S. Constitution Article III – Case and Controversy Requirement

• Siegel on New York Practice: “It is the law’s policy to allow only an aggrieved person to bring a lawsuit. One not affected by anything a would-be defendant has done or threatens to do ordinarily has no business suing, and a suit of that kind can be dismissed at the threshold for want of jurisdiction without reaching the merits. When one without the requisite grievance does bring suit, and it’s dismissed, the plaintiff is described as lacking “standing to sue” and the dismissal as one for lack of subject matter jurisdiction.”

• “Standing 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….The rules governing standing help courts separate the tangible from the abstract or speculative injury, and the genuinely aggrieved from the judicial dilettante or amorphous claimant.” Saratoga County Chamber of Commerce, Inc. v. Pataki, 100 N.Y. 801, 766 N.Y.S.2d 654, 798 N.E.2d 1047 (2003)

• New York courts have treated standing as a common law concept, in contrast to federal approach, where it rests on constitutional and prudential grounds. New York case law tends to blend standing with capacity to sue.

b. Capacity to Sue v. Standing

• Capacity to sue goes to the litigant’s status, i.e., its power to appear and bring its grievance before the court. For example, a foreign corporation or LLC may not bring an action unless it is registered with the Secretary of State; minors lack legal capacity, etc.

• Standing requires an inquiry into whether the litigant has an interest in the claim at issue that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request. Is the relief sought in the case properly sought by this plaintiff?

2. Standing in a Foreclosure Case

• Foreclosing plaintiff must own the note and the mortgage at the inception of the action. Deutsche Bank National Trust Co. v. Barnett, 88, A.D. 3d 636, 931 N.Y.S. 2d 630, 2011 WL 4600619 (2d Dep’t Oct. 4, 2011); Kluge v. Fugazy ,145 A.D. 2d 537, 536 N.Y. S. 2d 92 (2d Dep’t 1988)

• Note: represents contractual debt obligation Mortgage: represents collateral security for debt

• Assignment of the mortgage without assignment of the debt, i.e. the note, is a nullity.

• Assignment must be complete before foreclosure is commenced

• Assignment can be by written assignment or by physical delivery of note and mortgage.

• An indorsed note (to the plaintiff or in blank) is not sufficient: the plaintiff must prove physical delivery before the foreclosure was commenced.

• If a written assignment involved and has a date, the execution date generally controls.

• Back dated assignment are ineffective absent proof of prior physical delivery. Wells Fargo v. Marchione, 69 A.D. 3d 204, 887 N.Y. S. 2d 615 (2d Dep’t 2009)

3. Common Assignment Red Flags in Foreclosure Cases

Assignments that jump over links in the chain of title, including timing.

• Suspicious or contradictory endorsements and allonges.

• Assignments from MERS as nominee

• Robo-signing of assignment documents

• Mortgage-Backed Securities Investment Vehicles: Pooling and Servicing Agreements and non-compliance with trust closing dates and other terms

4. MERS and Standing

• Second Department: assignment from MERS when MERS is designated merely as nominee of lender, and never owned note, is ineffective to confer standing on its assignee.

Bank of New York v. Silverberg, 86 A.D. 3d 274, 926 N.Y.S. 2d 532 (2d Dep’t 2011). See also In re Lippold, 2011 WL 3890540 (SDNY Bkrtcy 2011)(MERS, as assignor, could not legally assign the note as prior holder of note and mortgage only conferred legal rights with respect to the mortgage); In re Agard, 444 B.R. 231 (SDNY Bkrtcy 2011) (mortgage naming MERS as nominee did not authorize it to assign)

• Issues concerning who executes assignments on behalf of MERS (plaintiff’s counsel, robo-signing servicer employees?)

5. Waiver of Standing Defenses

• CPLR 3211(e) only provides that capacity to sue is waived; no mention of standing.

• Wells Fargo Bank v. Mastropaolo, 42 A.D. 3d 239, 837 N.Y.S. 2d 247 (2d Dep’t 2007); HSBC v. Dammond, 59 A.D. 3d 679, 875 N.Y.S. 2d 490, 875 N.Y. S. 2d 490, (2d Dep’t 2009); Countrywide v. Delphonse, 64 A.D. 3d 624, 883 N.Y. S. 2d 135 (2d Dep’t 2009).

• Cf. Security Pacific Nat’l Bank v. Evans, 31 A.D. 2d 278, 820 N.Y.S. 2d 2 (1stDep’t 2006) (plaintiff lender commenced action after merging with anotherbank; lack of legal capacity waived; not an issue of standing)

• Some trial courts have held there is no waiver of standing defense where plaintiff had not appeared or answered altogether. Deutsche Bank v. McRae, 894 N.Y. S. 2d 720 (Allegheny Cty. 2010); Citigroup v. Bowling, 25 Misc. 3d 1244A, 906 N.Y. S. 2d 778 (Kings Cty. 2009).

6.Leave to Amend Answer to Assert Standing Defense

U. S. Bank, Natl. Assn. v. Sharif, 89 A.D. 3d 723,933 N.Y.S. 2d 293, 2011 NY Slip Op 07835 (2d Dep’t Nov. 1, 2011) (reversing denial of leave to amend to assert standing and denial of motion to dismiss for lack of standing where plaintiff demonstrated no prejudice and failed to establish its standing to foreclose). Aurora v. Thomas, 70 A.D. 3d 986, 897 N.Y.S.2d 140 (2d Dep’t 2010) (affirming grant of motion for leave to amend to assert standing and capacity to sue, finding no waiver where documents relied upon were revealed during discovery); HSBC v. Enobakhare, 2010 Slip Op 31925 (U) (Richmond Cty. 2010) (granting motion for leave to amend answer; amended answer could assert defenses that were arguably waived by failure to assert originally)

• Deutsche Bank v. Ramotar, 30 Misc. 3d 1208(A), 2011 WL 66041 (Kings Cty. 2011) (denying summary judgment and order of reference, granting defendant who had previously answered pro se leave to file amended answer asserting standing and robo-signing defenses)

7. Standing as a Meritorious Defense to Vacate Default Judgments/Plaintiff’s Motions for Default/Summary Judgment/Order of Reference and Absence of Standing

• Prima facie case in a foreclosure case requires showing of ownership of note and mortgage. Campaign v. Barba, 23 A.D. 3d 327, 805 N.Y.S. 86 ( 2d Dep’t 2005)

• Distinction between moving to dismiss for lack of standing when defense has arguably been waived and opposition to plaintiff’s motion for summary judgment and order of reference for failure to establish ownership of note (prima facie case)

8. Sua Sponte Dismissals on Standing Grounds/Robo-signing Concerns

• Financial Freedom v. Slinkosky, 28 Misc. 3d 1209(a) (Suffolk Cty. 2010) (denying summary judgment where plaintiff failed to submit note and mortgage and failed to demonstrate standing) HSBC Bank USA, N.A. v Taher, NY Slip Op 51208(U) (Sup. Ct. Kings Cty., July 1, 2011) (denying order of reference, making detailed analysis of robo-signed assignments and affidavits of merit and amounts due, questioning employment histories of individuals who signed papers on behalf of different entities, determining that plaintiff lacked standing to foreclose because, among other reasons, assignment of mortgage from MERS as nominee, which never owned note, was ineffective, and dismissing with prejudice. In light of frivolous motion for order of reference by HSBC and its counsel, court scheduled hearing on sanctions and ordered chief executive officer of HSBC to personally appear at hearing)

9. Standing as Meritorious Defense (for leave to file untimely answer or to vacate default)

• Deutsche Bank National Trust Co. v. Ibaiyo, 20910-08 (Queens Ct. 2009) (meritorious defense criteria for CPLR § 3012 motion to extend defendant’s time to answer)

• Maspeth Federal Av. & Loan Ass’n v. McGown, 77 A.D. 3d 890, 909 N.Y. S. 2d 642 (2d Dep’t 2010) (trial court has considerable discretion on applications to vacate default and extend time to answer when determining existence of meritorious defense and reasonable excuse for default)

10. True Capacity to Sue Issues

• BCL §1372 (prohibits lawsuits by foreign corporations not authorized to do business in NY)

• Exception for foreign banking corporations via BCL § 103(a) and Banking Law § 200(4).

• Sutton Funding LLC v. Parris, 24 Misc. 3d 889, 878 N.Y.S.2d 610 (Kings Cty. 2009) (dismissing foreclosure where plaintiff was not a foreign bank and was not authorized to do business in NY)

B. Federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692-1692p

1. Scope of FDCPA Coverage

a. Who is covered

• Applies to debt collectors. § 1692a(6)

• Debt collector is any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts

• For §1692f(6) purposes it also includes any business the principal purpose of which is the enforcement of security interests.

• Or, any person who regularly collects, directly or indirectly, debts owed or due or asserted to be owed or due another.

• Includes debt buyers

• Includes attorneys who regularly collect consumer debts.

• There used to be an exemption for attorneys collecting on behalf of and in the name of a client. In 1986, Congress repealed this exemption.

b. Who is not covered

• Original creditors. § 1692a(6)(F)(ii)

• It does include any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. § 1692a(6)

• Creditors employees or agents collecting in the name of the creditor. § §692a(6)(A)

• State and federal officials performing their duties, such as the IRS or U.S. Dept. of Education. § 1692a(6)(C)

• Persons collecting debts not in default, such as some servicers. §1692a(6)(F)(iii)

• Process servers. §1692a(6)(D)

• At least one court has held that they are covered if they are engaging in sewer service Mel Harris v. Sykes, 757 F.Supp.2d 413 (2010)

c. What transactions are covered Consumer debts

• Consumer is defined in § 1692a(3) as “any natural person obligated or allegedly obligated to pay any debt”

• Does not apply to artificial entities, such as corporations Debts are defined in § 1692a(5) as any obligation of a consumer to pay money

• underlying transaction must be for money, property, insurance, or services

• must be primarily for personal, family or household purposes

• no business debts or fines Communications – § 1692a(2)

• Means the conveying of information regarding a debt directly or indirectly to any person through any medium

• Also applies to statements and activities during the course of litigation. Heintz v. Jenkins , 514 U.S. 291 (1995)

• Recent amendments to FDCPA clarify that a legal pleading

cannot be considered an “initial communication” under FDCPA.

• Note that this is a narrow amendment; other provisions of FDCPA still apply.

2. Substantive Consumer Protections

• Cease communications. § 1692c

• Dispute/verification. § 1692g

• Notice within 5 days of initial communication

• Right to dispute within 30 days of receiving notice

• Once debt collector receives dispute in writing, must stop all debt collection activity (including filing a lawsuit) until it provides “verification” of the debt.

• NOTE: Local NYC law expands these dispute rights. Under local law, consumers can request verification at any time. NYC Admin Code § 20-493.2.

• Verification must include (1) copy of the contract or other agreement creating the obligation to pay (2) copy of final account statement (3) an accounting itemizing the total amount do, specifying principal, interest, and other charges.

For each additional charge, the debt collection must state the date and basis for the charge. See § 2-190 of the Rules of the City of New York.

3. Prohibited Activities

• Communications. §§1692b & 1692c

• Contacting consumer after consumer sends cease communication letter

• Contacting consumer who is represented by counsel

• Contacting third parties about a consumer’s debt

• Contacting consumer at work if debt collector has reason to know that consumer’s employer prohibits such communication

• Common scenario: Debt collector can’t reach consumer, so calls consumer’s neighbor/family member/employer and leaves telephone number and message for the consumer to call back about an important matter. This is a violation.

• Harassment or Abuse. § 1692d

• Debt collector may not engage in conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with collection of debt

• Includes: threats of violence, use of profanity, repeated telephone calls for purpose of harassment, calling without disclosure of identity (e.g. threats to repossess property)

• False or Misleading Representations. § 1692e

• False representation of character, amount, or legal status of any debt (e.g., suing for more interest and fees than is actually owed)

• Threat to take any action that cannot legally be taken or is not intended to be taken

• Implying that consumer could be arrested or children taken away for nonpayment of debt

• Pretending to be attorney, marshal

• Making false or inaccurate reports to credit reporting agencies

• Unfair Practices. § 1692f

• Using unfair or unconscionable means to collect a debt

• Collection of any amount (including interest and fees) that is not actually owed

• Threatening to take or repossess property (a) without the right; (b) without the intent; (c) if property is exempt

4. FDCPA Litigation and Remedies

a. Statute of limitations

• one year from the date on which the violation occurs – § 1692k(d)

• No continuing violations doctrine

b. Jurisdiction

• May bring in either state or federal court

• May also bring as a counterclaim in a debt collection suit

c. Construction

• Strict liability statute – proof of the debt collector’s intent is not required

• intent is a factor that can be used when calculating damages

• Courts apply a “least sophisticated consumer” standard to analyze violations

d. Remedies

• Up to $1000 statutory damages

• A majority of courts hold that capped at $1,000 per action no matter how many violations are joined in the lawsuit

• Per Plaintiff

• Sometimes per Defendant, depending on the violation

• Factors used by courts in determining statutory awards:

• Intent to commit the violation or evade the protections

• Repetition of the violations

• Timely correction of the violations

• Multiple consumers affected by the violations

• Prior violations by the collector for similar acts

• Actual damages

• Attorney’s fees

• Declaratory relief

• No Injunctive relief

C. NYS Banking Law Defenses

1. Banking Law § 6-l

• Applies to loans made after April 1, 2003.

• Covers “high – cost home loans”: a first lien residential mortgage loan, not exceeding conforming loan size for a comparable dwelling as established by the Federal National Mortgage Association in which (1) the APR exceeds eight percentage points over the yield on Treasury securities having comparable periods of maturity; or (2) total points and fees exceed 5% of the total loan amount, excluding certain bona fide discount points if total loan is $50,000 or more.

• Prohibits, inter alia, (1) lending without regard to a borrower’s ability to repay; (2) points and fees in excess of 3% of the loan; (3) loan flipping; (4) kickbacks to mortgage brokers; (5) points and fees when lender refinances its own high-cost loan; (6) balloon payments, negative amortization, and default interest rates.

• Provides private right of action with 6-year statute of limitations (from origination); actual and statutory damages; attorney fees; possible rescission of the loan.

• Intentional violation may result in voiding of the loan.

2. Banking Law § 6-m

• Covers “sub-prime home loan”: a loan where the fully indexed APR for the first-lien loan exceeds by more than 1.75, or for a subordinate loan by more than 3.75, the average commitment rate for loans in the northeast region with a comparable duration as published in the Freddie Mac Primary Mortgage Market Survey (PMMS) in the week prior to the week in which the lender received a completed loan application.

• Lenders must take reasonable steps to verify that the borrower has the ability to repay the loan, including taxes and insurance.

• Prohibitions similar to those in Banking Law §6-l.

• Lenders must disclose charges for taxes and insurance and must escrow such payments after July 1, 2010.

If you are ready to take the battle to these interlopers, in order to defend and save the home that is rightfully yours, visit http://www.fightforeclosure.net

How Pro Se Litigants Can Effectively Conduct Discovery for Their Court Cases

16 Tuesday Jul 2013

Posted by BNG in Discovery Strategies, Fed, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pro Se Litigation, State Court, Trial Strategies

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Deposition (law), Discovery, Expert witness, Interrogatories, Law, Lawsuit, Legal case, Request for admissions

Discovery is the pre-trial phase in a court case during which each party can use certain methods to obtain information and facts and gather evidence about the case in preparation for trial. It is the principal fact-finding method in the litigation process.

Almost all trial courts allow a wide scope for discovery, the theory being that all parties should go to trial with as much knowledge as possible, and that the parties should not be able to keep secrets from each other. This broad right can involve the discovery of any material relevant to the case excepting privileged information that is privileged or information that is the work product of the lawyers for the other side.

This is different from what you’ve seen on television and in the movies where there is a surprise witness or a missing document is found. The goal of discovery is to avoid surprises and for all parties to go to trial with as much information as possible. Not surprisingly, many cases will settle during the discovery phase as a result of what is discovered and what would be unwise to disclose in discovery.

In practice, the majority of civil cases settle after or during discovery. After discovery, both sides usually are in agreement about the strength and weaknesses of their cases, which may lead to a settlement that eliminates the expense and risks of a trial. The use of discovery is sometimes criticized as favoring the wealthier side as one tactic is to make requests of information that are expensive and time-consuming for the other side to fulfill.

Types of Discovery
The most common types of discovery include:

Required Disclosures. Parties are required to disclose certain information regarding four kinds of core information without a discovery request that concerns witnesses, documents, damages, and insurance. Parties must also disclose information about any expert witnesses who may be used at trial to present evidence. Any report written by an expert retained to give testimony must also be disclosed. Before trial, the parties must disclose witnesses who will be called at trial and those who may be called at trial including those witnesses who will be presented through depositions. In addition, the parties must disclose a list of exhibits that will be presented at trial and exhibits that may be presented at trial.
Depositions. A device by which one party asks oral questions of the other party or of a witness for the other party. The deposition is taken under oath outside of the courtroom, usually in one of the attorney’s offices. The deposition is transcribed by a court reporter and a copy of the transcript is provided to both parties. The transcript of a deposition may be used as evidence at trial.
Written interrogatories. A set of written questions about the case submitted by one party to the other party, witness, or other person having information of interest which must be answered under oath, and the answers to which must be provided to the requesting party within a set period of time.
Production of documents and tangible things. A written request asking the other party to produce specified documents or things relevant to the case. An early request to view documents and other evidence allow for a viewing of evidence that might deteriorate over time. It will also prevent many instances of the disposing of such evidence.
Physical and mental examinations. A written request submitted to the other party requesting that a physical and/or mental examination be made of a party.
Requests for admission. Written statements of facts concerning the case that are submitted to the other party that the party is required to admit or deny. Statements that are admitted will be treated by the court as having been established and need not be proven at trial.

All discovery requests must be reasonably complied with, answered, or objected to in the proper amount of time. If discovery requests are not answered or objected to, and sometimes if they are improperly answered or an improper objection is made, the side requesting the discovery may ask the court to compel proper responses, including the production of the requested discovery. The court may assess sanctions against a party not responding properly to discovery requests.

Conducting Discovery Once an answer to a lawsuit is filed, the time for conducting discovery begins. The timing and methods for conducting discovery will vary from state to state and from court to court. There are substantial and numerous rules governing discovery in each case. You should check your state rules and court rules for conducting discovery. Although there is a broad scope of what may be requested in discovery, there are strict deadlines for requesting discovery and responding to discovery requests. It is very important to be aware of and follow the deadlines because of the potentially serious consequences for non-compliance.

Discovery is conducted by sending written requests in a proscribed form to the opposing party specifically listing the type of discovery sought, the manner in which it will be obtained, and the time for complying with the request. Check your state and local rules for the required form of these requests.

Each state’s rules will include versions of the following rules:

Written Interrogatories
Demands for Inspection
Requests for Admission
Propounding Party (party making the discovery request)
- Format of the discovery request;
- On whom the request should be served;
- Which party retains custody of the original discovery request; and
- Filing requirement (most discovery is not required to be filed with the court unless pertinent to a motion heard before the court).

Responding Party
- Format of written response;
- Effect of failure to respond in timely fashion;
- Objections to the discovery request;
- Verification (responding party must sign the responses under oath);
- On whom the responses should be served; and
- Filing requirement (most discovery is not required to be filed with the court unless pertinent to a motion heard before the court).
Each state will have its own rules as to when a plaintiff and when a defendant may serve notice of taking a deposition that is initiated by serving notice on the other party in the required format. The notice will indicate whose deposition will be taken, when it will be taken, and where it will be taken. There will also be rules concerning compelling a person or party to be deposed and steps to take to compel attendance at a deposition.

Each state will have its own rules as to the production of documents and tangible things. The party requesting the production must serve notice of the request in the required format. The notice will indicate which documents and things are to be produced, and when and where they are to be produced. There will also be rules for steps to take to compel production.

