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Monthly Archives: December 2013

Foreclosure Defenses v Motion to Dismiss Strategy

28 Saturday Dec 2013

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

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Affirmative defense, Complaint, Defendant, Federal Rules of Civil Procedure, Lawsuit, Motions, Summary judgment, United States federal courts

§ 6.5 Motions to Dismiss Generally

(a) Motions to Dismiss: Strategy

Why is discussion of motions to dismiss placed before the section on answering the complaint? The reason is that every complaint must at one point be evaluated to determine whether or not dismissal would be appropriate, even though many such motions fail. If a strong motion to dismiss can be made, it should be seriously considered. This is especially true where the motion is to be based on a fundamental insufficiency in the complaint, such that little factual investigation is required by the defense, and where answering the complaint and preparing affirmative defenses, counterclaims, cross claims or third party complaints would be a substantial undertaking.

There is also a conceptual reason: the idea of a motion to dismiss is that the complaint — or more specifically, the claim — is so lacking in merit that no answer is necessary. Certainly if that is the case, and it seems likely that the judge can be made to agree that dismissal is appropriate, there is no reason to start drafting an answer.

(b) Practical Considerations

Successful motions to dismiss a complaint are a rarity, more the subject of law school civil procedure classes than actual practice. There are several reasons for this. One is the modern doctrine mandating liberal pleadings standards. In effect this means that courts will look not so much at the artfulness in the drafting of the complaint as much as the substance of the purported claim. There is also a corollary to this doctrine: The courts have a general policy of determining actions on the merits.

The effect of these approaches must be fully appreciated when considering the seeming promise of motions to dismiss, especially motions for failure to state a claim under FRCP 12(b)(6). Too often a brilliant motion to dismiss the complaint that ruthlessly exposes holes and inconsistencies in the pleadings results only in the plaintiff’s filing, at the court’s invitation, an amended complaint now free of all the deficiencies pointed out in the motion. All that is accomplished substantively is that the plaintiff has been forced to focus on its case and, with the assistance of the court’s decision on the dismissal motion, recast areas in which its complaint was weak. In the process the defendant has helped the plaintiff eliminate sinkholes and traps in the complaint that may have been useful to the defense on a later summary judgment motion or at trial.  Furthermore, judges sometimes become de facto “advocates” of claims “revived” in their opinions denying motions to dismiss.

For these reasons a motion to dismiss a fundamentally meritorious claim based on technical deficiencies may not be worth the price of the motion and of the defense’s credibility with the judge. Faced with obvious weaknesses in the plaintiff’s case, it may be worth considering whether a stronger motion may be brought as a summary judgment application following a limited amount of discovery. In this instance keep in mind that many judges will not permit summary judgment motions prior to the close of discovery because of their wariness of “dueling affidavits” as a basis for making substantive rulings.

None of this is to say that there is no place for Rule 12(b) motions. There are times when the defendant simply should not have to appear in federal court, or at least not in the venue where suit has been brought. Perhaps there is an arbitration clause, bargained for at some cost, on which the defendant is entitled to rely. Some complaints are just too lacking in merit to be worthy of the defendant’s time and money. And though the phrase has become a cliche, in the right circumstance there is something to be said for “educating the judge” about a case by bringing a Rule 12 motion early on, even if, while meritorious, the motion may not be enough to end the proceedings.

§ 6.6 FRCP 12(b) Motions to Dismiss

(a) Time to Move

Just as with any other response to a complaint, a motion to dismiss under FRCP 12(b) must be made within 20 days of receipt of the summons and complaint. Making the motion stops the clock on the answer itself, pursuant to FRCP 12(a)(4). This applies to the whole of the pleadings, regardless of what part of the complaint is the subject of the motion to dismiss. Therefore, it has been held that a motion to dismiss one count of a 10-count complaint stays the time to answer the entire complaint. Note, however, that this fact should not give rise to “creative” approaches to obtaining more time to answer the complaint. Courts have defaulted parties for filing frivolous FRCP 12 motions solely to extend time. If the motion is denied or postponed, the answer is due within 10 days of receiving notice of the court’s action.

As usual, an eye must be kept on discovery. Here local rules may govern whether discovery is stayed; or the judge may have a policy that is embodied in a standing order or that is simply stated to the parties when the motion is filed. The parties also may seek from the court either a stay of discovery or permission to proceed.

(b) Strategy: Defenses vs. Motions to Dismiss

FRCP 12(b) requires all defenses to be asserted in the answer, but directs that the following seven of them may be resolved by motion or merely left as defenses:

1. Lack of subject matter jurisdiction

2. Lack of personal jurisdiction

3. Improper venue

4. Insufficiency of process

5. Insufficiency of service of process

6. Failure to state a claim on which relief can be granted

7. Failure to join a party under Rule 19.

These seven are the Rule 12 bases for motions to dismiss. The question arises whether they should be invoked in such a motion, asserted as a defense, or both.

These grounds for dismissal should always be asserted as defenses if available in good faith, regardless of whether motion practice is intended when the answer is filed or even if motions have been brought and have failed on these bases. Ultimately, however, FRCP 12(d) requires that the merits of FRCP 12 defenses must be decided at some point before trial, unless the court decides otherwise. The exception to this is where the court lacks subject matter jurisdiction, discussed in the next section.

(c) Subject Matter Jurisdiction, FRCP 12(b)(1)

As discussed in Chapter 1 “Subject Matter Jurisdiction” supra, federal courts are courts of limited jurisdiction. The complaint must state that the requirements of subject matter jurisdiction are met in the matter. More importantly, they must actually be met. If a court lacks subject matter jurisdiction, it simply has no authority to decide the case — even if the parties are willing to waive objection or stipulate to the federal court’s jurisdiction.

For this reason, a challenge to the court’s subject matter jurisdiction may be brought at any time, even after final judgment is entered and regardless of the prejudice that would result by dismissing the action after proceedings have been under way. On a motion challenging jurisdiction, the court tests the existence of subject matter jurisdiction as of the date the lawsuit was filed, not later. It is not a useful strategy, therefore, to attempt to deprive the court of jurisdiction in a diversity case after the suit is filed by having the defendant move its domicile to the same state as the plaintiff.

As the party invoking the federal court’s jurisdiction, the plaintiff must show that it has the right to do so. Therefore, once the defendant attacks the basis of the court’s subject matter jurisdiction, it has shifted the burden of coming forward to the plaintiff.

§ 6.7 Motions to Dismiss Under FRCP 12(b)(6)

(a) Introduction

The successful FRCP 12(b)(6) application is the home run of motions. It is a challenge made at the very beginning of a case and strikes at the very heart of the lawsuit. It is a statement that even if the plaintiff were given every benefit of the doubt and everything it claimed were true, the plaintiff’s claim should be dismissed — either because it is not legally cognizable or because sufficient facts have not been alleged to make out a cognizable claim.

When considering a 12(b)(6) motion, the court presumes that all the allegations of the complaint are true; it resolves all doubts or inferences in the plaintiff’s favor; and it reads the complaint in the light most favorable to the plaintiff. Needless to say, the burden of proof on such a motion is on the party making it. No material from outside the pleadings may be considered or the motion will be considered one for summary judgment (see Section 6.7(d), infra).

Given all these benefits and the liberal pleading requirements of the Rules, all the plaintiff has to do to survive the motion is make out some sort of claim for which a court might provide relief. For every home run, therefore, there are innumerably more strikeouts or at best routine hits (i.e., when partial dismissal is granted as to some claims). The purpose of this section is to assist in picking the right pitches, and to consider when a “long out” (see Section 6.7(c)(3), “Educating the Judge,” infra) can have the desired effect, even though the ball stays in the park.

(b) Issues to Raise with Clients

There is little that is more satisfying in commercial litigation defense than winning a dramatic 12(b)(6) motion on behalf of a defendant eager to end a potentially expensive and vexatious court case. Conversely, the attorney should visualize the expression on the client representative’s face as he realizes the implications of an unsuccessful 12(b)(6) motion in a commercial case — unless he has been adequately counseled about the potential costs, risks and rewards involved in the undertaking.

Because the plaintiff is given every benefit of the doubt in both law and fact, the 12(b)(6) motion theoretically requires the movant to “play out” every factual scenario demonstrate that the pleading alleges enough facts to state a claim to relief that is “plausible” within the four corners of the complaint. Similarly, every plausible legal theory that might provide relief to the plaintiff, based on the facts pleaded, must be considered.

For this reason the 12(b)(6) motion can, in some instances, be more costly and difficult than a summary judgment motion, though the motion to dismiss does not usually involve extensive affidavits as does a summary judgment application. In the latter proceeding, however, it is easier to limit the factual scenario that must be considered by submission of competent evidence that circumscribes the possibilities sketched out by the pleadings. That is harder to do under 12(b)(6), though much depends on the judge’s inclinations.

Indeed, as a final caveat to the 12(b)(6) approach, practitioners should advise their clients that granting the motion takes a certain level of judicial confidence that not every court can muster. The number of cases overturning 12(b)(6) dismissals surely dwarfs those that affirm such rulings, and it is the path of least resistance simply to decree that it would be more appropriate to decide the issues after “some discovery” has been taken. This seems to the judge like not deciding the motion, and in a sense it is; yet it is a denial of the motion, for the effects of which the defendant must be prepared.

Still and all there is a place for the judicious use of a 12(b)(6) motion. That place is not only the obvious case where the complaint puts forth a cause of action that is plainly not justifiable (e.g., seeking damages for invasion of privacy arising from the defendant’s alleged use of microwave beams to read the plaintiff’s mind5). The scenarios in which a 12(b)(6) motion is appropriate will be discussed below in Section 6.7(c). The critical point is to lay out the risks, rewards and benefits clearly for the client to allow a maximally informed choice about whether to proceed.

(c) Reasons to Bring a 12(b)(6) Motion

Despite the long odds, there are several reasons why a defendant might bring a 12(b)(6) motion, only one of which is that it might succeed in full:

(1) Elimination of Plainly Nonjusticiable Cases

It should go without saying that a 12(b)(6) motion is the appropriate vehicle for certain lawsuits that, on simple inspection, do not make out claims for legal relief. There is some point where even the minimal pleading requirements are not met, where even given every benefit of the doubt, the facts alleged cannot in any way be scrambled to create a cause of action. Identifying the line between the obvious and the less obvious candidates for inclusion in this category requires a certain amount of experience, but it can fairly be said that some complaints fall into the category of “I [the judge] know it when I see it.”

This must be contrasted, however, with the situation where the plaintiff has pleaded facts that in themselves may add up to a valid legal claim but has set forth inappropriate legal theories as the basis for recovery. Dismissal will not be granted when this is the case, though if the complaint is truly incomprehensible, the defendant may be entitled to relief under FRCP 12(e), a motion for a more definite statement (see Section 6.8(c), infra).

(2) Cutting off Novel Legal Theories

Faced with a complaint, some commercial clients may have an interest, eminently reasonable, in “snuffing out” novel legal theories put forth or even suggested by the complaint. Such theories of recovery may pose a larger threat to some defendants’ interests than the immediate pending litigation. In such cases clients might put a very high premium on delivering a crashing blow to the plaintiff and discouraging similar litigation by those similarly situated.

These are the situations, however, where fully apprising the client of the range of possibilities under 12(b)(6) is essential. The unsuccessful 12(b)(6) motion in this situation may be far worse than no motion at all and will, in all likelihood, have precisely the opposite effect from the one intended because the judge may help the plaintiff articulate the theory better. Since most 12(b)(6) motions are unsuccessful, taking this approach is one of the more daring maneuvers in commercial litigation.

The risk of this preemptive strike strategy, great as it is inherently, is heightened by a line of authority stating that it is precisely where novel legal theories are proffered that dismissal is inappropriate, on the theory that development in discovery — the bugaboo of motions to dismiss — can help the court assess the propriety of the claim.

(3) “Educating the Judge”

There may be some situations, as discussed in Section 6.5(b), supra, where a 12(b)(6) motion is an appropriate vehicle to put the defendant’s prima facie case in front of the judge, even though it is not likely to prevail. (Of course, it must still be brought in good faith, i.e., counsel must believe that it could prevail.) For example, a motion driven by the “educating the judge” goal could be useful if a fairly short track until trial is anticipated and collateral issues, or some “straw man” in the complaint, could unduly sway the court to the plaintiff’s point of view, affecting interlocutory decisions or even the trial. Similarly, the 12(b)(6) motion could clarify for the court early on just how high a burden of proof the plaintiff will have to meet to make its case. Here the 12(b)(6) motion is a way of amplifying and framing the defense in a way that the answer, even with properly crafted affirmative defenses, cannot do.

There are risks in this strategy. One is that judges can usually recognize it from afar and may not appreciate what may seem like manipulation. Another is the likelihood that in complex litigation a long discovery and motion schedule, and the attendant involvement of a magistrate, stand between the pleadings stage and trial. In that case the judge’s preliminary opinion on the merits of the respective parties will matter less than the magistrate’s view of the proper scope of interrogatories.

(4) Educating the Adversary

When facing a plaintiff whose litigation posture is vulnerable, a forceful motion may be the right tactic. Even a less assailable plaintiff may greet a motion to dismiss, and the attendant effort required to defend against it, with a new sense of realism about the ultimate sustainability of its claim or its desire to proceed as well as about the defendant’s resources and abilities.

(5) Partial Dismissal

Finally, the utility of a motion to dismiss under 12(b)(6) should be considered in light of the availability of partial dismissal, i.e., dismissal of only part of a complaint or of some but not all counts of a complaint.

This tool can be very powerful in the defense of commercial cases. Many cases involving multiple counts, often including fraud, conspiracy or RICO claims, merely come down to a basic dispute over a contract. Besides providing spurious bases for federal jurisdiction, illegitimate counts such as those are added because they make available punitive, treble or other enhanced damages as well as attorneys’ fees, none of which are normally available in contract actions. Often these “add ons” can be eliminated early, even before discovery, because many such claims have specific pleading requirements that act as gatekeepers at the earliest stage of the litigation. If it is successful with a partial dismissal motion, the defendant can:

– close off potentially dangerous or unreasonably burdensome areas of discovery;

– knock the wind out of a complaint’s sails and perhaps cause the plaintiff to question its counsel’s judgment; and

– fulfill the “education of the judge” function by undermining the credibility of the plaintiff’s claims as well as its way of presenting them to the court.

(d) Conversion into Summary Judgment Motion

If materials extrinsic to the pleadings are submitted to the court in support of or in opposition to a 12(b)(6) motion, the court does not have to consider them. Under FRCP 12(b), however, once the court does consider such matter the motion is automatically “converted” to a motion for summary judgment pursuant to FRCP 56.

Material does not literally have to be bound into the complaint to be considered “intrinsic” to it and a proper part of the consideration of a 12(b)(6) motion, without a “conversion” taking place. Courts have considered, on motions under 12(b)(6), SEC filings and other public records, legislative histories, concurrently or earlier filed pleadings and papers not part of the motion, and any documents incorporated by reference in the pleadings. It can fairly be said that any oral or written evidence not already “in the record” — public or court, physically or by reference — is regarded as “extrinsic” and will spur a conversion.

If the court does convert the 12(b)(6) motion to a summary judgment motion, it opens the door for all parties to submit their own evidence in support of the motion. [Update:  It must therefore give the parties an opportunity to make the appropriate submissions.]  Rather than entertain a full blown summary judgment motion at this stage, most judges will simply deny the motion until “the record is developed.”

(e) Procedure

Motion practice in general is discussed in Chapter 24 “Motion Practice,” infra. Regarding the 12(b)(6) motion in particular, take note of FRCP 12(d) which authorizes, subject to the court’s discretion, the motion hearing that is the essence of 12(b)(6) practice.

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, and need a complete package  that will help you challenge these fraudsters and save your home from foreclosure visit: http://www.fightforeclosure.net

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How Backlog of Court Cases In Nevada & Other States Will Help Homeowners Save Their Homes

23 Monday Dec 2013

Posted by BNG in Discovery Strategies, Federal Court, Judicial States, Non-Judicial States, State Court

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Appellate court, Courts of Nevada, Kristina Pickering, Las Vegas, National Center for State Courts, Nevada, Nevada Supreme Court, Tuesday

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A report released Tuesday detailing caseloads at Nevada courthouses has administrators urging voters to approve a constitutional amendment next year to create a statewide appellate court.

“The numbers show the unrelenting demand for court services in Nevada,” Supreme Court Chief Justice Kristina Pickering said in a statement accompanying the Annual Report of the Nevada Judiciary.

Pickering said Nevada courts meet the needs of Nevada business and citizens, despite limited resources and declines in staffing.

But she also called the Nevada appeals caseload one of the largest in the nation and a serious problem for people held for months pending criminal trials and for litigants waiting years for the resolution of civil cases.

Nevada is one of 11 states, plus the District of Columbia, without an intermediate appeals court.

Among those states, the seven justices on the Nevada Supreme top the list in cases per justice, the report states.

The Nevada high court received 2,333 appeals in 2013 — far more than the next-highest, West Virginia, with 1,524. The Nevada court disposed of 2,373 cases but it still had almost 1,900 cases pending.

Backlogs can be a key measure of court performance, said Greg Hurley, an analyst with the National Center for State Courts. The nonprofit, based in Williamsburg, Va., studies court issues around the country.

“Clearance rate is probably the single most important thing for case managers to monitor,” Hurley said. “Backlogs, once established, can be very difficult to clear.”

A study of 2010 court caseloads around the country put Nevada last among 25 states with courts of general jurisdiction in clearance rate for civil cases. Forty-six states have general jurisdiction courts, which hear a range of cases including criminal, civil, family and probate.

Nevada also ranked last among 23 states in a comparison of clearance rates for domestic relations cases.

Nevada Supreme Court spokesman Bill Gang said Nevada’s district court clearance rates for civil cases improved from 82 percent in 2010 to 119 percent in fiscal 2013, after the state added 10 judges in Las Vegas. The clearance rate in domestic relations cases remained about the same as in 2010, Gang said.

The 52-page annual Nevada courts report released Tuesday projects the cost of establishing a three-judge appeals court at about $1.5 million, and suggests it might save other costs.

Overall, the state court administration and management budget was just under $62 million in 2013. About one-third, or almost $21 million, went to the salaries of justices and district judges.

In all, courts in the 10 districts around the state took in 129,026 non-traffic cases in 2013, or 1,300 more than the previous year. The 82 judges in those courts disposed of 128,170 cases, down 2.5 percent from the previous year.

The 52 state judges in the Clark County courthouse handled an average of 1,840 cases each during the fiscal year ending June 30. That made the Las Vegas-area courts by far the busiest in the state.

By comparison, the 15 state court judges in Washoe County each handled an average of 1,308 cases in fiscal 2013. The two judges in the 7th District covering Eureka, Lincoln and White Pine counties handled 400 cases each.

If you find yourself in an unfortunate situation of losing or about to lose your home to wrongful fraudulent foreclosure, and need a complete package  that will help you challenge these fraudsters and save your home from foreclosure visit: http://www.fightforeclosure.net The backlog of Nevada as well as other states where homeowners needs home saving foreclosure solutions may result to the delay needed to plan your effective legal strategy to save your home.

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Wrongful Foreclosure Homeowner Wins – State Law Prevailed While Securitizatiion Failed

22 Sunday Dec 2013

Posted by BNG in Affirmative Defenses, Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Legal Research, Litigation Strategies, Loan Modification, Non-Judicial States, Pleadings, Pro Se Litigation, Securitization, State Court, Trial Strategies, Your Legal Rights

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Bank of America, California Court of Appeal, Deed of Trust, Foreclosure, Glaski, New York, Thomas Glaski, Washington Mutual

CASE STUDY:

INTRODUCTION

Before Washington Mutual Bank, FA (WaMu) was seized by federal banking regulators in 2008, it made many residential real estate loans and used those loans as collateral for mortgage-backed securities.1

Many of the loans went into default, which led to nonjudicial foreclosure proceedings.

Some of the foreclosures generated lawsuits,  which raised a wide variety of claims.

The allegations that the instant case shares with some of the other lawsuits are that

(1) documents related to the foreclosure contained forged signatures of Deborah Brignac and (2) the foreclosing entity was not the true owner of the loan because its chain of ownership had been broken by a defective transfer of the loan to the securitized trust established for the mortgage-backed securities. Here, the specific defect alleged is that the attempted transfers were made after the closing date of the securitized trust holding the pooled mortgages and therefore the transfers were ineffective.

In this appeal, the borrower contends the trial court erred by sustaining defendants’ demurrer as to all of his causes of action attacking the nonjudicial foreclosure. We conclude that, although the borrower’s allegations are somewhat confusing and may contain contradictions, he nonetheless has stated a wrongful foreclosure claim under the lenient standards applied to demurrers. We conclude that a borrower may challenge the securitized trust’s chain of ownership by alleging the attempts to transfer the deed of trust to the securitized trust (which was formed under New York law) occurred after the trust’s closing date. Transfers that violate the terms of the trust instrument are void under New York trust law, and borrowers have standing to challenge void assignments of their loans even though they are not a party to, or a third party beneficiary of, the assignment agreement.

H. Causes of Action Stated Based on the foregoing, we conclude that Glaski’s fourth cause of action has stated a claim for wrongful foreclosure. It follows that Glaski also has stated claims for quiet title (third cause of action), declaratory relief (fifth cause of action), cancellation of instruments (eighth cause of action), and unfair business practices under Business and Professions Code section 17200 (ninth cause of action).

We therefore reverse the judgment of dismissal and remand for further proceedings.

THOMAS A. GLASKI, Plaintiff and Appellant,
v.
BANK OF AMERICA, NATIONAL ASSOCIATION et al. Defendants and Respondents.

No. F064556.
Court of Appeals of California, Fifth District.
Filed July 31, 2013.
Publish order August 8, 2013.
Law Offices of Richard L. Antognini and Richard L. Antognini; Law Offices of Catarina M. Benitez and Catarina M. Benitez, for Plaintiff and Appellant.

AlvaradoSmith, Theodore E. Bacon, and Mikel A. Glavinovich, for Defendants and Respondents.

CERTIFIED FOR PUBLICATION
OPINION

FRANSON, J.

INTRODUCTION

INTRODUCTION

Before Washington Mutual Bank, FA (WaMu) was seized by federal banking regulators in 2008, it made many residential real estate loans and used those loans as collateral for mortgage-backed securities.[1] Many of the loans went into default, which led to nonjudicial foreclosure proceedings. Some of the foreclosures generated lawsuits, which raised a wide variety of claims. The allegations that the instant case shares with some of the other lawsuits are that (1) documents related to the foreclosure contained forged signatures of Deborah Brignac and (2) the foreclosing entity was not the true owner of the loan because its chain of ownership had been broken by a defective transfer of the loan to the securitized trust established for the mortgage-backed securities. Here, the specific defect alleged is that the attempted transfers were made after the closing date of the securitized trust holding the pooled mortgages and therefore the transfers were ineffective.

