SUMMARY JUDGMENT DENIED IN CITIBANK SECURITIZATION CASE

January 24, 2020

A Palm Beach County Circuit Court Judge today denied Citi’s Motion for Summary Judgment, finding that there are genuine issues of material fact as to whether the alleged “original” Note is in fact an original. Citi had filed a foreclosure action in 2009 in which it represented to the Court that the Note was lost, but later claimed to have found it. The 2009 case was dismissed, and Citi refiled in 2017. Jeff Barnes, Esq. of W.J. Barnes, P.A. represented the homeowners in the 2009 case and also represents them in the 2017 case.

An attorney from the law Firm representing Citi claimed to have obtained the “original” Note from the court file in the 2009 case. However, the Clerk’s notes state that although Citi’s filing stated that the Note was an original, it was a copy. The homeowners requested and were granted a personal inspection of the claimed “original” Note, and have filed Affidavits that the claimed “original” is not an original based on numerous factors. To date, no affidavits have been filed by Citi to contradict the homeowners’ affidavits.

The homeowners have attempted to subpoena the attorney who claims to have obtained the “original” Note from the 2009 case court file, but shortly after the homeowners filed their Affidavits, that attorney suddenly no longer worked for the law Firm, and he has been avoiding service of a deposition subpoena.

The Judge found that based on the conflicting positions of the parties and the fact that the homeowners filed Affidavits that there are genuine issues of material fact as to whether the claimed “original” is in fact and original. There are also numerous other issues concerning claims of setoff, standing, and unilateral modification of the loan documents.

The case has been set for trial for May 8, 2020.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

Victories in Washington and Oklahoma: one summary judgment vacated, another (second) summary judgment denied

December 18, 2019

Jeff Barnes has successfully vacated a summary judgment in Tacoma, Washington and caused a second summary judgment motion to be denied in Oklahoma City. Both cases involve Wilmington Savings Fund Society securitizations.

In the Tacoma case, the Plaintiff filed a Motion for Summary Judgment. Shortly thereafter and just before the hearing on the motion and unknown to the homeowner at the time, the homeowner’s local counsel was suspended from the practice of law. Local counsel was to have opposed the MSJ and attended the hearing as Mr. Barnes (PHV co-counsel for the homeowner) was scheduled to be in trial in another case.

The local counsel did not request a continuance of the hearing; did not advise the Court of her suspension; and did not appear at the hearing. The Court granted the MSJ despite the homeowner’s pro se request at the hearing that it be continued as her attorney did not appear and did not advise the homeowner that she (local WA counsel) would not be appearing.

Mr. Barnes and the client only thereafter learned of the suspension of local counsel from opposing counsel in another foreclosure case where the same (suspended) local counsel was representing a homeowner. The Tacoma homeowner thereafter obtained new local WA counsel, and Mr. Barnes immediately filed Motions to vacate the summary judgment based on the exceptional circumstances of the (suspended) local WA counsel (a) failing to notify the client or the court of her suspension; (b) failing to request a continuance of the hearing so that the client could obtain new local counsel; and (c) failing to prepare any papers to oppose the MSJ prior to her suspension.

The Court granted Mr. Barnes’ Motions finding that the circumstances constituted the type of exceptional circumstances which warranted relief pursuant to CR 60(b).

Yesterday, an Oklahoma City District Court Judge denied the Plaintiff Wilmington Savings Fund Society’s second Motion for Summary Judgment. A prior MSJ had been filed and opposed by Mr. Barnes. The Plaintiff never requested a hearing on the first MSJ and simply filed a second MSJ.

The Judge who heard the MSJ granted it without permitting Mr. Barnes to present his case; made a decision not based on the law; and took the position that “your client owes somebody money, right?” Mr. Barnes filed a Motion for Reconsideration of this ruling, which was granted by the new Judge who took over the case.(See our post of October 4, 2019 below).

Yesterday, Mr. Barnes re-argued the MSJ detailing the numerous genuine issues of material fact presented by the Plaintiff itself and the controlling Oklahoma law including that related to allonges (as there is no endorsement on the Note and Wilmington started with one allonge when the case was filed and added 3 more as the case progressed, and as Oklahoma has an allonge statute). The Judge denied the MSJ and has ordered discovery to proceed.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

VICTORY IN OKLAHOMA: DISTRICT JUDGE GRANTS REHEARING WHICH RESULTED IN VACATUR OF PRIOR GRANT OF SUMMARY JUDGMENT TO WILMINGTON SAVINGS FUND SOCIETY AS TRUSTEE OF SECURITIZATION TRUST

October 4, 2019

This morning, an Oklahoma City District Court Judge granted the homeowners’ Motion for Reconsideration of a prior grant of summary judgment in favor of Wilmington Savings Fund Society as the claimed “trustee” of a securitization trust. The case involves an original lender which filed for bankruptcy in 2009 and four claimed allonges, 3 of which were filed after the Complaint was filed and as the Plaintiff kept being substituted.

Jeff Barnes, Esq. represents the homeowners together with local Oklahoma City counsel Scott Harris, Esq. Mr. Barnes prepared the Motion for Reconsideration and argued it in person in the Oklahoma District Court this morning.