It is a general rule that all parties involved in civil litigation, whether represented by an attorney or not, should be civil to each other. One of the things encompassed within this requirement for civility is the accommodation of each other’s schedules within reason and is particularly important with discovery because of the tremendous amount of information being obtained and exchanged. If either party reasonably requests to change a time for a deposition or the time for exchange of documents, the other party should be accommodating. If the other party seems to make a practice of requesting changes, not complying with discovery requests, or only partially complying, it might be time to go to court and request sanctions.
For More Information How You Can Effectively Use Correct Discovery Procedures To Your Advantage in Winning Your Wrongful Foreclosure Litigation Visit http://www.fightforeclosure.net

Pro Se Guide To Civil Litigation

16 Tuesday Jul 2013

Posted by BNG in Appeal, Discovery Strategies, Federal Court, Foreclosure Defense, Litigation Strategies, Pleadings, Pro Se Litigation, Trial Strategies, Your Legal Rights

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Civil Procedure Outline

I. The Adversarial System

A. Four Lessons

1. Doctrine

a. Formal rules of litigation (FRCP)

2. Strategy

a. Practical considerations (time, money principle)

3. Theory

a. Different frameworks for understanding the civil litigation system

4. Skills

a. Actual practice (drafting a complaint, answer, negotiation)

B. Theories of Adjudication − FRCP 1: Rules shall be construed and administered to secure the just, speedy and inexpensive determination of every action. FRCP 1 does not provide much guidance. Therefore, the three theories below are applied

1. Fair Fight

a. Judge is passive referee that simply follows and enforces the rules

b. The only interests are those party to the litigation.

c. Mitchell v. A&K − Truck on the premises

2. Justice Between the Parties

a. Judge is active and corrects for disparities between the parties

b. Only interests are those party to the litigation

c. Conley − Black workers’ complaint lacks sufficiency but is accepted because need discovery

3. Greater Good

a. Judge is active and considers larger interests of society

b. Takes into account third parties (other interest than just those before the court)

c. Band’s Refuse − Judge called own witnesses and introduced own evidence

II. Initiating the Lawsuit

A. Plaintiff’s Claim (Complaint)

1. Process

a. File − FRCP 3: Action is started by filing the complaint with the court

b. Serve − Complaint is given to the opposing party or parties

2. Rules for assessing a complaint

a. FRCP 8(a) − A pleading which sets forth a claim for relief shall contain

· 8(a)(1) − A short plain statement of the grounds upon with the court’s jurisdictions depends, unless the court already has jurisdiction and the claim needs no new grounds for jurisdiction to support it;

· 8(a)(2) − Short, plain statement of a claim showing pleader is entitled to relief; and

§ Flaws to avoid

§ Missing an element

i. Concerns include

· Δ cannot answer

· Notice to the court

· Flush out meritless claims

§ Negating an element

§ Establishing an affirmative defense

· When flawed − Subject to motion to dismiss

§ Particularity

§ Beyond reasonable doubt that plaintiff can prove no set of facts to establish claim Connely = Mere possibility

§ Particular enough that can draw fair inference
Sutliff = fair inference

· 8(a)(3) − a demand for judgment for the relief the pleader seeks; relief in the alternative or of several different types may be demanded

b. Background rules

· Allegations taken as true

· Allegations considered on their face (no evidence) Mitchell v. A&K

· No legal argument Sutliff

3. Notice Pleading − level of detail or specificity

a. FRCP 12(b)(6) − complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that plaintiff can prove no set of facts in support of claim

i. Mere possibility
Complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief

1. Conely v. Gibson − Black union members sue for discrimination, defendant moves to dismiss for failure to state a claim, court holds for plaintiff

ii. Fair inference
Complaint must contain either direct allegations on every material point necessary to sustain a recovery or allegations from which an inference fairly may be drawn that evidence of material points will be introduced at trialSutliff v. Donovan

iii. Specific facts
Not good law Gillispie

b. FRCP 12(e) – Request for the Π to give a more definite statement of the allegations in the complaint

i. Board of Harbor Commissioners
Facts: Oil discharged into waterway. Unclear who did it. D moves for more definite statement in order to frame an appropriate response pursuant to Rule 7. Court held for P.
Rule: Leans toward the fair inference standard. Information is specific enough b/c all of the elements are addressed.
(If P gives more definite statement that is still not specific enough can follow up with motion to dismiss)

c. FRCP 12(f) − Motion to strike redundant, immaterial, impertinent and scandalous matter

4. Policy considerations for determining whether the complaint is specific enough (background policy considerations for borderline cases)

a. Sufficient notice to the D

b. Allows investigation

c. Provides early assessment of the merits

d. Prevents a fishing expedition

e. Who has access to the additional info

f. Harm is worthy of the litigation

5. Pleading in the alternative

a. FRCP 8(e)(2): A party may set forth 2 or more statements of claim or defense alternately or hypothetically

i. If by the nature of the circumstance the P would not know which allegations are right

ii. Lack of knowledge – pleading in alternative is OK

iii. If facts should be known – pleading in the alternative not OK

iv. Can only collect on one of the claims

b. McCormick v Kopmann (Car Crash Case)
Facts: McCormick dies in head on collision. Wife sues (1) bar owner (Huls) for over-serving alcohol and (2) driver (Koppman) for crossing over the center line, causing the collision with her husband. Koppmann moves to dismiss b/c of contradicting allegations. Denied.
Rule: Pleading in the alternative is allowed where the P lacks knowledge about the key facts in good faith
Policy: Look at the models of adjudication

i. Justice between the parties − Should not be able to plead in the alternative if she knows the truth

ii. Fair fight − Should be able to use the evidence b/c it could be used against her

6. Heightened Pleading Standard

a. FRCP 9(b)– In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge and other condition of the mind of a person may be averred generally

i. Strong inference standard

b. PSLRA(Private Securities Litigation & Reform Act) − State with particularity facts giving rise to a strong inference that D acted with required state of mind

i. 2nd Circuit – Strong Inference Standard (majority approach)

· P must show motive and opportunity to commit fraud

ii. 9th Circuit – Great Detail Standard

· P must plead with great detail for deliberately reckless OR conscious misconduct (allegations in detail of who, what, when, where, how)

c. Background policies for general particularity and heightened pleading

i. Giving notice to the D and the court

ii. Sometime giving the court the ability to assess the merits

iii. Preventing fishing expeditions

iv. Being attentive to who has the factual information

d. Ross v. Robins (Faulty Birth Control Case) – 2nd Circuit
Facts: Ross purchases shares of Robins. Robins did not report safety and efficiency problems with the Dalkon Shield, but knew about them. After FDA made a public disclosure of the problem, stock prices fell. D moves to dismiss under 12(b)(6) for failure to comply with 9(b). Move to dismiss granted. P appeals.
Rule: Cases involving the Private Securities & Litigation Reform Act must meet a heightened pleading standard. . . strong inference standard.

e. Cash Energy v. Weiner (Environmental Cleanup Case)
NOT GOOD LAW
Facts: Cash Energy engaged in storage and/or transfer of chemical solvents on a site adjacent to Weiner’s property. Weiner believes his land has been contaminated as a result of this activity. D moves to dismiss under 12(b)(6) for failure to comply with 9(b). Court grants motion to dismiss. P appeals.
Rule: Court holds cases involving CERCLA to heightened pleading standard, but this is not the law.

f. Leathermann v.Tarrant County (Drug Bust Case)
GOOD LAW
Facts: Tarrant Co. obtains search warrants. Homeowners claimed assault. Rule: Rule 9(b) only applies to cases involving fraud, mistake or PSLRA. Rule 8(a)(2) still stands otherwise. Cash Energy is NOT the law. Rely on Leatherman.

7. Voluntary dismissal

a. FRCP 41(a)(1) − P can dismiss the case unilaterally as long as it is before service of an answer or a motion for summary judgment. If after the answer or motion, must have stipulation of both parties.

b. FRCP 41(a)(2) − If parties are not in agreement, will need dismissal by order of the court

i. First time dismissed without prejudice

ii. Second time dismissed with prejudice

iii. If court doesn’t otherwise say, it is dismissed without prejudice.

c. Reasons for voluntary dismissal

i. To file in another jurisdiction (don’t like the judge)

ii. A way to avoid sanctions under Rule 11

iii. If judge may grant a motion to dismiss under Rule 12, might want to pre-empt the ruling

iv. The SOL may be running so just decide to go away quietly

B. Defendant’s Response

1. RULE 12 MOTIONS

a. Rule 12(a) − Timing to file responsive pleading

i. 12(a)(1)(A) − Answer complaint w/in 20 days

ii. 12(a)(4)(A) − After filing and serving 12(b)(6) motion, wait to hear back from court

iii. 12(a)(4)(A) − 12(b)(6) denied then must answer within 10 days

iv. 12(a)(4)(A) − If court postpones ruling on 12(b)(6), must answer withing 10 days

v. If court grants motion to dismiss do not need to answer

vi. 12(a)(1)(A) − Grants leave to amend, court will specify timing

vii. 12(a)(4)(A) − If court denies motion to strike then must answer within 10 days

viii. 12(a)(4)(B) − If court grants motion to strike then must answer within 10 days

Timing under 12(a)	Within 20 days	Within 10 days	Never
Answer complaint	12(a)(1)(A)
File and serve a 12(b)(6) motion			12(a)(4)(A) wait for court to rule
12(b)(6) motion is denied		12(a)(4)(A)
Court postpones ruling on 12(b)(6) motion		12(a)(4)(A) after notice by court
12(b)(6) motion is granted			Never
Grants leave to amend		12(a)(1)(A) Once P has amended, court will specify timing
Denies 12(e) motion for more definite statement		12(a)(4)(A)
Grants 12(e) motion for more definite statement		12(a)(4)(B) after P fixes complaint

b. Rule 12(b)
(b)(1) − Court lacks jurisdiction over the subject matter of the suit
(b)(2) − Court lacks proper jurisdiction over D
(b)(3) − Court is not the proper location for the suit; improper venue
(b)(4) − Insufficiency of process
(b)(5) − Insufficiency of service of process
(b)(6) − Failure to state a claim upon which relief may be granted

i. Motion to dismiss flaws

1. Missing an element

2. Negating an element

3. Establishing an affirmative defense

ii. Use Conely and Sutliff standards to assess whether 12(b)(6) should be granted

iii. Court is limited to the four corners of the complaint and must take all of the allegations as true

(b)(7) − Failure to join a party

c. Rule 12(c) − Motion for judgment on the pleadings (after the complaint and answer are done)

i. Vehicle for the D to answer

ii. For failure to state a claim

iii. Motion by the P if the Δ admits all of the relevant allegations

iv. Can be just like motion to dismiss for failure to state a claim, but is normally after the answer; same analysis

v. Must be brought forward without undue delay

d. Rule 12(e) − Motion for a more definite statement

i. Usually used b/c unintelligible, not for want of detail

ii. If you understand what the P is saying but want more detail, some courts grant the motion; others don’t (e.g. US v. Board of Harbors)

e. Rule 12(f) − Motion to strike

f. Rule 12(g) − All then available Rule 12 motions must be consolidated into one pleading. All defenses not brought are waived except as under 12(h)

g. Rule 12(h): Waiver or preservation of certain defenses

i. 12(h)(1) − Disfavored defenses

· Lack of personal jurisdiction – 12(b)(2)

· Improper venue – 12(b)(3)

· Insufficiency of process – 12(b)(4)

· Insufficiency of service of process – 12(b)(5)

ii. 12(h)(2) − Favored defenses

· Failure to state claim upon which relief can be granted – 12(b)(6)

· Failure to join a party – 12(b)(7)

iii. 12(h)(3) − Most favored defenses

· Lack of subject matter jurisdiction – 12(b)(1)

Rule	Rule Explanation	Defenses	Timing
12(b)(1)	Lack of subj matter jurisdiction	Most favored 12(g), 12(h)(3)	Bring at any time
12(b)(6)	Failure to state a claim upon which relief can be granted	Favored 12(g), 12(h)(2)	Can be made in any pleading or by motion for judgment on the pleadings or at trial on merits
12(b)(7)	Failure to join a party	Favored 12(g), 12(h)(2)	Can be made in any pleading or by motion for judgment on the pleadings or at trial on merits
12(b)(2)	Lack of personal jurisdiction	Disfavored 12(g), 12(h)(1)	Will be waived forever if you did not bring it with other Rule 12 motions
12(b)(3)	Improper venue	Disfavored 12(g), 12(h)(1)	Will be waived forever if you did not bring it with other Rule 12 motions
12(b)(4)	Insufficiency or process	Disfavored 12(g), 12(h)(1)	Will be waived forever if you did not bring it with other Rule 12 motions
12(b)(5)	Insufficiency of service or process	Disfavored 12(g), 12(h)(1)	Will be waived forever if you did not bring it with other Rule 12 motions

2. DEFAULT

a. FRCP 55(a) − Default entry by the clerk when the Δ has failed to respond

b. FRCP 55(b) − Default judgment by
(b)(1) − Clerk if the award amount is certain; have to give 3 days notice
(b)(2) − Court, P must show damages

c. FRCP 55(c) − Setting aside entry of default for good cause shown; if judgment has been entered, may likewise set aside under Rule 60(b)

d. FRCP 60(b) − relevant grounds for setting aside default judgment would be mistake, inadvertence, excusable neglect, surprise; this is more likely to not be set aside because it is that much more in the process

e. Three factors courts use to evaluate setting aside (Shepard Claims)

i. Non-defaulting party will not be prejudiced

· Witnesses, evidence, SOL

ii. Defaulting party has meritorious defense

iii. No culpable conduct by defaulting party

· If no prejudice and has meritorious defense, then culpable conduct must be willful for default to the set aside

f. Shepard v. Darrah
Facts: Shepard (independent claims adjuster) alleges that Darrah (insurance broker) failed to pay him for services rendered. After delivery of the complaint Darrah’s attorney misses filing date for answer due to confusion about extension
Rule: Default judgment will be set aside if P is not prejudiced, D has a meritorious defense and the conduct was not willful

3. ANSWER

a. Admitting or Denying

i. Admit an allegation as true

ii. Deny

iii. Lack knowledge or information sufficient to form a belief

iv. Hybrid- give more particular responses, combo of above

b. Rules

i. FRCP 8(b) − D shall respond to each averment by either (1) admit, (2) deny or (3) lack of knowledge or information sufficient to form a belief

· LKISFB is treated as a denial

· If it is found that you have sufficient knowledge or info, then LKISFB is treated as an admission (David v. Crompton & Knowles)

ii. FRCP 8(d) − Failure to deny – All averments are taken as admitted when not denied. All averment to which no responsive pleading is required or permitted shall be taken as denied or avoided

iii. FRCP 10(b) − Form of pleadings. Each claim or defense should be in a separate numbered paragraph; one allegation per paragraph

c. Purpose of the answer

i. Respond to the allegations

ii. Assert defenses

iii. Provide any counter or cross claims

d. David v. Crompton & Knowles
Facts: David was injured by a shredding machine in a factory. Δ says they don’t have sufficient knowledge to respond an allegation, then want to move to amend the answer to a denial. Motion to amend denied.
Rule: If you claim lack of knowledge and are found to have knowledge, could have acquired the knowledge (“Should have known”) or the info was within your control (“Only one who could have known”), then you have improperly used lack of knowledge answer and your answer will be deemed admitted instead of denied.

e. Affirmative Defenses (shield)

i. FRCP 8(c) − Affirmative Defenses (list is not exhaustive)

· D must include in answer, answer to amended complaint, or motion to dismiss or lose them FRCP 12(h)(1)

· D must raise the issue and the D must prove it

· SOL is a common affirmative defense

· 15(a) says you may amend an answer to insert affirmative defense

f. Counter Claim and Cross Claim (sword)

i. FRCP 13(a) − Compulsory Counterclaims must be brought or lost

· Must arise from same T&O weigh following factors

§ Logical relationship between the claims for them to be compulsory (liberal view)

§ Substantially the same evidence/facts – If the same evidence would substantially dispose of the issues raised by the opposing claims then the counterclaims are compulsory; if not, then they are permissive

§ Substantially same law applies

ii. FRCP 13(b) − Permissive Counterclaims may be brought but do not have to; different T&O

iii. FRCP 13(g) − Cross-Claim against Co-Party may be brought if same T&O as any of claims or counter-claims

iv. Purpose

· Judicial efficiency − same jury, same case load

· Consistency − Courts could rule differently on the same case or issue if raised at different times in different courts

· Destroys P’s image

Type of Claim	Against	Same T&O	Different T&O
Counter	Opposing Party	Compulsory 13(a) Must be brought	Permissive 13(b) May be brought
Cross	Co-party	13(g) May be brought	13(g) Cannot bring

v. Wigglesworth v. Teamster’s Union
Facts: During union meetings, Wigglesworth was prevented from exercising his free speech rights. After the complaint was filed, Wigglesworth holds a press conference at which he accused the union of being mafia run and that certain union elections had been fixed. Δ files counterclaim. Δ files motion to dismiss under 12(b)(1). Motion to dismiss granted.
Rule: Test for same Transaction and Occurrence:
Logical relationship between the claims for them to be compulsory (liberal view)
Substantially the same evidence/facts – If the same evidence would substantially dispose of the issues raised by the opposing claims, then the counterclaims are compulsory; if not, then they are permissive
Substantially same law applies
NOTE: All of the above factors do not need to be met for there to be same transaction and occurrence

C. Amended Pleadings

1. Process for amending

a. FRCP 15(a) − Party allowed to amend once as of right

i. Before a responsive pleading is served or

ii. If no responsive pleading is permitted, the party may amend within 20 days after it is served

Otherwise may only amend by:

(1) leave of the court or

(2) stipulation of the parties.

Leave shall be freely given as justice so requires

b. FRCP 15(b) − When issues not raised in the pleadings are tried by express or implied consent of both parties, they shall be treated as if they are part of the pleadings. Amended pleading allowed, but not required

c. If a disfavored Rule 12 motion is not brought in the answer, you can still amend the answer to include this Rule 12 motion so long as it is in the 20 day period

2. Standard for the court to allow a party to amend

a. Leave to amend will be given freely when justice so requires

3. Factors the court will take into account in denying leave to amend:

a. Undue delay

b. Bad faith

c. Prejudice to the opposing party

4. Relation back of an amended pleading

a. FRCP 15(c) − Relation back of amendment

i. 15(c)(2) − Relation back of a claim – amending to add a new claim when the statute of limitations has run from the original service of the pleading, must be same T&O (T&O test as above)

ii. 15(c)(3) − Relation back of a party − changing a party’s name or adding a party

· Change the D or the name of the D

· Name T&O (T&O test as above)

· Timing of notice – date of filing of original complaint + 120 days (Rule 4(m))

· Form of notice

§ Can be informal, just need to notify the party

· D is aware that but for a mistake of identity, he would have been named

§ Some jurisdictions say ignorance is not a mistake

iii. Swartz v. Gold Dust Casino
Facts: Swartz falls down stairs at the Gold Dust Casino. She alleges that the stair were thread bare, worn and slippery. Also, the stair violates the building code. Π files and serves a complaint against Gold Dust and Does I through V for negligence. Δ answers by denying the allegations. After discovery and interrogatories, Π discovered the true identity of Doe I and requests leave to amend their complaint. Δ files motion for summary judgment. Judge denies the motion for summary judgment. Motion for leave to amend is granted. Amended complaint is filed and served upon John Cavanaugh. Δ Cavanaugh raises 2-year statute of limitations as an affirmative defense in answer to amended complaint and moves for judgment on the pleadings.
Rule: Meets requirements for relation back

· Changing the party or changing the name of the party − Yes, Doe I becomes Cavanaugh

· Same transaction and occurrence − Yes, same day, same woman, same stairs (facts and evidence are the same); they are both negligence claims (doesn’t have to be the exact same claim)

· Timing of the notice − Notice (not filing) within 120 days of the filing of the complaint; ONLY NOTICE OF THE COMPLAINT IS REQUIRED, NOT FILING

· Form of notice − Cavanaugh got the amended complaint in the motion for leave to amend, also companies are so overlapped it is reasonable to assume that Cavanaugh would have known of the action

· But for a mistake about identity − Cavanaugh knew but for a mistake of identity that they would have been sued
Cavanaugh would argue wasn’t a mistake, it was ignorance

iv. David v. Crompton & Knowles
Rule: Meets the requirements for relation back

· Change the defendant − Yes, change Crompton to Hunter

· Same T&O − Yes, same accident, law, etc.