In this appeal, the borrower contends the trial court erred by sustaining defendants’ demurrer as to all of his causes of action attacking the nonjudicial foreclosure. We conclude that, although the borrower’s allegations are somewhat confusing and may contain contradictions, he nonetheless has stated a wrongful foreclosure claim under the lenient standards applied to demurrers. We conclude that a borrower may challenge the securitized trust’s chain of ownership by alleging the attempts to transfer the deed of trust to the securitized trust (which was formed under New York law) occurred after the trust’s closing date. Transfers that violate the terms of the trust instrument are void under New York trust law, and borrowers have standing to challenge void assignments of their loans even though they are not a party to, or a third party beneficiary of, the assignment agreement.

We therefore reverse the judgment of dismissal and remand for further proceedings.

FACTS – The Loan

Thomas A. Glaski, a resident of Fresno County, is the plaintiff and appellant in this lawsuit. The operative second amended complaint (SAC) alleges the following: In July 2005, Glaski purchased a home in Fresno for $812,000 (the Property). To finance the purchase, Glaski obtained a $650,000 loan from WaMu. Initial monthly payments were approximately $1,700. Glaski executed a promissory note and a deed of trust that granted WaMu a security interest in the Property (the Glaski deed of trust). Both documents were dated July 6, 2005. The Glaski deed of trust identified WaMu as the lender and the beneficiary, defendant California Reconveyance Company (California Reconveyance) as the trustee, and Glaski as the borrower.

Paragraph 20 of the Glaski deed of trust contained the traditional terms of a deed of trust and states that the note, together with the deed of trust, can be sold one or more times without prior notice to the borrower. In this case, a number of transfers purportedly occurred. The validity of attempts to transfer Glaski’s note and deed of trust to a securitized trust is a fundamental issue in this appeal.

Paragraph 22—another provision typical of deeds of trust—sets forth the remedies available to the lender in the event of a default. Those remedies include (1) the lender’s right to accelerate the debt after notice to the borrower and (2) the lender’s right to “invoke the power of sale” after the borrower has been given written notice of default and of the lender’s election to cause the property to be sold. Thus, under the Glaski deed of trust, it is the lender-beneficiary who decides whether to pursue nonjudicial foreclosure in the event of an uncured default by the borrower. The trustee implements the lender-beneficiary’s decision by conducting the nonjudicial foreclosure.[2]

Glaski’s loan had an adjustable interest rate, which caused his monthly loan payment to increase to $1,900 in August 2006 and to $2,100 in August 2007. In August 2008, Glaski attempted to work with WaMu’s loan modification department to obtain a modification of the loan. There is no dispute that Glaski defaulted on the loan by failing to make the monthly installment payments.

Creation of the WaMu Securitized Trust

In late 2005, the WaMu Mortgage Pass-Through Certificates Series 2005-AR17 Trust was formed as a common law trust (WaMu Securitized Trust) under New York law. The corpus of the trust consists of a pool of residential mortgage notes purportedly secured by liens on residential real estate. La Salle Bank, N.A., was the original trustee for the WaMu Securitized Trust.[3] Glaski alleges that the WaMu Securitized Trust has no continuing duties other than to hold assets and to issue various series of certificates of investment. A description of the certificates of investment as well as the categories of mortgage loans is included in the prospectus filed with the Securities and Exchange Commission (SEC) on October 21, 2005. Glaski alleges that the investment certificates issued by the WaMu Securitized Trust were duly registered with the SEC.

The closing date for the WaMu Securitized Trust was December 21, 2005, or 90 days thereafter. Glaski alleges that the attempt to assign his note and deed of trust to the WaMu Securitized Trust was made after the closing date and, therefore, the assignment was ineffective. (See fn. 12, post.)

WaMu’s Failure and Transfers of the Loan

In September 2008, WaMu was seized by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was appointed as a receiver for WaMu. That same day, the FDIC, in its capacity as receiver, sold the assets and liabilities of WaMu to defendant JPMorgan Chase Bank, N.A., (JP Morgan). This transaction was documented by a “PURCHASE AND ASSUMPTION AGREEMENT WHOLE BANK” (boldface and underlining omitted) between the FDIC and JP Morgan dated as of September 25, 2008. If Glaski’s loan was not validly transferred to the WaMu Securitized Trust, it is possible, though not certain, that JP Morgan acquired the Glaski deed of trust when it purchased WaMu assets from the FDIC.[4] JP Morgan also might have acquired the right to service the loans held by the WaMu Securitized Trust.

In September 2008, Glaski spoke to a representative of defendant Chase Home Finance LLC (Chase),[5] which he believed was an agent of JP Morgan, and made an oral agreement to start the loan modification process. Glaski believed that Chase had taken over loan modification negotiations from WaMu.

On December 9, 2008, two documents related to the Glaski deed of trust were recorded with the Fresno County Recorder: (1) an “ASSIGNMENT OF DEED OF TRUST” and (2) a “NOTICE OF DEFAULT AND ELECTION TO SELL UNDER DEED OF TRUST” (boldface omitted; hereinafter the NOD). The assignment stated that JP Morgan transferred and assigned all beneficial interest under the Glaski deed of trust to “LaSalle Bank NA as trustee for WaMu [Securitized Trust]” together with the note described in and secured by the Glaski deed of trust.[6]

Notice of Default and Sale of the Property

The NOD informed Glaski that (1) the Property was in foreclosure because he was behind in his payments[7] and (2) the Property could be sold without any court action. The NOD also stated that “the present beneficiary under” the Glaski deed of trust had delivered to the trustee a written declaration and demand for sale. According to the NOD, all sums secured by the deed of trust had been declared immediately due and payable and that the beneficiary elected to cause the Property to be sold to satisfy that obligation.

The NOD stated the amount of past due payments was $11,200.78 as of December 8, 2008.[8] It also stated: “To find out the amount you must pay, or to arrange for payment to stop the foreclosure, … contact: JPMorgan Chase Bank, National Association, at 7301 BAYMEADOWS WAY, JACKSONVILLE, FL 32256, (877) 926-8937.”

Approximately three months after the NOD was recorded and served, the next official step in the nonjudicial foreclosure process occurred. On March 12, 2009, a “NOTICE OF TRUSTEE’S SALE” was recorded by the Fresno County Recorder (notice of sale). The sale was scheduled for April 1, 2009. The notice stated that Glaski was in default under his deed of trust and estimated the amount owed at $734,115.10.

The notice of sale indicated it was signed on March 10, 2009, by Deborah Brignac, as Vice President for California Reconveyance. Glaski alleges that Brignac’s signature was forged to effectuate a fraudulent foreclosure and trustee’s sale of his primary residence.

Glaski alleges that from March until May 2009, he was led to believe by his negotiations with Chase that a loan modification was in process with JP Morgan.

Despite these negotiations, a nonjudicial foreclosure sale of the Property was conducted on May 27, 2009. Bank of America, as successor trustee for the WaMu Securitized Trust and beneficiary under the Glaski deed of trust, was the highest bidder at the sale.

On June 15, 2009, another “ASSIGNMENT OF DEED OF TRUST” was recorded with the Fresno County Recorder. This assignment, like the assignment recorded in December 2008, identified JP Morgan as the assigning party. The entity receiving all beneficial interest under the Glaski deed of trust was identified as Bank of America, “as successor by merger to `LaSalle Bank NA as trustee for WaMu [Securitized Trust]. …”[9] The assignment of deed of trust indicates it was signed by Brignac, as Vice President for JP Morgan. Glaski alleges that Brignac’s signature was forged.

The very next document filed by the Fresno County Recorder on June 15, 2009, was a “TRUSTEE’S DEED UPON SALE.” (Boldface omitted.) The trustee’s deed upon sale stated that California Reconveyance, as the duly appointed trustee under the Glaski deed of trust, granted and conveyed to Bank of America, as successor by merger to La Salle NA as trustee for the WaMu Securitized Trust, all of its right, title and interest to the Property. The trustee’s deed upon sale stated that the amount of the unpaid debt and costs was $738,238.04 and that the grantee, paid $339,150 at the trustee’s sale, either in lawful money or by credit bid.

PROCEEDINGS

In October 2009, Glaski filed his original complaint. In August 2011, Glaski filed the SAC, which alleged the following numbered causes of action:

(1) Fraud against JPMorgan and California Reconveyance for the alleged forged signatures of Deborah Brignac as vice president for California Reconveyance and then as vice president of JPMorgan;

(2) Fraud against all defendants for their failure to timely and properly transfer the Glaski loan to the WaMu Securitized Trust and their representations to the contrary;

(3) Quiet title against Bank of America, Chase, and California Reconveyance based on the broken chain of title caused by the defective transfer of the loan to the WaMu Securitized Trust;

(4) Wrongful foreclosure against all defendants, based on the forged signatures of Deborah Brignac and the failure to timely and properly transfer the Glaski loan to the WaMu Securitized Trust;

(5) Declaratory relief against all defendants, based on the above acts by defendants;

(8) Cancellation of various foreclosure documents against all defendants, based on the above acts by the defendants; and

(9) Unfair practices under California Business and Professions Code section 17200, et seq., against all defendants.

Among other things, Glaski raised questions regarding the chain of ownership, by contending that the defendants were not the lender or beneficiary under his deed of trust and, therefore, did not have the authority to foreclose.

In September 2011, defendants filed a demurrer that challenged each cause of action in the SAC on the grounds that it failed to state facts sufficient to constitute a claim for relief. With respect to the wrongful foreclosure cause of action, defendants argued that Glaski failed to allege (1) any procedural irregularity that would justify setting aside the presumptively valid trustee’s sale and (2) that he could tender the amount owed if the trustee’s sale were set aside.

To support their demurrer to the SAC, defendants filed a request for judicial notice concerning (1) Order No. 2008-36 of the Office of Thrift Supervision, dated September 25, 2008, appointing the FDIC as receiver of Washington Mutual Bank and (2) the Purchase and Assumption Agreement Whole Bank between the FDIC and JP Morgan dated as of September 25, 2008, concerning the assets, deposits and liabilities of Washington Mutual Bank.[10]

Glaski opposed the demurrer, arguing that breaks in the chain of ownership of his deed of trust were sufficiently alleged. He asserted that Brignac’s signature was forged and the assignment bearing that forgery was void. His opposition also provided a more detailed explanation of his argument that his deed of trust had not been effectively transferred to the WaMu Securitized Trust that held the pool of mortgage loans. Thus, in Glaski’s view, Bank of America’s claim as the successor trustee is flawed because the trust never held his loan.

On November 15, 2011, the trial court heard argument from counsel regarding the demurrer. Counsel for Glaski argued, among other things, that the possible ratification of the allegedly forged signatures of Brignac presented an issue of fact that could not be resolved at the pleading stage.

Later that day, the court filed a minute order adopting its tentative ruling. As background for the issues presented in this appeal, we will describe the trial court’s ruling on Glaski’s two fraud causes of action and his wrongful foreclosure cause of action.

The ruling stated that the first cause of action for fraud was based on an allegation that defendants misrepresented material information by causing a forged signature to be placed on the June 2009 assignment of deed of trust. The ruling stated that if the signature of Brignac was forged, California Reconveyance “ratified the signature by treating it as valid.” As an additional rationale, the ruling cited Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149 (Gomes) for the proposition that the exhaustive nature of California’s nonjudicial foreclosure scheme prohibited the introduction of additional requirements challenging the authority of the lender’s nominee to initiate nonjudicial foreclosure.

As to the second cause of action for fraud, the ruling noted the allegation that the Glaski deed of trust was transferred to the WaMu Securitized Trust after the trust’s closing date and summarized the claim as asserting that the Glaski deed of trust had been improperly transferred and, therefore, the assignment was void ab initio. The ruling rejected this claim, stating: “[T]o reiterate, Gomes v. Countrywide, supra holds that there is no legal basis to challenge the authority of the trustee, mortgagee, beneficiary, or any of their authorized agents to initiate the foreclosure process citing Civil Code § 2924, subd. (a)(1).”

The ruling stated that the fourth cause of action for wrongful foreclosure was “based upon the invalidity of the foreclosure sale conducted on May 27, 2009 due to the `forged’ signature of Deborah Brignac and the failure of Defendants to `provide a chain of title of the note and the mortgage.’” The ruling stated that, as explained earlier, “these contentions are meritless” and sustained the general demurrer to the wrongful foreclosure claim without leave to amend.

Subsequently, a judgment of dismissal was entered and Glaski filed a notice of appeal.

DISCUSSION
I. STANDARD OF REVIEW

The trial court sustained the demurrer to the SAC on the ground that it did “not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) The standard of review applicable to such an order is well settled. “[W]e examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory. …” (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.)

When conducting this de novo review, “[w]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.]” (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) Our consideration of the facts alleged includes “those evidentiary facts found in recitals of exhibits attached to a complaint.” (Satten v. Webb (2002) 99 Cal.App.4th 365, 375.) “We also consider matters which may be judicially noticed.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591; see Code Civ. Proc., § 430.30, subd. (a) [use of judicial notice with demurrer].) Courts can take judicial notice of the existence, content and authenticity of public records and other specified documents, but do not take judicial notice of the truth of the factual matters asserted in those documents. (Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063, overruled on other grounds in In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1262.) We note “in passing upon the question of the sufficiency or insufficiency of a complaint to state a cause of action, it is wholly beyond the scope of the inquiry to ascertain whether the facts stated are true or untrue” as “[t]hat is always the ultimate question to be determined by the evidence upon a trial of the questions of fact.” (Colm v. Francis (1916) 30 Cal.App. 742, 752.))

II. FRAUD
A. Rules for Pleading Fraud

The elements of a fraud cause of action are (1) misrepresentation, (2) knowledge of the falsity or scienter, (3) intent to defraud—that is, induce reliance, (4) justifiable reliance, and (5) resulting damages. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) These elements may not be pleaded in a general or conclusory fashion. (Id. at p. 645.) Fraud must be pled specifically—that is, a plaintiff must plead facts that show with particularity the elements of the cause of action. (Ibid.)

In their demurrer, defendants contended facts establishing detrimental reliance were not alleged.

B. First Cause of Action for Fraud, Lack of Specific Allegations of Reliance

B. First Cause of Action for Fraud, Lack of Specific Allegations of Reliance

Glaski’s first cause of action, which alleges a fraud implemented through forged documents, alleges that defendants’ act “caused Plaintiff to rely on the recorded documents and ultimately lose the property which served as his primary residence, and caused Plaintiff further damage, proof of which will be made at trial.”

This allegation is a general allegation of reliance and damage. It does not identify the particular acts Glaski took because of the alleged forgeries. Similarly, it does not identify any acts that Glaski did not take because of his reliance on the alleged forgeries. Therefore, we conclude that Glaski’s conclusory allegation of reliance is insufficient under the rules of law that require fraud to be pled specifically. (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.)

The next question is whether the trial court abused its discretion in sustaining the demurrer to the first fraud cause of action without leave to amend.

In March 2011, the trial court granted Glaski leave to amend when ruling on defendants’ motion for judgment on the pleadings. The court indicated that Glaski’s complaint had jumbled together many different statutes and theories of liability and directed Glaski to avoid “chain letter” allegations in his amended pleading.

Glaski’s first amended complaint set forth two fraud causes of action that are similar to those included in the SAC.

Defendants demurred to the first amended complaint. The trial court’s minute order states: “Plaintiff is advised for the last time to plead each cause of action such that only the essential elements for the claim are set forth without reincorporation of lengthy `general allegations’. In other words, the `facts’ to be pleaded are those upon which liability depends (i.e., `the facts constituting the cause of action’).”

After Glaski filed his SAC, defendants filed a demurrer. Glaski then filed an opposition that asserted he had properly alleged detrimental reliance. He did not argue he could amend to allege specifically the action he took or did not take because of his reliance on the alleged forgeries.

Accordingly, Glaski failed to carry his burden of demonstrating he could allege with the requisite specificity the elements of justifiable reliance and damages resulting from that reliance. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [the burden of articulating how a defective pleading could be cured is squarely on the plaintiff].) Therefore, we conclude that the trial court did not abuse its discretion when it denied leave to amend as to the SAC’s first cause of action for fraud.
C. Second Fraud Cause of Action, Lack of Specific Allegations of Reliance

Glaski’s second cause of action for fraud alleged that WaMu failed to transfer his note and deed of trust into the WaMu Securitized Trust back in 2005. Glaski further alleged, in essence, that defendants attempted to rectify WaMu’s failure by engaging in a fraudulent scheme to assign his note and deed of trust into the WaMu Securitized Trust. The scheme was implemented in 2008 and 2009 and its purpose was to enable defendants to fraudulently foreclosure against the Property.

The second cause of action for fraud attempts to allege detrimental reliance in the following sentence: “Defendants, and each of them, also knew that the act of recording the Assignment of Deed of trust without the authorization to do so would cause Plaintiff to rely upon Defendants’ actions by attempting to negotiate a loan modification with representatives of Chase Home Finance, LLC, agents of JP MORGAN.” The assignment mentioned in this allegation is the assignment of deed of trust recorded in June 2009—no other assignment of deed of trust is referred to in the second cause of action.

The allegation of reliance does not withstand scrutiny. The act of recording the allegedly fraudulent assignment occurred in June 2009, after the trustee’s sale of the Property had been conducted. If Glaski was induced to negotiate a loan modification at that time, it is unclear how negotiations occurring after the May 2009 trustee’s sale could have diverted him from stopping the trustee’s sale. Thus, Glaski’s allegation of reliance is not connected to any detriment or damage.

Because Glaski has not demonstrated how this defect in his fraud allegations could be cured by amendment, we conclude that the trial court did not abuse its discretion in denying leave to amend the second cause of action in the SAC.
III. WRONGFUL FORECLOSURE BY NONHOLDER OF THE DEED OF TRUST
A. Glaski’s Theory of Wrongful Foreclosure

Glaski’s theory that the foreclosure was wrongful is based on (1) the position that paragraph 22 of the Glaski deed of trust authorizes only the lender-beneficiary (or its assignee) to (a) accelerate the loan after a default and (b) elect to cause the Property to be sold and (2) the allegation that a nonholder of the deed of trust, rather than the true beneficiary, instructed California Reconveyance to initiate the foreclosure.[11]

In particular, Glaski alleges that (1) the corpus of the WaMu Securitized Trust was a pool of residential mortgage notes purportedly secured by liens on residential real estate; (2) section 2.05 of “the Pooling and Servicing Agreement” required that all mortgage files transferred to the WaMu Securitized Trust be delivered to the trustee or initial custodian of the WaMu Securitized Trust before the closing date of the trust (which was allegedly set for December 21, 2005, or 90 days thereafter); (3) the trustee or initial custodian was required to identify all such records as being held by or on behalf of the WaMu Securitized Trust; (4) Glaski’s note and loan were not transferred to the WaMu Securitized Trust prior to its closing date; (5) the assignment of the Glaski deed of trust did not occur by the closing date in December 2005; (6) the transfer to the trust attempted by the assignment of deed of trust recorded on June 15, 2009, occurred long after the trust was closed; and (7) the attempted assignment was ineffective as the WaMu Securitized Trust could not have accepted the Glaski deed of trust after the closing date because of the pooling and servicing agreement and the statutory requirements applicable to a Real Estate Mortgage Investment Conduit (REMIC) trust.[12]
B. Wrongful Foreclosure by a Nonholder of the Deed of Trust

The theory that a foreclosure was wrongful because it was initiated by a nonholder of the deed of trust has also been phrased as (1) the foreclosing party lacking standing to foreclose or (2) the chain of title relied upon by the foreclosing party containing breaks or defects. (See Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 764; Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th 1366 [Deutsche Bank not entitled to summary judgment on wrongful foreclosure claim because it failed to show a chain of ownership that would establish it was the true beneficiary under the deed of trust]; Guerroro v. Greenpoint Mortgage Funding, Inc. (9th Cir. 2010) 403 Fed.Appx. 154, 156 [rejecting a wrongful foreclosure claim because, among other things, plaintiffs “have not pleaded any facts to rebut the unbroken chain of title”].)

In Barrionuevo v. Chase Bank, N.A. (N.D.Cal. 2012) 885 F.Supp.2d 964, the district court stated: “Several courts have recognized the existence of a valid cause of action for wrongful foreclosure where a party alleged not to be the true beneficiary instructs the trustee to file a Notice of Default and initiate nonjudicial foreclosure.” (Id. at p. 973.) We agree with this statement of law, but believe that properly alleging a cause of action under this theory requires more than simply stating that the defendant who invoked the power of sale was not the true beneficiary under the deed of trust. Rather, a plaintiff asserting this theory must allege facts that show the defendant who invoked the power of sale was not the true beneficiary. (See Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1506 [plaintiff failed to plead specific facts demonstrating the transfer of the note and deed of trust were invalid].)
C. Borrower’s Standing to Raise a Defect in an Assignment

One basis for claiming that a foreclosing party did not hold the deed of trust is that the assignment relied upon by that party was ineffective. When a borrower asserts an assignment was ineffective, a question often arises about the borrower’s standing to challenge the assignment of the loan (note and deed of trust)—an assignment to which the borrower is not a party. (E.g., Conlin v. Mortgage Electronic Registration Systems, Inc. (6th Cir. 2013) 714 F.3d 355, 361 [third party may only challenge an assignment if that challenge would render the assignment absolutely invalid or ineffective, or void]; Culhane v. Aurora Loan Services of Nebraska (1st Cir. 2013) 708 F.3d 282, 291 [under Massachusetts law, mortgagor has standing to challenge a mortgage assignment as invalid, ineffective or void]; Gilbert v. Chase Home Finance, LLC (E.D.Cal., May 28, 2013, No. 1:13-CV-265 AWI SKO) 2013 WL 2318890.)[13]

California’s version of the principle concerning a third party’s ability to challenge an assignment has been stated in a secondary authority as follows:

“Where an assignment is merely voidable at the election of the assignor, third parties, and particularly the obligor, cannot … successfully challenge the validity or effectiveness of the transfer.” (7 Cal.Jur.3d (2012) Assignments, § 43.)

This statement implies that a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment. (See Reinagel v. Deutsche Bank National Trust Co. (5th Cir. 2013) ___ F.3d ___ [2013 WL 3480207 at p. *3] [following majority rule that an obligor may raise any ground that renders the assignment void, rather than merely voidable].) We adopt this view of the law and turn to the question whether Glaski’s allegations have presented a theory under which the challenged assignments are void, not merely voidable.

We reject the view that a borrower’s challenge to an assignment must fail once it is determined that the borrower was not a party to, or third party beneficiary of, the assignment agreement. Cases adopting that position “paint with too broad a brush.” (Culhane v. Aurora Loan Services of Nebraska, supra, 708 F.3d at p. 290.) Instead, courts should proceed to the question whether the assignment was void.