· Timing of notice − Maybe, Hunter is a division of Crompton (overlap of corporate entities)

· Form of notice − yes

· But for a mistake − Hunter would recognize that they would be on the hook for the machine; David thought Crompton was the manufacture. Maybe a mistake about ownership rights, not who is the manufacturer

D. Rule 11

1. FRCP 11(a) − Failure to sign a pleading, written motion or other written paper

2. FRCP 11(b) − In representations to the court attorney is certifying that he has made a reasonable inquiry and that to the best of his knowledge, information and belief

a. No improper purpose

b. Claims, defenses or other legal contentions are supported by existing law or by a non-frivolous argument for the extension of existing law

c. Allegations have evidentiary support

d. Denials of factual contentions are warranted on the evidence or are reasonably based on a lack of information or belief

3. FRCP 11(c) − Sanctions

4. FRCP 11(d) − Rule 11 sanctions do not apply to discovery (Rules 26-37)

5. Rule 11 Sanctions Process – 11(b)

a. Basis under 11(b)(1)-(4)

i. 11(b)(1) − Improper purpose, including delay

ii. 11(b)(2) − No basis in existing law
(two components, only have to meet one)

· Subjective − must believe had legal argument

· Objective − must actually have legal argument

iii. 11(b)(3) − No basis in evidence for the allegation or assertion

iv. 11(b)(4) − No basis in evidence for the denial

v. Creates standards/duty

vi. Notwithstanding your good faith if knowledge or information was not reasonably researched, subject to sanctions

b. Initiating Process − by motion or by court (no safe harbor when court initiates)

i. Serve motion on party who then has 21 days to correct problem or motion is filed in court

ii. Motion has to describe conduct

iii. Motion has to be separate from any other motion

c. Decision Process

i. Court has to give party chance to respond

ii. Describe conduct explicitly

iii. Describe basis for sanctions

d. Discretion

i. Can violate the basis and not be sanctioned

e. Type of Sanctions

i. Designed to deter not to compensate, because court was using as cost shifting mechanism

ii. Only strong enough sanction to deter conduct

iii. Court can refer to state bar, or to go to school, reprimand

iv. A represented party can be sanctioned

· Not monetary if basis is 11(b)(2) because client is not expected to know the law

v. Attorney’s fees and costs only available on motion

f. Target

i. Attorney

ii. Firm

iii. Party

Identify the action

Basis for sanction

Initiation

Decision

Process

Discretion

Types of Sanctions

Target of Sanction

Signing

11(a): Failure to sign paper

Notify party, court

N/A

Shall. 11(a)

No other option

Strike

N/A

Signing, filing, submitting, or later advocating position with…

-improper purpose (b)(1)

-no basis in law (b)(2)

-no basis in evidence for allegation or assertion (b)(3)

-no basis in evidence for denial (b)(4)

Sanctioned if frivolous either:

-subjectively (belief) or

-objectively (no reasonable inquiry; frivolous legal argument) 11(b)

Party’s motion:

-serve 21 days before filing (safe harbor)

-describe conduct

-only if not corrected

-not combine with other motion 11(c)(1)(A)

Court:

-order to show cause (OSC)

-describe conduct at issue 11(c)(1)(B)

Notice and opportunity to respond 11(c)

Order:

-describe conduct

-explain basis for sanction 11(c)(3)

May. 11(c) Can use discretion

Goal: Deter, not compensate 11(c)(2)

Options:

-nonmonetary directive (go to classes)

-monetary fine to court

pay other side’s attorney’s fees or costs 11(c)(2)

Restrictions:

-represented party not pay money under (b)(2). 11(c)(2)(A)

-attorney’s fees and costs only if on motion. 11(c)(2)

-no monetary sanction on court’s initiative unless OSC before voluntary dismissal or settlement. 11(c)(2)(B)

Party, attorney, law firm, or combination. 11(c)

6. Zuk
Facts: Zuk, psychologist, had EPPI record therapy sessions for rental. Writes books that has transcripts from session and gets copyright. Zuk furloughed (fired). Zuk requests copies of the tapes. EPPI ignores the requests. Requests them again 1994. Requests are denied.
Rule:

DISCOVERY

III. Discovery

A. Analyze

1. Proper use of device

a. Must be described with reasonable particularity

2. Responsive

a. Did the party ask for it?

3. Relevance − Rule 26(b)(1)

a. Reasonably calculated to lead to discovery of admissible evidence pertaining to claim or defense

i. Merits

ii. Background

iii. Impeach/Corroborate

iv. Clues

Ø If relevant to claim or defense do not need to make showing

Ø If relevant to subject matter, burden of proof shifts to party seeking discovery (need court order and good cause shown)

4. Protected

a. Privacy − Rule 26(c)

i. Annoyance, embarrassment

ii. Undue burden or expense − Rule 26(b)(2)

· Other means, source for same information

· Already been ample opportunity for discovery

· Rule 26(b)(2)(iii)

§ How much is it in controversy

§ What are parties’ resources

§ Needs of case

§ How relevant

§ What are important issues

§ Are there alternative sources of information

§ Consider models of adjudication

iii. Trade secrets − Rule 26(c)(7)

· Economic detriment

· Secret not generally known

· Injury has to be clearly defined, serious injury

· Competitive disadvantage

· Balance between harm of disclosure and necessity to litigation

b. Protective Order − Rule 26(c)

5. Privilege

a. Elements

i. With client (or prospective client)

· Upjohn − Modified control group test which stated that only those in corporation who are in a position to control or even take a substantial part in decision about any action which the corporation may take upon advice of attorney

§ Modification to protect parties (lower and mid-level employees) who disclose and in corporation will need lower level employees to disclose in order to find out what happened

ii. Legal advice

iii. Legal advisor

iv. Relate to advice

v. In confidence

6. Product − Rule 26(b)(3)

a. Prepared in anticipation of litigation or for trial

b. By or for another party, or by of for that other party’s representative (including attorney)

· Party may obtain discovery of ORDINARY WORK PRODUCT (but not opinion work product) if:

i. Substantial need

ii. Party cannot get the substantial equivalent without undue hardship

· In ordering discovery of such materials, court shall protect against disclosure of mental impressions, conclusions, opinions or legal theories of attorney or other representative (OPINION WORK PRODUCT)

§ Courts generally abide by this and protect against disclosure of opinion work product

§ 9th Circuit (minority view) − Allows discovery of opinion work product if (1) pivotal issue and (2) compelling need (not applied to attorney opinion work product)

v Must list in privilege log

B. Discovery Devices

1. Initial Disclosures − Rule 26(a)(1)

a. 26(a)(1)(A) − Party must disclose (provide or describe) what she is going to use to support her claim or defense (do not have to provide that which is harmful at this stage)

i. Potential witnesses (name, address, telephone)

ii. Documents

iii. Damages

iv. Insurance

2. Depositions − Rule 30

a. Testimony under oath that is recorded

b. Reasonable notice

c. Limited to 10 depositions

d. One day, seven hours per depositions

e. Only get to depose person once

f. Third parties can be deposed (special rules apply)

g. Rule 30(b)(6) − Describe in reasonable terms the category of person you want to depose, other side must provide the person that fits that category

h. Objections to form

i. Compound

ii. Confusing/Unintelligible

iii. Vague or ambiguous

iv. Misleading

v. Asked and answered

vi. Argumentative

vii. Mischaracterized witness testimony/Assumes facts not in evidence

· If objections not made at deposition, waive right for answer not to be admitted into evidence later

· Even after objection witness may answer, objections only serve to make answer inadmissible later

· Rule 30(d)(1)

§ Instruct not to answer

§ Privilege

§ Protective order in place or going to seek one

§ Any objection must be state concisely, speaking objections not permitted

3. Request for production (RFPs) − Rule 34

a. Describe a category with reasonable particularity

b. 30 days to respond (written response including objections)

c. Rule 34(b) − Produce those documents that are in producing party’s protection, control or custody (as kept or in categories, but not scrambled)

d. Rule 26(b)(5) − Privilege or work product

i. Materials that are attorney-client privilege

ii. Work product in preparation of litigation

· Privilege log − Must create a log of those items that are privileged, describe in general terms with objection

4. Interrogatories (Rogs) − Rule 33

a. Limited to 25 in number including subparts

b. 30 days to respond

i. Written answers by attorney and signed off by party

ii. Obligation to answer if reasonably obtainable

· Rule 33(d) − If have to look through a large amount of records can just give other party records in lieu of answering (shift burden to requesting party)

c. Contention interrogatories − Identify every fact (or all evidence) that supports your contention that X

i. Most courts will not allow early on

ii. Used to prove negative (to prove other side has no evidence of X)

5. Exams − Rule 35

a. Parties or those in care, custody or control of party (read narrowly)

b. Must be “in controversy”

c. Good cause shown

d. Must have stipulation by parties or court order

6. Request for admission (RFAs) − Rule 36

a. Extension of pleadings

C. Limitations on discovery

1. Rule 26(b)(2)(iii) − Undue burden

a. Outweighs likely benefits

b. Needs of case

c. Amount in controversy

d. Parties’ resources

e. Importance of the issue at stake

f. Importance of proposed discovery in resolving the issue

SUMMARY JUDGMENT

IV. Summary Judgment

A. Rule 56(a)

1. Claimant can move 20 days after commencement of action or after opposing party moves for summary judgment

B. Rule 56(b)

1. Defending party can move for summary judgment at any time

C. Rule 56(c)

1. Motion must be served at least 10 days before hearing (most courts require at least 21 days)

2. Standard − Summary judgment shall be granted if moving party makes showing that there is no genuine issue as to any material fact

a. What is fact at issue and why is it material?

i. Material if relevant to an element or affirmative defense

b. Is there a genuine issue about it?

i. Is it plausible that could come out either way?

· Adickes v. S.H. Kress & Co.

§ Key fact − Was there police officer in store?

§ Material to whether there was a conspiracy

§ D did not come up with enough evidence to initiate

§ D cannot do nothing in moving for SJ, must make some kind of showing (vague as to what this requires)

· Celotex v. Catrett

§ Key fact − Was P exposed to D’s product?

§ Material to causation

§ Rather than showing through affirmative evidence, D made showing that absence of evidence on other side (contention interrogatories often used)

§ Absence of evidence − Courts are split on moving party’s burden

Ø Point out there is no evidence (just state)

Ø Point to evidence in record to show lack of evidence

D. Rule 56(f)

1. Not enough chance for discovery on issue (premature)

E. Burden of production − Whether party has sufficient evidence to go to trial

F. Burden of persuasion − Which party must convince trier of fact

G. Party with burden of proof moves

1. Every reasonable jury would conclude that it is more likely than not that moving party is right

2. Ex. − Every reasonable jury would conclude that it is more likely than not that Jacques threw the rock

a. Required to make initial showing

b. Only if initial showing is strongly supported does opposing party have to respond

i. Burden of opposing party is to provide enough evidence to undermine moving party’s evidence sufficiently such that a reasonable jury could conclude that moving party is not more likely than not right

H. Party who does not have burden of proof moves

1. No reasonable jury would conclude that more likely than not that party opposing summary judgment is right

2. Ex. − No reasonable jury would conclude that it is more likely than not that Jacques threw the rock

a. Initial showing − Logically would make sense not to require initial showing, but if this were the case could be used as a weapon too easily

· Celotex − Ambiguous which of two standard applies

o Either merely point out that other side has no evidence

o Or must do discovery to show that other side has no evidence

i. Burden of opposing party is to provide enough evidence that a reasonable jury could conclude that it is more likely than not right

ii. Note that since party opposing summary judgment will have burden of persuasion at trial, if moving party has met its burden, simply attacking the moving party’s evidence will not suffice to survive summary judgment

For More information How You Can Use Some of These Pro Se Civil Litigation Guidelines To Effectively Challenge and Successfully Win Your Wrongful Foreclosure and Save Your Home Visit http://www.fightforeclosure.net

A Unique Anti-MERS Decision!

09 Tuesday Jul 2013

Posted by BNG in Affirmative Defenses, Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Litigation Strategies, MERS, Non-Judicial States, Pleadings, Pro Se Litigation, Securitization

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Clerk (municipal official), MERS, Mortgage Electronic Registration System, Motion (legal), Nelva Gonzales Ramos, Nueces County, Nueces County Texas, Texas

The judge’s denial of MERS/BoA’s Motion to Dismiss in the case of Nueces County v. MERS et al. is AMAZING! Not because it’s novel, but because it actually follows the law! Some of our customers are now using many of these same arguments–any sane, reasonable person would have! You have got to read this decision!

Normally I might be tempted to highlight a sentence or two from the judge’s order and then mumble through my understanding of it, but with this brilliant order, all that needs to be done is to provide the blockbuster, bombshell quotes from it (for those who may not have the time or inclination to read it). The quotes themselves are commentary enough, so here goes:

1. “MERS does not, however, hold any beneficial interest in the deeds of trust, and it is not a beneficiary of the deeds of trust. It is merely an agent or nominee of the beneficiary.” (p. 14)

2. “By having itself designated as the “beneficiary under the security instrument” in the deeds of trust presented to the County Clerk for recordation in the County’s property records, knowing that it would be listed as the grantee of the security interest in the property, it appears that MERS asserted a legal right in the properties. The Court concludes that, viewing the FAC’s allegations in the light most favorable to Plaintiff, one could plausibly infer that the recorded deeds of trust [naming MERS as “beneficiary”] constituted fraudulent liens or claims against real property or an interest in real property. ” (p. 14)

3. “While Defendants may not have acted with the actual purpose or motive to cause harm to the County, the FAC alleges that through their creation of MERS, Defendants intended to establish their own recording system in order to avoid having to record transfers or assignments with the County and paying the associated filing fees. (FAC ¶¶ 2, 3, 17.) Accordingly, one can reasonably infer from the allegations set forth in the FAC that Defendants were aware of the harmful effects the fraudulent liens would have on the County. That is sufficient to establish intent.” (p. 16)

4. “Accordingly, the Court concludes that the FAC sets forth sufficient facts to give rise to a plausible inference that Defendants made false statements to the County regarding their rights under the deeds of trust and their relationships to the borrowers in the mortgages issued by MERS members.” (p. 22)

5. “County records as having a security interest in the properties. Accordingly, viewing the allegations of the FAC in the light most favorable to Plaintiff, the Court concludes that one could plausibly infer that Defendants made material misrepresentations of fact to Plaintiff in the deeds of trust presented to the County for filing.” (p. 23)

We’re so excited we can hardly contain ourselves! This judge gets it EXACTLY right! She even defers to Carpenter v. Longan! There is obviously a major schism in the Texas federal judiciary, and this judge–Nelva Gonzales Ramos (an Obama appointee)–comes down on exactly the right side!

For More Information How You Can Use Well Crafted Arguments that Resulted to Major Ruling Against MERS Visit http://www.Fightforeclosure.net

How Backdated Mortgage Assignment Came Back To Haunt Foreclosure Lender

08 Monday Jul 2013

Posted by BNG in Appeal, Case Laws, Case Study, Foreclosure Defense, Judicial States, Legal Research, MERS, Non-Judicial States

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Foreclosure, Ibanez, Juarez, Loan, Massachusetts, Mortgage loan, U.S. Bancorp, US Bank

(1st Cir. Feb. 12, 2013)

U.S. First Circuit Court of Appeals Reinstates Borrower’s Wrongful Foreclosure Claim. (What Makes This Case Appealing is the Ibanez Ruling As Earlier Published on this Blog).

In a rare victory for a wrongful foreclosure claimant at the U.S. Court of Appeals for the First Circuit in Boston, the court reversed a dismissal of the borrower’s claims, ruling that a back-‐dated mortgage assignment rendered a foreclosure void.

The case is Juarez v. Select Portfolio Servicing, Inc. (11-‐2431)

Backdated Mortgage Assignment Proves Fatal

Melissa Juárez purchased a home in Dorchester, Massachusetts on August 5, 2005, financing it with reputed sub-‐prime lender New Century Mortgage.
The mortgage was packaged and bundled into a real estate mortgage investment conduit (“REMIC”), a special type of trust that receives favorable tax treatment, ultimately being held by U.S. Bank, as trustee.

Juárez could not afford the payments on the mortgage and defaulted.
Foreclosure proceedings began in the summer of 2008, culminating in the sale of her home at an auction in October 22,2008.

She claims, however, that lender did not hold the note and the mortgage at the time they began the foreclosure proceedings against her, and that the foreclosure was therefore illegal under Massachusetts mortgage law.

The problem in the case centered around the mortgage assignment into U.S. Bank, as trustee — the same problem the same bank faced in the landmark U.S. Bank v. Ibanez case.
The “Corporate Assignment of Mortgage,” appears to have been back-‐dated. It was dated October 16, 2008 and recorded in the corresponding registry of deeds on October 29, 2008, after the foreclosure had been completed. However, at the top of the document, it stated: “Date of Assignment: June 13, 2007,” in an obvious attempt to date it back prior to the foreclosure.

First Circuit Reinstates Borrower’s Wrongful Foreclosure Claims

After federal judge Denise Casper dismissed Juarez’s claims entirely on a motion to dismiss, the First Circuit reinstated the majority of Juarez’s claims.

U.S. Bank claimed that the back–‐dated mortgage assignment was merely a confirmatory assignment in compliance with the Ibanez ruling, but the appeals Court concluded otherwise:

Nothing in the document indicates that it is confirmatory of an assignment executed in 2007. Nowhere does the document even mention the phrase “confirmatory assignment.” Neither does it establish that it confirms a previous assignment or, for that matter, even make any reference to a previous assignment in its body.

Lacking a valid mortgage assignment in place as of the foreclosure, U.S. Bank lacked the authority to foreclose, the court ruled, following the Ibanez decision. Ms. Juarez will now get the opportunity to litigate her claims in the lower court.

Will Lenders Learn Their Lesson?

The take–‐away from this case is that courts are finally beginning to scrutinize the problematic mortgage assignments in wrongful foreclosure cases.

This ruling may also affect how title examiners and title insurance companies analyze the risk of back titles with potential back–‐dated mortgage assignments.

If a lender records a true confirmatory assignment, it must do much better than simply state an effective date.

To learn how you can use similar invalid assignment arguments to effectively challenge and reverse your wrongful foreclosure, visit http://www.fightforeclosure.net

What Homeowners Needs to know About Mortgage Assignments and Endorsements

04 Thursday Jul 2013

Posted by BNG in Affirmative Defenses, Appeal, Foreclosure Defense, Fraud, MERS, Mortgage Laws, Non-Judicial States, Note - Deed of Trust - Mortgage, Your Legal Rights

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IOU, MERS, Mortgage Electronic Registration System, Mortgage law, Mortgage loan, Promissory note, Trust deed (real estate), Uniform Commercial Code

When a potential homeowner takes out a loan to purchase a home, you are required to sign two documents: a promissory note and a mortgage (or deed of trust).

Assignments and endorsements are the ways that these documents are transferred between banks. Read on to learn the difference between an assignment of mortgage (or deed of trust) and an endorsement of the note.

How To Understand Mortgage Transactions

To fully understand the difference between an assignment of mortgage (or deed of trust) and endorsement of the note, you must understand the basic terms and documents involved in a residential mortgage transaction.

Mortgagee and mortgagor. A “mortgagee” is the lender. The mortgagee gives the loan to the “mortgagor,” who is the homeowner/borrower.

Loan documents. The loan transaction consists of two main documents: the mortgage (or deed of trust) and a promissory note. The mortgage (or deed of trust) is the document that pledges the property as security for the debt and permits a lender to foreclosure if you fail to make the monthly payments, whereas the promissory note is the IOU that contains the promise to repay the loan. The purpose of the mortgage (or deed of trust) is to provide security for the loan that is evidenced by a promissory note.

Loan Transfers. Banks often sell and buy mortgages from each other. An “assignment” is the document that is the legal record of this transfer from one mortgagee to another. In a typical transaction, when the mortgagee sells the debt to another bank, an assignment is recorded and the promissory note is endorsed (signed over) to the new bank.

These documents are separate and each has its own distinct set of rules that govern how they are exchanged between banks.

Assignments of Mortgage (or Deed of Trust)

An assignment transfers all of the interest the original mortgagee had under the mortgage (or deed of trust) to the new bank. Generally, the mortgage (or deed of trust) is recorded shortly after the mortgagors sign it and, if the mortgage is subsequently transferred, each assignment is to be recorded in the county land records.

The Role of MERS in the Assignment Process

When mortgages are transferred frequently, assignments are sometimes neglected. MERS (the Mortgage Electronic Registration System, Inc.), a company created by the mortgage banking industry, was developed to track ownership of mortgages. This eliminates the need for separate assignments when the loan is transferred. In some mortgage transactions, the mortgage will designate MERS as the mortgagee (solely as a nominee for the lender). These loans are referred to as MERS as Original Mortgagee (MOM) loans. In other cases, the loan may be assigned to MERS (solely as a nominee for the lender) at some point later in its life cycle after the loan closes. MERS then acts as an agent for the owner of the loan, but it never owns the mortgage loan or services it.

Promissory Notes

When a loan changes hands, the promissory note is endorsed (signed over) to the new owner of the loan. In some cases, the note is endorsed in blank which makes it a bearer instrument under Article 3 of the Uniform Commercial Code. This means that any party that possesses the note has the legal authority to enforce it.

Assignments and endorsements prove which bank owns the debt and may bring the foreclosure action. If the documentation was not proper, this can be a defense to foreclosure in some cases.

To find out how you can effectively use solid mortgage assignments and endorsement arguments and case laws for wrongful foreclosure defense visit: http://www.fightforeclosure.net

What Homeowners Needs To Know About MERS

03 Wednesday Jul 2013

Posted by BNG in Affirmative Defenses, Appeal, Federal Court, Foreclosure Defense, Fraud, Litigation Strategies, MERS, Non-Judicial States, Pleadings, Securitization, Trial Strategies

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Lien, MERS, Mortgage Electronic Registration System, Mortgage law, Mortgage loan, Promissory note, Real property, United States

In 1993, key residential mortgage lending industry participants1 gathered in order to bring then current developments in technology to the forefront in the establishment of a central, electronic registry for tracking interests in mortgage loans, thereby facilitating the transfer, acquisition and identification of those interests for custodians, servicers, investors and other participants in the industry. The goal was to eliminate the need and administrative expense for paper assignments of various mortgage-related rights as much as possible. The result of these efforts was the creation of the Mortgage Electronic Registration System, known as the MERS® System.2

Prior to the development of the MERS® System, when an interest in a mortgage loan was transferred, the parties would often change the mortgagee by assigning and recording the security instrument in the land records.3 Mortgage loans were frequently originated in the name of one lender and then transferred to aggregators, which might transfer contractual servicing rights to still another party. In each case, an assignment was recorded so that the purchaser or servicer would appear in the land records4 so that they would receive service of process and other legal notices as the lienholder in the public land records. To complicate matters further, when the servicing remained with the seller, the seller often remained mortgagee of record. If servicing changed hands, the land records were updated only if the new servicer wanted to receive service of process.5 This process could take a long time to complete—up to six months for a modest loan portfolio. County recorder offices struggled to manage the volume of filings, which threatened the integrity of the land title recordation system and jeopardized the ability of consumers to obtain residential mortgage loans. Error rates as high as 33% were common, with assignments recorded in the wrong sequence or missing altogether—clouding title to properties.6

The founders of the MERS® System intended for it to be a system that was open and available to mortgage industry participants, applying information technology to reduce costs and streamline the process, similar to implementation by the securities industry of book entry systems.

The stated benefits of the initially proposed MERS® System concept7 were:

a. Elimination of the need for subsequent assignments of the mortgage lien following closing of a loan.

b. Significant simplification of the loan tracking process.

c. Improvement of the lien release process.

d. Assistance in fraud reduction.

e. Simplification of procedures for delivering legal notices to mortgagees by providing an accurate database of beneficial owners of mortgage rights.

f. Cost reduction through voluntary immobilization of the mortgage note.8

The MERS® System was put into effect with the organization of Mortgage Electronic Registration Systems, Inc. (“MERS Inc.”), which serves as “mortgagee”, “grantee” or “beneficiary” (depending on state law; we will use the term “mortgagee” to refer to all three) in the security instrument, as nominee for the original lender and subsequent beneficial owners of the secured note. MERS Inc. is a wholly owned subsidiary of MERSCORP Holdings, Inc. (“MERSCORP Holdings”), which is owned by certain member financial institutions that utilize its services. The industry leaders, having worked hard to develop and achieve these laudable and practical goals, clearly had no idea what would befall the residential mortgage industry, nor how their motives and intentions would be twisted and vilified by critics in the current economic downturn.9

The Principles of MERS

The principles behind the MERS® System were derived from similar principles governing the establishment and function of the book entry registration and transfer system for securities established by The Depository Trust Company (“DTC”). Like the MERS® System, DTC is a member-owned institution that was created for the benefit of broker-dealer participants to facilitate transfers of securities in the securities markets. The benefits to the efficiency of securities transfers brought about by DTC have been clearly demonstrated and widely accepted.10 Much as “Cede & Co.” (the nominee holder of title to securities for DTC) does for beneficial owners of securities in the securities markets, MERS Inc. acts as the nominee of the lender (and its successors and assigns), who are beneficial owners of mortgage loans in the mortgage industry. In so doing, MERS Inc. becomes the mortgagee or beneficiary of record for the related mortgages and/or deeds of trust, for the benefit of the lender participants in the MERS® System.

To understand how the MERS® System operates, it is important to clarify the basic elements of a mortgage loan, which typically consists of two documents: (i) a promissory note between the lender and the borrower that sets forth the terms of the loan and establishes the obligation of the borrower to repay the loan secured by real property; and, (ii) a security instrument, which may be called a “mortgage,” “deed of trust” or a “security deed” (depending on state law; we will use the term “mortgage” to refer to all three), evidencing the pledge of the purchased or refinanced property as collateral or security for the loan. The mortgage is recorded in the real property records in order to provide public notice to third parties of the security interest encumbering the property. Sometimes the terms “note” and “mortgage” have been used interchangeably, resulting in confusion. They represent two different documents with separate but interrelated functions. For that reason, as discussed below and based on long-standing case law and regulations, it is not necessary that both documents be in the name of the same person or entity.

It is also important to understand what the MERS® System is and what it is not. Under the MERS® System, MERS Inc. and its parent, MERSCORP Holdings, serve two distinct functions. First, MERSCORP Holdings owns, operates and maintains the MERS® System, which is an electronic database or registry of mortgage loans that tracks changes in servicing rights and beneficial ownership interests in residential mortgage loans. Second, MERS Inc. serves as the mortgagee or beneficiary of record, or holder of the mortgage lien, in the public land records for the benefit of its members.

MERS Inc. claims no right to retain payments made on the promissory notes. It is not a mortgage banker. MERS Inc. does not take applications, underwrite loans, make decisions on whether to extend credit, collect mortgage payments, hold escrows for taxes and insurance or provide any loan servicing functions. MERS Inc. does not lend money or acquire the right to receive payments on mortgage loans. MERS Inc. does not receive compensation from consumers, just fees from its members.11

The bifurcation of roles and parties was not instituted by MERS Inc., rather it has a long history in mortgage finance and other developing commercial operations and in fact has been incorporated into state laws and regulations as will be discussed below.12 Where the mortgage (or an assignment thereof) names MERS Inc. as the mortgagee (or assignee of the mortgagee), then MERS Inc. has legal title13 to the real estate interest serving as collateral for the repayment of the loan, and the owner(s) of the note owns the beneficial interest in the loan secured by the mortgage. In such capacity, MERS Inc. remains the mortgagee of record, and pursuant to its contractual agreements with its members who are owners of the notes or servicers acting on behalf of the owners, any transfer of ownership or servicing must be communicated to the MERS® System to enable it to track such changes in order to provide the owner and servicer with filings and communications that MERS Inc. receives in its capacity as mortgagee of record. The borrower deals with the loan servicer—not MERS Inc.—in all matters of payment, modification or default on the loan.

In mortgage (non-deed of trust) states, the operative document defining MERS Inc.’s rights and functions is the mortgage. MERS Inc. is neither a party to, nor named in, the promissory note. Representative language can be found in a typical form of mortgage naming MERS Inc. as the original mortgagee14, which identifies three parties: the borrower, the lender and MERS Inc. MERS Inc. is further described as a separate corporation that is acting as mortgagee solely as a nominee for lender and lender’s successors and assigns. Under the mortgage, the borrower mortgages, grants and conveys to MERS Inc. (solely as nominee for lender and lender’s successors and assigns) and to the successors and assigns of MERS Inc., the property described therein. Furthermore, the mortgage includes an acknowledgment from the borrower that MERS Inc. holds only legal title15 to the interests granted by the borrower, but if necessary to comply with law or custom, MERS Inc. (as nominee for lender and lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the rights to foreclose and sell the mortgaged property; and to take any action required of the lender, including, but not limited to, releasing and canceling the mortgage. Thus, the express language of the mortgage instrument authorizes MERS Inc. to act on behalf of the lender in serving as the legal titleholder and exercising any of the rights granted to the lender thereunder.

In deed of trust states, the operative document defining MERS Inc.’s rights and functions is the deed of trust. Representative language can be found in a typical form of deed of trust naming MERS Inc. as the original beneficiary16, which identifies four parties: the borrower, the lender, the trustee and MERS Inc. MERS Inc. is described as a separate corporation that is acting solely as a nominee for lender and lender’s successors and assigns. In addition, MERS Inc. and the successors and assigns of MERS Inc. are further designated as the beneficiary of the deed of trust (solely as nominee for lender and lender’s successors and assigns). Under the deed of trust, the borrower grants and conveys to the trustee, in trust, with power of sale, the property described therein. Furthermore, the deed of trust includes an acknowledgment from the borrower that MERS Inc. holds only legal title to the interests granted by the borrower, but if necessary to comply with law or custom, MERS Inc. (as nominee for lender and lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the rights to foreclose and sell the property; and to take any action required of the lender, including, but not limited to, releasing and canceling the deed of trust. Thus, the express language of the deed of trust also authorizes MERS Inc. to act on behalf of the lender in serving as the legal titleholder and exercising any of the rights granted to the lender thereunder.

The Myths of MERS

In this section, we will address some of the more prevalent myths surrounding the MERS® System that have been perpetuated by various MERS’ critics and we will explain the facts and legal analysis that clarify and dispel such myths.

MYTH: The MERS® System is fraudulent and illegal.

FACT: The MERS® System is based upon sound legal principles and its legal validity has been upheld by a vast majority of the courts.17 The MERS® System relies on established principles of real property law, the law of negotiable instruments, and basic contract law that will be discussed herein.18 Rules governing security interests in personal property under the Uniform Commercial Code (UCC) also support the legal model for the MERS® System.19 Courts have long recognized the validity of using a nominee or agent as mortgagee as may appear in the mortgage instrument for recording purposes on behalf of the note owner.20 Agency relationships may be established by private contract, and common law principles of principal and agent shall supplement the rules governing secured transactions pursuant to UCC §1-103(b). Under Article 9 of the UCC, it is not necessary to record a mortgage assignment when the mortgage note is transferred or sold.21 Moreover, under real estate law, legal title can remain in a mortgagee (such as MERS Inc.) without invalidating the security instrument even though another party owns or holds the related promissory note.22 Significantly, the original recorded mortgage remains in place and provides sufficient notice of the lien to third parties, which is the primary purpose of such lien recording provisions.23

State legislatures have also recognized the validity and appropriateness of the MERS® System. For example, as a result of questions raised about the MERS® System, the Minnesota Legislature passed an amendment to the Minnesota Recording Act that expressly permits nominees to record “[a]n assignment, satisfaction, release, or power of attorney to foreclose.”24 The amendment, frequently called “the MERS statute,” went into effect on August 1, 2004.25

The Minnesota “MERS statute” provides that:

“An assignment, satisfaction, release, or power of attorney to foreclose is entitled to be recorded in the office of the county recorder or filed with the registrar of titles and is sufficient to assign, satisfy, release, or authorize the foreclosure of a mortgage if:

(1) a mortgage is granted to a mortgagee as nominee or agent for a third party identified in the mortgage, and the third party’s successors and assigns;

(2) a subsequent assignment, satisfaction, release of the mortgage, or power of attorney to foreclose the mortgage, is executed by the mortgagee or the third party, its successors or assigns; and

(3) the assignment, satisfaction, release, or power of attorney to foreclose is in recordable form.”26

In addition, under the Texas Property Code, the definition of “mortgagee” expressly includes a “book entry system,” which is defined as a national book entry system for registering a beneficial interest in a security instrument that acts as a nominee for the grantee, beneficiary, owner, or holder of the security instrument and its successors and assigns. 27 The definition of “book entry system” has been construed by several Texas courts to specifically include the MERS® System.28

MYTH: MERS Inc. lacks authority to act as mortgagee/beneficiary of record.

FACT: The authority of MERS Inc. to act as mortgagee/beneficiary of record is delegated by MERS’ members pursuant to well-established principles of property and agency law. Under general agency law, an agent has authority to act on behalf of its principal where the principal “manifests assent” to the agent “that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests or otherwise consents to so act.”29 Under the terms of the FNMA/FHLMC Uniform Security Instrument form of mortgage, MERS Inc. has the right to exercise any or all rights of the lender and its successors and assigns, including, but not limited to, the rights to foreclose and sell the mortgaged property, and to take any action required of the lender including, but not limited to, releasing and canceling the mortgage. Courts throughout the country have recognized that a lender who holds the beneficial interest in a loan may lawfully designate MERS Inc. as its nominee to hold legal title to the mortgage and serve as mortgagee of record, and have routinely enforced the provisions of mortgages in which MERS Inc. is named the mortgagee of record.30

MYTH: MERS Inc. does not have standing or authority to foreclose or seek relief from an automatic stay in bankruptcy.31

FACT: The concept of standing means that a party must have a legal interest or claim or the right to seek judicial enforcement of an obligation or action for relief in order to initiate a lawsuit or proceed in a legal action. Numerous courts have considered whether MERS Inc. is a real party in interest with standing to foreclose on a property or to move for relief from the automatic stay in bankruptcy (which prohibits creditors from pursuing any remedies upon a debtor’s bankruptcy filing). MERS Inc. has such interest and authority both (1) by express contractual terms, and (2) by law. First, the form of mortgage that appoints MERS as mortgagee and the MERS member agreement each grants MERS Inc. the authority to take action on behalf of a lender and its successors and assigns, including the enforcement of the rights and remedies under the mortgage. Specifically, the express language of a typical mortgage (where MERS Inc. is the mortgagee) provides that “if necessary to comply with law or custom, MERS Inc. (as nominee for lender and lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the [mortgaged property]; and to take any action required of lender including, but not limited to, releasing and canceling this [mortgage].” Second, Section 5.4(c) of the Restatement (Third) of Property (Mortgages) specifically provides that “[a] mortgage may be enforced only by, or on behalf of, a person who is entitled to enforce the obligation the mortgage secures”.32 Courts throughout the country have routinely and consistently held that MERS Inc. has both standing and authority to foreclose and seek relief on behalf of the beneficial owners of mortgage loans.33 The court in In re Huggins identified four reasons why MERS Inc. has standing to seek relief from an automatic stay in bankruptcy. “First, MERS is acting as nominee for [the noteholder], which holds the note . . . second, MERS is the record mortgagee under the Mortgage with the powers expressly set forth therein, including the power of sale . . . third, the Massachusetts foreclosure statute expressly authorizes the exercise of sale powers by a mortgagee, or person authorized to sell, precisely the position occupied by MERS . . . finally, a denial of MERS foreclosure right as mortgagee would lead to anomalous and perhaps inequitable results, to wit, if MERS cannot foreclose though named as mortgagee, then either [the noteholder] can foreclose though not named as a mortgagee or no one can foreclose, outcomes not reasonably or demonstrably intended by the parties.”34

However, there are also several minority decisions that, in some form, have taken issue with MERS Inc.’s authority to foreclose.35 None of them, to our knowledge, has invalidated a mortgage for which MERS is the nominee, and none of these decisions has challenged MERS Holdings’ ability to operate as a central system to track changes in the ownership and servicing of loans. Several decisions adverse to MERS Inc. have been reversed upon appeal, vacated or clarified by other court decisions.36

Notwithstanding the foregoing, in July 2011, MERS revised its Rules of Membership to prohibit the initiation of foreclosures in the name of MERS Inc. Under the revised rule37, MERS members are required to cause MERS Inc., through a MERS signing officer, to execute an assignment of the mortgage lien from MERS Inc. to the servicer, investor or a third party, prior to the initiation of a foreclosure proceeding or the commencement of an action for relief of an automatic stay in bankruptcy.

MYTH: The MERS® System creates an impermissible “split” between the mortgage and the note.

FACT: There is no “split” between the mortgage and the note because MERS Inc. holds the mortgage as mortgagee and nominee or agent for the Lender and its successors and assigns.38 MERS Inc. only appears in the security instrument and acts as a mortgagee of record in a nominee or agency capacity for the beneficial owner of the note.39

While litigants and critics continue to raise the issue that the use of MERS Inc. results in a purported impermissible split of the note from the mortgage, thereby rendering both unenforceable, their arguments have been consistently rejected by the courts. For example, in a recent Ninth Circuit case, Cervantes v. Countrywide Home Loans Inc., et al.,40 the plaintiff class alleged conspiracies by their respective lenders and others to use MERS Inc. to commit fraud as a sham beneficiary, among other things. The court found that plaintiffs failed to identify any representations made about the MERS® System and its role in their loans that were false and material; none of the plaintiffs’ allegations indicated that they were misinformed either about MERS Inc.’s role as a beneficiary or the possibility that their loans would be resold and tracked through the MERS® System; and they failed to show that the designation of MERS Inc. as beneficiary caused them any injury by, for example, affecting the terms of their loans, their ability to repay the loans or their obligations as borrowers.41 The court reviewed the express language of the documents the borrowers signed containing the substance of disclosure explained above and found that by executing the documents the plaintiffs agreed to the terms and were on notice of their content.42 “[T]he notes and deeds [mortgages] are not irreparably split: the split only renders the mortgage unenforceable if MERS or the trustee, as nominal holders of the deeds, are not agents of the lenders.”43 This distinction goes to the crux of the argument and the MERS critics. If a debt represented by a note is secured by collateral, then such collateral may not be separated from the note; although it may be held in the name of a different party as nominee or agent for the owner of the note; that is, the security follows the debt and in fact is released upon payment in full of such debt. MERS Inc. does not contend it acts in any capacity other than as mortgagee holding as agent or nominee for the lender. In a similar vein, recently a multi-district litigation (MDL) case involving MERS Inc. in Arizona was dismissed, citing in part the plaintiffs’ express agreement in the mortgages that MERS Inc. is the lienholder of record as agent for the lender and its assigns.44

The use of an agent to hold legal title in the mortgage while another holds a beneficial interest in the mortgage loan has a long history in the residential housing industry. For example, starting in the 1930s, mortgage lenders would originate and sell mortgage loans to investors under the Federal Housing Administration’s (“FHA”) insured loan program. The originating lenders would service and hold the mortgage loans, as mortgagee of record on behalf of the beneficial owners, whose names were not recorded in the county land records. Prior to the advent of residential mortgage securitization in the 1960s, it was common for two or more savings and loan associations to acquire a portfolio of mortgage loans and take participation interests therein. The participated mortgage loans were typically serviced by a mortgage loan servicer, as mortgagee of record on behalf of the various participants, whose names were also not recorded in the county land records. With the development of residential mortgage securitization in the late 1960s and early 1970s, Ginnie Mae, under its guarantee agreement, became the equitable owner of pooled loans while the originator or aggregator of the loans either remained or became the mortgagee of record and serviced the loans as an independent contractor for the benefit of investors in the Ginnie Mae mortgage-backed securities.45 Fannie Mae and Freddie Mac followed suit using a similar model.

In addition, the Restatement (Third) of Property (Mortgages) confirms that an agent may be used to enforce a mortgage on behalf of a note owner and even instructs that “[c]ourts should be vigorous in seeking to find such [an agency] relationship, since the result is otherwise likely to be a windfall for the mortgagor and the frustration of [the note owner’s] expectation of security.”46

Moreover, even the U.S. Bankruptcy Code accounts for this bifurcated structure by making it clear that a mortgage that is recorded in the name of a servicer that becomes a debtor in bankruptcy while it holds bare legal title to the mortgage does not become an asset of that servicer/debtor’s bankruptcy estate: “property in which a debtor holds . . . only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise . . . becomes property of the estate . . . only to the extent of the debtor’s legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.”47

MYTH: A transfer of the note requires a corresponding assignment of the mortgage.

FACT: A transfer of the mortgage note does not require a corresponding assignment of the mortgage. Under the MERS® System, MERS Inc. is named in the mortgage as nominee for the lender and its successors and assigns. The UCC, which has been adopted, with slight variations, by all 50 states, governs the transfer or sale of notes (whether they are determined to be negotiable or non-negotiable).48 However, the recordation of mortgages and requirements for their enforcement are governed by real estate law. This bifurcation of applicable law does not render their application mutually exclusive; rather, both the UCC and applicable real estate law in the respective jurisdiction must be complied with in order to have an enforceable note representing an obligation to pay, and an enforceable lien on the real property that is collateral for the note.