D. Voidness of a Post-Closing Date Transfers to a Securitized Trust

Here, the SAC includes a broad allegation that the WaMu Securitized Trust “did not have standing to foreclosure on the … Property, as Defendants cannot provide the entire chain of title of the note and the [deed of trust].”[14]

More specifically, the SAC identifies two possible chains of title under which Bank of America, as trustee for the WaMu Securitized Trust, could claim to be the holder of the Glaski deed of trust and alleges that each possible chain of title suffers from the same defect—a transfer that occurred after the closing date of the trust.

First, Glaski addresses the possibility that (1) Bank of America’s chain of title is based on its status as successor trustee for the WaMu Securitized Trust and (2) the Glaski deed of trust became part of the WaMu Securitized Trust’s property when the securitized trust was created in 2005. The SAC alleges that WaMu did not transfer Glaski’s note and deed of trust into the WaMu Securitized Trust prior to the closing date established by the pooling and servicing agreement. If WaMu’s attempted transfer was void, then Bank of America could not claim to be the holder of the Glaski deed of trust simply by virtue of being the successor trustee of the WaMu Securitized Trust.

Second, Glaski addresses the possibility that Bank of America acquired Glaski’s deed of trust from JP Morgan, which may have acquired it from the FDIC. Glaski contends this alternate chain of title also is defective because JP Morgan’s attempt to transfer the Glaski deed of trust to Bank of America, as trustee for the WaMu Securitized Trust, occurred after the trust’s closing date. Glaski specifically alleges JP Morgan’s attempted assignment of the deed of trust to the WaMu Securitized Trust in June 2009 occurred long after the WaMu Securitized Trust closed (i.e., 90 days after December 21, 2005).

Based on these allegations, we will address whether a post-closing date transfer into a securitized trust is the type of defect that would render the transfer void. Other allegations relevant to this inquiry are that the WaMu Securitized Trust (1) was formed in 2005 under New York law and (2) was subject to the requirements imposed on REMIC trusts (entities that do not pay federal income tax) by the Internal Revenue Code.

The allegation that the WaMu Securitized Trust was formed under New York law supports the conclusion that New York law governs the operation of the trust. New York Estates, Powers & Trusts Law section 7-2.4, provides: “If the trust is expressed in an instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.”[15]

Because the WaMu Securitized Trust was created by the pooling and servicing agreement and that agreement establishes a closing date after which the trust may no longer accept loans, this statutory provision provides a legal basis for concluding that the trustee’s attempt to accept a loan after the closing date would be void as an act in contravention of the trust document.

We are aware that some courts have considered the role of New York law and rejected the post-closing date theory on the grounds that the New York statute is not interpreted literally, but treats acts in contravention of the trust instrument as merely voidable. (Calderon v. Bank of America, N.A. (W.D.Tex., Apr. 23, 2013, No. SA:12-CV-00121-DAE) ___ F.Supp.2d ___, [2013 WL 1741951 at p. *12] [transfer of plaintiffs’ note, if it violated PSA, would merely be voidable and therefore plaintiffs do not have standing to challenge it]; Bank of America National Association v. Bassman FBT, L.L.C. (Ill.Ct.App. 2012) 981 N.E.2d 1, 8 [following cases that treat ultra vires acts as merely voidable].)

Despite the foregoing cases, we will join those courts that have read the New York statute literally. We recognize that a literal reading and application of the statute may not always be appropriate because, in some contexts, a literal reading might defeat the statutory purpose by harming, rather than protecting, the beneficiaries of the trust. In this case, however, we believe applying the statute to void the attempted transfer is justified because it protects the beneficiaries of the WaMu Securitized Trust from the potential adverse tax consequence of the trust losing its status as a REMIC trust under the Internal Revenue Code. Because the literal interpretation furthers the statutory purpose, we join the position stated by a New York court approximately two months ago: “Under New York Trust Law, every sale, conveyance or other act of the trustee in contravention of the trust is void. EPTL § 7-2.4. Therefore, the acceptance of the note and mortgage by the trustee after the date the trust closed, would be void.” (Wells Fargo Bank, N.A. v. Erobobo (Apr. 29, 2013) 39 Misc.3d 1220(A), 2013 WL 1831799, slip opn. p. 8; see Levitin & Twomey, Mortgage Servicing, supra, 28 Yale J. on Reg. at p. 14, fn. 35 [under New York law, any transfer to the trust in contravention of the trust documents is void].) Relying on Erobobo, a bankruptcy court recently concluded “that under New York law, assignment of the Saldivars’ Note after the start up day is void ab initio. As such, none of the Saldivars’ claims will be dismissed for lack of standing.” (In re Saldivar (Bankr.S.D.Tex., Jun. 5, 2013, No. 11-10689) 2013 WL 2452699, at p. *4.)

We conclude that Glaski’s factual allegations regarding post-closing date attempts to transfer his deed of trust into the WaMu Securitized Trust are sufficient to state a basis for concluding the attempted transfers were void. As a result, Glaski has a stated cognizable claim for wrongful foreclosure under the theory that the entity invoking the power of sale (i.e., Bank of America in its capacity as trustee for the WaMu Securitized Trust) was not the holder of the Glaski deed of trust.[16]

We are aware that that some federal district courts sitting in California have rejected the post-closing date theory of invalidity on the grounds that the borrower does not have standing to challenge an assignment between two other parties. (Aniel v. GMAC Mortgage, LLC (N.D.Cal., Nov. 2, 2012, No. C 12-04201 SBA) 2012 WL 5389706 [joining courts that held borrowers lack standing to assert the loan transfer occurred outside the temporal bounds prescribed by the pooling and servicing agreement]; Almutarreb v. Bank of New York Trust Co., N.A. (N.D.Cal., Sept. 24, 2012, No. C 12-3061 EMC) 2012 WL 4371410.) These cases are not persuasive because they do not address the principle that a borrower may challenge an assignment that is void and they do not apply New York trust law to the operation of the securitized trusts in question.
E. Application of Gomes

The next question we address is whether Glaski’s wrongful foreclosure claim is precluded by the principles set forth in Gomes, supra, 192 Cal.App.4th 1149, a case relied upon by the trial court in sustaining the demurrer. Gomes was a pre-foreclosure action brought by a borrower against the lender, trustee under a deed and trust, and MERS, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans in the secondary mortgage market. (Id. at p. 1151.) The subject trust deed identified MERS as a nominee for the lender and that MERS is the beneficiary under the trust deed. After initiation of a nonjudicial forclosure, borrower sued for wrongful initiation of foreclosure, alleging that the current owner of the note did not authorize MERS, the nominee, to proceed with the foreclosure. The appellate court held that California’s nonjudicial foreclosure system, outlined in Civil Code sections 2924 through 2924k, is a “`comprehensive framework for the regulation of a nonjudicial foreclosure sale’” that did not allow for a challenge to the authority of the person initiating the foreclosure. (Gomes, supra, at p. 1154.)

In Naranjo v. SBMC Mortgage (S.D.Cal., Jul. 24, 2012, No. 11-CV-2229-L(WVG)) 2012 WL 3030370 (Naranjo), the district court addressed the scope of Gomes, stating:

“In Gomes, the California Court of Appeal held that a plaintiff does not have a right to bring an action to determine the nominee’s authorization to proceed with a nonjudicial foreclosure on behalf of a noteholder. [Citation.] The nominee in Gomes was MERS. [Citation.] Here, Plaintiff is not seeking such a determination. The role of the nominee is not central to this action as it was in Gomes. Rather, Plaintiff alleges that the transfer of rights to the WAMU Trust is improper, thus Defendants consequently lack the legal right to either collect on the debt or enforce the underlying security interest.” (Naranjo, supra, 2012 WL 3030370, at p. *3.)

Thus, the court in Naranjo did not interpret Gomes as barring a claim that was essentially the same as the post-closing date claim Glaski is asserting in this case.

Furthermore, the limited nature of the holding in Gomes is demonstrated by the Gomes court’s discussion of three federal cases relied upon by Mr. Gomes. The court stated that the federal cases were not on point because none recognized a cause of action requiring the noteholder’s nominee to prove its authority to initiate a foreclosure proceeding. (Gomes, supra, 192 Cal.App.4th at p. 1155.) The Gomes court described one of the federal cases by stating that “the plaintiff alleged wrongful foreclosure on the ground that assignments of the deed of trust had been improperly backdated, and thus the wrong party had initiated the foreclosure process. [Citaiton.] No such infirmity is alleged here.” (Ibid.; see Lester v. J.P. Morgan Chase Bank (N.D.Cal., Feb. 20, 2013) ___ F.Supp.2d ___, [2013 WL 633333, p. *7] [concluding Gomes did not preclude the plaintiff from challenging JP Morgan’s authority to foreclose].) The Gomes court also stated it was significant that in each of the three federal cases, “the plaintiff’s complaint identified a specific factual basis for alleging that the foreclosure was not initiated by the correct party.” (Gomes, supra, at p. 1156.)

The instant case is distinguishable from Gomes on at least two grounds. First, like Naranjo, Glaski has alleged that the entity claiming to be the noteholder was not the true owner of the note. In contrast, the principle set forth in Gomes concerns the authority of the noteholder’s nominee, MERS. Second, Glaski has alleged specific grounds for his theory that the foreclosure was not conducted at the direction of the correct party.

In view of the limiting statements included in the Gomes opinion, we do not interpret it as barring claims that challenge a foreclosure based on specific allegations that an attempt to transfer the deed of trust was void. Our interpretation, which allows borrowers to pursue questions regarding the chain of ownership, is compatible with Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th 1366. In that case, the court concluded that triable issues of material fact existed regarding alleged breaks in the chain of ownership of the deed of trust in question. (Id. at p. 1378.) Those triable issues existed because Deutsche Bank’s motion for summary judgment failed to establish it was the beneficiary under that deed of trust. (Ibid.)
F. Tender

Defendants contend that Glaski’s claims for wrongful foreclosure, cancellation of instruments and quiet title are defective because Glaski failed to allege that he made a valid and viable tender of payment of the indebtedness. (See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117 [“valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust”].)

Glaski contends that he is not required to allege he tendered payment of the loan balance because (1) there are many exceptions to the tender rule, (2) defendants have offered no authority for the proposition that the absence of a tender bars a claim for damages,[17] and (3) the tender rule is a principle of equity and its application should not be decided against him at the pleading stage.

Tender is not required where the foreclosure sale is void, rather than voidable, such as when a plaintiff proves that the entity lacked the authority to foreclose on the property. (Lester v. J.P. Morgan Chase Bank, supra, ___ F.Supp.2d ___, [2013 WL 633333, p. *8]; 4 Miller & Starr, Cal. Real Estate (3d ed. 2003) Deeds of Trust, § 10:212, p. 686.)

Accordingly, we cannot uphold the demurrer to the wrongful foreclosure claim based on the absence of an allegation that Glaski tendered the amount due under his loan. Thus, we need not address the other exceptions to the tender requirement. (See e.g., Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424 [tender may not be required where it would be inequitable to do so].)
G. Remedy of Setting Aside Trustee’s Sale

Defendants argue that the allegedly ineffective transfer to the WaMu Securitized Trust was a mistake that occurred outside the confines of the statutory nonjudicial foreclosure proceeding and, pursuant to Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 445, that mistake does not provide a basis for invalidating the trustee’s sale.

First, this argument does not negate the possibility that other types of relief, such as damages, are available to Glaski. (See generally, Annot., Recognition of Action for Damages for Wrongful Foreclosure—Types of Action, supra, 82 A.L.R.6th 43.)

Second, “where a plaintiff alleges that the entity lacked authority to foreclose on the property, the foreclosure sale would be void. [Citation.]” (Lester v. J.P. Morgan Chase Bank, supra, ___ F.Supp.2d ___, [2013 WL 633333, p. *8].)

Consequently, we conclude that Nguyen v. Calhoun, supra, 105 Cal.App.4th 428 does not deprive Glaski of the opportunity to prove the foreclosure sale was void based on a lack of authority.
H. Causes of Action Stated

Based on the foregoing, we conclude that Glaski’s fourth cause of action has stated a claim for wrongful foreclosure. It follows that Glaski also has stated claims for quiet title (third cause of action), declaratory relief (fifth cause of action), cancellation of instruments (eighth cause of action), and unfair business practices under Business and Professions Code section 17200 (ninth cause of action). (See Susilo v. Wells Fargo Bank, N.A. (C.D.Cal. 2011) 796 F.Supp.2d 1177, 1196 [plaintiff’s wrongful foreclosure claims served as predicate violations for her UCL claim].)
IV. JUDICIAL NOTICE
A. Glaski’s Request for Judicial Notice

When Glaski filed his opening brief, he also filed a request for judicial notice of (1) a Consent Judgment entered on April 4, 2012, by the United States District Court of the District of Columbia in United States v. Bank of America Corp. (D.D.C. No. 12-CV-00361); (2) the Settlement Term Sheet attached to the Consent Judgment; and (3) the federal and state release documents attached to the Consent Judgment as Exhibits F and G.

Defendants opposed the request for judicial notice on the ground that the request violated the requirements in California Rules of Court, rule 8.252 because it was not filed with a separate proposed order, did not state why the matter to be noticed was relevant to the appeal, and did not state whether the matters were submitted to the trial court and, if so, whether that court took judicial notice of the matters.

The documents included in Glaski’s request for judicial notice may provide background information and insight into robo-signing[18] and other problems that the lending industry has had with the procedures used to foreclose on defaulted mortgages. However, these documents do not directly affect whether the allegations in the SAC are sufficient to state a cause of action. Therefore, we deny Glaski’s request for judicial notice.
B. Defendants’ Request for Judicial Notice of Assignment

The “ASSIGNMENT OF DEED OF TRUST” recorded on December 9, 2008, that stated JP Morgan transferred and assigned all beneficial interest under the Glaski deed of trust to “LaSalle Bank NA as trustee for WaMu [Securitized Trust]” together with the note described in and secured by the Glaski deed of trust was not attached to the SAC as an exhibit. That document is part of the appellate record because the respondents’ appendix includes a copy of defendants’ request for judicial notice that was filed in June 2011 to support a motion for judgment on the pleadings.

In ruling on defendants’ request for judicial notice, the trial court stated that it could only take judicial notice that certain documents in the request, including the assignment of deed of trust, had been recorded, but it could not take judicial notice of factual matters stated in those documents. This ruling is correct and unchallenged on appeal. Therefore, like the trial court, we will take judicial notice of the existence and recordation of the December 2008 assignment, but we “do not take notice of the truth of matters stated therein.” (Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th at p. 1375.) As a result, the assignment of deed of trust does not establish that JP Morgan was, in fact, the holder of the beneficial interest in the Glaski deed of trust that the assignment states was transferred to LaSalle Bank. Similarly, it does not establish that LaSalle Bank in fact became the owner or holder of that beneficial interest.

Because the document does not establish these facts for purposes of this demurrer, it does not cure either of the breaks in the two alternate chains of ownership challenged in the SAC. Therefore, the December 2008 assignment does not provide a basis for sustaining the demurrer.
DISPOSITION

The judgment of dismissal is reversed. The trial court is directed to vacate its order sustaining the general demurrer and to enter a new order overruling that demurrer as to the third, fourth, fifth, eighth and ninth causes of action.

Glaski’s request for judicial notice filed on September 25, 2012, is denied.

Glaski shall recover his costs on appeal.

Wiseman, Acting P.J. and Kane, J., concurs.
ORDER GRANTING REQUEST FOR PUBLICATION

As the nonpublished opinion filed on July 31, 2013, in the above entitled matter hereby meets the standards for publication specified in the California Rules of Court, rule 8.1105(c), it is ordered that the opinion be certified for publication in the Official Reports.

KANE, J., concur.

[1] Mortgage-backed securities are created through a complex process known as “securization.” (See Levitin & Twomey, Mortgage Servicing (2011) 28 Yale J. on Reg. 1, 13 [“a mortgage securitization transaction is extremely complex”].) In simplified terms, “securitization” is the process where (1) many loans are bundled together and transferred to a passive entity, such as a trust, and (2) the trust holds the loans and issues investment securities that are repaid from the mortgage payments made on the loans. (Oppenheim & Trask-Rahn, Deconstructing the Black Magic of Securitized Trusts: How the Mortgage-Backed Securitization Process is Hurting the Banking Industry’s Ability to Foreclose and Proving the Best Offense for a Foreclosure Defense (2012) 41 Stetson L.Rev. 745, 753-754 (hereinafter, Deconstructing Securitized Trusts).) Hence, the securities issued by the trust are “mortgage-backed.” For purposes of this opinion, we will refer to such a trust as a “securitized trust.”

[2] Civil Code section 2924, subdivision (a)(1) states that a “trustee, mortgagee, or beneficiary, or any of their authorized agents” may initiate the nonjudicial foreclosure process. This statute and the provision of the Glaski deed of trust are the basis for Glaski’s position that the nonjudicial foreclosure in this case was wrongful—namely, that the power of sale in the Glaski deed of trust was invoked by an entity that was not the true beneficiary.

[3] Glaski’s pleading does not allege that LaSalle Bank was the original trustee when the WaMu Securitized Trust was formed in late 2005, but filings with the Securities and Exchange Commission identify LaSalle Bank as the original trustee. We provide this information for background purposes only and it plays no role in our decision in this appeal.

[4] Another possibility, which was acknowledged by both sides at oral argument, is that the true holder of the note and deed of trust cannot be determined at this stage of the proceedings. This lack of certainty regarding who holds the deed of trust is not uncommon when a securitized trust is involved. (See Mortgage and Asset Backed Securities Litigation Handbook (2012) § 5:114 [often difficult for securitized trust to prove ownership by showing a chain of assignments of the loan from the originating lender].)

[5] It appears this company is no longer a separate entity. The certificate of interested entities filed with the respondents’ brief refers to “JPMorgan Chase Bank, N.A. as successor by merger to Chase Home Finance, LLC.”

[6] One controversy presented by this appeal is whether this court should consider the December 9, 2008, assignment of deed of trust, which is not an exhibit to the SAC. Because the trial court took judicial notice of the existence and recordation of the assignment earlier in the litigation, we too will consider the assignment, but will not presume the matters stated therein are true. (See pt. IV.B, post.) For instance, we will not assume that JP Morgan actually held any interests that it could assign to LaSalle Bank. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375 [taking judicial notice of a recorded assignment does not establish assignee’s ownership of deed of trust].)

[7] Specifically, the notice stated that his August 2008 installment payment and all subsequent installment payments had not been made.

[8] The signature block at the end of the NOD indicated it was signed by Colleen Irby as assistant secretary for California Reconveyance. The first page of the notice stated that recording was requested by California Reconveyance. Affidavits of mailing attached to the SAC stated that the declarant mailed copies of the notice of default to Glaski at his home address and to Bank of America, care of Custom Recording Solutions, at an address in Santa Ana, California. The affidavits of mailing are the earliest documents in the appellate record indicating that Bank of America had any involvement with Glaski’s loan.

[9] Bank of America took over La Salle Bank by merger in 2007.

[10] The trial court did not explicitly rule on defendants’ request for judicial notice of these documents, but referred to matters set forth in these documents in its ruling. Therefore, for purposes of this appeal, we will infer that the trial court granted the request.

[11] The claim that a foreclosure was conducted by or at the direction of a nonholder of mortgage rights often arises where the mortgage has been securitized. (Buchwalter, Cause of Action in Tort for Wrongful Foreclosure of Residential Mortgage, 52 Causes of Action Second (2012) 119, 149 [§ 11 addresses foreclosure by a nonholder of mortgage rights].)

[12] This allegation comports with the following view of pooling and servicing agreements and the federal tax code provisions applicable to REMIC trusts. “Once the bundled mortgages are given to a depositor, the [pooling and servicing agreement] and IRS tax code provisions require that the mortgages be transferred to the trust within a certain time frame, usually ninety dates from the date the trust is created. After such time, the trust closes and any subsequent transfers are invalid. The reason for this is purely economic for the trust. If the mortgages are properly transferred within the ninety-day open period, and then the trust properly closes, the trust is allowed to maintain REMIC tax status.” (Deconstructing Securitized Trusts, supra, 41 Stetson L.Rev. at pp. 757-758.)

[13] “Although we may not rely on unpublished California cases, the California Rules of Court do not prohibit citation to unpublished federal cases, which may properly be cited as persuasive, although not binding, authority.” (Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal.App.4th 238, 251, fn. 6, citing Cal. Rules of Court, rule 8.1115.)

[14] Although this allegation and the remainder of the SAC do not explicitly identify the trustee of the WaMu Securitized Trust as the entity that invoked the power of sale, it is reasonable to interpret the allegation in this manner. Such an interpretation is consistent with the position taken by Glaski’s attorney at the hearing on the demurrer, where she argued that the WaMu Securitized Trust did not obtain Glaski’s loan and thus was precluded from proceeding with the foreclosure.

[15] The statutory purpose is “to protect trust beneficiaries from unauthorized actions by the trustee.” (Turano, Practice Commentaries, McKinney’s Consolidated Laws of New York, Book 17B, EPTL § 7-2.4.)

[16] Because Glaski has stated a claim for relief in his wrongful foreclosure action, we need not address his alternate theory that the foreclosure was void because it was implemented by forged documents. (Genesis Environmental Services v. San Joaquin Valley Unified Air Pollution Control Dist. (2003) 113 Cal.App.4th 597, 603 [appellate inquiry ends and reversal is required once court determines a cause of action was stated under any legal theory].) We note, however, that California law provides that ratification generally is an affirmative defense and must be specially pleaded by the party asserting it. (See Reina v. Erassarret (1949) 90 Cal.App.2d 418, 424 [ratification is an affirmative defense and the defendant ordinarily bears the burden of proof]; 49A Cal.Jur.3d (2010) Pleading, § 186, p. 319 [defenses that must be specially pleaded include waiver, estoppel and ratification].) Also, “[w]hether there has been ratification of a forged signature is ordinarily a question of fact.” (Common Wealth Ins. Systems, Inc. v. Kersten (1974) 40 Cal.App.3d 1014, 1026; see Brock v. Yale Mortg. Corp. (Ga. 2010) 700 S.E.2d 583, 588 [ratification may be expressed or implied from acts of principal and “is usually a fact question for the jury”; wife had forged husband’s signature on quitclaim deed].)

[17] See generally, Annotation, Recognition of Action for Damages for Wrongful Foreclosure—Types of Action (2013) 82 A.L.R.6th 43 (claims that a foreclosure is “wrongful” can be tort-based, statute-based, and contract-based).

[18] Claims of misrepresentation or fraud related to robo-signing of foreclosure documents is addressed in Buchwalter, Cause of Action in Tort for Wrongful Foreclosure of Residential Mortgage, 52 Causes of Action Second, supra, at pages 147 to 149.

INDEPENDENT REVIEW & COMMENTS:

Glaski v Bank of America: Mortgagor’s Defense Based on Lender’s Failure to Properly Securitize a Loan


Roger Bernhardt


Golden Gate University – School of Law

September 29, 2013

CEB 36 Real Property Law Reporter 111, September 2013


Abstract:     

Commentary on a recent California decision holding that a lender might be unable to enforce an improperly securitized loan.