Under the UCC, a note sale or transfer is effective and enforceable upon meeting three criteria: (i) the buyer giving value, (ii) to a seller with rights in the note and (iii) execution of a security or purchase agreement that either describes the note or is accompanied by possession of the note.49

Once the note is sold or transferred such that the conveyance is enforceable or “attaches” as described above, there is a corresponding automatic transfer of the seller’s interest in the mortgage to the buyer. Section 9.203(g) of the UCC states “The attachment of a security interest [which includes the right of a buyer of the note] in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage or other lien.”50 These UCC rules do not address priorities of the security interest in the underlying property, enforcement of the mortgage, or the impact of filing or non-filing.51 Those issues are governed by the real estate law of the jurisdiction in which the property is located. But it is clear that under the UCC, the transfer or sale of the note includes conveyance of seller’s interest in the underlying mortgage.52 In order for the buyer of the note to be comfortable about its ability to foreclose or take any other necessary steps to realize on the collateral, it must have a contractual relationship with the mortgagee of record. Under the MERS® System, that contractual relationship exists, and MERS Inc. has been granted the right and authority to act on behalf of the owner(s) of the note as well as the servicer of the note. The roles are outlined by contract among the parties which specifies their duties and responsibilities under both the UCC framework as well as the real property recordation system.

MYTH: The MERS® System makes it harder for home owners to identify the servicer and beneficial owners of their mortgage loans.

FACT: The MERS® System actually makes it easier for home owners to identify the servicer and beneficial owner of loans that are registered on the MERS® System. The servicer is the party primarily responsible for negotiating loan modifications and conducting foreclosure proceedings. If a mortgage loan has been securitized, the “owner” of the mortgage loan will typically be a trust, which under the terms of the related pooling and servicing agreement, has delegated all loan servicing authority to the servicer. Consequently, the servicer is the crucial contact for homeowners seeking to modify or renegotiate the terms of their loans due to financial hardships, and the identity of the servicer is readily available to troubled borrowers if their mortgage loan is registered with the MERS® System. The MERS® System maintains a toll-free number (888.679.6377) and an Internet website (www.mers-servicerid.org) that enable borrowers to identify the servicer, and in most cases, the beneficial owner of their mortgage loan, if their mortgage loan is registered on the MERS® System.53 New servicers and beneficial owners of a loan are required to identify themselves on the MERS® System within days of the actual transfer of interests.

In addition, homeowners have other statutorily-mandated access to such information. Under the Real Estate Settlement Procedures Act (RESPA)54, mortgage loan servicers are required to notify borrowers when the servicing of their loan changes, and under recent changes to the Truth in Lending Act (TILA)55, transferees of mortgage loans are now required to notify borrowers when the ownership of their mortgage loan changes. This seems axiomatic since otherwise the borrower would not know where to send payments. Furthermore, the Dodd–Frank Wall Street Reform and Consumer Protection Act56 amended RESPA to require mortgage loan servicers to respond to qualified written requests from borrowers for the identity and address of the owner, or assignee, of their loan within ten business days after receipt thereof.57 These legislative and regulatory provisions validate and preserve the goals and intent of the original MERS system concept.

MYTH: MERS signing officers lack authority to act on behalf of MERS Inc.

FACT: MERS Inc. is a Delaware corporation and its actions are governed by its bylaws and the Delaware General Corporation Law (DGCL). Under the DGCL, there is no requirement that an officer of a corporation be an employee of that corporation.58 In addition, under the DGCL, there is no requirement that individuals serving as officers of a corporation be employed or compensated by that corporation.

Under Delaware law, a corporation may by board resolution appoint officers to carry out the corporation’s business.59 In addition, Section 142(a) of the DGCL provides that “any number of offices may be held by the same person unless the certificate of incorporation or bylaws otherwise provide.”

Since MERS Inc. has no employees, a majority of the actions taken by MERS Inc. in its capacity as mortgagee under mortgages and/or deeds of trust are taken by designated officers commonly referred to as “certifying or signing officers.” The signing officers are generally officers of MERS’ members that are responsible for carrying out servicing functions on behalf of such MERS members.

The MERS Inc. signing officers are appointed pursuant to a corporate resolution, duly adopted pursuant to authority granted by the Board of Directors of MERS Inc. Pursuant to the corporate resolution, these signing officers are appointed as assistant secretaries, assistant vice presidents and vice presidents of MERS Inc. and their authority is limited to: (1) executing lien releases, (2) executing mortgage assignments, (3) executing foreclosure documents, (4) executing proofs of claims and other bankruptcy related documents (e.g., motions for relief of the automatic stay), (5) executing modification and subordination agreements needed for refinancing activities, (6) endorsing over checks made payable to MERS Inc. (in error) by borrowers, (7) taking such other actions and executing documents necessary to fulfill the MERS member’s servicing duties, and (8) taking such ministerial actions and, in such ministerial capacity, executing and delivering all such instruments and documents as the officer(s) of MERS Inc. deem necessary or appropriate in order to effectuate fully the purpose of each and all of the foregoing powers, in each case only with respect to the loan owned by the related member.60 In order to be eligible for appointment as a signing officer of MERS Inc., a person must demonstrate a basic knowledge of the MERS® System and pass an annual certifying examination administered by MERSCORP Holdings.

We are not aware of any relevant case law that would suggest that the MERS Inc. business model of appointing signing officers is either inappropriate or illegal. In fact, several courts have upheld the MERS Inc. signing officer business model.61

The propriety of the MERS Inc. signing officer business model has also been upheld in an ethics opinion from the New York State Bar Association62 which found that no conflict of interest exists in violation of New York state bar professional conduct rules when an attorney serves as an officer of the mortgagee of record/assignor for the purpose of executing a mortgage assignment and also represents the assignee in the prosecution of the subsequent foreclosure action.

Courts have consistently upheld the authority of MERS Inc., in its capacity as mortgagee, to assign mortgages.63 When plaintiffs have challenged the authority of MERS Inc. signing officers to execute assignments in connection with foreclosure or bankruptcy proceedings, courts have consistently found that such plaintiffs lack standing to challenge such assignments because they are not parties thereto and are not the intended beneficiaries thereof.64 Significantly, such plaintiffs have failed to articulate any correlation between the alleged lack of authority and a resulting harm to the plaintiff occasioned thereby.

MYTH: The MERS® System creates a cloud on real estate titles.

FACT: The servicer (acting on behalf of the beneficial owner(s) of the note) is the entity responsible for initiating and completing foreclosure actions and, as such, the servicer (not MERS Inc.) is the entity that is responsible for assuring that mortgage assignments and mortgage notes are properly assigned to the real party in interest (i.e., the servicer or the note owner) prior to the commencement of foreclosure proceedings. MERS® System members have a substantial interest in providing accurate and current information because they rely on the MERS® System to obtain current information about note owners and servicers, as well as to obtain or receive legal notices served on MERS Inc. as mortgagee of record.65 Using MERS Inc. as the mortgagee of record actually reduces the possibility of missed or incorrect assignments that would create an unclear “chain of title” as to who is the actual mortgagee or beneficiary of the security instrument. When MERS Inc. serves as mortgagee, the recorded chain of title to the mortgage starts with MERS Inc. at origination and ends with MERS Inc. when it either releases the lien or assigns the lien to another entity.66 The MERS® System also streamlines the lien release process, reducing research time and recording fees.

MYTH: The MERS® System usurps the function of local recording officials to track changes in ownership of real property.

FACT: The land records have never been an authoritative source for who owns beneficial interests in and servicing rights to mortgages.67 The primary purpose of land records was not to track mortgage loan ownership rights, but to provide public notice of liens filed against the property in order to protect the lienholder (and not the debtor).68 A mortgage and any assignment of mortgage is typically recorded to protect the lienholder, and is generally not required by the county; rather there are incentives to record and disincentives for not recording.69 When a loan is registered on the MERS® System, the MERS member is required to record the mortgage (or assignment of mortgage) in the name of MERS Inc., at the loan owner’s expense, in the appropriate recording office.70 Thus, the public is placed on notice that MERS Inc. is the mortgagee of record for the benefit of its members, and MERS Inc., in its capacity as lienholder, holds a perfected security interest in the real property that is valid against other lenders, judgment creditors or potential purchasers of the mortgaged property. More importantly, the role of the MERS® System is not to record or track changes in ownership of real property; rather the MERS® System tracks non-recordable contract interests in servicing rights and ownership of promissory notes secured by the related property for the benefit of MERS Inc. members. Consequently, the land records system continues to perform the services of recording ownership changes without usurpation by MERS Inc., and MERS Inc. performs the functions its members designed and created, both of which facilitate real estate ownership and financing by fulfilling their separate but interrelated roles.

One court considering the allegation of usurpation of a government function concluded: “Since the law does not require payment of a recording fee when new assignments are not recorded, and since the public is not using the ‘MERS private recording system’ to determine the true nature of encumbrances upon real estate, MERS is not usurping any governmental authority or power.”71

MYTH: The MERS® System is a revenue evasion tool that deprives counties of needed revenues.

FACT: Recording fees are paid upon filing the original mortgage naming MERS Inc. as mortgagee. The MERS® System merely reduces the need to pay additional recording fees associated with subsequent transfers of mortgage loans or mortgage loan servicing rights among MERS members. Avoidance of these fees (which is not illegal) does not constitute revenue evasion. Fees are paid in exchange for a service. If the service is not required or necessary, then there is no “lost” revenue.72 As even one of the most vocal critics of MERS acknowledges, the real property records have become voluminous and difficult and expensive to search.73 Many county recording offices have not kept up with advances in technology or efficiency as other industries have, and simply were unable to efficiently and effectively handle the increasing volume of mortgage transactions as access to capital markets gave more consumers the ability to buy homes. Thus spawned the innovations and creativity of the private market and the development of the MERS® System. However, it is also important to note that the transaction volume for which county recorders would receive a fee should not decrease due to the use of the MERS® System from pre-securitization levels. MERS facilitates transfers of the note from originator to aggregator to depositor to trust—a minimum of three transfers in a short period of time—that did not occur prior to the development of the securitization market. A new mortgage or a release of mortgage must still be recorded any time that the borrower refinances or pays off her mortgage. Therefore, filing fees will still be paid for the several ongoing transactions requiring a filing in the public records. In a recent case brought against MERS Inc. by a county to recover damages for alleged intentional failure to record assignments and claiming unjust enrichment and civil conspiracy, the District Court held that, “There is simply no requirement to record assignments under Iowa law. To the extent the County’s claims rely on such a requirement, they fail to state a claim upon which relief can be granted.”74

MYTH: The MERS® System created or enabled securitization.

FACT: Securitization existed long before the development of the MERS® System. The earliest securitized transactions date back to the early 1970s and were the sales of pooled mortgage loans by the Government National Mortgage Association (Ginnie Mae). These transactions were followed by the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) in the early 1980s. The MERS® System did not originate until the mid-1990s. It is true that the MERS® System has facilitated the ease and efficiency with which securitization transactions are conducted, and this has been positive for bringing affordable financing options to more people. Securitization itself is not an evil to be vilified or destroyed. As Treasury Secretary Timothy Geithner said in announcing the Term Asset-Backed Securities Loan Facility (TALF) in February 2009, “No financial recovery plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses.”75

The Merits of MERS

To hear some commentators characterize the MERS® System,76 one might think that it is a nefarious scheme of the financial oligarchy to obfuscate real property records, deprive tax-paying citizens of knowledge concerning the ownership of their mortgage loans and divest overburdened county recorders of direly needed revenue from recording fees. That is simply not the case. The MERS® System is a perfectly legal and valid system for the electronic registration and tracking of beneficial ownership of mortgage loans and servicing rights. It was created by some of the leading participants in the mortgage industry77 for the purpose of facilitating the operation of the secondary mortgage market. It has substantially increased the efficiency of mortgage loan transfers within the secondary mortgage market, and has played a significant role in establishing the U.S. housing market, despite recent troubles, as the envy of the free market world.78

Since its inception in 1995, the MERS® System has become a critical component of the American mortgage finance industry.79 More than 74 million mortgages have been recorded in the name of MERS Inc., of which 27 million are currently active. The MERS® System has streamlined the way residential and commercial mortgage loans are sold, traded and securitized by eliminating the need to prepare and record separate assignments of the mortgage lien. By doing so, the MERS® System has saved consumers, investors, and the mortgage industry millions of dollars each year in recording fees and related costs as well as reduced the problems and errors associated with multiple filings, and reduced delays in transactions.80

In addition to providing an electronic registration and tracking system to track conveyances of mortgage loans and servicing rights in the secondary market, the MERS® System creates accountability and transparency, helps reduce recordation costs (which may ultimately benefit the borrower), reduces the risk of errors in recordkeeping, eliminates breaks in the chain of title and makes it easier to keep track of liens as loans are sold to other investors.81 In addition, the MERS® System fills an information void that county recorders cannot provide—the identity of the current servicer and beneficial owner of the mortgage loan. Furthermore, the current and easily accessible information on the MERS® System assists homeowners, lenders and title insurers in arranging for consolidations, loan modifications, payoff statements, deeds in lieu of foreclosure, short sales and releases.

The MERS Mortgage Identification Number, or “MIN”, which assigns a unique identifying number to each loan for the life of the loan, and the MERS® System have been fully integrated into the U.S. mortgage loan industry, and together they are the single most important existing tools for tracking loan level data in the home loan process.82 Through its use of MIN, the MERS® System helps:

Identify for homeowners the servicer and, in most cases, the beneficial owner of their mortgage loans;
Investors and credit rating agencies analyze the credit quality of mortgaged-backed securities;
Regulators monitoring compliance with the law;
Public agencies track housing and economic trends;
Local governments identify the parties responsible for maintaining vacant properties in connection with neighborhood preservation efforts;83
Keep distressed borrowers in their homes by speeding up the modification process; and
Law enforcement officials fight fraud by tracking down criminals who attempt to obtain multiple loans secured by the same property.

Conclusion

While the recent recession brought one of the worst economic calamities experienced in several generations, it is disingenuous to attribute its cause, even in part, to a process and structure designed to facilitate efficiency and home ownership and bring about modernization long overdue in the mortgage finance industry, particularly one that had been modeled after a similar system successfully implemented by DTC in the securities industry. Homeowners who are facing foreclosure for failure to pay their respective mortgage loans may present a sympathetic cause, but the fact of the matter is that many participants in the residential mortgage process share in the blame for an overheated and unsustainable market. But none of this should overshadow the legitimate benefits brought to the mortgage industry by the MERS® System.

In sum, through thousands of lawsuits, many of which were held to be without merit, MERS Inc. has established that the process and structure of the MERS® System are based upon sound legal principles. Mistakes have been made, and improvements to the process have been implemented to ensure that the MERS® System will continue to serve and advance the goal of providing efficient and effective mortgage tracking. But those detractors who allege deceptive practices, flawed systems, and conspiracies have been, and will continue to be, proven without merit. In some cases, they seem to be more interested in obfuscating the issue of a lender pursuing its rightful claim to collateral upon default of a loan rather than bringing transparency or improvement to a process that, while not perfect, functioned fairly well. In those areas where deficiencies have been discovered or improvements identified, MERS Inc. and its members have been quick to respond. We would all do well to learn the lessons from the recent fiscal calamity and work to bring about prudent and appropriate changes to rebuild a vibrant and transparent mortgage finance market that continues to include, and benefit from, the MERS® System.

1. Participants included the Mortgage Bankers Association (MBA), the Federal National Mortgage Association (Fannie Mae), the Government National Mortgage Association (Ginnie Mae), the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA).

2. See Phyllis K. Slesinger & Daniel McLaughlin, Mortgage Electronic Registration System, 31 Idaho Law Review 805 (1995).

3. Allen H. Jones, Setting the Record Straight on MERS, MORTGAGE BANKING 34 (May 2011).

4. Slesinger & Mclaughlin, supra note 2, at 809.

5. Jones, supra note 3 at 36.

6. R.K. Arnold, Yes, There is Life on MERS, 11 PROB. & PROP. 33, 34 (1997); Jones, supra note 3, at 36.

7. Slesinger & Mclaughlin, supra note 2, at 817.

8. Id. Under the initial MERS concept, the mortgage note would be immobilized through the development of standardized document custodian eligibility requirements or ratings to increase confidence in any particular custodian. Due to resistance by mortgage loan servicers, this aspect of the MERS concept was eliminated.

9. See Christopher L. Peterson, Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory, 53 William and Mary Law Review 1 (October 2011); see also, Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 University of Cincinnati Law Review 4 (Summer 2010); David. E. Woolley and Lisa D. Herzog, MERS: The Unreported Effects of Lost Chain of Title on Real Property Owners, 8 Hastings Business Law Journal, 365 (Summer 2012).

10. According to its website (www.dtcc.com/about/business), DTC provides custody and asset servicing for more than 3.6 million securities issues from the United States and 121 other countries and territories, valued at US$36.5 trillion. In 2010, DTC settled nearly US$1.66 quadrillion in securities transactions.

11. See Mortgage Electronic Registration Systems, Inc. v. Nebraska Department of Banking and Finance, 704 N.W.2d 784, 787 (Neb. Oct. 21, 2005).

12. See infra notes 24-28 and accompanying text.

13. As described below, in deed of trust states, the trustee technically holds legal title to the property, in trust, and MERS Inc. is named as beneficiary in the deed of trust, in a nominee capacity for the owner of the note. For purposes of this discussion, it is important to understand that one party may hold legal title to a mortgage while another party owns the beneficial interest therein. See infra note 15 and notes 38-47 and accompanying text.

14. A sample form of the FNMA/FHLMC Uniform Instrument with MERS as original mortgagee is available on the FHLMC’s website at http://www.freddiemac.com/uniform/unifmers.html.

15. According to BLACK’S LAW DICTIONARY (9th ed. 2009), “legal title” is “a [form of] title that evidences apparent authority but does not necessarily signify full and complete title or beneficial interest” in property. This differs from equitable title, or beneficial ownership, which gives the holder thereof the right to the use and economic benefit of the property.

16. A sample form of the FNMA/FHLMC Uniform Instrument with MERS as original beneficiary is available on the FHLMC’s website at http://www.freddiemac.com/uniform/unifmers.html.

17. See, e.g., MERSCORP, Inc. v. Romaine, 861 N.E.2d 81 (N.Y. 2006) (N.Y. court of appeals found that recording MERS instruments did not violate New York recording statutes and ordered the county clerk to accept MERS mortgages, MERS assignments and other MERS instruments); Jackson v. Mortgage Electronic Registration System, Inc., 770 N.W.2d 487 (Minn. 2009) (court held that case law establishes that a party can hold legal title to the security instrument without owning the promissory note; the cases demonstrate that an assignment of only the promissory note, which carries with it an equitable assignment of the security instrument, is not an assignment of legal title that must be recorded for purposes of a foreclosure [under the Minnesota statutory foreclosure scheme]); In re Mortgage Electronic Registration Systems (MERS) Litigation, 744 F. Supp. 2d 1018, 1029 (D. Ariz. 2010) (court dismissed plaintiff’s claims alleging that the MERS system was fraudulent and that the MERS system facilitated fraudulent activity); In re Tucker, 441 B.R. 638 (Bankr. W.D. Mo. 2010) (finding that the language of the deed of trust clearly authorized MERS to act on behalf of the lender in serving as the legal title holder); Cervantes v. Countrywide Home Loans Inc., et. al., 656 F.3d 1034 (9th Cir. 2011) (court upheld that MERS is a legitimate system for tracking transfers of home mortgage loans and that MERS’ interposition as record title holder to the deed of trust does not invalidate the transaction); Taylor v. Deutsche Bank Nat’l Trust Co., 44 So. 3d 618 (Fla. 5th DCCA 2010) (found that the mortgage granted to MERS legal status as mortgagee, which MERS could assign to the foreclosing bank under the UCC); Mortgage Elec. Registration Sys., Inc. v. Bellestri, 2010 WL 2720802 (E.D. Mo. 2010) (finding that Bellistri’s failure to provide notice to MERS violated MERS’ constitutional due process rights); Deutsche Bank Natl. Trust Co. v. Traxler, 2010-Ohio-3940 (court recognized MERS’ authority to assign mortgage when designated as both nominee and mortgagee); Fuller v. Mortgage Elec. Registration Sys. Inc., United States District Court, Middle District of Florida, Jacksonville Division (Case No. 3:11-cv-1153-J-20MCR) (June 27, 2012) (court found that “MERS has not committed an unlawful act, or a lawful act by unlawful means” and that “the Florida courts have consistently affirmed the use of MERS as the designated mortgagee of record and the principle that MERS may serve as mortgagee or as nominee for the lender and the lender’s successors and assigns.”); Smith v. Saxon Mortgage, 446 Fed. Appx. 239 (11th Cir. 2011) (appellate court found that district court correctly held that the Security Deed granted MERS the power of sale and the authority to assign the security deed); Volkes v. BAC Home Loans Servicing LP f/k/a Countrywide Home Loans Servicing, LP, 2012 WL 642673 (appellate court found that district court correctly held that the MERS assignment was valid).

18. Clark and Clark, MERS Under Attack: Perspective on Recent Decisions from Kansas and Minnesota, CLARKS’ SECURED TRANSACTIONS MONTHLY, February 2010, at p.2.

19. Id.

20. Id. at 2, citing In re Cushman Bakery, 526 F.2d 23 (1st Cir. 1975), cert. denied, 425 U.S. 937 (1976). See also, Residential Funding Co., v. Saurman, 490 Mich. 909; 805 N.W.2d 183 (Mich. 2011) (“It has never been necessary that the mortgage should be given directly to the beneficiaries. The security is always made in trust to secure obligations, and the trust and the beneficial interest need not be in the same hands. The choice of a mortgagee is a matter of convenience.”) (quoting Adams v. Niemann, 46 Mich. 135, 137 (Mich. 1881)); Jackson v. MERS, Inc., 770 N.W.2d 487 (Minn. 2009) (“A party can hold legal title to the security instrument without holding an interest in the promissory note.”); Boruchoff v. Ayvasian, 323 Mass. 1, 10 (Mass. 1948) (“[W]here a mortgage and the obligation secured thereby are held by different persons, the mortgage is regarded as an incident to the obligation, and, therefore, held in trust for the benefit of the owner of the obligation.”); First Nat’l Bank v. Nat’l Grain Corp., 131 A. 404, 406-07 (Conn. 1925) (“[A] mortgage may be held for the security of the real creditor, whether he is the party named as mortgagee or some other party, for the provisions of a mortgage are not necessarily personal to the mortgagee named. The real party in interest may be an assignee of the mortgagee or someone subrogated to his rights under the mortgage, or even a third person not answering either of these descriptions.”); Commercial Germania Trust and Sav. Bank v. White, 81 SO. 753, 754 (La. 1919) (“a mortgagor may make a mortgage in favor of a nominal . . . mortgagee”); Ogden State Bank v. Barker, 40 P. 769, 769 (Utah 1895) (“The mere fact that the mortgagee was not the real owner of the notes, but was simply a trustee or agent for the owners, does not affect the validity of the mortgage.”); Lawrenceville Cement Co. v. Parker, 15 N.Y.S. 577, 578 (Sup.Ct. 1891) (holding that bank official could hold mortgage, as mortgagee, for bank, which held the underlying promissory note).

21. See §9-203(g) of the UCC, which codifies the common law principle that the “mortgage follows the note.” In addition, by analogy, §9-310(c) of the UCC provides that if a secured party assigns a perfected security interest, an Article 9 filing is not required to continue the perfected status of the security interest against creditors from the original debtor. The original filing provides sufficient notice of the lien.

22. See infra notes 38-47 and accompanying text.

23. See Clark and Clark, supra note 18, at p. 3; Plymouth County, Iowa v. Merscorp, Inc. et. al. (Case No. C-12-4022-MWB) (U.S. Dist. Ct., No. Dist. of Iowa, Western Div.) (Aug. 21, 2012) (there is no statute in Iowa that requires the recording of mortgages or assignments of mortgages, but the failure to record will render the mortgage or assignment void in favor of subsequent purchasers and existing creditors who are without notice). See also infra note 68 and accompanying text.

24. Act of Apr. 6, 2004, ch. 153, §2, 2004 Minn. Laws 76, 76-77 (codified at Minn. Stat. §507.413 (2008)).

25. Id.

26. Minn. Stat. §507.413(a).

27. See Tex. Prop. Code §§51.0001(4) and 51.0001(1).

28. See e.g., Richardson v. CitiMortgage, 2010 WL 4818556 (E.D.Tex. Nov. 22, 2010).

29. RESTATEMENT (THIRD) OF AGENCY §1.01 (2006).

30. See, e.g., Romaine, 861 N.E.2d 81, 97 (MERS is a “proper mortgagee” and MERS Mortgages are “proper conveyance[s]’ for purposes of the recording statute.”); Deutsche Bank National Trust Co. v. Pietranico, 928 N.Y.S.2d 818 (Sup. Ct. Suffolk Cty. 2011) (The mortgage “expressly grants MERS the right to act on behalf of the lender as required by law and custom, including, but not limited to, the right to foreclose and sell the property and the right to take any action required of the Lender such as releasing and canceling the mortgage.”); U.S. Bank N.A. v. Flynn, 897 N.Y.S.2d 855, 857 (Sup. Ct. Suffolk Cty. 2010) (“MERS is acting as the nominee of the owner of the note and mortgage in which MERS is additionally designated as the mortgagee of record.”); Trent v. Mortg. Elec. Reg. Sys., Inc., 288 F. Appx. 571 (11th Cir. 2008) (“[MERS] is the mortgagee.”); In re MERS Litig., 744 F. Supp. 2d 1018, 1027 (D. Ariz. 2010) (“”[F]rom the very language of the deeds of trust, to which Plaintiffs agreed in entering into their home loan transaction, MERS is still acting as the nominee for the current holder of the promissory note . . . Nevada case law universally holds that [MERS security instruments] are enforceable.”); Calif. ex. rel. Bates v. Mortg. Elec. Reg. Sys., 2011 WL 892646, at *3 (E.D. Cal. Mar. 11, 2011) (The mortgage is “recorded in the public land records, making MERS the mortgagee of record.”); In re Tucker, 441 B.R. 638, 645 (Bankr. W.D. Mo. 2010) (“The language of the recorded Deed of Trust clearly authorizes MERS to act on behalf of the Lender in serving as the legal title holder to the beneficial interest under the Deed of Trust and exercising any of the rights granted to the Lender thereunder.”); Wade v. Meridias Cap., Inc., 2011 WL 997161, at *2 (D. Utah Mar. 17, 2011) (“MERS was appointed as the beneficiary and nominee for the Lender and its successors and assigns and granted power to act in their stead.”); Ciardi v. Lending Co., 2010 WL 2079735, at *3 (D. Ariz. May 24, 2010) (“To the extent Plaintiffs rely on a theory that the beneficiary must have an interest in the actual note, Plaintiffs have failed to cite any law so requiring.”).

31. As of July 22, 2011, MERS formally amended and implemented its Rules of Membership to provide that members are no longer authorized to initiate foreclosures in the name of MERS Inc. and an assignment of the mortgage from MERS Inc. to the foreclosing party must be recorded (informally suspended in February 2011).

32. Supra note 29 (emphasis added).

33. See, e.g., Eaton v. Federal National Mortgage Association, SJC-11041, 2012 WL 2349008 (Mass. June 22, 2012) (In order to exercise the statutory power of sale in Massachusetts, a mortgagee must either be the holder of the underlying promissory note or be acting under the authority of the note holder; physical possession of the mortgage note is not required in order to foreclose); Residential Funding Co. v. Saurman, 490 Mich. 909; 805 N.W.2d 183 (2011) (MERS Inc. is the owner of an interest in the indebtedness secured by the mortgage for purposes of Michigan statutory requirements and may thus conduct nonjudicial foreclosures by advertisement); Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, at 1156-57 (Cal. Ct. App. 2011) (The court concluded that even if there was a legal basis for an action to determine if MERS had the authority to initiate foreclosure, the language in the deed of trust granted MERS authority to initiate a nonjudicial foreclosure); Payette v. Mortgage Elec. Registration Sys., Inc., No. PC-2009-5875 (R.I. Supp. Ct. Aug. 22, 2011) (As a matter of contract, the mortgage signed by plaintiffs recognized MERS’ rights to act as nominee for IndyMac and for IndyMac’s “successors and assigns”); In re Mortgage Elect. Registration Sys., Inc. (MERS) Litig., No. 2:09-md-2119, 2010 WL 4038788, at *8 (D. Ariz. Sept. 30, 2010) (“Plaintiffs have not cited any legal authority where the naming of MERS . . . was cause to enjoin a non-judicial foreclosure as wrongful.”); Commonwealth Property Advocates, LLC v. Mortgage Elect. Registration Sys., Inc., Nos. 10-4182, 10-4193, 10-4215, 2011 WL 6739431, at *7 (10th Cir. Dec. 23, 2011) (affirming that MERS may foreclose as nominee for lender and its successors and assigns); Trent v. Mortg. Elec. Reg. Sys., Inc., 288 Fed. Appx. 571, 572 (11th Cir. 2008) (“Under the mortgage contracts, [MERS] has the legal right to foreclose on the debtors’ property. [MERS] is the mortgagee.”); Johnson v. Mortg. Elec. Reg. Sys., Inc., 252 Fed. Appx. 293, 294 (11th Cir. 2007) (affirming summary judgment to MERS on foreclosure of plaintiff’s property); Nicholson v. OneWest Bank, 2010 WL 2732325, at *4 (N.D. Ga. April 20, 2010) (“[T]he nominee of the lender has the ability to foreclose on a debtor’s property even if such nominee does not have a beneficial interest in the note secured by the mortgage.”); Orzoff v. Mortgage Elec. Registration Sys., 2009 WL 4643229, at *9-10 (D. Nev. March 26, 2009) (“This Court has previously determined that MERS does have such standing [to participate in foreclosure proceedings, and] . . . Courts around the country have held the same.”); Swanson v. EMC Mort. Corp., Case No. CV F 09-1507 LJO DLB (E.D. Cal. Oct. 29, 2009) (“MERS correctly notes that as [deed of trust] beneficiary, MERS is empowered to commence foreclosure proceedings . . .”); In re: Sina, No. A06-200, 2006 WL 2729544, at *2 (Minn. App., Sept. 26, 2006) (“Because MERS is the record assignee of the mortgage, we conclude that MERS had standing to foreclose); Silvas v. GMAC Mortgage, LLC, No. CV-09-265-PHX-GMS, 2009 WL 4573234, at *8 (D. Ariz. Jan. 5, 2010) (MERS empowered to foreclose where MERS is designated on deed of trust as beneficiary); Diessner v. Mortgage Elec. Registration Sys., 618 F. Supp. 2d 1184, 1187-91 (D. Ariz. 2009) (MERS and trustee under deed of trust are authorized to institute non-judicial foreclosure proceeding); Reynoso v. Paul Financial, LLC, No. 09-3225 SC, 2009 WL 3833298, at *2 (N.D. Cal. Nov. 16, 2009) (naming of MERS as initial beneficiary under deed of trust, as nominee for the lender, and the subsequent transfer of the deed of trust from MERS to a transferee was effective and did not hinder transferee’s right to foreclose); Blau v. America’s Servicing Co., No. CV-08-773, 2009 WL 3174823, at *8 (D. Ariz. Sept. 29, 2009) (MERS authorized under deed of trust to act on behalf of lender and transfer its interests); Farahani v. Cal-Western Recon. Corp., No. 09-194, 2009 WL 1309732, at *2-3 (N.D. Cal. May, 2009) (MERS authorized to pursue non-judicial foreclosure action); Vazquez v. Aurora Loan Servs., No 2:08-cv-01800-RCJRJJ, 2009 WL 1076807, at *1 (D. Nev. Apr. 20, 2009) (loan documents sufficiently demonstrate MERS’ standing “with respect to the loan and the foreclosure”); Pfannenstiel v. Mortgage Elect. Registration Sys., Inc., No. CIV S-08-2609, 2009 WL 347716, at *4 (E.D. Cal. Feb. 11, 2009) (dismissing plaintiff ’s claim that MERS lacked authority to foreclose); Trent v. Mortg. Elec. Reg. Sys., Inc., 288 Fed. Appx. 571, 572 (11th Cir. 2008) (MERS “has the legal right to foreclose on the debtors’ property” and “is the mortgagee”); Peyton v. Recontrust Co., No. TC021868, Notice of Ruling, at 2 (Cal. Super. Ct. County of Los Angeles S. Cent. Dist. Oct. 15, 2008) (MERS may foreclose under California law); Johnson v. Mortgage Elect. Registration Sys., Inc., 252 Fed. Appx. 293, 294 (11th Cir. 2007) (summary judgment for MERS on its action for foreclosure of plaintiff ’s property); In re Smith, 366 B.R. 149, 151 (Bankr. D. Colo. 2007) (MERS has standing to conduct foreclosure on behalf of the beneficiary); Mortgage Elect. Registration Sys., Inc. v. Revoredo, 955 So.2d 33, 34 (Fla. Dist. Ct. App. 2007) (“Because, however, it is apparent – and we so hold – that no substantive rights, obligations or defenses are affected by use of the MERS device, there is no reason why mere form should overcome the salutary substance of permitting the use of this commercially effective means of business.”); Mortgage Elect. Registration Sys., Inc. v. Ventura, CV054003168S, 2006 WL 1230265, at *1 (Conn. Super. Apr. 20, 2006) (MERS is proper party in foreclosure); King v. American Mortgage Network, et. al., Case No. 1:09-CV-125 TS (D. Utah, Aug. 16, 2010) (court, interpreting the language of the deed of trust, held that MERS had the authority to initiate foreclosure proceedings, appoint a trustee and foreclosure and sell the mortgaged property); Mortgage Elec. Registration Sys., Inc. v. Coakley, 41 A.D.3d 674 (NY App. 2007) (court held that MERS had right to foreclose pursuant to the clear and unequivocal terms of the mortgage instrument).

34. 357 B.R. 180, 183 (Bank. D.Mass. 2006).

35. See Niday v. GMAC Mortgage, LLC, Case No. A147430 (Or. Ct. App., Jul. 18, 2012) (appellate court held that, in connection with a non-judicial foreclosure, Oregon law requires a beneficiary of a trust deed to be a party to whom the underlying loan repayment obligations is owed) (Editor’s Note: as of the date of this article, the Niday case is on appeal to the Oregon Supreme Court); Mortgage Elec. Registration Sys., Inc. v. Graham, 44 Kan. App. 2d 547, 229 P.3d 420 (Kan. App. 2010) (having suffered no injury, MERS lacked standing to bring a foreclosure action); Mortgage Elec. Registration Sys., Inc. v. Saunders, 2 A.3d 289, 297 (Me. 2010) (finding that MERS could not enforce the note and that the substitution of Deutsche Bank for MERS was proper); In re Box, No. 10-20086, 2010 WL 2228289, at *5 (Bankr W.D. Mo. June 3, 2010) (finding that MERS, as beneficiary and nominee under the deed of trust lacked authority to assign the mortgage note because it never “held” the note itself); In re Hawkins, No. BK-S-07-13593-LBR, 2009 WL 901766, at *3 (Bankr. D. Nev. Mar. 31, 2009) (finding that MERS was not a true “beneficiary” under a deed of trust, that, under the UCC, MERS was not entitled to enforce the note, and that “[i]n order to foreclose, MERS must establish there has been a sufficient transfer of both the note and deed of trust, or that it has authority under state law to act for the note’s holder”); Bain v. Metropolitan Mortgage Group, Inc. et. al. and Selkowitz v. Litton Loan Servicing, LP et. al. (No. 86206-1) (Wash. August 16, 2012). The Washington Supreme Court held that MERS Inc. is not a lawful beneficiary under the Washington Deed of Trust Act because it is not “the holder of the instrument or document evidencing the obligations secured by the deed of trust” as required thereunder; that is, if MERS Inc. never held the note, then it is not a lawful beneficiary. However, in response to MERS Inc.’s argument that lenders and their assigns may name it as their agent, the court stated, “That is likely true and nothing in this opinion should be construed to suggest that an agent cannot represent the holder of a note. Washington law, and the deed of trust act itself, approves of the use of agents.” No doubt that point will be made forcefully when the lower court proceeding resumes.

36. See, e.g., Residential Funding Corporation v. Saurman, 292 Mich. App. 321, 807 N.W.2d 412 (Mich. Ct. App. Apr. 21, 2011) (court held that MERS did not meet the requirements to non-judicially foreclose by advertisement because MERS did not own an “interest in the indebtedness” as required by the foreclosure statute), rev’d, 490 Mich. 909, 805 N.W.2d 183 (Mich., 2011); Mortgage Electronic Registration Systems Inc. v. George Azize, et. al., NO. 2D05-4544 (Fla. App. 2 Dist. Sept. 19, 2005) (trial court held that MERS was not a proper party to bring a foreclosure action), rev’d, 965 So.2d 151 (Fla. App. 2 Dist. Feb. 21, 2007); Mortgage Electronic Registration Systems Inc. v. Oscar Revoredo, et. al., NO. 3D05-2572 (Fla. App. 3 Dist. Nov. 4, 2005) (trial court held that MERS must establish ownership of the note in order to have standing to foreclose), rev’d, 955 So.2d 33 (Fla. App. 3 Dist. Mar 14, 2007); U.S. Bank National Association v. Salazar, 448 B.R. 814 (S.D. Ca. Apr. 12, 2011) (bankruptcy court concluded a foreclosure sale was void because MERS, as record deed of trust beneficiary, failed to record a deed of trust assignment to U.S. Bank prior to the foreclosure sale and U.S. Bank was identified on the trustee’s deed as the “foreclosing beneficiary”), rev’d, 470 B.R. 557 (Bankr. S.D. Cal. Mar. 15, 2012); In re Agard, 444 B.R. 231 (Bankr. E.D.N.Y. Feb 10, 2011) (bankruptcy court found that the language of the mortgage document itself and MERS role as mortgagee did not provide MERS with the authority to “effectuate a valid assignment of mortgage”), vacated in part by Agard v. Select Portfolio Servicing, Inc., 2012 WL 1043690 (E.D.N.Y. Mar. 28, 2012); see also, U.S. Bank v. Howie, infra note 43 (interpreting the Kansas Supreme Court’s decision in Landmark Nat’l Bank v. Kesler).

37. See MERSCORP, Inc. Rules of Membership, Rule 8 – Required Assignments for Foreclosure and Bankruptcy, Section 1(e).

38. See RESTATEMENT (THIRD) PROPERTY (MORTGAGES), §5.4, comment e (1997). See also Residential Funding Co. v. Saurman, 490 Mich. 909; 805 N.W.2d 183 (2011) (Michigan Supreme Court held that a mortgage and note are to be construed together and that “the trust and the beneficial interest need not be in the same hands . . . The choice of mortgagee is a matter of convenience.”); Horvath v. Bank of New York, N.A., et al., No. 1:09-cv-1129, Dkt No. 38 (E.D. Va. Jan. 29, 2010) (aff’d., 4th Cir., No. 10-1528, May 19, 2011) (court held that “the ‘split’ of [Plaintiff’s] promissory notes from the deeds of trust does not render the deeds of trust unenforceable. The deeds of trust continue to grant a promissory note holder security . . .”).

39. See Joyce Palomar, 3 Patton & Palomar on Land Titles §5.67.50 (3d ed. 2009) (“[C]ourts have accepted MERS as reconciling modern lending practices with traditional real property law” and “recognize the entity serving as nominee or agent as the record holder of the encumbrance.”).

40. 656 F.3d 1034 (9th Cir. 2011).

41. Id. at 1042.

42. Id.

43. Id. at 1044, citing Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 167 (Kan. 2009). See also, U.S. Bank v. Howie, No. 106,415 (Kans. App. June 8, 2012) in which an appellate court interpreted the Kansas Supreme Court’s decision in Landmark as supporting MERS Inc.’s role as agent of the lender under the plain language of the mortgage. The Howie court further held that because MERS Inc. was acting as agent of the lender, the mortgage and the note were never severed and the lender, as present holder of both the note and mortgage, was entitled to foreclose on the mortgage. Some people misunderstand the term “unenforceable” as confirming fraudulent or illegal behavior on the part of the lender. But this is not necessarily the case. A mortgage may be declared unenforceable due to a mistake or unanticipated occurrence without fault by the lender, with the inequitable result that the lender/creditor who lent money to the borrower secured by a mortgaged property would be unable to foreclose and realize on its collateral.

44. In re MERS Litigation, 744 F. Supp. 2d 1018 (D. Ariz. 2010); see also Martinez v. Mortgage Elec. Registration Sys., Inc. (In re Martinez), 444 B.R. 192 (Bankr. D. Kan. 2011) (the court found that the language in the mortgage, the MERS membership agreement, and the affidavit of MERS’ treasurer, were sufficient to establish that MERS was clearly acting as an agent for Countrywide at all relevant times while holding the mortgage; the mortgage and the note were never split and remained enforceable); Drake v. Citizens Bank of Effingham (In re Corley), 447 B.R. 375 (Bankr. S.D. Ga. 2011) (the note and the mortgage were not split; they were executed together at inception and remain linked via the language in the documents that contemplate the agency relationship formed by the designation of MERS as nominee).

45. See, e.g., Consol. Mortg. & Fin. Corp. v. Landrieu, 493 F. Supp. 1284, 1286-87 (D. D.C. 1980) (discussing the Mortgage Backed Securities Program and Ginnie Mae’s role).