Accepted Paper Series

Glaski v Bank of America: Mortgagor’s Defense Based on Lender’s Failure to Properly Securitize a Loan.
Glaski v Bank of America (2013) 218 CA4th 1079 Before being placed into receivership, Washington Mutual Bank (WaMu) established a pool of residential loans as collateral for mortgage-backed securities. New York law governed the resulting securitized trust. According to the lender, the trust included Borrower’s defaulted loan. Bank of America, which claimed it was successor trustee and beneficiary of the trust, purchased Borrower’s property at the trustee’s sale. There were two possible chains of title through which Bank of America could have claimed
to be successor trustee. (Notably, at the demurrer stage, the parties acknowledged that they could not be certain who truly held Borrower’s note.) Borrower challenged both conceivable chains of title as having
been assigned after the trust closing date. The trial court sustained Bank of America’s demurrer without leave to amend.
The court of appeal reversed in part. The court ruled that a borrower may challenge an assignment as being void even if that borrower was not a party to, or a third party beneficiary of, that assignment. Such a
challenge effectively states a claim for wrongful foreclosure. Disagreeing with Texas and Illinois courts, the court literally and strictly construed the applicable New York statute, which states that any act by a trustee in contravention of the trust document is void (218 CA4th at 1096): Because the WaMu Securitized Trust was created by the pooling and servicing agreement and that agreement establishes a closing date after which the trust may no longer accept loans, this statutory provision provides a legal basis for concluding that the trustee’s attempt to accept a loan after the closing date would be void as an act in contravention of the trust document.
This is significant because the borrower need not tender payment of indebtedness when the foreclosure sale is void.
THE EDITOR’S TAKE: If some lenders are reacting with shock and horror to this decision, that is probably only because they reacted too giddily to Gomes v Countrywide Home Loans, Inc. (2011) 192 CA4th 1149 (reported at 34 CEB RPLR 66 (Mar. 2011)) and similar decisions that they took to mean that their nonjudicial foreclosures were completely immune from judicial review. Because I think that Glaski simply holds that some borrower foreclosure challenges may warrant factual investigation (rather than outright dismissal at the pleading stage), I do not find this decision that earth-shaking.
Two of this plaintiff’s major contentions were in fact entirely rejected at the demurrer level: —That the foreclosure was fraudulent because the statutory notices looked robosigned (“forged”); and —That the loan documents were not truly transferred into the loan pool.
Only the borrower’s wrongful foreclosure count survived into the next round. If the bank can show that the documents were handled in proper fashion, it should be able to dispose of this last issue on summary
judgment.
Bank of America appeared to not prevail on demurrer on this issue because the record did include two deed of trust assignments that had been recorded outside the Real Estate Mortgage Investment Conduit (REMIC) period and did not include any evidence showing that the loan was put into the securitization pool within the proper REMIC period. The court’s ruling that a transfer into a trust that is made too late may constitute a void rather than voidable transfer (to not jeopardize the tax-exempt status of the other assets in the trust) seems like a sane conclusion. That ruling does no harm to securitization pools that were created with proper attention to the necessary timetables. (It probably also has only slight effect on loans that were improperly securitized,
other than to require that a different procedure be followed for their foreclosure.)

In this case, the fact that two assignments of a deed of trust were recorded after trust closure proves almost nothing about when the loans themselves were actually transferred into the trust pool, it having been a common practice back then not to record assignments until some other development made recording appropriate. I suspect that it was only the combination of seeing two “belatedly” recorded assignments and also seeing no indication of any timely made document deposits into the trust pool that led to court to say that the borrower had sufficiently alleged an invalid (i.e., void) attempted transfer into the trust. Because that seemed to be a factual possibility, on remand, the court logically should ask whether the pool trustee was the rightful party to conduct the foreclosure of the deed of trust, or whether that should have been done by someone else.

While courts may not want to find their dockets cluttered with frivolous attacks on valid foreclosures, they are probably equally averse to allowing potentially meritorious challenges to wrongful foreclosures to be rejected out of hand.  —Roger Bernhardt

From CEB 36 Real Property Law Reporter 111, September 2013, © The Regents of the University of California, reprinted with permission of CEB.”

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, and need a complete package  that will help you challenge these fraudsters and save your home from foreclosure visit: http://www.fightforeclosure.net

B. First Cause of Action for Fraud, Lack of Specific Allegations of Reliance – See more at: http://stopforeclosurefraud.com/2013/08/01/glaski-v-bank-of-america-ca5-5th-appellate-district-securitization-failed-ny-trust-law-applied-ruling-to-protect-remic-status-non-judicial-foreclosure-statutes-irrelevant-because-sa/#sthash.jRAaLypz.dpuf

II. FRAUD

A. Rules for Pleading Fraud

We therefore reverse the judgment of dismissal and remand for further proceedings. – See more at: http://stopforeclosurefraud.com/2013/08/01/glaski-v-bank-of-america-ca5-5th-appellate-district-securitization-failed-ny-trust-law-applied-ruling-to-protect-remic-status-non-judicial-foreclosure-statutes-irrelevant-because-sa/#sthash.jRAaLypz.dpuf
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How Nevada Homeowners Can Effectively Plead Foreclosure Fraud and Misrepresentation

20 Friday Dec 2013

Posted by BNG in Affirmative Defenses, Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Legal Research, Litigation Strategies, Mortgage Laws, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Your Legal Rights

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Dingwall, Federal Court, Foreclosure, Fraud, Legal burden of proof, Nevada Bell, Plaintiff, Reno Air

This post is designed to guide homeowners in wrongful foreclosure litigation when pleading their Fraud and Misrepresentation cases in State and Federal Courts.

Fraudulent or Intentional Misrepresentation

Elements:

Standard Intentional Misrepresentation

(1) defendant made a false representation,
(2) with knowledge or belief that the representation was false or without a sufficient basis for making the representation,
(3) the defendant intended to induce the plaintiff to act or refrain from acting on the representation,
(4) the plaintiff justifiably relied on the representation, and
(5) the plaintiff was damaged as a result of his reliance.

J.A. Jones Const. Co. v. Lehrer McGovern Bovis, Inc., 120 Nev. 277, 290–91, 89 P.3d 1009, 1018 (2004);

Fraud By Omission
With respect to the false representation element, the suppression or omission ” ‘of a material fact which a party is bound in good faith to disclose is equivalent to a false representation, since it constitutes an indirect representation that such fact does not exist.’ Nelson v. Heer, 123 Nev. 217, 163 P.3d 420 (Nev. 2007) (quoting Midwest Supply, Inc. v. Waters, 89 Nev. 210, 212-13, 510 P.2d 876, 878 (1973).

Example Cases:

Foster v. Dingwall, — P.3d —, 2010 WL 679069, at *8 (Nev. Feb. 25, 2010) (en banc); Jordan v. State ex rel. Dep’t of Motor Vehicles & Pub. Safety, 121 Nev. 44, 75, 110 P.3d 30, 51 (2005);J.A. Jones Const. Co. v. Lehrer McGovern Bovis, Inc., 120 Nev. 277, 290–91, 89 P.3d 1009, 1018 (2004); Chen v. Nev. State Gaming Control Bd.,116 Nev. 282, 284, 994 P.2d 1151, 1152 (2000); Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1260, 969 P.2d 949, 957 (1998); Barmettler v. Reno Air, Inc., 114 Nev. 441, 956 P.2d 1382 (1998); Blanchard v. Blanchard, 108 Nev. 908, 911, 839 P.2d 1320, 1322 (1992); Bulbman, Inc. v. Nevada Bell, 108 Nev. 105, 110–11, 825 P.2d 588, 592 (1992); Collins v. Burns, 103 Nev. 394, 397, 741 P.2d 819, 821 (1987); Epperson v. Roloff, 102 Nev. 206, 211, 719 P.2d 799, 802 (1986); Hartford Acc. & Indem. Co. v. Rogers, 96 Nev. 576, 580 n.1, 613 P.2d 1025, 1027 n.1 (1980); Lubbe v. Barba, 91 Nev. 596, 540 P.2d 115 (1975).

Proof

“The intention that is necessary to make the rule stated in this Section applicable is the intention of the promisor when the agreement was entered into. The intention of the promisor not to perform an enforceable or unenforceable agreement cannot be established solely by proof of its nonperformance, nor does his failure to perform the agreement throw upon him the burden of showing that his nonperformance was due to reasons which operated after the agreement was entered into. The intention may be shown by any other evidence that sufficiently indicates its existence, as, for example, the certainty that he would not be in funds to carry out his promise.” REST 2d TORTS § 530, comment d.

A plaintiff has the burden of proving each element of fraud claim by clear and convincing evidence. Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1260, 969 P.2d 949, 957 (1998);Bulbman, Inc. v. Nevada Bell, 108 Nev. 105, 110–11, 825 P.2d 588, 592 (1992); Lubbe v. Barba, 91 Nev. 596, 540 P.2d 115 (1975).

“Whether these elements are present in a given case is ordinarily a question of fact.” Epperson v. Roloff, 102 Nev. 206, 211, 719 P.2d 799, 802 (1986).

“Further, ‘[w]here an essential element of a claim for relief is absent, the facts, disputed or otherwise, as to other elements are rendered immaterial and summary judgment is proper.’ Bulbman, 108 Nev. at 111, 825 P.2d at 592.” Barmettler v. Reno Air, Inc., 114 Nev. 441, 447, 956 P.2d 1382, 1386 (1998).

“‘[f]raud is never presumed; it must be clearly and satisfactorily proved.’” J.A. Jones Const. Co. v. Lehrer McGovern Bovis, Inc., 120 Nev. 277, 291, 89 P.3d 1009, 1018 (2004) (quoting Havas v. Alger, 85 Nev. 627, 631, 461 P.2d 857, 860 (1969)).

“the essence of any misrepresentation claim is a false or misleading statement that harmed [the plaintiff].” Nanopierce Techs., Inc. v. Depository Trust & Clearing Corp., 123 Nev. 362, 168 P.3d 73, 82 (2007).

False Representations:

Estimates and opinions are not false representations. Commendatory sales talk (puffing) isn’t either.

“Nevada Bell’s representations to Bulbman about the cost of Centrex and the installation time are estimates and opinions based on past experience with the system. As such, these representations are not actionable in fraud. See Clark Sanitation v. Sun Valley Disposal, 87 Nev. 338, 487 P.2d 337 (1971). Nevada Bell’s representations as to the reliability and performance of the system constitute mere commendatory sales talk about the product (‘puffing’), also not actionable in fraud. See e.g., Coy v. Starling, 53 Or.App. 76, 630 P.2d 1323 (1981). Furthermore, in his deposition, Gerald Roth, Jr., testified that he did not believe Nevada Bell had intentionally lied to him about its Centrex system. Rather, Roth stated that Nevada Bell might have been ‘more careful’ in making certain representations, particularly with respect to how long it would take to install a Centrex system. Roth’s testimony establishes the absence of fraudulent intent on the part of Nevada Bell.” Bulbman, Inc. v. Nev. Bell, 108 Nev. 105, 111, 825 P.2d 588, 592 (1992).

“An estimate is an opinion and an estimate of value is an opinion as to value upon which reasonable and honorable men may hold differing views. This is the basis for the frequently announced rule that a charge of fraud normally may not be based upon representations of value. Frankfurt v. Wilson, 353 S.W.2d 490 (Tex.Civ.App.1961); Burke v. King, 176 Okl. 625, 56 P.2d 1185 (1936).” Clark Sanitation, Inc. v. Sun Valley Disposal Co., 87 Nev. 338, 341, 487 P.2d 337, 339 (1971).

“Story, in his work on contracts, in discussing the various questions presented by the misrepresentations of the vendor, lays down the rule as follows: ‘If the seller fraudulently misrepresents facts, or states facts to exist which he knows not to exist, his fraud would vitiate the contract, provided the misstatements were in respect to a material point.’ (Section 636.) But where a statement is not made as a fact, but only as an opinion, the rule is quite different. Thus a false representation as to a mere matter of opinion * * * does not avoid the contract. * * * Ordinarily, a naked statement of opinion is not a representation on which a buyer is legally entitled to rely, unless, perhaps, in some special cases where peculiar confidence or trust is created between the parties. The ground of this rule is, probably, the impracticability of attempting to discover by means of the rules of law the real opinion of the party making the representation, and also because a mere expression of opinion does not alter facts, though it may bias the judgment. Mere expressions of opinion are not, therefore, considered so tangible a fraud as to form a ground of avoidance of a contract, even though they be falsely stated. * * * Yet, where a representation is made, going to the essence of a contract, the party making it should be careful to state it as an opinion, and not as a fact of which he has knowledge, or he may be liable thereon. The question whether a statement was intended to be given as an opinion, and was so received, is, however, one for a jury to determine, upon the peculiar circumstances of the case. But whenever a belief is asserted, as in a fact, which is material or essential, and which the person asserting knows to be false, and the statement is made with an intention to mislead, it is fraudulent and affords a ground of relief.’” Banta v. Savage, 12 Nev. 151, 0–4 (1877).

Fraudulent or Intentional Misrepresentation

Pleading Standards

Standard

In actions involving fraud, the circumstances of the fraud are required by Nev.R.Civ.P. 9(b) to be stated with particularity. The circumstances that must be detailed include averments to the time, the place, the identity of the parties involved, and the nature of the fraud or mistake.”
Brown v. Kellar, 97 Nev. 582, 583-84, 636 P.2d 874, 874 (Nev. 1981).

Allegations of fraud upon “information or belief” must be backed up with reasons for the belief

[i]t is not sufficient to charge a fraud upon information and belief…without giving the ground upon which the belief rests or stating some fact from which the court can infer that the belief is well founded.
Tallman v. First Nat. Bank of Nev., 66 Nev. 248, 259, 208 P.2d 302, 307 (Nev. 1949).

Requirements for pleading fraud generally: The “Relaxed Standard”

The federal district court found that the plaintiffs’ allegations did not meet the strict requirement of FRCP 9(b), but it also found that “[w]here a plaintiff is claiming . . . to have been injured as the result of a fraud perpetrated on a third party, the circumstances surrounding the transaction are peculiarly within the defendant’s knowledge.”[22] Therefore, the court applied the relaxed standard and, pointing to the above facts, allowed the plaintiffs to conduct discovery and to amend their complaint to meet FRCP 9(b)’s pleading requirements.[23]

This exception strikes a reasonable balance between NRCP 9(b)’s stringent requirements for pleading fraud and a plaintiff’s inability to allege the full factual basis concerning fraud because information and documents are solely in the defendant’s possession and cannot be secured without formal, legal discovery. Therefore, we adopt this relaxed standard in situations where the facts necessary for pleading with particularity “are peculiarly within the defendant’s knowledge or are readily obtainable by him.”[24]

In addition to requiring that the plaintiff state facts supporting a strong inference of fraud, we add the additional requirements that the plaintiff must aver that this relaxed standard is appropriate and show in his complaint that he cannot plead with more particularity because the required information is in the defendant’s possession. If the district court finds that the relaxed standard is appropriate, it should allow the plaintiff time to conduct the necessary discovery.[25] Thereafter, the plaintiff can move to amend his complaint to plead allegations of fraud with particularity in compliance with NRCP 9(b).[26] Correspondingly, the defendant may renew its motion to dismiss under NRCP 9(b) if the plaintiff’s amended complaint still does not meet NRCP 9(b)’s particularity requirements.

Rocker v. KMPG LLP, 122 Nev. 1185, 148 P.3d 703, (2006) (overruled on other grounds Buzz Stew, LLC v. City of N. Las Vegas, 181 P.3d 670 (Nev.2008)).(emphasis added).

Particular pleading

NRCP 9(b) requires that special matters (fraud, mistake, or condition of the mind), be pleaded with particularity in order to *473 afford adequate notice to the opposing party.
Ivory Ranch, Inc. v. Quinn River Ranch, Inc., 101 Nev. 471, 73, 705 P.2d 673 (Nev. 1985).

Particular pleading

NRCP 8(a) requires that a pleading contain only a short and plain statement showing that the pleader is entitled to relief. In actions involving fraud, the circumstances of the fraud are required by NRCP 9(b) to be stated with particularity. The circumstances that must be detailed include averments to the time, the place, the identity of the parties involved, and the *584 nature of the fraud or mistake. 5 Wright and Miller, Federal Practice and Procedure s 1297 at p. 403 (1969). Malice, intent, knowledge and other conditions of the mind of a person may be averred generally. NRCP 9(b); see Occhiuto v. Occhiuto, 97 Nev. 143, 625 P.2d 568 (1981).

Brown v. Kellar, 97 Nev. 582, 584, 636 P.2d 874 (Nev. 1981).

Damages

Damages must have been proximately caused by the reliance and must be reasonably foreseeable

“with respect to the damage element, this court has concluded that the damages alleged must be proximately caused by reliance on the original misrepresentation or omission. Collins, 103 Nev. at 399, 741 P.2d at 822 (determining that an award of damages for intentional misrepresentation based on losses suffered solely due to a recession was inappropriate). Proximate cause limits liability to foreseeable consequences that are reasonably connected to both the defendant’s misrepresentation or omission and the harm that the misrepresentation or omission created. See Goodrich & Pennington v. J.R. Woolard, 120 Nev. 777, 784, 101 P.3d 792, 797 (2004); Dow Chemical Co. v. Mahlum, 114 Nev. 1468, 1481, 970 P.2d 98, 107 (1998).” Nelson v. Heer, 123 Nev. 26, 426, 163 P.3d 420 (2007).

“Chen’s skill in playing blackjack, rather than his misrepresentation of identity, was the proximate cause of his winnings. The false identification allowed Chen to receive $44,000 in chips, but it did not cause Chen to win. Thus, we hold that the Gaming Control Board’s determination that Chen committed fraud is contrary to law because the Monte Carlo did not establish all of the elements of fraud.” Chen v. Nev. State Gaming Control Bd., 116 Nev. 282, 285, 994 P.2d 1151, 1152 (2000).

“Appellants contend they should recover all their losses throughout the life of the business. We cannot agree. The district court found subsequent operating losses were solely due to a recession that devastated the Carson City area in the early 1980’s. The trial court’s determination of a question of fact will not be disturbed unless clearly erroneous or not based on substantial evidence. Ivory Ranch v. Quinn River Ranch, 101 Nev. 471, 472, 705 P.2d 673, 675 (1985); NRCP 52(a).

Since there is substantial evidence in the record indicating a severe economic recession in the period following the sale of the store, we will not disturb the district court’s finding that the economic climate caused subsequent losses. Collins v. Burns, 103 Nev. 394, 399, 741 P.2d 819, 822 (1987).

Defenses

‘As a general rule, it is not sufficient to charge a fraud upon information and belief (and here there is not even an allegation of ‘information’) without giving the ground upon which the belief rests or stating some fact from which the court can infer that the belief is well founded.’ Bancroft Code Pleading, Vol. 1, page 79. See also-Dowling v. Spring Valley Water Co., 174 Cal. 218, 162 P. 894.
Tallman v. First Nat. Bank of Nev., 66 Nev. 248, 259, 208 P.2d 302, 307 (Nev. 1949).

Misrepresentations may be implied

“a defendant may be found liable for misrepresentation even when the defendant does not make an express misrepresentation, but instead makes a representation which is misleading because it partially suppresses or conceals information. See American Trust Co. v. California W. States Life Ins. Co., 15 Cal.2d 42, 98 P.2d 497, 508 (1940). See also Northern Nev. Mobile Home v. Penrod, 96 Nev. 394, 610 P.2d 724 (1980); Holland Rlty. v. Nev. Real Est. Comm’n, 84 Nev. 91, 436 P.2d 422 (1968).” Epperson v. Roloff, 102 Nev. 206, 212–13, 719 P.2d 799, 803 (1986).

False statement may be conveyed through an agent

“a party may be held liable for misrepresentation where he communicates misinformation to his agent, intending or having reason to believe that the agent would communicate the misinformation to a third party. See generally W. Prosser, supra, § 107 at 703; Restatement (Second) of Torts, § 533 (1977).” Epperson v. Roloff, 102 Nev. 206, 212, 719 P.2d 799, 803 (1986).

There is a duty to disclose where the defendant alone has knowledge of material facts not accessible to the plaintiff

“Finally, with regard to the leakage problem, respondents argue that no affirmative representation was ever made that the house was free of leaks. At least implicitly, they argue that an action in deceit will not lie for nondisclosure. This has, indeed, been described as the general rule. Seediscussion, W. Prosser, supra, § 106, at 695-97. An exception to the rule exists, however, where the defendant alone has knowledge of material facts which are not accessible to the plaintiff. Under such circumstances, there is a duty of disclosure. Thus, in Herzog v. Capital Co., supra, the court upheld a jury’s award of damages to the purchaser of a leaky house, holding under the circumstances of that case, that the jury correctly found that the vendor had a duty to reveal ‘the hidden and material facts’ pertaining to the leakage problem. Id. at 10. In numerous other cases, involving analogous facts, a jury’s finding of a duty of disclosure has been upheld. See, e.g., Barder v. McClung, 93 Cal.App.2d 692, 209 P.2d 808 (1949) (vendor failed to disclose fact that part of house violated city zoning ordinances); Rothstein v. Janss Inv. Corporation, 45 Cal.App.2d 64, 113 P.2d 465 (1941) (vendor failed to disclose fact that land was filled ground).” Epperson v. Roloff, 102 Nev. 206, 213, 719 P.2d 799, 803–804 (1986).

Intent to Induce the Plaintiff to Act or Refrain from Acting

  • The intent to defraud must exist at the time the promise is made.

“The mere failure to fulfill a promise or perform in the future, however, will not give rise to a fraud claim absent evidence that the promisor had no intention to perform at the time the promise was made. Webb v. Clark, 274 Or. 387, 546 P.2d 1078 (1976).” Bulbman, Inc. v. Nev. Bell, 108 Nev. 105, 112, 825 P.2d 588, 592 (1992).

“Intent must be specifically alleged.” Jordan v. State ex rel. Dep’t of Motor Vehicles & Pub. Safety, 121 Nev. 44, 75, 110 P.3d 30, 51 (2005); see also Tahoe Village Homeowners v. Douglas Co., 106 Nev. 660, 663, 799 P.2d 556, 558 (1990) (upholding the dismissal of an intentional tort complaint that failed to allege intent).

‘[F]raud is not established by showing parol agreements at variance with a written instrument and there is no inference of a fraudulent intent not to perform from the mere fact that a promise made is subsequently not performed. 24 Am.Jur. 107; 23 Am.Jur. 888.” Tallman v. First Nat’l Bank of Nev., 66 Nev. 248, 259, 208 P.2d 302, 307 (1949).