46. Supra note 38.

47. See U.S. Bankruptcy Code, 11 U.S.C. §541(d).

48. See UCC §§9.109(b); 3.102 and 3.201-204.

49. See UCC §9.203. For a thorough review of the issues under the UCC discussing rights of the “owner” of a note, the party entitled to enforce the note, transfer of the note, and the impact of transfer on the underlying mortgage, see Report of the Permanent Editorial Board for the Uniform Commercial Code ― Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes (Nov. 14, 2011), Amer. Law Institute and National Conf. on Uniform State Laws.

50. UCC §9.203(g) (emphasis added); See also UCC §9.308(e), providing the same rule for perfection.

51. See Official Comment 6 to UCC §9.308.

52. For an excellent discussion and survey of relevant state case law on this issue, see Transfer and Assignment of Residential Mortgage Loans in the Secondary Market, ASF White Paper Series (November 16, 2011) at http://www.americansecuritization.com/uploadedFiles/ASF_White_Paper_11_16_10.pdf.

53. Although the disclosure of the identity of the note owner is optional, 97% of the over 3,000 MERS® System members make such disclosure.

54. See 24 C.F.R. §3500.21(d).

55. See 12 C.F.R. §226.39.

56. Pub.L. 111-203, H.R. 4173.

57. See 12 U.S.C. §2605(k) (1) (D).

58. See Haft v. Dart Group Corp., 841 F. Supp. 549, 572 (D.Del. 1993).

59. Del. Code. Ann. Title 8, Sections 122 and 142.

60. Exercise of authority granted under clauses (3) and (4) is subject to rule changes effective July 22, 2011, limiting the member’s ability to initiate foreclosures and make filings in bankruptcy proceedings in the name of MERS Inc.

61. See Bain v. Metro Mortg. Grp., 2010 WL 891585, at *6 (W.D. Wash. Mar. 11, 2010) (holding that MERS’s designation of Members’ employees as “vice president” and “assistant vice president” was not deceptive within the meaning of the Washington State Consumer Protection Act). See also Jackman v. Hasty, 2011 WL 5599075, at *3 (N.D. Ga., Nov. 15, 2011) (Defendants “were appointed as agents of MERS by a corporate resolution . . . According to the resolution, [Defendants] have authority to, among other things, “[a]ssign the lien of any mortgage loan registered on the MERS® System’ . . . and “[e]xecute any and all documents necessary to foreclose upon the property securing any mortgage loan registered on the MERS® System’ . . . The evidence thus shows that Defendants . . . although not employees of MERS, were duly appointed agents of MERS who had authority to assign the Security Deed to LaSalle on behalf of MERS. LaSalle thus had legal authority to foreclose on the Property.”); Ocwen Loan Servicing LLC v. Kroening, 2011 WL 5130357, at *5 (D. Ill. Oct. 28, 2011) (“The assignment was executed for MERS by Scott Anderson. Anderson is an employee of Ocwen, but was designated by Corporate Resolution as an assistant secretary and vice president of MERS, and as such had the authority to assign any mortgage naming MERS as the mortgagee.”).

62. New York State Bar Association, Committee on Professional Ethics, Formal Opinion #847 (12/21/2010).

63. See, e.g., Davis v. U.S. Bank Nat’l Ass’n, 2012 WL 642544 (Nev. Feb. 24, 2012); Bertrand v. SunTrust Mortgage, Inc., 2011 WL 1113421, at *4 (D. Or. Mar. 23, 2011) (stating that the language in the Deed of Trust “grants MERS the power to initiate foreclosure and to assign its beneficial interest . . .”); Wade v. Meridias Cap., Inc., 2011 WL 997161, at *2 (D. Utah Mar. 17, 2011) (“Under the plan terms of the Trust Deed, . . . MERS was appointed as the beneficiary and nominee for the Lender and its successors and assigns and granted power to act in their stead, including making assignments and instituting foreclosure.”) (emphasis in original); Germon v. BAC Home Loans Servicing, L.P., 2011 WL 719591, at *2 (S.D. Cal. Feb. 22, 2011) (stating that under the Deed of Trust “MERS had the legal right to initiate nonjudicial foreclosures and could assign such right.”); Saxon Mortg Servs., Inc. v. Coakley, 921 N.Y.S.2d. 552, 553 (App. Div. 2011) (rejecting foreclosure defendant’s contention that MERS’s assignment of mortgage was improper); Perry v. Nat’l Default Serv’g Corp., 2010 WL 3325623, at *4 (N.D. Cal. Aug. 20, 2010) (observing that numerous courts have held that “MERS had the right to assign its beneficial interest to a third party.”); Rogan v. CitiMortgage, Inc. (In re Jessup), 2010 WL 2926050, at *3 (Bankr. E.D. Ky. July 22, 2010) (MERS had authority to execute an assignment as nominee of lender because “the language in the Lender’s own instrument is sufficient to identify MERS as such.”); GMAC Mortg., LLC v. Reynolds, 2010 WL 7746836, at *2 (Mass. Land Ct. Nov. 30, 2010) (“MERS, as mortgagee of record, has the authority to assign the mortgage.”); In re Relka, 2009 WL 5149262, at *4-5 (Bankr. D. Wyo. Dec. 22, 2009) (The Deed of Trust granted MERS “the right to assign the mortgage.”); Taylor v. Deutsche Bank Nat. Trust Co., 44 So. 3d 618, 623 (Fla. 5th DCCA 2010) (The mortgage granted MERS the “explicit and agreed upon authority to make . . . an assignment.”).

64. See, e.g., Williams v. U.S. Bank Nat’l Ass’n, 2011 WL 2293260 at *1 (E.D. Mich. June 9, 2011) (“To the extent Plaintiffs challenge any assignment from MERS to U.S. Bank, Plaintiffs lack standing to do so because they were not a party to those assignments.”); Bridge v. Aames Capital Corp., 2010 WL 3834059, at *3 (N.D. Ohio Sept. 29, 2010) (“Courts have routinely found that a debtor may not challenge an assignment between an assignor and assignee”); Livonia Prop. Holdings, LLC, 717 F. Supp. 2d 724, 735 (E.D. Mich. 2010) (“Borrower disputes the validity of the assignment [of mortgage] documents. But, as a non-party to those documents, it lacks standing to attack them.”).

65. Jones, supra note 3, at 36.

66. Jones, supra note 3, at 36, 38.

67. Id.

68. See Amoskeag Bank v. Chagnon, 572 A2d 1153, 1155 (N.H. 1990) (“The purpose then of the recording statutes…is to provide notice to the public of a conveyance of or encumbrance on real estate.”); Corpus v. Arriaga, 294 S.W.3d 629, 635 (Tex. App. 2009) (“The purpose of recording statutes in Texas is to give notice to persons of the existence of the instrument.”); Burnett v. County of Bergen, 968 A.2d 1151 (N.J. 2009) (“The very purpose of recording and filing [assignments of mortgages, deeds, discharges of mortgages, and other public records] is to place the world on notice of their contents.”).

69. See Fuller v. Mortgage Electronic Registration Systems, Inc., (U.S. Dist. Ct., Middle District of Fla.,Jacksonville Div.) (Case No. 3:11–CV–1153–J–20MCR) (June 27, 2012) at p. 3, fn. 1.

70. MERSCORP Holdings, Inc. Rules of Membership, Rule 2 – Registration on the MERS System, Section 5(a).

71. See Fuller, supra note 69, at pp. 18-19.

72. Joe Murin, MERS: Myths, Misconceptions and Realities, July 22, 2010 (available at http://mortgagenewsdaily.com/channels/voiceofhousing/164078.aspx); see also Fuller, supra note 69 and accompanying text.

73. Peterson, Foreclosures and MERS, supra note 9 at 1365-66.

74. Plymouth County, supra note 23 at p. 17.

75. Remarks of Treasury Secretary Timothy Geithner Introducing the Financial Stability Plan, February 10, 2009 (available at http://www.treasury.gov/press-center/press-releases/Pages/tg18.aspx).

76. See Christopher L. Peterson articles, supra note 9.

77. MERS’ principal owners are the Mortgage Bankers Association, Fannie Mae, Freddie Mac, Bank of America, JPMorgan Chase Bank, HSBC, CitiMortgage, GMAC, American Land Title Association and Wells Fargo Bank.

78.See, http://www.aei.org/article/economics/financial-services/housing-finance/housing-affordability-us-is-the-envy-of-the-developed-world; see also http://absalonproject.com/wp-content/uploads/2010/12/Harvard-Lea-110v5.pdf.

79. Jones, supra note 3, at 40.

80. For an excellent discussion of the background, issues and certain case law developments regarding the MERS® System, see Beau Phillips, MERS: The Mortgage Electronic Registration System, 63 Consumer Fin. L.Q. Rep. 262 (Fall Winter 2009).

81. Murin, supra note 72.

82. Id.

83. Over 600 government institutions (cities, municipalities and states) utilize the MERS System free of charge to locate property preservation contacts for loans registered on the MERS System.

How Nevada Residents Can Effectively Use Mediation To Save Their Home

01 Monday Jul 2013

Posted by BNG in Affirmative Defenses, Foreclosure Defense, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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administrative office of the courts, Business, district court judges, Foreclosure, Home insurance, July, Mediation, mediation program, Nevada, Nevada Supreme Court, Owner-occupier, Real estate, robert estes, Robert Gaston

The program allows homeowners and lenders to sit down with trained mediators to discuss alternatives to foreclosure. The mediations, which are confidential, are required to be conducted within 80 days of a Notice of Default and Election to Sell being recorded by the lender and served on the homeowner.

1) Only owner-occupied homes are eligible under the law

Only owner-occupied homes are eligible under the law and only if a notice of default was recorded on or after July 1, 2009. Once a homeowner elects mediation, the lender must participate. The $400 mediation fee is split equally between the two parties. The Administrative Office of the Courts is administering the program and has established a webpage with a variety of information and forms, including some information in Spanish.

2) Mediators Appointed For Foreclosure Mediation Program

The Nevada Supreme Court initially appointed the first 97 mediators for the Nevada Foreclosure Mediation Program a major step that set the stage for the scheduling of the first mediations. The 97 include former Supreme Court Justice Deborah Agosti and former District Court judges Robert Gaston, Robert Estes, and Leonard Gang. Also on the list are current State Bar of Nevada President Kathy England and former Nevada Supreme Court Clerk Janette Bloom. The list of mediators has increase since then.

3). Homeowners who receive notices have 30 days from the day they received their notice to seek mediation

Homeowners who receive foreclosure notices technically Notices of Default and Election to Sell have 30 days from the day they received their notice to seek mediation under the program that was created by the Nevada Legislature effective July 1, 2009. We have seen a wave of requests for mediation and the wave is getting larger, said Verise Campbell, Foreclosure Mediation Program Manager. This is what we expected. We knew, because of the mandated time frames, that it would take some time for the requests for mediation to come rolling in and for the program to come up to speed.

4). Once all submissions are in, cases will be assigned to mediators within 10 days

In the process, homeowners must submit their election of mediation form along with a $200 fee to their lenders within 30 days of receiving foreclosure notices. The lenders then forward the request and the homeowner’s funds, along with the lender’s $200 payment and other documents, to the Foreclosure Mediation Program. Once all submissions are in, cases will be assigned to mediators within 10 days and mediations will be scheduled within 80 days of the date the foreclosure notice was recorded.

5). Training sessions for the Nevada Foreclosure Mediation Program

The list of individuals selected to attend the first training sessions for the Nevada Foreclosure Mediation Program has been set and the participants have been notified. Those training sessions include Aug. 5 in Reno and Aug. 6-7 in Las Vegas and were designed to provide foreclosure-specific information to experienced mediators.

6). Mediation is an alternative method to help parties resolve disputes by agreement with the help of trained mediators.

The Foreclosure Mediation Program was established as a result of the Assembly Bill 149, passed during the 2009 session of the Nevada Legislature.Its purpose is to address the foreclosure crisis head-on and to help keep Nevada families in their homes. This law establishes a Foreclosure Mediation Program for owner-occupied residential properties that are subject to foreclosure notices formally known as a Notice of Default and Election to Sell filed on or after July 1, 2009. Mediation is an alternative method to help parties resolve disputes by agreement with the help of trained mediators.

7). Lenders must have someone at the mediation or available with the authority to modify a loan

Under the Supreme Court Rules, the homeowner must submit copies of financial records and indicate the amount of a mortgage payment that could be made if a loan modification could be reached. Lenders must submit documents indicating current appraisals of a home’s value and estimates of what it could sell for in a so-called short sale. Lenders must have someone at the mediation or available with the authority to modify a loan and provide the original or certified copies of the mortgage note, deed of trust, and any assignments of the mortgage note or deed of trust. The rules require that the parties to mediate in “good faith.”

8). the program will offer homeowners the opportunity to sit down with their lenders, mediation will not be the solution for everyone

In July of 2011 when the program first started, 4,205 foreclosure notices were recorded in Nevada. (15 of 17 counties reporting; That was down from the monthly average of about 7,600 and well below the more than 11,000 filed in June. In addition to the owner-occupied homes eligible for the Foreclosure Mediation Program, the foreclosure notices include commercial properties and residential housing not occupied by the owners.

9). New recording fee for Notices of Default and Election to Sell

The Nevada Foreclosure Mediation Program has also resulted in a new recording fee for Notices of Default and Election to Sell. The new fee, established by Assembly Bill 65, is $50. On this website is an information brochure announcing the new recording fee for the Notice of Default The Election/Waiver of Mediation Form to be served with the Notice of Default and Election to Sell is included along with instructions for the individuals recording the notices involved in the new foreclosure procedures.

10). If there is an agreement, the parties will execute the appropriate documents.

Within 10 days of the mediation, the mediator will prepare the necessary Statement of Agreement or Non-agreement and serve it on the parties. The original will be filed with the Foreclosure Mediation Program Administrator and the mediation will be closed. Within 10 days of the mediation, the mediator will prepare the necessary Statement of Agreement or Non-agreement and serve it on the parties. The original will be filed with the Foreclosure Mediation Program Administrator and the mediation will be closed. If there is an agreement, the parties will execute the appropriate documents. If there is no agreement, the parties will be free to pursue other legal remedies.. If there is no agreement, the parties will be free to pursue other legal remedies.

TIMELINE FOR NEVADA FORECLOSURE
DAY     EVENT
DAY 1 – –    Notice of Default and Election to sell is recorded.
An State of Nevada Election/Waiver of Mediation is sent to homeowner along with copy of Notice of Default and Election to Sell.
Within the Next 10 Days     Notice of Default and Election to Sell must sent out to the Trustor/Owner and all the Lien Holders by U.S. Post Office Certified Mail.
1st Day after Mailing the NOD – –   A 35 day reinstatement period begins.
DAY 30 – –    Election to Mediate expires 30 days from the date of the Notice of Default and Election to sell.
DAY 35 – – The right to reinstate expires. Not at midnight but at the end of the working day.
25 Days before Foreclosure     Lender notifies the IRS (if applicable).
DAY 91 – – The lender has the right to send out a Notice of Trustee’s Sale. From the date of the Notice of Trustee’s Sale it’s 20 days to foreclosure, unless otherwise specified in the notice. Notice of Trustee’s Sale must be sent via U.S. Registered Mail to all parties who require notification. The notice must also be posted within the County where the sale is to be held and where the property is located.
1 Week before Foreclosure     A bid price is typically established at this point. The bid amount includes principal, interest, advances and costs.
DAY 111 – – Day of Trustee’s Sale also known as the foreclosure day. Anyone interested in buying the property can bid on the property. Only cash or certified funds are accepted. After the sale, a new deed is provided for the new owner. The new owner may be the bank or the winning bidder.

Note: Over the last few years, we saw that many times lenders did not act this quickly in their execution of foreclosures but it is important to note that they have the right to do so.

Quick Facts

– Judicial Foreclosure Available: Yes

– Non-Judicial Foreclosure Available: Yes

– Primary Security Instruments: Deed of Trust, Mortgage

– Timeline: Typically 120 days

– Right of Redemption: Yes

– Deficiency Judgments Allowed: Yes

In Nevada, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.

Judicial Foreclosure

The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.

The borrower has one year (12 months) after the foreclosure sale to redeem the property if the judicial foreclosure process is used.

Non-Judicial Foreclosure

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.

Power of Sale Foreclosure Guidelines

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

A copy of the notice of default and election to sell must be mailed certified, return receipt requested, to the borrower, at their last known address, on the date the notice is recorded in the county where the property is located. Any additional postings and advertisements must be done in the same manner as for an execution sale in Nevada.
Beginning on the day after the notice of default and election was recorded with the county and mailed to the borrower, the borrower has anywhere from fifteen (15) to thirty five (35) days to cure the default by paying the delinquent amount on the loan. The actual amount of time given is dependent on the date of the original deed of trust.
The owner of the property may stop the foreclosure proceedings by filing an “Intent to Cure” with the Public Trustee’s office at least fifteen (15) days prior to the foreclosure sale and then paying the necessary amount to bring the loan current by noon the day before the foreclosure sale is scheduled.
The foreclosure sale itself will be held at the place, the time and on the date stated in the notice of default and election and must be conducted in the same manner as for an execution sale of real property.

Lenders have three (3) months after the sale to try and obtain a deficiency judgment. Borrowers have no rights of redemption.

NEVADA FORECLOSURE TIMELINE

DAY	EVENT
DAY 1	Notice of Default and Election to sell is recorded. An State of Nevada Election/Waiver of Mediation is sent to homeowner along with copy of Notice of Default and Election to Sell.
Within the Next 10 Days	Notice of Default and Election to Sell must sent out to the Trustor/Owner and all the Lien Holders by U.S. Post Office Certified Mail.
1st Day after Mailing the NOD	A 35 day reinstatement period begins.
DAY 30	Election to Mediate expires 30 days from the date of the Notice of Default and Election to sell.
DAY 35	The right to reinstate expires. Not at midnight but at the end of the working day.
25 Days before Foreclosure	Lender notifies the IRS (if applicable).
DAY 91	The lender has the right to send out a Notice of Trustee’s Sale. From the date of the Notice of Trustee’s Sale it’s 20 days to foreclosure, unless otherwise specified in the notice. Notice of Trustee’s Sale must be sent via U.S. Registered Mail to all parties who require notification. The notice must also be posted within the County where the sale is to be held and where the property is located.
1 Week before Foreclosure	A bid price is typically established at this point. The bid amount includes principal, interest, advances and costs.
DAY 111	Day of Trustee’s Sale also known as the foreclosure day. Anyone interested in buying the property can bid on the property. Only cash or certified funds are accepted. After the sale, a new deed is provided for the new owner. The new owner may be the bank or the winning bidder.

Over the last few years, we saw that many times lenders did not act this quickly in their execution of foreclosures but it is important to note that they have the right to do so.

– See more at: http://michaelsrealestate.com/nevada-foreclosure-law/#sthash.CfhtdkBI.dpuf

For more information about foreclosure defense please visit: http://www.fightforeclosure.net

What California Residents Needs To Know When Faced With Foreclosure Challenges

01 Monday Jul 2013

Posted by BNG in Affirmative Defenses, Appeal, Foreclosure Defense, Judicial States, Non-Judicial States, Your Legal Rights

≈ 1 Comment

Tags

Business, Deed in lieu of foreclosure, Foreclosure, Lien, Mortgage loan, Real estate, Trust deed (real estate), Trustee

What is a foreclosure?
“Foreclosure” is a common term used to describe a trustee’s sale proceeding- the correct terminology to use when describing the procedure for enforcing a lender’s rights once an obligation secured by a Deed Of Trust (or similar instrument) is in default.

What constitutes a breach or a default?
A breach exists when the borrower fails to make the payments of principal and interest when due pursuant to the note secured by deed of trust. If the balance of the note is due, the breach would be the failure to make the principal payment due plus interest, by the maturity date. Most deeds of trust have provisions for default being declared when a senior lien, insurance, taxes and assessments have not been paid, or if the property is transferred without the lenders approval.

Should I forego a foreclosure and take a deed in lieu?
Before you can even consider an alternative, the borrower must be willing to offer a deed in lieu. There are advantages to taking a deed in lieu. It could save you time and money. You should order a preliminary title report and review it carefully to determine if there are any junior liens that would survive the deed in lieu. If you are satisfied with the title report, you would take the deed in lieu subject to a title insurance policy being issued in your favor as reflected in the preliminary report. This procedure would take a lot less time than the approximate four months of foreclosure. The main disadvantages to taking a deed in lieu of foreclosure are the junior liens will not be extinguished and that the borrower may later have a change of heart and seek to have the courts set the deed in lieu aside.