“It is only when independent facts constituting fraud are first proven that parol evidence is admissible. ‘Our conception of the rule which permits parol evidence of fraud to establish the invalidity of the instrument is that it must tend to establish some independent fact or representation, some fraud in the procurement of the instrument, or some breach of confidence concerning its use, and not a promise directly at variance with the promise of the writing. We find apt language in Towner v. Lucas’ Ex’r, 54 Va. (13 Grat.) 705, 716, in which to express our conviction: ‘It is reasoning in a circle, to argue that fraud is made out, when it is shown by oral testimony that the obligee contemporaneously with the execution of a bond promised not to enforce it. Such a principle would nullify the rule: for conceding that such an agreement is proved, or any other contradicting the written instrument, the party seeking to enforce the written agreement according to its terms, would always be guilty of fraud. The true question is, Was there any such agreement? And this can only be established by legitimate testimony. For reasons founded in wisdom and to prevent frauds and perjuries, the rules of the common law exclude such oral testimony of the alleged agreement; and as it cannot be proved by legal evidence, the agreement itself in legal contemplation cannot be regarded as existing in fact. Neither a court of law or of equity can act upon the hypothesis of fraud where there is no legal proof of it.’’ Bank of America Nat. Trust & Savings Ass’s v. Pendergrass, 4 Cal.2d 258, 48 P.2d 659, 661.” Tallman v. First Nat’l Bank of Nev., 66 Nev. 248, 258–59, 208 P.2d 302, 307 (1949).

Justifiable Reliance

The false representation must have played a material and substantial role in the plaintiff’s decisionmaking, and made him make a decision he would not otherwise have made.

“In order to establish justifiable reliance, the plaintiff is required to show the following:’The false representation must have played a material and substantial part in leading the plaintiff to adopt his particular course; and when he was unaware of it at the time that he acted, or it is clear that he was not in any way influenced by it, and would have done the same thing without it for other reasons, his loss is not attributed to the defendant.’ Lubbe v. Barba, 91 Nev. 596, 600, 540 P.2d 115, 118 (1975) (quoting Prosser, Law of Torts, 714 (4th ed. 1971)) (emphasis added).” Blanchard v. Blanchard, 108 Nev. 908, 911, 839 P.2d 1320, 1322 (1992).

If the plaintiff made independent investigations and discovered facts that he is now claiming the defendant disclosed, he cannot be said to have justifiably relied on any of the defendant’s statements.

“Generally, a plaintiff making ‘an independent investigation will be charged with knowledge of facts which reasonable diligence would have disclosed. Such a plaintiff is deemed to have relied on his own judgment and not on the defendant’s representations.’ Id. at 211, 719 P.2d at 803 (citingFreeman v. Soukup, 70 Nev. 198, 265 P.2d 207 (1953)). However, we also recognize that ‘an independent investigation will not preclude reliance where the falsity of the defendant’s statements is not apparent from the inspection, where the plaintiff is not competent to judge the facts without expert assistance, or where the defendant has superior knowledge about the matter in issue.’ Id. 102 Nev. at 211-12, 719 P.2d at 803 (emphasis added) (citations omitted).” Blanchard v. Blanchard, 108 Nev. 908, 912, 839 P.2d 1320, 1323 (1992).

Where falsity of defendant’s statements is not apparent from the inspection, the plaintiff will not be charged with this knowledge.

“We have previously held that a plaintiff who makes an independent investigation will be charged with knowledge of facts which reasonable diligence would have disclosed. Such a plaintiff is deemed to have relied on his own judgment and not on the defendant’s representations. See Freeman v. Soukup, 70 Nev. 198, 265 P.2d 207 (1953). Nevertheless, an independent investigation will not preclude reliance where the falsity of the defendant’s statements is not apparent from the inspection, where the plaintiff is not competent to judge the facts without expert assistance, or where the defendant has superior knowledge about the matter in issue. See Stanley v. Limberys, 74 Nev. 109, 323 P.2d 925 (1958); Bagdasarian v. Gragnon, 31 Cal.2d 744, 192 P.2d 935 (1948).” Epperson v. Roloff, 102 Nev. 206, 211–12, 719 P.2d 799, 803 (1986).

There is only a duty to investigate where there are red flags–where the hidden information is patent and obvious, and when the buyer and seller have equal opportunities of knowledge.

“Lack of justifiable reliance bars recovery in an action at law for damages for the tort of deceit. Pacific Maxon, Inc. v. Wilson, 96 Nev. 867, 870, 619 P.2d 816, 818 (1980). However, this principle does not impose a duty to investigate absent any facts to alert the defrauded party his reliance is unreasonable. Sippy v. Cristich, 4 Kan.App.2d 511, 609 P.2d 204, 208 (1980). The test is whether the recipient has information which would serve as a danger signal and a red light to any normal person of his intelligence and experience. Id. It has long been the rule in this jurisdiction that the maxim of caveat emptor only applies when the defect is patent and obvious, and when the buyer and seller have equal opportunities of knowledge. Fishback v. Miller, 15 Nev. 428, 440 (1880). Otherwise, a contracting party has a right to rely on an express statement of existing fact, the truth of which is known to the party making the representation and unknown to the other party. Id. The recipient of the statement is under no obligation to investigate and verify the statement. Id.” Collins v. Burns, 103 Nev. 394, 397, 741 P.2d 819, 821 (1987).

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, and need a complete package  that will help you challenge these fraudsters and save your home from foreclosure visit: http://www.fightforeclosure.net

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How Florida Homeowners Can Quiet Title to their Properties

20 Friday Dec 2013

Posted by BNG in Federal Court, Foreclosure Defense, Fraud, Judicial States, Non-Judicial States, Pro Se Litigation, State Court, Your Legal Rights

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Court clerk, Default judgment, Filing (legal), Florida, Lis pendens, Motions, Process Service, Quiet title

The information provided below is for a quiet title action in Florida. Your state may use different procedures.

In order to file a quiet title action, you will need the following documents:
1)   Civil Cover sheet
2)   Summons
3)   Lis Pendens
4)   Complaint
5)   Exhibit-A: Copy of the Warranty Deed
6)   Exhibit-B: Rescission letter or court order if applicable

Cover Sheet
The Civil Cover Sheet form is filed by the plaintiff or petitioner for the use of the Clerk of Court for the purpose of reporting judicial workload data pursuant to Florida Statute section 25.075.

Summons
This document is given to the sheriff or process server to be served on the defendant. If there is more than one defendant, additional copies will be needed.

Lis Pendens
The lis pendens serves to put the public on notice that a case is pending concerning a specific property.

Complaint
The complaint should have a style case and signature block in compliance with Florida filing guidelines.  The sample complaint complies with the guideline.

Once the package of documents is ready, take them to the filing office at the county Court that has jurisdiction over your property. The filing fee may be a shock based on the value of the property. In 2009, Florida legislator passed new law dramatically increasing filing fee for foreclosure and quiet title actions. It may cost you a few hundred if not thousands of dollar. I don’t think you should be discouraged by that. If you don’t have the money, you can file for indigent status by filing the proper form. Your county clerk can give you the form.

Once your case has been filed, the clerk will assign a case number and return to you copies of the summons, lis pendens and the complaint.
You need to take them to the sheriff office for process service or choose a private  process server company. It is possible that the summon cannot be served because the company is out of the business. If that’s the case, notice should be published in the local law journal. Check with the clerk for a list of acceptable publication.

The sheriff will charge about $40. Once the summons is served:
–   The plaintiff has 20 days to answer your complaint.
–    If the plaintiff does not answer within that time frame, file a Motion for Default.
–    When a default is entered, file a Motion for Default Judgment.
–   File an affidavit in support of Motion for Default Judgment.
–    Schedule a hearing with the judicial assistance after 20 days to have your motion for default judgment heard. Remember to bring a court reporter along.
–    Prepare and bring with you a proposed order for Final Default Judgment Quieting Title.
–    If your motion is granted, hand over the proposed order to the judge to sign.
–    Once the judge signed the order, you will receive a copy by mail.
–    The clerk will be ordered to record the judgment in the public record.
You’re done! You have quieted your title. Enjoy your property free and clear. No more refi PLEASE.

For additional protection you may want to put the title under a living trust out of your name or record a new mortgage.

Quiet title is not a silver bullet; it is just another tool to protect your property. Any party can come later and try to vacate your quiet title judgment. For that reason, you need to make sure that you do it right.

If a party who is entitled to service of process is not served, the judgment will most likely be vacated. Proper service of process is extremely important. Do not take it lightly.

With the passing of time, the quiet title judgment becomes stronger.

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, and need a complete package  that will help you challenge these fraudsters and save your home from foreclosure visit: http://www.fightforeclosure.net

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Successful Appeal Guidelines For Wrongful Foreclosure

18 Wednesday Dec 2013

Posted by BNG in Appeal, Discovery Strategies, Federal Court, Judicial States, Litigation Strategies, Non-Judicial States, Pleadings, Pro Se Litigation, Trial Strategies, Your Legal Rights

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Appeal, Appellate court, Jury instructions, Law, Motion (legal), Oral argument in the United States, Services, Trial court

In the heat of battle at trial, it can be challenging to remember that the legal war may not end with the trial court’s judgment. The final victory ultimately may depend upon the record created and preserved for appeal. Here are ten important guide to help ensure that your case is appealable—and “appealing”—to a reviewing court.

 1: Make an appellate battle plan. Start by preparing a thorough written analysis of the legal theories at issue in your case. Be certain to include the elements of each cause of action and defense you plan to allege, and of those you anticipate your opponent will raise. Include all applicable standards and burdens of proof for getting to the jury (such as requiring expert testimony on the standard of care). As you analyze, consider whether your case presents any potential constitutional claims. Constitutional issues are of keen interest to appellate courts, and presenting interesting constitutional arguments may increase the chances for a grant of discretionary review or of oral argument on appeal.

2: As the battle begins, begin building the record. If it’s not in the record, it didn’t happen. There is nothing more important to an appeal than ensuring that there is an adequate record to present to the appellate court. The trial record is all that the appellate court may consider when deciding appellate issues. As you move into the pretrial and trial phases, you must make sure that all issues are presented to the trial court, that error is preserved, and that harm from the error is shown on the appellate record. The court of appeals is not the place to try to perfect the trial record: Almost every appellate argument must first be raised in the trial court to be preserved for appeal. This means you must be thorough in your writings to the court and ensure the record is complete, clean, and comprehensive.

3: Aim, fire, and engage with an appeal in mind. Because your pleadings will prescribe the universe of substantive issues to be tried—and ultimately to be considered on appeal—plead properly and well. In federal court, make sure the Rule 16 pretrial order properly states all your claims and defenses. Because the pretrial order supersedes the pleadings and controls the subsequent course of the action, Rule 16 may bar review of an issue that was omitted from the pretrial order. Check your pleadings and pretrial order against your battle plan analysis and draft charge to make sure nothing is waived. Remain mindful of record preservation as you begin to narrow the battlefield through discovery, pretrial motions, and hearings. The history of all pretrial skirmishes will be told at the appellate level only through the record, and you might be relying on these early rulings to establish reversible error.

4: Tell a clear and compelling story . . . on the record. Once you are in trial, you (properly) will be thinking about the story that is unfolding in front of the jury. However, you must also be aware that the record will have to tell a story to the appellate court as well. As you move through pretrial and trial, look ahead to the statement of facts on appeal. Because the appellate court will view your case only through the cold record, the statement of facts is a critically important section of an appellate brief: It must tell a coherent tale, preferably an interesting one. So plan your presentation of evidence at trial so that you will have fully fleshed out facts on appeal. There is nothing more tedious in preparing an appellate brief than searching the record for that one small—but now essential— fact that you are certain was mentioned somewhere, sometime.

5: Make good objections and get a ruling . . . on the record. Here are the four saddest words you can hear from an appellate court: “Great argument; not preserved.” To preserve the issue for appeal, you must raise an objection, ask for a cure, and secure a ruling. You must ensure that the trial record accurately reflects timely, meaningful objections, made on clearly stated grounds and followed by a ruling by the court (or a clear request to rule). Pay attention to the timeliness of your objections. Generally, the objection must be made as soon as the objectionable situation arises. Timing is key: A premature or late objection is like no objection and does not preserve error. When in doubt, object. If an aligned co‑party is making the objection, motion, or request, and you want to join, be sure that the record shows it. If you end up being the only appellant, you will want the benefit of the other party’s objections. And here’s a cautionary note: A key record-preservation mistake is “inviting error” by relying upon evidence that you have objected to at trial.

6: Keep the record complete. To present your case fully on appeal—and to preserve clearly an error for review—you must be sure that the appellate record be complete, reflecting all substantive issues argued, any complaint about error and its preservation, and the harm that error caused. o begin, make sure the clerk has filed all your pleadings and motions, as well as all orders, the jury verdict, and the judgment. Get a file-marked copy for your file. Ensure that exhibits are actually admitted into evidence or made part of the record as excluded. Exhibits that are merely marked and offered are not part of the record on appeal. If the trial court excludes an exhibit, ask the court to admit the document as a “court exhibit” so you can show the appellate court what was excluded in order to obtain reversal on appeal. An erroneous exclusion of any other type of evidence likewise is generally not reviewable on appeal unless the proponent makes an adequate offer of proof. Keep your own list of all exhibits as they are offered into evidence, indicating what has and has not been admitted. If you go off the record for conversation and sidebar discussions, make sure you request to be put back on the record when ready. Also, make sure you memorialize any requests and rulings that occurred off the record when you go back on. Particularly, make sure the court reporter is recording your objections, and see to it that the court reporter’s fingers are moving when you want what is being said to be on the record.

7: Keep the record clean. Correct any misstatement of the court or opposing counsel immediately—these can come back to haunt you on appeal. Also, take remedial measures to clean up prejudicial evidence in the record and preserve the error if it remains: a motion for mistrial (if prejudicial evidence is before the jury), a motion to strike (if evidence that should not be in the record finds its way into the record), or a request for curative instructions to the jury (if the court denies either of the other two motions). Let the court know if these instructions are insufficient, and object if denied.

8: Craft the perfect jury charge and preserve objections to the court’s imperfect one. Many appellate issues arise from the court’s instruction to the jury. As a result, error in the court’s charge is among the most likely sources of reversible error on appeal. Generally, parties are presumed to have consented to erroneous submissions in the absence of an objection by either party, and a party cannot claim error in the court’s failure to give a particular instruction if the party did not request that instruction. Similarly, a party cannot claim that a correct jury instruction was too general or incomplete unless it requested a clarifying instruction. Questions, instructions, and definitions submitted to the jury are restricted to those raised by the written pleadings and the evidence—an opponent’s proposed submission of an unpleaded theory of recovery or affirmative defense should be the subject of an objection. Specificity in objections is the key to preserving arguments about charge error: A party objecting to a charge must point out distinctly the objectionable matter and the grounds of the objection. To avoid waiving complaints of harmful charge error, be certain to make all objections to the charge on the record (even if those objections have been thoroughly discussed in an informal, off-the-record charge conference). Object before the charge is read to the jury and be sure to obtain rulings on the record to all oral objections to the charge. Another cautionary note: An appellant cannot complain about an error that it created or invited. A classic example of “invited” error is an erroneous jury instruction that an appellant requested—parties may not request a submission and then object to it.

9: What is the best way to set the stage for a successful appeal? Win at trial and be the appellee! One exception to this rule is to be the appellant if you have a default judgment.

10: Preserve appellate arguments post-trial, and prepare for attack on the appellate front. Preservation of the record after verdict and judgment is critical to an effective appeal. It is essential that post‑trial motions be carefully drafted to preserve appellate arguments. These motions include motions for judgment, motions for judgment notwithstanding the verdict, motions to disregard certain parts of the jury’s verdict, motions for new trial, and motions to modify, correct, or reform the judgment. If your trial was before the court rather than a jury, carefully follow your jurisdiction’s rules for preserving appellate complaints about the court’s findings of fact and conclusions of law. Also, be mindful of time limitations for filing post-trial motions. In both state and federal courts, generally a narrow window exists to take this important step on the way to appeal.

Legal issues, which are reviewed de novo, have better odds for reversal than fact issues, which will be reviewed more deferentially. And post-trial motions are a good time for losing parties to find constitutional issues, which may help you obtain discretionary review in higher-level appellate courts as well as improve your chances for a grant of oral argument.

Victory in litigation is often elusive—a win in the trial court can become a loss on appeal, and vice versa. Every homeowner involved in a wrongful foreclosure lawsuit must focus not only on the trial but also on the possibility of appeal. This requires early planning and constant vigilance.

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, and need a complete package  that will help you challenge these fraudsters and save your home from foreclosure visit: http://www.fightforeclosure.net

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What Homeowners Must Know About Pleading their Wrongful Foreclosure Cases in the Courts

12 Thursday Dec 2013

Posted by BNG in Affirmative Defenses, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Legal Research, Litigation Strategies, Mortgage Laws, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Aurora Loan Services of Nebraska, Deeds of Trust, Foreclosure, Fraud, JPMorgan Chase Bank, Mortgage Electronic Registration System, Motions, Pleading

This post is to assist homeowners in wrongful foreclosure understand principles and theories that must be well plead before their case can survive a motion to dismiss which are usually brought by the foreclosure mills in order to cover their fraud and quickly foreclose using demurrer (Motion to Dismiss), without answering the complaint.

Rules for Pleading Fraud: The elements of a fraud cause of action are (1) misrepresentation, (2) knowledge of the falsity or scienter, (3) intent to defraud—that is, induce reliance, (4) justifiable reliance, and (5) resulting damages. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) These elements may not be pleaded in a general or conclusory fashion. (Id. at p. 645.) Fraud must be pled specifically—that is, a plaintiff must plead facts that show with particularity the elements of the cause of action.

Homeowners should be careful here as foreclosure mill counsels may sometimes allege that in their demurrer, that facts establishing detrimental reliance were not alleged.

Homeowners should plead each cause of action such that only the essential elements for the claim are set forth without reincorporation of lengthy `general allegations’.

Homeowners should avoid pleading allegation is a general allegation of reliance and damage, but should rather identify the particular acts homeowners took because of the alleged forgeries that resulted to injury to homeowners. If you did not plead that way even if you forgot to identify the action you took, the court will conclude that similarly, you did not identify any acts that did not take because of your reliance on the alleged forgeries, and therefore will conclude that your conclusory allegation of reliance is insufficient under the rules of law that require fraud to be pled specifically. See (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.)

In other words, the `facts’ that homeowners must pleaded are those upon which liability depends i.e., `the facts constituting the causes of action’ homeowners will alleged in their complaint.

When homeowners finds themselves in a situation where they have already made such arguments, they need to do a damage control by arguing in their subsequent pleadings that they could amend to allege specifically the action they took or did not take because of their reliance on the alleged forgeries.

Wrongful Foreclosure by a Nonholder of the Deed of Trust The theory that a foreclosure was wrongful because it was initiated by a nonholder of the deed of trust has also been phrased as (1) the foreclosing party lacking standing to foreclose or (2) the chain of title relied upon by the foreclosing party containing breaks or defects. (See Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 764; Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th 1366 [Deutsche Bank not entitled to summary judgment on wrongful foreclosure claim because it failed to show a chain of owner ship that would establish it was the true beneficiary under the deed of trust ]; Guerroro v. Greenpoint Mortgage Funding, Inc. (9th Cir. 2010) 403 Fed.Appx. 154, 156 [rejecting a wrongful foreclosure claim because, among other things, plaintiffs “have not pleaded any facts to rebut the unbroken chain of title”].)

In Barrionuevo v. Chase Bank, N.A. (N.D.Cal. 2012) 885 F.Supp.2d 964, the district court stated: “Several courts have recognized the existence of a valid cause of action for wrongful foreclosure where a party alleged not to be the true beneficiary instructs the trustee to file a Notice of Default and initiate nonjudicial foreclosure.” (Id. at p. 973.)

Homeowners should be careful here when pleading their cases because numerous courts though had agreed with this statement of law, but sometimes believe that properly alleging a cause of action under this theory requires more than simply stating that the defendant who invoked the power of sale was not the true beneficiary under the deed of trust.

When that happens the courts usually concluded that [plaintiff failed to plead specific facts demonstrating the transfer of the note and deed of trust were invalid].)

Therefore, a plaintiff Homeowner asserting this theory must allege facts that show the defendant who invoked the power of sale was not the true beneficiary. (See Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1506

One basis for claiming that a foreclosing party did not hold the deed of trust is that the assignment relied upon by that party was ineffective. Courts have held that when a borrower asserts an assignment was ineffective, a question often arises about the borrower’s standing to challenge the assignment of the loan (note and deed of trust) — an assignment to which the borrower is not a party. (E.g., Conlin v. Mortgage Electronic Registration Systems, Inc. (6th Cir. 2013) 714 F.3d 355, 361 [third party may only challenge an assignment if that challenge would render the assignment absolutely invalid or ineffective, or void];  Culhane v. Aurora Loan Services of Nebraska (1st Cir. 2013) 708 F.3d 282, 291 [under Massachusetts law, mortgagor has standing to challenge a mortgage assignment as invalid, ineffective or void]; Gilbert v. Chase Home Finance, LLC (E.D. Cal., May 28, 2013, No. 1:13 – CV – 265 AWI SKO) 2013 WL 2318890.)

California‟s version of the principle concerning a third party‟s ability to challenge an assignment has been stated in a secondary authority as follows:

“Where an assignment is merely voidable at the election of the assignor,
third parties, and particularly the obligor, cannot … successfully challenge
the validity or effectiveness of the transfer.” (7 Cal.Jur.3d (2012) Assignments, § 43.)

This statement implies that a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment. (See Reinagel v. Deutsche Bank Nation al Trust Co. (5th Cir. 2013) ___ F.3d ___ [2013 WL 3480207 at p.*3] [following majority rule that an obligor may raise any ground that renders the assignment void, rather than merely voidable].)

Therefore Homeowners should craft the allegations to present a theory under which the challenged assignments are void, not merely voidable, because numerous courts have rejected the view that a borrower’s challenge to an assignment must fail once it is determined that the borrower was not a party to, or third party beneficiary of, the assignment agreement. The courts held that cases adopting that position “paint with too broad a brush.” See (Culhane v. Aurora Loan Services of Nebraska, supra, 708 F.3d at p. 290.) The deciding court held that instead, courts should proceed to the question whether the assignment was void.

On the Tender Rule, for wrongful foreclosure, many foreclosure mills had plead that cancellation of instruments and quiet title are defective because homeowners failed to allege that the made a valid and viable tender of payment of the indebtedness. (See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117 [“valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust”].)

Tender is not required where the foreclosure sale is void, rather than voidable,

such as when a plaintiff proves that the entity lacked the authority to foreclose on the property. (Lester v. J.P. Morgan Chase Bank, supra, ___ F.Supp.2d____, [2013 WL 633333, p. *8]; 4 Miller & Starr, Cal. Real Estate (3d ed. 2003) Deeds of Trust, § 10:212, p. 686.)

See generally, Annotation, Recognition of Action for Damages for Wrongful Foreclosure—Types of Action (2013) 82 A.L.R.6th 43 (claims that a foreclosure is “wrongful” can be tort – based, statute – based, and contract – based) Claims of misrepresentation or fraud related to robo-signing of foreclosure documents is addressed in Buchwalter, Cause of Action in Tort for Wrongful Foreclosure of Residential Mortgage, 52 Causes of Action Second, supra, at pages 147 to 149.

In ruling on Foreclosure Mills request for judicial notice of there worthless fraudulent foreclosure documents, the trial courts has stated that it could only take judicial notice that certain documents in the request, including the assignment of deed of trust, had been recorded, but it could not take judicial notice of factual matters stated in those documents. This ruling is correct and unchallenged on appeal.

So the courts may take judicial notice of the existence and recordation of a document with the county such as assignment, but the court “do not take notice of the truth of matters stated therein.” (Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th at p. 1375.) In most cases, the assignment of deed of trust does not establish that foreclosure mill was, in fact, the holder of the beneficial interest in the said deed of trust that the assignment states was transferred to it. The courts has further held that similarly, it does not establish that foreclosing bank in fact became the owner or holder of that beneficial interest. So because the document does not establish these facts for purposes of this demurrer, (Motion to Dismiss – Objection), it does not cure breaks in the chains of ownership that homeowners may allege. When plead correctly, these tips usually help homeowners in the litigation to survive the motion to dismiss brought by the Foreclosure Mills who cannot explain their documents and therefore allow homeowners wrongful foreclosure claims to advance from the pleading stage to discovery without being dismissed outright.

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, and need a complete package  that will help you challenge these fraudsters and save your home from foreclosure visit: http://www.fightforeclosure.net

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Kentucky Federal Case Against MERS to Move Forward

12 Thursday Dec 2013

Posted by BNG in Federal Court, Foreclosure Crisis, Fraud, Judicial States, MERS, Mortgage Laws, Non-Judicial States, State Court, Your Legal Rights

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Tags

Attorney general, Conway, Freddie Mac, Jack Conway, Kentucky, MERS, Mortgage Electronic Registration System, Wells Fargo

Attorney General Conway’s Federal Case Against MERS to Move Forward

Attorney General Jack Conway today announced that a Franklin Circuit Court judge has ruled that the Office of the Attorney General properly alleged violations of Kentucky’s Consumer Protection Act against MERSCORP Holdings, Inc., and its wholly-owned subsidiary Mortgage Electronic Registration Systems, Inc. (MERS).

“I appreciate the court’s careful consideration on this matter, and I am pleased with the result,” General Conway said. “This ruling paves the way to allow my office to hold MERS accountable for its deceptive conduct, and we look forward to continuing our fight for Kentucky consumers.”

MERS was created in 1995 to enable the mortgage industry to avoid paying state recording fees, to facilitate the rapid sale and securitization of mortgages, and to shorten the time it takes to pursue foreclosure actions. Its corporate shareholders include, among others, Bank of America, Wells Fargo, Fannie Mae, Freddie Mac, and the Mortgage Bankers Association. Currently, more than 6,500 MERS members pay for access to the private system. More than 70 million mortgages have been registered on the system.

In January, as a result of General Conway’s investigation of mortgage foreclosure issues in Kentucky, the Attorney General’s office filed a lawsuit in Franklin Circuit Court alleging that MERS had violated Kentucky’s Consumer Protection Act by committing unfair or deceptive trade practices. The lawsuit alleged that since MERS’ creation in 1995, members have avoided paying more than $2 billion in recording fees nationwide. Hundreds of thousands of Kentucky loans are registered in the MERS system.

Additionally, the lawsuit alleged that MERS violated Kentucky’s statute requiring mandatory recording of mortgage assignments, and that MERS had generally committed fraud and unjustly enriched itself at the expense of consumers and the Commonwealth of Kentucky. MERS had moved to dismiss all of the claims on various grounds.

On Dec. 3, the court determined that Attorney General Conway had properly alleged violations of the Consumer Protection Act, as MERS engages in trade or commerce, and that the Attorney General had sufficiently alleged unfair, misleading, or deceptive practices. The court also found that the Attorney General had sufficiently alleged its claims that MERS had committed fraud and had unjustly enriched itself at the expense of the public. The only claim dismissed by the court was the Commonwealth’s allegation that MERS violated the statute requiring recording of mortgage assignments. The court did not determine whether or not MERS had violated the recording statute; the court simply found that the recording statute itself lacks an enforcement mechanism. In all, eight of the nine causes of action brought against MERS by General Conway survived MERS’ motion to dismiss.

Other states have filed similar lawsuits against MERS, including Massachusetts, Delaware and New York. The Kentucky Office of the Attorney General is the first state Attorney General’s office to move past the motion to dismiss stage against MERS.

The Franklin Circuit Court found that the Attorney General had sufficiently stated legal causes of action. It has not yet taken any evidence or ruled on whether MERS committed the alleged violations.

MORTGAGE FORECLOSURE SETTLEMENT

In addition to the MERS lawsuit, General Conway joined 48 other state Attorneys General in negotiating the historic $25 billion national mortgage foreclosure settlement. The Attorneys General uncovered that the nation’s five largest banks had been committing fraud during some foreclosures by filing “robo-signed” documents with the courts.

Kentucky’s share of the settlement totals more than $63.7 million. Thirty-eight million dollars is being allocated by the settlement administrator to consumers who qualify for refinancing, loan write downs, debt restructuring and/or cash payments of up to $2,000. To date, the banks report providing relief to 1,833 Kentucky homeowners. The average borrower received an average of $34,771 in assistance.

Kentucky also received $19.2 million in hard dollars from the banks. The money went to agencies that create affordable housing, provide relief or legal assistance to homeowners facing foreclosure, redevelop foreclosed properties and reduce blight created by vacant properties.

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, visit: http://www.fightforeclosure.net

MORTGAGE FORECLOSURE SETTLEMENT
The Franklin Circuit Court found that the Attorney General had sufficiently stated legal causes of action. It has not yet taken any evidence or ruled on whether MERS committed the alleged violations. – See more at: http://stopforeclosurefraud.com/2013/12/11/franklin-circuit-judge-allows-attorney-general-conways-case-against-mers-to-move-forward/comment-page-1/#comment-109158

Attorney General Jack Conway today announced that a Franklin Circuit Court judge has ruled that the Office of the Attorney General properly alleged violations of Kentucky’s Consumer Protection Act against MERSCORP Holdings, Inc., and its wholly-owned subsidiary Mortgage Electronic Registration Systems, Inc. (MERS).

“I appreciate the court’s careful consideration on this matter, and I am pleased with the result,” General Conway said. “This ruling paves the way to allow my office to hold MERS accountable for its deceptive conduct, and we look forward to continuing our fight for Kentucky consumers.”

– See more at: http://stopforeclosurefraud.com/2013/12/11/franklin-circuit-judge-allows-attorney-general-conways-case-against-mers-to-move-forward/comment-page-1/#comment-109158

Attorney General Jack Conway today announced that a Franklin Circuit Court judge has ruled that the Office of the Attorney General properly alleged violations of Kentucky’s Consumer Protection Act against MERSCORP Holdings, Inc., and its wholly-owned subsidiary Mortgage Electronic Registration Systems, Inc. (MERS).

“I appreciate the court’s careful consideration on this matter, and I am pleased with the result,” General Conway said. “This ruling paves the way to allow my office to hold MERS accountable for its deceptive conduct, and we look forward to continuing our fight for Kentucky consumers.”

– See more at: http://stopforeclosurefraud.com/2013/12/11/franklin-circuit-judge-allows-attorney-general-conways-case-against-mers-to-move-forward/comment-page-1/#comment-109158

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Why Homeowners Need to Shift the Burden of Proof To Foreclosure Mills

05 Thursday Dec 2013

Posted by BNG in Affirmative Defenses, Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Bank of America, Borrower, Foreclosure, MERS, Mortgage Electronic Registration System, Ohio, U.S. Bancorp, US Bank

CASE STUDY:

This case brings to mind why homeowner MUST shift the burden of proof to foreclosure mills in order to save their homes or the courts will ‘assume’ that the burden rests on the homeowner. (Which it does not). Borrower has no burden of proof as the burden of proof is squarely shouldered by the illegal entity bringing a judicial or non judicial foreclosure proceeding against the homeowner, in order for them to show that either they owns the Note or had the rights of enforcement on the Note. Even if they “own the Note,” they might not have the “right to enforce it”, even if they are “holder of the note, and does not own it“, they might not have “standing to bring the action“, per UCC. (That is the law of negotiable instruments – and your “Note” is a negotiable instrument just like a “Check”.

SO FOLKS! DO YOUR HOMEWORK AND MAKE THEM PROVE IT! DO NOT LOSE YOUR DREAM HOME BASED ON MERE IGNORANCE!

U.S. BANK NATL. ASSN. v. SPICERNo. 9-11-01

2011 Ohio 3128 U.S. Bank National Association, As Trustee On Behalf of the Home Equity Asset Trust 2007-3 Home Equity Pass-Through Certificates, Series 2007-3, Plaintiff-Appellee,
v.
Gregory M. Spicer, Defendant-Appellant, and
Mortgage Electronic Registration Systems, Inc., et al., Defendants-Appellees.
Court of Appeals of Ohio, Third District, Marion County.
Date of Decision: June 27, 2011.

OPINION

SHAW, J.

{¶1} Appellant, Gregory M. Spicer (“Spicer”) appeals the December 9, 2010 judgment of the Marion County Court of Common Pleas overruling his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.”

{¶2} On November 22, 2006, Spicer executed a promissory note with Intervale Mortgage Corporation (“Intervale”) for a mortgage loan in the amount of $212,000.00 to purchase a residence located at 1517 Eagle Links Drive in Marion, Ohio. The loan documents identified Decision One LLC (“Decision One”) as Intervale’s servicing agent and Mortgage Electronic Registration Systems, Inc. (“MERS”) as Intervale’s nominee for matters related to Spicer’s loan. The mortgage was recorded in the Marion County Recorder’s office on December 1, 2006.

{¶3} In February of 2007, Spicer received a letter from Select Portfolio Servicing (“SPS”) notifying him that the servicing of his mortgage loan had been transferred from Decision One to SPS and that, as of March 1, 2007, SPS would be the entity receiving his mortgage payments.

{¶4} On September 22, 2008, Bill Koch, an assistant secretary for MERS, issued a “corporate assignment of mortgage,” which evidenced that MERS, as nominee for Intervale, assigned Spicer’s mortgage to Appellee, U.S. Bank National Association, as trustee, on behalf of the holders of the Home Equity Asset Trust 2007-3 Home Equity Pass-Through Certificates, Series 2007-3 (“U.S. Bank”). This assignment of Spicer’s mortgage was subsequently recorded in the Marion County Recorder’s office.

{¶5} On September 25, 2008, U.S. Bank filed a complaint for foreclosure against Spicer alleging the note to be in default because Spicer failed to make the monthly payments on the note since April 28, 2008, and the default had not been cured. The complaint alleged that a balance of $208,865.11, plus interest remained outstanding on the promissory note. U.S. Bank requested judgment against Spicer for this amount, plus late charges, advances made for the payment of taxes, assessments, insurance premiums, or cost incurred for the protection of the mortgaged premises. U.S. Bank also requested the trial court to order a foreclosure and sale of the property. The record demonstrates that Spicer was properly served with the complaint on October 21, 2008.

{¶6} Spicer failed to appear or otherwise enter into the action and on January 5, 2009, U.S. Bank filed a motion for default judgment which was subsequently granted by the trial court. On January 12, 2009, the trial court entered a decree in foreclosure and ordered the property to be sold. The property was scheduled for a Sheriff’s sale on April 17, 2009.

{¶7} On April 13, 2009, Spicer sent an ex parte letter to the trial court requesting a stay in the sale proceedings. Spicer’s letter was placed in the record with a “received” stamp, but was not “file-stamped” by the clerk of courts. Moreover, there is no evidence that Spicer served this letter on counsel for U.S. Bank or that U.S. Bank was otherwise made aware of the existence of this letter.

{¶8} On April 23, 2009, U.S. Bank filed a “Motion to Vacate Order for Sale and Withdraw Property from Sale” with the trial court. In this motion, U.S. Bank informed the court that “Plaintiff and the borrower have entered into a loss mitigation agreement.” On April 24, 2009, the trial court granted U.S. Bank’s motion to withdraw the property from the scheduled Sheriff’s sale.

{¶9} On June 23, 2009, U.S. Bank filed an “Alias Praecipe for Order for Sale” requesting an order of sale and for the Sheriff to appraise, advertise, and sell the property.

{¶10} On August 10, 2009, a notice of sale was filed. The sale was scheduled to take place on September 18, 2009. U.S. Bank subsequently filed another “Motion to Vacate Order for Sale and Withdraw Property from Sale” stating that the parties “have entered into a forbearance agreement.” The trial court subsequently granted U.S. Bank’s motion to vacate the order of sale.

{¶11} On March 31, 2010, U.S. Bank filed a second “Alias Praecipe for Order for Sale” requesting an order of sale on the property and notice of sale was subsequently filed, scheduling the sale of the property. On June 22, 2010, U.S. Bank then filed a third “Motion to Vacate Order for Sale and Withdraw Property from Sale.” The reason cited for this motion was that the parties “are in the process of negotiating a loss mitigation agreement.”

{¶12} On July 12, 2010, the trial court granted U.S. Bank’s motion to withdraw the property from the Sheriff’s sale; however, the court also noted in its order that “No further withdrawals of sale will be allowed.”

{¶13} On July 15, 2010, U.S. Bank filed a “Pluries Praecipe for Order for Sale without Reappraisal” requesting that another order of sale be issued on the property. Sale of the property was scheduled for November 19, 2010.

{¶14} On October 21, 2010, nineteen months after the trial court issued its decree in foreclosure on the property, Spicer filed a “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.” Notably, this is the first formal appearance entered by Spicer in this action. In this motion, Spicer argued that he was never given the original loan documents evidencing his loan with Intervale, and that his original loan had been “shuffled around and assigned to various parties.” Spicer further alleged that there is no proof U.S. Bank was properly assigned the promissory note and mortgage. Spicer also claimed that he is a victim of “robo-signing”1 by SPS, the servicing agent for his mortgage loan. In support of his motion, Spicer attached several internet articles and blogs, which generally discussed the alleged misconduct of some mortgage companies.

{¶15} In this motion, Spicer also requested that the trial court stay the Sheriff’s sale until it can be proven “who has actual position [sic] and ownership of the original mortgage and standing to foreclose on the mortgage.” However, he failed to specifically claim in this motion that he is entitled to relief pursuant to any of the enumerated grounds listed in Civ.R. 60(B) with respect to his instant case, or otherwise attempt to satisfy any the requirements a movant must prove in order to be entitled to Civ.R. 60(B) relief from judgment.

{¶16} On October 25, 2010, Spicer filed a supplement to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale” and attached several more unauthenticated articles and documents about MERS and Intervale, which were not of direct relevance to his case.

{¶17} On October 28, 2010, Spicer filed another supplement to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale,” attaching an amicus brief written by the Ohio Attorney General, which was filed in relation to a Cuyahoga County case, a separate and distinct case from Spicer’s case. Spicer argued that this other case was of particular relevance to his case because it involved U.S. Bank and its counsel of record in the case sub judice. Spicer urged the trial court to impute to his case any misconduct alleged against U.S. Bank in the Cuyahoga County case. Spicer also filed more internet articles generally examining the causes of the mortgage crisis, specifically the role of “robo-signing” by lenders in foreclosure actions.

{¶18} On November 4, 2010, Spicer filed a third supplement to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale,” now arguing that U.S. Bank had no standing to bring the underlying foreclosure action because the original mortgage lender, Intervale, did not have authority to execute mortgages in Ohio. Spicer further argued that U.S. Bank did not sign the original promissory note and does not have the original “wet ink” promissory note in its possession. Spicer also identified, for the first time, the two individuals who signed affidavits in support of the foreclosure proceedings from MERS and SPS,2 and accused them of being “robo-signers” who “lack personal knowledge of the facts herein.” (Supp. Mot. Nov. 4, 2010 at 2).

{¶19} Notably, in each of his supplements to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale,” Spicer again failed to identify any grounds on which he is entitled to relief pursuant to Civ.R. 60(B).

{¶20} On November 8, 2010, U.S. Bank filed its memorandum in opposition to Spicer’s “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.” U.S. Bank argued that Spicer failed to satisfy the burden required to be shown by a movant that he or she is entitled to relief from judgment under Civ.R. 60(B). Specifically, U.S. Bank asserted that Spicer failed to identify what grounds, if any, exist for vacating the judgment, provide any operative facts or admissible evidence in support of such grounds, failed to identify a meritorious defense to the foreclosure proceedings—i.e. why the loan is not in default for Spicer’s non-payment, and that his Civ.R. 60(B) motion was not timely.

{¶21} U.S. Bank further asserted that it is the real party in interest to bring the foreclosure proceedings and argued that Spicer had waived this issue by failing to raise it until nineteen months after the decree in foreclosure was entered by the trial court.

{¶22} On November 15, 2010, Spicer filed a “Reply Brief” to U.S. Bank’s memorandum in opposition to his “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale.” In his response, Spicer urged the trial court to follow a procedural rule adopted by the Cuyahoga Court of Common Pleas requiring plaintiffs to follow certain directives in filing complaints for foreclosure in that court. Spicer also, for the first time, alleged that he is entitled to relief on one of the grounds listed in Civ.R. 60(B), specifically Civ.R. 60(B)(5), which is the “catch-all” provision under the rule, permitting the court to vacate a judgment “for any other reason justifying relief from the judgment.” Civ.R. 60(B)(5). Spicer argued that U.S. Bank “is perpetrating a fraud upon this court” and asserted several unsubstantiated allegations to support his position. Spicer also maintained that his motion is timely because Civ.R. 60(B)(5) does not state a specific timeframe to bring the motion, but rather requires the motion to be filed within a “reasonable time.”

{¶23} U.S. Bank filed a response to Spicer’s “Reply Brief” on November 19, 2010, and attached several documents refuting Spicer’s various allegations, including that it was not the real party in interest under Civ.R. 17(A) to file the foreclosure action.

{¶24} On November 22, 2010, U.S. Bank filed a fourth “Motion to Vacate Order for Sale and Withdraw Property from Sale” requesting the trial court to temporarily refrain from executing the sale in order for U.S. Bank to comply with recent directives issued by the U.S. Treasury Department.

{¶25} On December 9, 2010, the trial court issued its decision overruling Spicer’s “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale.” Specifically, the trial court determined that Spicer failed to timely raise the defense that U.S. Bank was not the real party in interest under Civ. R. 17(A). The trial court also concluded that Spicer failed to satisfy his burden demonstrating he is entitled to relief under Civ.R. 60(B)(5). Furthermore, the trial court found the following with respect to Spicer’s allegations of misconduct by SPS:

As no misconduct has been alleged against [SPS], Defendant Gregory Spicer has not shown sufficient grounds [for] the granting of relief from judgment in this action. This is particularly true since said Defendant did nothing to object to the original judgment being rendered in this action, and did nothing to attempt to obtain relief from judgment until 21 [sic] months after the Judgment was rendered in this action. Said Defendant has made absolutely no showing that he had not failed to make his mortgage payments as agreed under the promissory note.

(JE, Dec. 9, 2010 at 4).

{¶26} Spicer subsequently filed this appeal, asserting the following assignments of error.

ASSIGNMENT OF ERROR NO. I THE TRIAL COURT ERRED IN THAT FORECLOSURE IN THIS ACTION WAS FILED ON JANUARY 12, 2009, AND THAT DEFENDANT GREGORY SPICER DID NOT FILE HIS MOTION FOR RELIEF FROM JUDGMENT UNTIL OCTOBER 21, 2010. THIS 21-MONTH DELAY IS WELL BEYOND THE ONE YEAR TIME LIMIT. ASSIGNMENT OF ERROR NO. II THE TRIAL COURT ERRED IN CONCLUDING THAT NOTHING IN THE RECORD OF THIS ACTION SHOWING THAT THE SERVICER OF THE MORTGAGE QUESTIONED, SELECT PORTFOLIO SERVICING, INC., OR THAT BILL KOCH HAS ENGAGED IN ANY OF THE MISCONDUCT.

{¶27} For ease of discussion, we elect to address Spicer’s assignments of error together.

{¶28} In his first assignment of error, Spicer claims that the trial court erred when it found that he did not file his Civ.R. 60(B) motion for relief from judgment until twenty-one months after the trial court rendered judgment on the foreclosure action.3 Spicer appears to argue that his April 13, 2009 ex parte letter to the trial court served as a functional equivalent for a Civ.R. 60(B) motion for relief from judgment and, therefore, his motion should be considered timely because it was sent to the court only three months after it rendered its foreclosure judgment.

{¶29} First, we observe that in his April 13, 2009 letter, Spicer simply requests the trial court to stay the Sheriff’s sale. In reviewing this letter, we note that Spicer fails to mention Civ.R. 60(B), let alone make any statement that can be construed as a request for relief from judgment under Civ.R. 60(B). In addition, Spicer neglects to cite any legal authority which supports his position that his ex parte letter, which does not contain the contents required by Civ.R. 60(B) in substance or in form, should be construed by the trial court as a timely filed motion for relief from judgment.

{¶30} Moreover, pursuant to App.R. 16(A)(7) we are not required to address arguments that have not been sufficiently presented for review or supported by proper authority. Therefore, it is well within our purview to disregard this assignment of error. See App.R. 12(A)(2). Nevertheless, in reviewing this issue we find no authority supporting Spicer’s contention that the trial court erred when it determined that he failed to file his Civ.R. 60(B) motion until twenty-one months after the foreclosure judgment was entered.

{¶31} Spicer also argues under this assignment of error that the trial court erred in determining that he is not entitled to relief from judgment under Civ.R. 60(B)(5). Initially, we note that in order to prevail on a Civ.R. 60(B) motion, a party must show 1) a meritorious defense or claim to present if relief is granted; 2) the party is entitled to relief under one of the five enumerated grounds stated in Civ.R. 60(B)(1) through (5); and 3) the motion is made within the required timeframe. In re Whitman, 81 Ohio St.3d 239, 242, 690 N.E.2d 535, 1998-Ohio-466; Douglas v. Boykin (1997), 121 Ohio App.3d 140, 145, 699 N.E.2d 123.

{¶32} The elements entitling a movant to Civ.R. 60(B) relief “are independent and in the conjunctive; thus, the test is not fulfilled if any one of the requirements is not met.” Strack v. Pelton, 70 Ohio St.3d. 172, 174, 637 N.E.2d 914, 1994-Ohio-107. “The decision to grant or deny a motion to vacate judgment pursuant to Civ.R. 60(B) lies in the sound discretion of the trial court and will not be disturbed absent an abuse of discretion.” Id. An abuse of discretion means that the trial court was unreasonable, arbitrary, or unconscionable in its ruling. Blakemore v. Blakemore (1983), 5 Ohio St.3d 217, 219, 450 N.E.2d 1140.