Must the original trustee process a non-judicial foreclosure?
No. The beneficiary may substitute trustees anytime.

Should I notify a senior lender of the existence of my junior lien? Yes. A senior lender may have a provision in his deed of trust that provides for senior priority for additional advances to the borrower. When advances are “obligatory” to protect the lender’s security interest, they are so secured. However, if the advances are “optional” and the senior lender has knowledge of a junior lien, the advances may not be senior to the junior lien of trust. A junior lender, therefore, should give the senior lender notice of their lien. Many lenders would like to reduce their collection efforts by having the junior lienholder advance to their loan. Send the senior lender a notice which tells them that you are willing to reinstate their loan.

Must I give notice of delinquency to a junior lienholder even if I don’t file an NOD?
No. Junior lienholders may request status of senior lien by doing the following:
Under the California civil code section 2924e, a lender is required to send a notice to a junior lienholder within 15 days after the delinquency reaches four months, when certain conditions exist: the borrower must consent; the junior lienholder must submit the request in writing by certified mail along with $40; the property must contain one to four residential units; the request shall be recorded in the county in which the property is situated; and it has not been longer than five years since the original request, unless a renewal payment of $15 has been made.
Junior lenders who acquire interest by assignment, now have the same rights as the original beneficiary to require senior lenders to provide information regarding delinquencies of four months. The new junior beneficiary must pay a processing fee of $15 to the senior beneficiary. See section 2924e(b).

If my loan is in a senior position, when should I start my foreclosure?
You may have to consider various constraints before you can file a notice of default. Is this a standard Fannie Mae/Freddie Mac document? If it is, you must send the borrower a notice of intent to foreclose 30 days prior to the filing of the NOD. You may have sold the loan to some other lender; they may have certain procedures and standards that you must adhere to, such as asking their permission to foreclose after a suitable effort has been made to work with the borrower to encourage repayment. If your loan is insured, you have be required to follow certain steps in order to be allowed to file a claim with the insurer.
The most important consideration when deciding to start a foreclosure is “Am I well secured if I wait?” If there is adequate protection between the value of your loan and the value of the property, delay should cause no loss. If there is inadequate protection, then every day delayed will cost you money. Choose a trustee who will record your NOD without any unnecessary delays and will stand behind their work.

If my loan is in a junior position, when should I start my foreclosure?
If you service a loan for someone else, if it is insured, or it is a standard FNMA/FHLMC document, then you have the same constraints mentioned in the previous question. Being in junior position adds one other very important dimension for your consideration. The senior lender can foreclose you out of your security or certainly diminish your protection as their loan interest balance grows.
If the senior lender begins foreclosure, and neither you nor the borrower bring them current, the lender could very well go to sale and eliminate your security. It is much better for you to initiate foreclosure early, go to auction, acquire the property and sell it, before the senior lender can complete the foreclosure. Of course, if necessary, you may have to reinstate the first lender to allow enough time for you to complete your foreclosure.

Should I reinstate the senior loan which is in foreclosure, or bid at its sale?
Reinstating the senior loan should require considerably less cash than bidding at its sale. If the loan has matured, then you may pay off the loan prior to the sale or bid at the sale.

If the senior lender filed a notice of default several months earlier, you may be able to save time by bidding at the senior’s sale. However there are some pitfalls to this strategy. The senior may delay his foreclosure; you have no control over when they may go to sale. File your own notice of default as soon as possible so that at least you are proceeding to your own sale. If you intend to bid at the senior’s sale, come to the sale early, bring sufficient certified funds to bid the amount of the debt plus your lien. You cannot credit bid the amount owed to you under your deed of trust; your standing as a bidder is the same as any others. If you fail to arrive on time for the sale, your lien may be eliminated.

Do I need the borrower’s permission to foreclose?
No. You already have their permission; they gave it when they signed the note and deed of trust.

What documents do I need to foreclose?
You will need to provide the trustee with the note and deed of trust, any modification or extension agreements, additional notes and any assignments. If an original document is lost, it may be necessary to provide a lost instrument bond. Consult with your trustee. You also need to provide the trustee with certain essential information, such as the unpaid balance of the note, the date to which the interest is paid, the reason for the default (such as failure to make the payment which became due on a certain date), information regarding any advances you have made, the last known residence or business address of the last known owner, and the property address. If you are not using the original trustee, a substitution of trustee must be signed and notarized by the beneficiary.

Why is an accurate “last known address” of the last known owner vital?
Failure to send notice to an accurate business or residence address of the last known owners may invalidate the foreclosure. Search all your records completely and carefully. If the borrower has more than one loan with your firm, review all sets of records. If the borrowers are married and you receive word from one of them that (s)he is no longer residing at the property address and you are provided with a new address, be sure to communicate that information to the trustee as soon as possible.

How long does it take to foreclose?
If there are no delays, a foreclosure will be completed in about four months. After the recording of the NOD there is a mandatory three-month waiting period before the trustee can publish the notice of trustee’s sale. Generally the sale will take place four weeks after the pre-publication period has ended. The date of the sale is influenced by the county where the property is located, the regular schedule of sales for that county and by the frequency of publication of the newspaper in which the trustee is required to publish. The trustee must also consider the newspaper deadlines for advertising and the time-necessary for preparation of the notice of sale and its delivery to the newspaper. The California Civil Code also requires that the notice of sale be posted on the property and a public place at least 20 days prior to the sale; adequate time must be allowed for this to be completed. If the IRS has recorded a federal tax lien at least 30 days before the sale, they require notification at least 25 days before the sale. If the loan is insured by the Veterans Administration, the sale date must be set to allow time enough for them to provide bid instructions.

Who pays the foreclosure fee and costs?
If the borrower brings the loan current or pays it off, the borrower is responsible to the lender for the foreclosure fee and costs. Since the lender is obligated to pay the trustee, the lender should be sure to not overlook these foreclosure expenses. If the property is sold to an outside bidder at the foreclosure auction, the foreclosure expenses will be paid by the bidder. Only when the lender is the successful bidder at the sale will the lender not be able to look to someone else to recover the trustee’s fee and costs. Hopefully, when the property is resold, the lender can expect to recover their foreclosure expenses.

Do all trustees charge the same?
No. The California Civil Code sets the maximum fee that is deemed to be valid and lawful. A trustee need not charge that maximum amount. The quality of service and the trustee’s financial strength should be of primary concern when selecting a trustee.

What is a Declaration of Default?
This document contains the official written instruction from the beneficiary to the trustee. Most deeds of trust require the beneficiary to furnish the trustee with a Declaration of Default. It identifies the deed of trust to be foreclosed, states the breach, and directs the trustee to sell the property to satisfy the indebtedness.

What is the fastest way to record the NOD? You may send the trustee a pre-signed substitution along with the other documents, or the trustee can prepare one and return it to you for your signature. If you are to be regularly using a trustee, you might consider giving the trustee a limited power of attorney authorizing them to sign the substitution of trustee and the notice of default. Sending pre-signed substitutions or giving a limited power of attorney reduces the time between your decision to foreclose and the actual recording of the notice of default to as little as 24 to 48 hours.

What are the most common delays to the foreclosure process?

The most common delay comes from the filing of bankruptcy.
A temporary restraining order (TRO) is used to preserve the status quo pending a court hearing for a preliminary injunction.
A preliminary injunction is used to preserve the status quo pending a final determination of the action on the merits.
The beneficiary or his servicer doesn’t send the trustee the most current assignment. The trustee prepares the NOD and the substitution with the wrong beneficiary shown. Several days after the documents are recorded the title company discovers the error. The trustee now must rescind the original NOD and re-record new documents. If there is uncertainty regarding the current beneficiary, ask the trustee handling the foreclosure to check with the title company for current information.
The recording information on the deed of trust was incorrect. A copy of the deed of trust has the recording information written incorrectly or the original deed of trust was re-recorded later.
The paid-to-date was incorrect.
The unpaid balance was incorrect.
The last known address was incorrect or incomplete.
Money (partial payment) is accidentally accepted from the borrower.
Instructions are misunderstood. The beneficiary instructs the trustee to cancel the sale rather than postpone, or postpone rather than sell.
The NOD is re-recorded (start-over) because of failure to notify someone.
Correspondence requiring response is accidentally filed rather than handled.
Opening bid information given to the trustee too late to order a date down of the trustee’s sale guarantee.

What law authorizes foreclosures through a trustee’s power of sale?
There is no law that authorizes a trustee’s non-judicial foreclosure; that power is created by the borrower when he signs that deed to trust, pledging the real property as security. The words used in the deed of trust are; “with power of sale.” There are, however, many laws that regulate the trustee. See California Civil Code section 2924.

How does bankruptcy of the borrower affect the foreclosure?
The filing of a petition of bankruptcy by the borrower, by a lessee (tenant) who has a recorded lease, or by the beneficiary of a junior deed of trust, immediately stops the foreclosure, with or without notice. The trustee may not proceed in any way; he may, however, postpone an already scheduled and noticed sale. If the trustee conducts a sale after a bankruptcy is filed, but without any knowledge of it, the sale is void or voidable depending on circumstances. See section 2924j. Before the trustee can continue the foreclosure, the lender must obtain relief from the bankruptcy court. You should seek legal advice immediately from an attorney who specializes in bankruptcy. Relief must terminate the stay against the property of the debtor and the property of the estate in bankruptcy. Relief as to the debtor is not relief as to the estate. The trustee’s sale cannot be held within seven days after the expiration of the stay in bankruptcy unless the court order so provides. See Civil Code section 2924g(d). Attorneys representing lenders in bankruptcy should include as part of their relief orders a statement that a foreclosure sale may occur immediately upon entry of the bankruptcy relief order.

Could a senior lender get relief from the bankruptcy stay and go to sale while the junior lender is still stayed?
Yes. If you are a junior lienholder, notify your attorney as soon as you get word of a bankruptcy. Assist them in every way to get relief before the senior lender does.

Who is entitled to receive a copy of the Notice of Default?
Within ten business days after the NOD records, notice must be mailed by certified/registered mail to the original trustors at the address shown on the deed of trust; the current owners,if known, at their last known business or residence mailing addresses, and to those who have recorded a request for a copy of a Notice of Default. In addition to the required certified/registered mailings, simultaneous mailings must be made by regular, first class mail to the trustors and current owners. See section 2924b(B)(1).
Within one month after the notice of default is recorded, a copy of the NOD must be mailed certified/registered to those entitled to notice under the California Civil Code section 2924b(c)(1), including the current owner of record and those lienholders with a recorded interest.

Does the borrower need actual notice to have a valid foreclosure?
No. The non-judicial foreclosure sections of the California Civil Code were designed to balance the needs of the borrower and lender. The procedure is supposed to be clear and easy to follow so that there is little reason to go into court to argue issues. The notification procedure provides many opportunities for the borrower to receive notice. If they do not make the effort to keep the lender of the trustee informed, they may lose their property without notice. The trustee has no obligation to search for a lost borrower. The borrower can give constructive notice with their current address. See I.E. Assocs., v. Safeco Title Ins. Co. (1985) 39 C3d 281, 216 CR 438.

What is a Trustee’s Sale Guarantee report?
The Trustee’s Sale Guarantee (TSG) report provides the foreclosing trustee with the information necessary to process your foreclosure and guarantees the correctness of that information. It sets forth the record owners and lists all exceptions of record against the secured property. It provides the names of those who are to receive notices and the name of the newspaper in which the trustee must publish. The TSG is provided by a title company in the county where the property is located. When you receive your copy from the trustee, you should be alert to certain items:

New Owners.
Delinquent real estate taxes.
Notice of defaultrecorded by a senior deed of trust. You should contact the senior beneficiary to determine if their loan is still delinquent.
Federal (IRS) tax liens recorded.
Bankruptcy.
Lis Pendens. This provides constructive notice of pending litigation, the outcome of which will not be affected by the foreclosure.
Notice of substandard dwelling.
Any irregularities noted therein.

Who should record a request for a copy of a Notice of Default?
If you are a junior lienholder and have changed you address from that shown on the upper left hand corner of your recorded deed of trust, you should record a request for notice pursuant to Civil Code section 2924b(a) showing your current address. Failure to do this may prevent you from receiving notice of a pending foreclosure on a senior deed of trust. Additionally, if you want a copy of a Notice of Default mailed to you within ten business days of its recording, record a request.

When can I refuse reinstatement?
For NOD’s recorded prior to January 1, 1986, reinstatement is allowed by law (unless the loan has reached full maturity) during the first three months; after the first three months you can refuse reinstatement. For Nod’s recorded after January 1,1986, you may not refuse reinstatement until five business days before the date set for sale or a postponed sale; after that you may refuse reinstatement. See Civil Code section 2924c(e). The standard FNMA/FHLMC deed of trust allows reinstatement by the borrower up to five calendar days before the sale date.

Who is entitled to reinstate the loan?
The trustor and any junior lienholder of record have the right to reinstate the loan. The reinstatement amount should be enough to restore the entire loan to its original installment basis and include attorney fee and costs which were necessary to protect the security, foreclosure fee and costs, late charges, and advances. Contact the trustee for updated fees and costs before accepting reinstatement. A partial payment may not cure the default. Accepting partial payment may invalidate the foreclosure. If you believe it is in your best interest to accept partial payments, consult your attorney regarding a written agreement between you and the borrower.

What costs can be included in the reinstatement or payoff amount?
Money advanced to protect the lender’s security, other than improvement of the property, are allowable. For instance, repairing a leaking roof, that would result in damage and decrease the value of the property, would be allowable. Replacing the whole roof would not be allowable. The costs of collection letters and advice from an attorney in certain instances now appear allowable. See Buck v. Barb 147 CA 3rd 920. Additionally, attorney fees and costs incurred while defending yourself in court or seeking relief from bankruptcy are allowable. Check with your attorney before including any questionable items. Also there are regularly allowable trustee’s costs for recording, mailing, publishing, posting, trustee’s sale guarantee, and one postponement fee of $50 upon the written request of the trustor pursuant to section 2924c(c).

How long does the publication period last?
After the three month pre-publication period has ended, a notice of trustee’s sale is prepared and sent to the newspaper for publication. The first ad must run at least 20 days before the scheduled sale date. The time between the first ad and the sale date is the publication period.

Where is the Notice of Sale published and how often?
The Notice of Sale is published in an adjudicated newspaper of general circulation in the city where the property is located.If there is not a paper adjudicated to run legal notices in that city; then a newspaper in the judicial district may be used.
The Notice of Sale must publish once a week for three weeks with the first ad running no later than 20 days before the sale.

Who is entitled to receive the notice of trustee’s sale?
All parties pursuant to Civil Code section 2924b and (b3).

What should the beneficiary do during the publication period?
During this period the lender should assess their equity position in the property to determine if they should bid less than their total debt.

Am I limited to only three postponements?
The lender or the trustee is limited to three discretionary postponements, after which it is necessary to republish the Notice of Sale. The lender may agree with the borrower to any number of postponements; it is best to get this agreement in writing and signed by the borrower. The sale can be postponed any number of times “by operation of law” or one time only for bankruptcy determination. See section 2924g(c). A Notice of Sale is generally considered stale after one year. It would then be best to re-notice the trustee’s sale.

Must I bid the full indebtedness, plus advances and costs?
No. It is not required and there may be good reasons not to. For instance, it you would like to encourage outside bidders, set the opening bid low and credit bid price upward until you reach your total indebtedness. Another reason that you might want to bid less than the full amount would be to allow for a claim to an insurance company for a casualty loss against the property. If you had bid the full indebtedness, the insurance company could claim that your debt had been fully satisfied. There may also be some tax consequences to consider.

Are the trustee’s sales really held on the steps of the county courthouse?
Yes. Most trustees use the same place to conduct their sales. The most common spot is the front entrance to the county courthouse, city hall, or hall or records. The only requirement by law is that it be conducted in a public place.

Is the trustee’s sale conducted orally or by sealed bid?
The sale is conducted verbally. The trustee will essentially announce that they are offering to sell at public auction to the highest bidder all right, title and interest conveyed to and now held by the described deed of trust. The sale will be made, but without covenant or warranty, express or implied, regarding title, possession or encumbrances. After the auctioneer makes an announcement, they will ask if there are any bidders who wish to qualify. If there are, each must show the auctioneer funds in excess of the opening bid. A junior lienholder must qualify as any other bidder and cannot use their lien for bidding purposes. Nomellini Const. Co. v. Modesto Savings & Loan Assoc. (1969) 275CA2d 114,79 CR 717. The auctioneer will note the total amount of funds each bidder possesses, so that they know when a bidder is no longer qualified to enter a bid. If a bidder tries to enter a bid that exceeds their funds, the auctioneer will ask them to requalify. Each bid is an irrevocable bid and replaces the previous bid. If a bidder reneges, they may be liable to the trustee for damages and subject to criminal prosecution and penalties. The successful bidder is the one who enters the final bid that is accepted by the auctioneer. See sections 2924g and 2924h.

Must I attend the sale and enter my own bid?
No. The trustee’s auctioneer will enter your opening bid on your behalf. However, you may attend the sale and enter your own bid. If you wish to bid more than your total debt due you, it would be necessary for you to appear at the sale with certified funds to cover any bids you make over the amount of your debt.

When am I entitled to possession of the property?
The title a successful bidder receives through a trustee’s deed entitles them to immediate possession. The purchaser may allow the previous owners or tenants to stay or they may bring an unlawful detainer action (eviction) to remove them. However, a lease recorded prior to the recording date of the deed of trust entitles the lease to priority over the title received through the foreclosure. A unrecorded lease, where it was reasonable to assume that a lease existed at the same time the deed of trust was recorded, may provide the same priority as a prior recorded lease. Alternately, if the lease is unrecorded and it was not reasonable to assume that a lease existed at the time the deed of trust was recorded or if the lease was recorded subsequent to the deed of trust which has been foreclosed, the purchaser at the foreclosure sale may choose to evict the tenants or allow the tenants to stay.

Is there a redemption period after the sale?
In a non-judicial sale there is no redemption period for the previous owner or junior lienholders. The Internal Revenue Service (IRS) has a 120-day right of redemption, if it had a properly recorded notice of a federal tax lien subsequent to your deed of trust.

What liens or rights may survive the trustee’s sale?
Failure of the trustee to notify a junior lienholder of record (absent his actual knowledge of the sale) may allow the junior lien to survive. It is as yet unclear under California law whether the buyer can claim “bona fide purchase” status to defeat the junior lien’s attachment. In any event, the junior lien could sue for damages if a BFP’s interest eliminated the junior. An IRS tax lien will not be extinguished for 120 days; during that time the IRS has the right to redeem the property. The rights of a plaintiff in a legal action, who has a properly recorded lis pendens, will survive the trustee’s sale. City and county liens, easements, homeowner’s association assessments, and mechanic’s liens, where the work was begun before the foreclosing deed of trust was recorded, may survive the trustee’s sale. Leases that were recorded prior to the foreclosing deed of trust will survive. An unrecorded lease where it was reasonable to assume that a lease existed may survive. If the foreclosing lender subordinated to a subsequent deed of trust, it will survive. Any liens that were recorded prior to the foreclosing deed of trust (which has not subordinated itself to the foreclosing deed of trust) will survive.

Who gets the over bid surplus?
Any moneys that exceed the foreclosing lender’s total indebtedness, including advances and expenses, will go to junior lienholders of record in the order of priority, and finally to the previous owner of record. If the trustee has doubts about where the moneys should be paid, they should commence an action for interpleader to avoid potential liability.

What happens if I feel sorry for the sold out borrower and deed the property back to them?
If your intent is to replace your original deed of trust with a new one having the same priority…BEWARE. The extinguished junior liens will revive; your new deed of trust will be subordinate. See Jensen v. Duke (1925) 71 Cal. App. 210.

When is the trustee’s sale complete?
The sale is final upon the auctioneer saying “sold” and the sale is deemed perfected as of 8am on the day of sale provided the Trustee’s Deed Upon Sale is recorded within 15 days of the actual sale date.

To find out how you can effectively challenge and save your home when faced with foreclosure challenges visit http://www.fightforeclosure.net

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Monthly Archives: July 2013

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How Nevada Residents Can Effectively Use Mediation To Save Their Home

1) Only owner-occupied homes are eligible under the law

7). Lenders must have someone at the mediation or available with the authority to modify a loan

What California Residents Needs To Know When Faced With Foreclosure Challenges

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1) Only owner-occupied homes are eligible under the law

7). Lenders must have someone at the mediation or available with the authority to modify a loan

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