{¶33} On appeal, Spicer argues that he is entitled to relief from judgment under Civ.R. 60(B)(5), which is the “catch-all” provision of the rule permitting a court to relieve a party from a final judgment for “any other reason justifying relief from the judgment.” This provision of the rule is not subject to the one-year limitation in filing as motions filed under Civ.R. 60(B)(1), (2), and (3).4 Rather, motions filed on the grounds of Civ.R. 60(B)(5) are required to be filed in a reasonable time.

{¶34} In support of his position, Spicer argues that U.S. Bank is not the real party in interest to bring these foreclosure proceedings and that U.S. Bank and its servicing agent SPS had committed a “fraud upon the court.” The trial court addressed both of these issues in its judgment entry overruling his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.”

{¶35} First, with respect to Spicer’s argument that U.S. Bank is not the real party in interest to bring these foreclosure proceedings, we note that the trial court concluded that Spicer waived this argument because he failed to timely assert it. Civil Rule 17(A) provides, in pertinent part:

Every action shall be prosecuted in the name of the real party in interest. * * * No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest.

{¶36} The Supreme Court of Ohio has stated that “[t]he purpose behind the real party in interest rule is to enable the defendant to avail himself of evidence and defenses that the defendant has against the real party in interest, and to assure him finality of the judgment, and that he will be protected against another suit brought by the real party at interest on the same matter.” Shealy v. Campbell (1985), 20 Ohio St.3d 23, 24, 485 N.E.2d 701.

{¶37} As previously noted by this Court, a majority of appellate courts infer that the defense that a party is not the real party in interest can be raised after an initial responsive pleading, and if it is not raised in a timeframe relative to that initial pleading stage in the proceedings, then the defense is waived. First Union Natl. Bank v. Hufford, 146 Ohio App.3d 673, 677, 2001-Ohio-2271, ¶13, 767 N.E.2d 1206 citing Travelers Indemn. Co. v. R.L. Smith Co. (Apr. 13, 2001), 11th Dist. No. 2000-L-014, Hang-Fu v. Halle Homes, Inc. (Aug. 10, 2000), 8th Dist. No. 76589, Robbins v. Warren (May 6, 1996), 12th Dist. No. CA95-11-200; see also Mid-State Trust IX v. Davis, 2nd Dist. No. 07-CA-31, ¶58 (affirming this principle on similar facts and concluding that the issue of standing for the real party in interest defense is waived if not timely asserted).

{¶38} Here, the record demonstrates that Spicer failed to enter a formal appearance in this action until more than nineteen months after the trial court entered its decree in foreclosure on the property. Spicer provides neither the trial court nor this Court with any explanation why he was unable to make any appearance in the underlying foreclosure proceedings, let alone timely raise this issue during the initial pleading phase. Rather, Spicer simply makes blanket assertions that U.S. Bank is not the real party in interest without submitting any evidence to substantiate his claim. Moreover, Spicer cites no legal authority to support his position. Accordingly, we do not find the trial court’s determination that Spicer failed to timely assert a real-party-in-interest defense to be an abuse of discretion.

{¶39} Spicer’s second basis that he is entitled to relief under Civ.R. 60(B)(5) is his assertion that U.S. Bank and SPS have committed a “fraud on the court.” In making this argument Spicer relies solely on Coulson v. Coulson, (1983), 5 Ohio St.3d 12, 448 N.E.2d 809. In Coulson, an attorney represented to the court that he was counsel for the Plaintiff in a divorce action at the same time he was colluding with the Defendant in the action, by drafting a separation agreement on the behalf of the Plaintiff at the direction and upon the terms dictated by the Defendant. Id. at 13. The domestic relations court relied on the attorney’s representation and approved the separation agreement and incorporated it into its judgment, unaware of the attorney’s prior arrangement with the Defendant. Id. The Supreme Court of Ohio determined that the attorney’s actions in this instance constituted a “fraud upon the court.” Id. at 16-17.

{¶40} As explained by the Supreme Court, fraud upon the court embraces the “`species of fraud which does or attempts to, defile the court itself, or is a fraud perpetrated by the officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases that are presented for adjudication.'” Coulson, 5 Ohio St.3d at 15 quoting MOORE’S FEDERAL PRACTICE (2 Ed.1971) 515, paragraph 60.33.

{¶41} As the basis for his claim that U.S. Bank and SPS committed a fraud upon the trial court, Spicer alleges that Bill Koch, the individual who effectuated the assignment of Spicer’s mortgage between Intervale and U.S. Bank, is a “robo-signer.” However, Spicer provided the trial court with no evidence to substantiate this claim other than unauthenticated internet articles discussing the alleged misconduct of mortgage lenders in the industry. There is nothing in these articles or Spicer’s unsupported allegations that can be construed as a “fraud upon the court.” Spicer simply failed to provide any relevant evidence to demonstrate misconduct on the part of U.S. Bank or its servicing agent, SPS in this matter.

{¶42} In addition, we note that Civ.R. 60(B)(5) applies only when a more specific provision of the rule does not apply. Strack v. Pelton (1994), 70 Ohio St.3d 172, 174, 637 N.E.2d 914, 1994-Ohio-107. Moreover, Civ.R. 60(B)(5) is not intended to be used as a substitute for any of the other more specific provisions of Civ.R. 60(B). Caruso-Ciresi, Inc. v. Lohman (1983), 5 Ohio St.3d 64, 448 N.E.2d 1365. Here Spicer’s allegations of misconduct against U.S. Bank and SPS are more akin to the traditional legal concept of fraud, which is specifically addressed by Civ.R. 60(B)(3). However, as previously mentioned, a motion filed pursuant to Civ.R. 60(B)(3) must be filed within one year from the entry of the judgment the movant seeks to vacate. Spicer’s “Motion for Rule 60(B) to Vacate Judgment” was filed several months after the expiration of this timeframe. Accordingly, for all these reasons we find that the trial court did not abuse its discretion when it concluded that Spicer is not entitled to relief under Civ.R. 60(B) and overruled his “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale.”

{¶43} Based on the foregoing, Spicer’s first and second assignments of error are overruled and the judgment of the Marion County Court of Common Pleas is affirmed.

Judgment Affirmed

ROGERS, P.J. and PRESTON, J., concur.

FootNotes

1. Here, Spicer is referring to media reports covering the alleged widespread misconduct by mortgage servicers and banks during foreclosing procedures. Such alleged misconduct includes employees of these entities signing affidavits purporting to have knowledge of the contents of foreclosure files that the employees never actually reviewed and, therefore, have no personal knowledge of relative to the foreclosure proceedings.2. SPS is also the servicer for U.S. Bank on Spicer’s mortgage.3. As a point of clarification, Spicer filed his “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale” nineteen months after the trial court entered its judgment of foreclosure. However, Spicer’s initial filing of his motion was captioned as a Civ.R. 60(B) motion, but contained none of the required substance of such a motion. It was not until two months later, twenty-one months after the trial court’s foreclosure judgment, that Spicer actually included Civ.R. 60(B) elements in his “Reply Brief.”4. Civil Rule 60(B) specifically provides, “On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order or proceeding for the following reasons: (1) mistake, inadvertence, surprise or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(B); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation or other misconduct of an adverse party; (4) the judgment has been satisfied, released or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (5) any other reason justifying relief from the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2) and (3) not more than one year after the judgment, order or proceeding was entered or taken. A motion under this subdivision (B) does not affect the finality of a judgment or suspend its operation.”

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, visit: http://www.fightforeclosure.net

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What Florida Homeowners Need to Know About Mortgage Assignments

05 Thursday Dec 2013

Posted by BNG in Affirmative Defenses, Banks and Lenders, Case Laws, Case Study, Foreclosure Defense, Fraud, Judicial States, MERS, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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Article 9 of the Japanese Constitution, Assignment (law), Business, Florida Supreme Court, Promissory note, Securitization, UCC, Uniform Commercial Code

Today, a mortgage originator might make hundreds of loans and assign them as collateral to borrow money from a bank in a “mortgage warehouse facility.” The borrowed money is used to originate more mortgages. A mortgage warehouse is often only temporary, so the mortgages might be transferred from one facility to another. When the mortgage originator has a sufficiently large pool of mortgages, it may permanently “securitize” them by assigning them to a newly formed company that issues securities that are then sold to investors. In the end, the company owns the mortgages, and the investors receive payments on the securities which are based on the collections from the mortgage pool. In this manner, mortgages are effectively packaged as securities, which can more easily be traded than individual mortgages — hence the name “securitization.”

The recorded form assignment I prepared as a young associate is not well-suited to use in these transactions. Because transactions involve the assignment of hundreds or even thousands of mortgages, there is a temptation to skip the step of recording an assignment in the public records, particularly when the assignment is only a temporary collateral assignment. Transactions sometimes take the form of nothing more than an unrecorded pledge of the mortgages in bulk to the bank, together with delivery of the original notes to the bank for perfection. In many instances, even the task of holding possession of the notes is outsourced to a bailee who holds the notes for the bank’s benefit. The mortgages might be transferred many times by unrecorded assignment in bulk without physically moving the notes, but with the bailee simply signing a receipt changing the name of the lender for whom it holds the notes.

The attorneys who pioneered these transactions were comforted that the structure would work by legal conclusions they drew from Article 9 of the Uniform Commercial Code (UCC), the Official Comments to the UCC (Comments),2 and favorable case law.3 The law was clear enough that attorneys were able to give legal opinions concerning perfection, but as the amount of securitized mortgages reached into the trillions of dollars, the uniform law commissioners decided to revisit Article 9 and make it safe for securitizations by officially sanctioning these practices.

It is useful to observe the simplicity of a mortgage assignment in its purest form. F.S. §673.2031(1) (2010), governing negotiable instruments, states that “[a]n instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.” Even before the UCC, the Florida Supreme Court ruled that a mortgage can be transferred without a written assignment simply by delivering the note with intent to assign it.4 So at its core, between the parties to the assignment, assigning a mortgage is very much like selling a used lawn mower. What makes it more complex in practice is the potential for disputes and the precautions that must be taken to protect the parties. There are a number of contexts in which mortgage assignments might be considered:

1) The rights of a mortgage assignor and assignee vis-a-vis each other;

2) The rights of a mortgage assignee relative to the rights of its creditors, including lien creditors and bankruptcy trustees;

3) The rights of a mortgage assignee relative to the rights of a subsequent assignee;

4) The obligation of a mortgagor to make payment to the mortgage holder;

5) The right of the mortgage holder to foreclose in the event of default; and

6) The rights of a person acquiring an interest in the real estate.

The drafters of Article 9 focused primarily on problems one through three because these related to the issues that most concerned securitization participants and their attorneys. The rules the drafters set up treated mortgages as personal property that could be transferred without regard to the real estate records.5 Article 9 extends to sales of promissory notes, as well as assignments for security purposes.6 Although Article 9 recognizes some differences between collateral assignments and sales of notes, the UCC does not provide rules to distinguish a collateral assignment from an absolute assignment.7 Thus, the term “secured party” includes a collateral assignee as well as a purchaser of promissory notes,8 and the term “debtor” includes both an assignor of promissory notes for security and a seller of promissory notes.9

Problem 1 — Attachment
Article 3 governs the transfer of negotiable instruments. Article 9 governs security interests in and sales of both negotiable and nonnegotiable promissory notes. Thus, there is some overlap. The principal effect of extending Article 9 to sales of promissory notes was to apply the perfection and priority rules to those transactions.

F.S. §679.2031 (2010) determines when an assignment “attaches” or in other words, when it becomes effective between the assignor and assignee. That section requires that a) value be given; b) the debtor has rights in the collateral; and c) either the debtor has “authenticated a security agreement” describing the collateral or the secured party is in possession of the collateral pursuant to the security agreement.10

In the case of an assignment of a promissory note, the promissory note is the “collateral”11 and the assignment is the “security agreement.”12 Thus, the assignment becomes enforceable between the assignor and assignee when value is given, the assignor has assignable rights in the promissory note, and the assignor has either executed a written assignment describing the promissory note or the assignee has taken possession pursuant to the agreement of the assignor to assign the promissory note. Attachment of the security interest to the promissory note also constitutes attachment of the security interest to the mortgage, effectively adopting the pre-Article 9 case law that the mortgage follows the promissory note.13

A written assignment of the promissory note will satisfy the “security agreement” requirement whether the assignment is made pursuant to a sale or for the purpose of collateral. Similarly, an indorsement pursuant to Article 3 should satisfy that requirement.14 However, the implication of F.S. §§673.2031 and 679.2031 (2010), and of Johns v. Gillian, 184 So. 140 (Fla. 1938), is that the security agreement need not be in writing, so long as there is intent to assign and the promissory note is delivered to the assignee.15

Problem 2 — Perfection
Third parties lacking notice are not bound merely because the assignor and assignee have agreed among themselves that the mortgage has been transferred to the assignee. To protect the assignee from claims of third parties dealing with the assignor, the assignment must be perfected. Perfection of the security interest in the promissory note operates to perfect a security interest in the mortgage.16 The assignee may perfect its rights against the conflicting rights of a lien creditor (including a judgment lien holder, bankruptcy trustee, or receiver)17 by taking possession of the original promissory note18 or by filing a financing statement in the applicable filing office19 (which for a debtor located in Florida is the Florida Secured Transactions Registry).20 Possession may be effected by means of a bailee, provided that the bailee authenticates a writing acknowledging that it holds possession for the benefit of the secured party.21 However, not all modes of perfection are equal. As discussed below in connection with priority, possession of the promissory note generally offers more protection than filing a financing statement. All modes of perfection, however, provide protection against the rights of a subsequent lien creditor.22

In the case of a sale of the promissory note (as opposed to a collateral assignment), perfection is automatic upon attachment.23 Thus, neither possession nor filing is needed to perfect against the rights of subsequent lien creditors, provided that the assignment is a true sale rather than a secured transaction. However, for several reasons, absolute assignees often perfect by possession of the promissory note and/or filing, even though perfection is automatic in the case of a sale.24

Problem 3 — Priority
The question of whether an assignee prevails over another assignee is one of priority. Pursuant to F.S. §679.322(1)(a) (2010), if both assignments are perfected, then priority is generally determined by the time of filing or perfection. Perfection is accomplished by filing automatically in the case of sales, or by possession of the promissory note. However, §679.322(3) refers to F.S. §679.330 (2010), which states in part: “[A] purchaser of an instrument has priority over a security interest in the instrument perfected by a method other than possession if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party.”

Regardless of whether the assignee receives absolute ownership pursuant to a true sale or merely an assignment for the purpose of security, the assignee is considered a “purchaser.”25 If the second assignee takes possession for value in good faith and without knowledge that it violates the first assignee’s rights, then the second assignee takes priority over an assignment perfected without possession. Mere filing of a financing statement by the first assignee (and even actual knowledge by the second assignee of such a filing) is not enough to charge the second assignee with a lack of good faith or knowledge that the second assignment violated the first assignee’s rights.26 It is not clear precisely what facts might disqualify the assignee in possession from relying on §679.330(4) for its priority, but F.S. §671.201(20) (2010) provides a general definition of “good faith,” which requires honesty in fact (an actual knowledge standard), and observance of reasonable commercial standards of fair dealing. Given this nebulous standard, the party who perfects by filing or automatically should assume that it will not be protected against a subsequent assignee who takes possession.

The foregoing principles are demonstrated in American Bank of the South v. Rothenberg, 598 So. 2d 289 (Fla. 5th DCA 1992). In that case, the bank took a security interest in a note and mortgage, perfected by possession. The assignor then sold the same note to a second assignee. The second assignee recorded his assignment in the public records before the bank did, but received only a copy of the note. The court held that though he recorded first, the second assignee lost because the bank had possession. Although the case did not involve a UCC filing by the losing assignee, that would not have changed the result since possession generally trumps a UCC filing. In fact, because the mortgage was sold (rather than assigned as collateral), the second assignee’s interest was perfected automatically. However, like filing, automatic perfection does not generally protect the assignee from a conflicting assignment perfected by possession.

If the assignment is intended only as secondary collateral on unspecific assets, then possibly the assignee would be satisfied with such ethereal rights as are created by merely filing, but if the assignee is giving new value to acquire specific mortgages, then greater protection is usually required — namely, possession of the promissory note.

Problem 4 — Who Does the Mortgagor Pay?
Comment 6 to UCC §9-308 explains that Article 3 (not Article 9) dictates who the maker of a negotiable instrument must pay. F.S. §673.6021(1) (2010) states that with limited exceptions (knowledge of injunction or theft, etc.), the instrument is discharged upon payment to “a person entitled to enforce the instrument.”

F.S. §673.3011 (2010) states:

The term “person entitled to enforce” an instrument means:

(1) The holder of the instrument;

(2) A nonholder in possession of the instrument who has the rights of a holder; or

(3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to s. 673.3091 or s. 673.4181(4).

A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

In general, it is the “holder” who is entitled to enforce the instrument. “The person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession” is a “holder.”27 In some instances, a nonholder may enforce the instrument. The comment to UCC §3-301 states that a “person who under applicable law is a successor to the holder or otherwise acquires the holder’s rights” can enforce the instrument under subsection (2), even though not a holder. This would include an assignee from the holder who for some reason did not become a holder, perhaps because it did not receive a proper indorsement.28 Subsection (3) would include an assignee who is not a holder because the instrument was lost.

One might wonder whether these provisions make any sense. The mortgagor cannot be expected to ascertain the holder by demanding exhibition of the promissory note whenever it makes a payment,29 nor would the lender likely accommodate such a demand, even if made. Usually, the note expressly waives presentment, so that the original need not be exhibited on demand for payment.30 In the real world, the mortgagor simply pays whomever the note says should be paid (often a servicer), until the mortgagor receives a notice to pay someone else. The law of contract and agency will often lead a court to give effect to payments made in this manner, despite Article 3.31 Nevertheless, unless the parties have expressly or impliedly agreed otherwise, Article 3 requires the mortgagor to ascertain the status of the payee as holder by demanding exhibition of the promissory note, and the holder must comply as a condition for demanding payment.

Article 3 does not control payment of nonnegotiable notes.32 The common law of contract generally applies. The common law rule is that payment of a nonnegotiable promissory note can be made to the payee without demanding delivery of the original promissory note, and will be effective so long as the maker does not have notice that the payee has transferred the promissory note to a third person.33 In other words, the result is not very different from the “real world” practice of making payment on a negotiable promissory note, as described above.

Problem 5 — Who Has Standing to Foreclose the Mortgage?
The provisions of Article 3 speak in terms of who is entitled to “enforce” an instrument. Thus, the solution to problem four must also be the solution to problem five. Unlike problem four, however, there are a number of reported cases concerning standing in foreclosures that must be considered. It should come as no surprise that the holder of the promissory note has standing to maintain a foreclosure action.34 Further, an agent for the holder can sue to foreclose.35 The holder of a collateral assignment has sufficient standing to foreclose.36

Failure to file the original promissory note or offer evidence of standing might preclude summary judgment.37 Even when the plaintiff files the original, it might be necessary to offer additional evidence to show that the plaintiff is the holder or has rights as a nonholder. In BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d 936 (Fla. 2d DCA 2010), for example, the court reversed a summary judgment of foreclosure, saying the plaintiff had not proven it held the note. The written assignment was incomplete and unsigned. The plaintiff filed the original note, which showed an indorsement to another person, but no indorsement to the plaintiff. The court found that was insufficient. Clearly, a party in possession of a note indorsed to another is not a “holder,” but recall that Johns v. Gillian holds that a written assignment is not needed to show standing when the transferee receives delivery of the note. The court’s ruling in BAC Funding Consortium was based on the heavy burden required for summary judgment. The court said the plaintiff did not offer an affidavit or deposition proving it held the note and suggested that “proof of purchase of the debt, or evidence of an effective transfer” might substitute for an assignment.38

In Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. 4th DCA 1990), the court held that an assignment executed after the filing of the foreclosure case was not sufficient to show the plaintiff had standing at the time the complaint was filed. In WM Specialty Mortgage, LLC v. Salomon, 874 So. 2d 680 (Fla. 4th DCA 2004), however, the court distinguished Jeff-Ray Corp., stating that the execution date of the written assignment was less significant when the plaintiff could show that it acquired the mortgage before filing the foreclosure without a written assignment, as permitted by Johns v. Gilliam.39

When the note is lost, a document trail showing ownership is important. The burden in BAC Funding Consortium might be discharged by an affidavit confirming that the note was sold to the plaintiff prior to foreclosure. Corroboratory evidence of sale documents or payment of consideration is icing on the cake, but probably not needed absent doubt over the plaintiff’s rights. If doubt remains, indemnity can be required if needed to protect the mortgagor.40

In the case of a defaulting mortgagor, someone presumably has a right to foreclose. Excessively strict standing requirements might result in a windfall to the mortgagor at the expense of the lender. At the same time, courts must ensure that the mortgagor is not subjected to double liability. A review of the cases shows that while there are a few cases in which mortgagors paid the wrong party and were later held liable to the true holder, there is a dearth of cases in Florida where a mortgagor was foreclosed by one putative mortgagee, and later found liable to another who was the true holder. The lack of such nightmare cases is a testament to the fine job courts have done in enforcing the standing requirements, but it also begs the question whether the risk of double liability may be overstated. Given the long foreclosure process in Florida, a defaulting borrower is unlikely to remain unaware of conflicting demands long enough to complete a foreclosure. It seems that in such an event, either the borrower must have ignored conflicting demands, or one of the putative mortgagees sat on its rights. While both are plausible scenarios, they each present clear equities that should assist a court in positioning the loss.

Problem 6 — Real Estate Transactions
The UCC deals with problems one through five, but the Article 9 Comments expressly disclaim intent to deal with problem six because it is an issue of real estate law beyond Article 9’s scope.41 In Florida, a mortgage is not an interest in real estate, but rather personal property.42 On the other hand, the statutes permit persons taking an interest in real estate to rely on the real estate records to determine ownership of a mortgage without regard to the UCC. F.S. §701.02 (2010) says in part:

701.02. Assignment not effectual against creditors unless recorded and indicated in title of document; applicability

(1) An assignment of a mortgage upon real property or of any interest therein, is not good or effectual in law or equity, against creditors or subsequent purchasers, for a valuable consideration, and without notice, unless the assignment is contained in a document that, in its title, indicates an assignment of mortgage and is recorded according to law.

(2) This section also applies to assignments of mortgages resulting from transfers of all or any part or parts of the debt, note or notes secured by mortgage, and none of same is effectual in law or in equity against creditors or subsequent purchasers for a valuable consideration without notice, unless a duly executed assignment be recorded according to law.

*****

(4) Notwithstanding subsections (1), (2), and (3) governing the assignment of mortgages, chapters 670-680 of the Uniform Commercial Code of this state govern the attachment and perfection of a security interest in a mortgage upon real property and in a promissory note or other right to payment or performance secured by that mortgage. The assignment of such a mortgage need not be recorded under this section for purposes of attachment or perfection of a security interest in the mortgage under the Uniform Commercial Code.

(5) Notwithstanding subsection (4), a creditor or subsequent purchaser of real property or any interest therein, for valuable consideration and without notice, is entitled to rely on a full or partial release, discharge, consent, joinder, subordination, satisfaction, or assignment of a mortgage upon such property made by the mortgagee of record, without regard to the filing of any Uniform Commercial Code financing statement that purports to perfect a security interest in the mortgage or in a promissory note or other right to payment or performance secured by the mortgage, and the filing of any such financing statement does not constitute notice for the purposes of this section. For the purposes of this subsection, the term “mortgagee of record” means the person named as the mortgagee in the recorded mortgage or, if an assignment of the mortgage has been recorded in accordance with this section, the term “mortgagee of record” means the assignee named in the recorded assignment.

One can accept that a person taking an interest in real estate should be charged with notice only of what appears from the real estate records. However, the statute seems overly broad in that it says an assignment must be recorded to be effectual against creditors and purchasers. Subsections (1) and (2) seem to contradict the rules of Article 9, which permit perfection against lien creditors merely by taking possession of the note or filing a financing statement. Also, under Article 9, a good faith purchaser with possession takes free of a prior assignment, even if recorded. Although subsection (4) says the statute does not alter the perfection requirements of Article 9, what does the statute mean if not that an unrecorded assignment of mortgage is not enforceable against creditors of the assignor?

One might argue that §701.02 means that an absolute assignment must be recorded in the real estate records, while a collateral assignment need not be recorded.43 Subsection (4) discusses perfection of a “security interest,” but it does not specifically mention a sale of the mortgage.However, the term “security interest” in the UCC includes an assignment pursuant to a sale,44 and the term “assignment” in subsections (1) and (2) is not, on its face or in the case law, limited to absolute assignments.45 Such a limitation would undercut the §701.02 protections given to real estate purchasers (particularly considering the case law holding that a collateral assignee in possession may enforce the mortgage). Likewise, requiring a sale to be recorded in the real estate records for validity against subsequent purchasers from the mortgagee would undermine the protections for purchasers of mortgages under the UCC. Clearly, the statute says that an assignment need not be recorded to be perfected under the UCC, but that does not necessarily mean that an unrecorded assignment will be effective against a person taking an interest in the realty in reliance on the real estate records.

Perhaps the term “creditors” refers only to creditors of the fee title owner of the land — not to creditors of the mortgage assignor. There is no need to protect creditors of a mortgage assignor with this statute. The priority of a lien creditor of the assignor is adequately addressed by Article 9. By contrast, creditors of the fee title owner are not protected by Article 9 and might rely on the real estate records in acquiring an interest in or lien on the real estate.46 Also, the subsection (5) phrase “purchaser of real property” supports that interpretation. There is no mention of purchasers of the mortgage.

If that is the intent of the statute, then the unqualified use of the term “creditors” is unfortunate. The statute should say the protection extends to creditors, purchasers, or other persons acquiring an interest in the real property, but not to persons acquiring a mortgage from the mortgagee (whose rights are determined instead by the UCC). Even though it could be clearer, the foregoing interpretation is not plainly refuted by the statutory language. Moreover, there is case law support. In American Bank of the South v. Rothenberg, 598 So. 2d 289 (Fla. 5th DCA 1992), also discussed above, the bank received a collateral assignment and took possession of the note. However, the note was sold to a second assignee who recorded first in the real estate records and argued that §701.02 gave him better title. The court disagreed, stating:

The confusion in this case arises from the failure of both parties to recognize that section 701.02…is inapplicable. This case, involving as it does the competing interests of successive assignees of a note and mortgage, is governed by negotiable instruments law, not the recording statute. Section 701.02 was enacted to protect a creditor or subsequent purchaser of land who has relied on the record satisfaction of a prior mortgage, which satisfaction was executed by the mortgagee after he made an unrecorded assignment of the same mortgage. Manufacturers’ Trust Co. v. People’s Holding Co., 110 Fla. 451, 149 So. 5 (Fla. 1933).47

The court’s reading is unduly narrow in that §701.02 protects more than just persons relying on mortgage satisfactions, but the idea that it governs only real estate transactions seems correct.48

However, some courts have confused the rules applicable to problem six with those applicable to problems one through five. In JP Morgan Chase v. New Millennial, LC, 6 So. 3d 681 (Fla. 2d DCA 2009), rev. dism., 10 So. 3d 632 (Fla. 2009), for example, the closing agent in a real estate transaction telephoned AmSouth Bank concerning two mortgages that it appeared to own of record and was told they had been paid. AmSouth Bank faxed a printout to the closing agent showing a balance of $0 and stating “PD OFF.” In fact, AmSouth Bank had merely sold the loans to JP Morgan, which failed to record an assignment. The transaction closed in reliance on the fax. Later, JP Morgan sought to foreclose, and the purchaser argued that JP Morgan’s unrecorded assignment was ineffective under §701.02. JP Morgan argued that §701.02 protected only assignees of the mortgagee, not grantees of the land owner, and the court agreed.49 In other words, the court’s interpretation was exactly opposite that in American Bank of the South. Yet, the idea that persons acquiring the land may rely on §701.02 seems required by the statute and the case law.50

Although JP Morgan Chase’sinterpretation of §701.02 seems wrong,one might argue the case was correct for another reason. The court said the closing agent never received a satisfaction, but simply relied on the fax. Although F.S. §701.04 (2010) permits the purchaser to rely on an estoppel letter, the court said the fax did not qualify for that protection. Arguably, the true holding of JP Morgan Chase is that the party relying on the real estate records must obtain a satisfaction, and informal assurances are inadequate. Nevertheless, JP Morgan Chase will add to the confusion until the Florida Supreme Court rules decisively on the meaning of §701.02.

Even if one accepts the interpretation in American Bank of the South, one must admit there is inherent tension between §701.02 and Article 9. The tension is demonstrated in Rucker v. State Exchange Bank, 355 So. 2d 171 (Fla. 1st DCA 1978). In that case, South 41 Corp. gave a mortgage to Harrell and deeded the land to Rucker. Harrell assigned the mortgage to the bank as collateral, which recorded the assignment, but did not notify Rucker. Rucker then paid the mortgage to Harrell. After not receiving payment, the bank foreclosed on Rucker. On appeal, Rucker argued the collateral assignment was not perfected under Article 9. The court erroneously said that Article 9 does not govern a collateral assignment, but came to an arguably correct result, affirming the judgment of foreclosure.

A threshold issue not discussed was whether Rucker, having acquired the real estate from South 41 Corp., was entitled to rely on the real estate records, or whether she simply paid the mortgage pursuant to the UCC. Clearly, Rucker did acquire the real estate, but that was months earlier, so perhaps by the time of payment, the real estate records were no longer relevant.

The Rucker court seemed to rely on both problems one through five and problem six rules. The court said that Rucker did not demand surrender of the mortgage,51 which is irrelevant under §701.02. However, the court also relied on the assignment recorded in the real estate records, which is not important to problems one through five, but is important to problem six. Even though the court did not clearly state which rules applied, it came to the correct result. Rucker lost because she did not comply with either set of rules. She would have become aware of the assignment to the bank if she had checked the real estate records, and she would have (presumably) discovered that Harrell did not have the note, if she had demanded surrender of the note. The court did not discuss when it is that a person acquiring an interest in the land (entitled to rely on the real estate records) ceases to be such a person and becomes instead a person acquiring or paying the promissory note who must follow the UCC, but the case shows the issue will inevitably arise, creating tension between §701.02 and the UCC.

Summarizing, the UCC attempts to solve problems one through five and §701.02 attempts to solve problem six. There is some overlap and potential for conflict, causing confusion in the cases. Courts should interpret those statutes so that they are consistent, limiting the protection of §701.02 to persons taking an interest in the real estate, and the protection of the UCC to persons taking an interest in the promissory note and mortgage.

Conclusion
Ironically, while the drafters of Article 9 sought to make mortgage assignments as simple and foolproof as possible, the handling of mortgage assignments is now at the center of the foreclosure crisis that has gripped the nation’s financial system. To be fair, the changes to Article 9 did not really cause the problem. In fact, the changes mostly codified existing case law and served to lessen the chaos by eliminating uncertainty. However, the revisions to Article 9 fostered confidence that the “simple, foolproof” rules intended to protect parties’ rights in mortgages would in fact do so. The false sense of certainty led to an increase in the number of transactions accomplished with minimal documentation designed to meet the attachment and perfection requirements of Article 9, but not the standing requirements in foreclosures. Moreover, missing or irregular indorsements or lost instruments compounded the problem by leaving gaps even in this minimal documentation. The result was a deluge of disputed cases fortuitously stopping or delaying foreclosures while the mortgagees struggled to reconstruct a document trail proving ownership.

Despite the sloppy practices of the mortgage industry, attorneys practicing in this area should not find themselves on the losing end of a court decision holding that their client does not have standing to foreclose. The question of whether the client has standing should be addressed before filing the case. If the documentation is inadequate, then missing documents should be located, or if necessary, re-executed before filing suit. An attorney unavoidably faced with ambiguous documentation might take comfort that, as shown by Johns v. Gillian and the UCC, Florida law concerning standing is not very demanding. Nevertheless, the requirements for standing must be proved, and the attorney should determine before filing that these requirements can be met.

1 SeeFla. Stat. §673.2041 (2010).

2See National Bank of Sarasota v. Dugger, 335 So. 2d 859, 860-861 (Fla. 2d D.C.A. 1976), cert. den., 342 So. 2d 1101 (Fla. 1976) (citing Comments as interpretive guide).

3 Florida has long held an assignment of a note includes an assignment of the mortgage. See Taylor v. American Nat. Bank, 57 So. 678, 685 (Fla. 1912); First Nat. Bank of Quincy v. Guyton, 72 So. 460 (Fla. 1916); Collins v. W.C. Briggs, Inc., 123 So. 833 (Fla. 1929); Miami Mortgage & Guaranty Co. v. Drawdy, 127 So. 323 (Fla. 1930); and Warren v. Seminole Bond & Mortgage Co., 172 So. 696, 697 (Fla. 1937). Thus, a recorded assignment seemed surplusage. By contrast, a mortgage assignment without the note has been held ineffectual. Sobel v. Mutual Development, Inc., 313 So. 2d 77, 78 (Fla. 1st D.C.A. 1975).

4Johns v. Gillian, 184 So. 140, 143 (Fla. 1938).

5Fla. Stat. §679.1091(4)(k)(1) (2010) (Article 9 extends to a transfer of a lien in real property).

6Fla. Stat. §679.1091(1) (2010).

7See UCC §9-109, Comment 5.

8Fla. Stat. §679.1021(1)(sss) (2010).

9Fla. Stat. §679.1021(1)(bb) (2010).

10Fla. Stat. §679.2031(2) (2010).

11Fla. Stat. §679.1021(1)(l) (2010).

12Fla. Stat. §679.1021(1)(ttt) (2010) and §671.201(38) (2010) (“security interest” includes the interest of a buyer of a promissory note).

13Fla. Stat. §679.2031(7) (2010).

14Fla. Stat. §673.2041(1) (2010), defining “indorsement.” Fla. Stat. §673.2011 (2010) requires an indorsement for a transferee to become a “holder,” if the instrument is payable to a specific person, but even a nonholder transferee may often enforce the instrument. SeeFla. Stat. §673.2031(2) (2010).

15 The delivery requirement has also been weakened by some cases. See Beaty v. Inlet Beach, 9 So. 2d 735 (Fla. 1942); Harmony Homes, Inc. v. United States, 936 F. Supp. 907, 913 (M.D. Fla. 1996), aff’d,124 F.3d 1299 (11th Cir. 1997).

16Fla. Stat. §679.3081(5) (2010).

17Fla. Stat. §679.1021(1)(zz) (2010).

18Fla. Stat. §679.3131(1) (2010). Florida law applies to a security interest perfected by possession if the promissory note is located in Florida. SeeFla. Stat. §679.3011(2) (2010).

19Fla. Stat. §679.3121(1) (2010) (perfection by filing where the collateral is instruments). The term “instrument” under Article 9 includes non-negotiable promissory notes, unlike the same term defined in Article 3. CompareFla. Stat. §679.1021(1)(uu) (2010) withFla. Stat. §673.1041(2) (2010), and see Comment 5(c) to UCC §9-102.

20Fla. Stat. §679.5011(1)(b) (2010). A registered organization organized in Florida is deemed “located” in Florida. SeeFla. Stat. §679.3071(5) (2010).

21Fla. Stat. §679.3131(3) (2010).

22Fla. Stat. §679.3171(1)(b) (2010) (security interest is junior to the rights of a person who became a lien creditor prior to perfection).

23Fla. Stat. §679.3091(4) (2010). This is one of the few areas wherein collateral assignments and sales are different. Purchasers of promissory notes had not in the past been required to file financing statements, and the drafters of Article 9 wanted to continue that practice. See Comment 4 to UCC §9-309.

24 First, the priority rules determine if the assignee prevails over another assignee, and possession is more protective than automatic perfection. Second, courts may find what appears to be a sale is actually security that cannot be perfected automatically. See, e.g., Torreyson v. Dutton, 198 So. 796 (Fla. 1940); Hulet v. Denison, 1 So. 2d 467 (Fla. 1941); Howard v. Goodspeed, 135 So. 294 (Fla. 1931). Also, the assignee usually wants possession to ensure standing to foreclose. See Abbott v. Penrith, 693 So. 2d 67 (Fla. 5th D.C.A. 1997); Pastore-Borroto Development, Inc. v. Marevista Apartments, M.B., Inc., 596 So. 2d 526 (Fla. 3d D.C.A. 1992); Figueredo v. Bank Espirito Santo, 537 So. 2d 1113 (Fla. 3d D.C.A. 1989).

25See definitions of “purchase” and “purchaser” at Fla. Stat. §§671.201(32) and (33) (2010).

26See Comment 7 to UCC §9-330 (“a purchaser who takes even with knowledge of the security interest qualifies for priority under subsection (d) if it takes without knowledge that the purchase violates the rights of the holder of the security interest”). Fla. Stat. §679.3171(2) (2010) seems to adopt a different rule, saying that a “buyer, other than a secured party” takes free of a security interest if the buyer gives value and takes delivery “without knowledge of the security interest” and before it is perfected. However, a “buyer, other than a secured party” under Fla. Stat. §679.3171(2) (2010) is not a “purchaser” under Fla. Stat. §679.330(4) (2010). Comment 6 to UCC §9-317 says that unless the sale is excluded from Article 9, the buyer is a “secured party,” and §679.3171(2) does not apply, adding “[r]ather, the priority rules generally applicable to competing security interests apply.”

27Fla. Stat. §671.201(21)(a) (2010).

28C.f., Ederer v. Fisher, 183 So. 2d 39, 42 (Fla. 2d D.C.A. 1965) (unauthorized indorsement deprived plaintiff of holder in due course status, thus, permitting defense on instrument). As in Ederer, inability to prove holder status does not necessarily mean the plaintiff lacks standing under Fla. Stat. §673.3011 (2010), but may expose the plaintiff to additional defenses.

29SeeFla. Stat. §673.5011(2)(b)(1) (2010), permitting the maker to make such demand.

30SeeFla. Stat. §673.5041(1) (2010), giving effect to such waivers.

31See, e.g., Scott v. Taylor, 58 So. 30 (Fla. 1912) (payment effective if made to authorized agent); McChesney v. Herman, 176 So. 565 (Fla. 1937); Posey v. Hunt Furniture Co., Inc., 43 So. 2d 343 (Fla. 1949); Fla. Stat. §671.103 (2010) (UCC does not displace law of agency).

32Fla. Stat. §673.1041 (2010) determines negotiability. See, e.g., Locke v. Aetna Acceptance Corp., 309 So. 2d 43 (Fla. 1st D.C.A. 1975) (note stating “pay to seller” not negotiable because not payable to order of seller); City Bank, N.A. v. Erickson, 18 FLW Supp. 283 (Fla. Cir. Ct. 2011) (home equity agreement not negotiable where amount not fixed); Holly Hill Acres, Ltd. v. Charter Bank, 314 So. 2d 209 (Fla. 2d D.C.A. 1975) (note incorporating terms of mortgage not negotiable).

33Johnston v. Allen, 22 Fla. 224 (Fla. 1886).

34Philogene v. ABN AMRO Mortgage Group, Inc., 948 So. 2d 45 (Fla. 4th D.C.A. 2006); Fla. Stat. §673.3011(1) (2010).

35Juega v. Davidson, 8 So. 3d 488 (Fla. 3d D.C.A. 2009); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34, fn. 2 (Fla. 3d D.C.A. 2007) (stating that MERS was holder, but not owner and “We simply don’t think that this makes any difference. See Fla. R.Civ. P. 1.210(a) (action may be prosecuted in name of authorized person without joining party for whose benefit action is brought)”).

36Laing v. Gainey Builders, Inc., 184 So. 2d 897 (Fla. 5th D.C.A. 1966) (collateral assignee was a holder); Cullison v. Dees, 90 So. 2d 620 (Fla. 1956) (same, except involving validity of payments rather than standing to foreclose).

37See Fla. Stat. §673.3091(2) (2010); Servedio v. US Bank Nat. Ass’n, 46 So. 3d 1105 (Fla. 4th D.C.A. 2010).

38BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d at 938-939 (Fla. 2d D.C.A. 2010). See also Verizzo v. Bank of New York, 28 So. 3d 976 (Fla. 2d D.C.A. 2010) (Bank filed original note, but indorsement was to a different bank). But seeLizio v. McCullom, 36 So. 3d 927 (Fla. 4th D.C.A. 2010) (possession of note is prima facie evidence of ownership).

39See also Glynn v. First Union Nat. Bank, 912 So. 2d 357 (Fla. 4th D.C.A. 2005), rev. den., 933 So. 2d 521 (Fla. 2006) (note transferred before lawsuit, even though assignment was after).

40Fla. Stat. §673.3091(2) (2010); Fla. Stat. §69.061 (2010).

41See Comment 6 to UCC §9-308.

42Shavers v. Duval County, 73 So. 2d 684 (Fla. 1954); City of Gainesville v. Charter Leasing Corp., 483 So. 2d 465 (Fla. 1st D.C.A. 1986); Southern Colonial Mortgage Company, Inc. v. Medeiros, 347 So. 2d 736 (Fla. 4th D.C.A. 1977).

43See, e.g.,Thomas E. Baynes, Jr., Florida Mortgages (Harrison Co. 1999), §7-2 (West pocket part for 2009), stating “[s]ection 4 was added to establish that perfection of a security interest in a mortgage…would be governed by the Florida Uniform Commercial Code…. This type of assignment of mortgage, sometimes characterized as a ‘collateral assignment,’ does not need to be recorded under F.S. §701.02.”

44Fla. Stat. §671.201(38) (2010).

45See, e.g., Gardner v. McPherson, 151 So. 390 (Fla. 1933) (dismissing foreclosure by unrecorded collateral assignee where mortgage had been satisfied by record mortgagee); Williams, Salomon, Kanner & Damian, as Trustee v. American Bankers Life Assurance Co., 379 So. 2d 119 (Fla. 3d D.C.A. 1979) (subordination unenforceable where recorded collateral assignee had not agreed). However, these cases predated subsection (4).

46See, e.g., Manufacturers’ Trust Co. v. People’s Holding Co., 149 So. 5 (Fla. 1933).

47American Bank of the South v. Rothenberg, 598 So. 2d at 290 (Fla. 5th D.C.A. 1992).

48See also Chandler v. Davis, 190 So. 873 (Fla. 1939) (assignee from record mortgagee took subject to holder in possession of note); Karn v. Munroe, 6 So. 2d 529 (Fla. 1942) (subsequent assignee with possession prevailed over first); Vance v. Fields, 172 So. 2d 613 (Fla. 1st D.C.A. 1965) (first assignee recorded first, but took possession of wrong note; court correctly ruled for the second assignee with possession without discussing distinction between a real estate transaction and note sale). CompareTamiami Abstract & Title Co. v. Berman, 324 So. 2d 137 (Fla. 3d D.C.A. 1976), cert. den., 336 So. 2d 604 (Fla. 1976) (purchaser of original mortgagee’s assets did not own mortgage assigned of record to another by collateral assignment that later became absolute upon default). Because the buyer purchased the mortgage (not the real estate), the court should have applied rules regarding transfer of the mortgage as personal property, but focused instead on the land records. Yet the court said the defendant “claimed outright possession of said mortgage,” which left the possibility that his claim also arose from possession. Otherwise, it seems at odds with Cullison, cited in fn. 36.

49 The court cited Kapila v. Atlantic Mortgage & Investment Corp. (In re Halabi), 184 F.3d 1335 (11th Cir. 1999), and Bradley v. Forbs, 156 So. 716 (Fla. 1934). In Kapila, 184 F.3d at 1338, the court held the assignee’s failure to record did not render the mortgage unperfected in the mortgagor’s bankruptcy. The court said §701.02 protects only an assignee of the mortgagee, not a person acquiring the real estate. However, the question of who owns a mortgage is distinct from whether it is perfected against grantees of the real estate owner. Bradley includes some ambiguous language, but stands primarily for the proposition that a purchaser cannot rely on informal assurances by the record mortgagee, but must obtain a satisfaction. See Bradley, 156 So. at 717. The Kapila court also said the Florida Supreme Court may have implicitly receded from Bradley in Hulet v. Denison, 1 So. 2d 467, 468-469 (Fla. 1941), presumably because it discussed the statute as though it applied to persons acquiring the land, even though its decision was on other grounds, i.e., actual notice. The purchasers relied on a satisfaction by the mortgage assignee of record. However, the original mortgagee’s surviving widow claimed the assignment was for collateral and had been discharged. The court said the purchasers had “actual notice,” but cited the failure of the purchaser to demand surrender of the note as the basis. If that is what is meant by “actual notice,” then what is the point of the recording statute?

50 In addition to American Bank of the South v. Rothenberg, Gardner v. McPherson, Bradley v. Forbs, and Manufacturers’ Trust Co. v. People’s Holding Co., see Housing Authority v. Macho, 181 So. 2d 680 (Fla. 3d D.C.A. 1966).

51Rucker v. State Exchange Bank, 355 So. 2d at 172 (Fla. 1st D.C.A. 1978). The court spoke of surrender of the mortgage, but it is surrender of the promissory note that is important under the UCC. See also Perry v. Fairbanks Capital Corp., 888 So. 2d 725, 726 (Fla. 5th D.C.A. 2004).

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