A prior Judge had granted Wilmington’s MSJ without even permitting Mr. Barnes to make his argument and without hearing any evidence as to whether Wilmington had satisfied Oklahoma’s statutory and decisional law requirements to establish an allonge as a legal form of endorsement, commenting only that “well, your client owes somebody money, right?”. The prior Judge also did not permit an examination of the alleged original Note or allonges at the prior hearing, a fact which Wilmington’s counsel admitted at this morning’s hearing.

The Judge today recognized the issues involved and thus granted rehearing, which served to preclude Wilmington from presenting the case for final adjudication today which Wilmington had requested.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

INCREDIBLE SETTLEMENT REACHED IN FEDERAL CASE; W.J. BARNES, P.A. RETAINED TO PREPARE SECOND SCOTUS PETITION

September 10, 2019

An incredible settlement was reached for husband and wife homeowners in a Federal case where an investment bank, as the claimed “trustee” of a securitization Trust, sought foreclosure. Although we cannot reveal the terms of the settlement or the identity of the homeowners or the foreclosing bank, the settlement resulted in the bank agreeing to “eat” more than 65% of its claim due in significant part to the efforts of Mr. Barnes (who represents the homeowners) in obtaining an Order from the Federal Judge which placed the bank in serious jeopardy of being able to prove its case. Mr. Barnes’ inquiries of the bank’s witness during a deposition of the witness revealed the Bank’s weaknesses in is case, which the Federal Judge found to be significant.

W.J. Barnes, P.A. has also been retained by homeowners on two separate cases where Mr. Barnes has prepared Petitions for Certiorari Review to the United States Supreme Court. Mr. Barnes completed both Petitions in the span of 30 days. The first case involves a challenge to Colorado’s “Rule 120” non-judicial foreclosure process. The second involves a determination by the Tennessee appellate courts which upheld a prohibition and preclusion on Mr. Barnes’ cross-examination of the bank’s witness, during a deficiency trial, as to the manner by which foreclosure sales were conducted and the prices obtained for the commercial properties sold where the witness testified to these matters on direct examination. The law of both Tennessee and the U.S. Supreme Court permits cross-examination of a witness even on matters which are otherwise inadmissible if the witness opens the door as to the matters on direct examination.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

PALM BEACH COUNTY CIRCUIT JUDGE PERMITS COUNTERCLAIM FOR UNILATERAL MODIFICATION OF CONTRACT TO STAND

July 18, 2019

This morning, a Palm Beach County, Florida Circuit Judge denied a Motion to Dismiss filed by Citibank, N.A. as trustee of a securitization trust which sought to dismiss the homeowners’ Counterclaim for Declaratory Relief sounding in unilateral modification of contract. Jeff Barnes, Esq. of W. J. Barnes, P.A. represents the homeowners. Mr. Barnes filed the Counterclaim as part of the homeowners’ Answer and Affirmative Defenses to Cit’s Complaint for Foreclosure. He also briefed the matter and argued it in open court this morning.

In denying Citi’s Motion to Dismiss, the Judge stated that the Counterclaim “smacks of factual issues” relating to the acts undertaken by Citi which resulted in the unilateral modification of the loan contract without prior notice to or consent of the homeowners..

The homeowners have alleged in the Counterclaim that in connection with their loan being the subject of a securitization that the loan was converted from a regulated, residential mortgage loan transaction to an unregulated commercial investment contract, and that numerous matters in connection therewith were never disclosed to the homeowners and thus they did not consent to these changes which modified the loan contract. The Counterclaim also alleges that the “your loan may be sold” language in the loan contract is vague and misleading, and does not properly disclose numerous material matters which, if they had been disclosed to the homeowners pre-contract, would have resulted in the homeowners not agreeing to sign the loan documents.

Mr. Barnes, who developed this theory and argument, is currently advancing it in numerous foreclosure actions across the United States. A Tennessee Judge also previously denied a Motion to Dismiss the unilateral modification of contract claim which Motion was filed by Bank of New York Mellon. The Judge found that the Complaint, filed by the homeowner, stated a cause of action for unilateral modification of contract.

Almost all states have established case law which consistently holds that a contract which is unilaterally modified without consent, without knowledge of the other party, without any “meeting of the minds”, and without any additional consideration for the modification is unenforceable.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

CONSTITUTIONALITY OF COLORADO RULE 120 NON-JUDICIAL FORECLOSURE PROCESS BEING CHALLENGED IN PETITION TO SUPREME COURT OF THE UNITED STATES

July 14, 2019

Mr. Barnes, in conjunction with two network attorneys, has filed a Petition in the Supreme Court of the United States which challenges Colorado Rule of Civil Procedure 120’s non-judicial foreclosure process on due process and other constitutional grounds. The Petition was filed on Friday, July 12, 2019 and has been served not only on the Respondent but also the Colorado Attorney General.

Rule 120 permits anyone who checks off boxes on a form to claim status as a “qualified holder” of the alleged debt and seek an Order Authorizing Sale (OAS). Unless the homeowner files a timely challenge before the artificial “hearing” date in the Rule 120 Motion, the home will be sold without any court hearing with an OAS being issued by the Clerk of the Court on the artificial “hearing” date.

If the homeowner files a timely challenge (which limits defenses which can be asserted), the matter proceeds to a quasi-administrative “probable cause” hearing to schedule a Trustee’s (foreclosure) sale date without the homeowner being afforded any opportunity to conduct discovery, and with the foreclosing party being given a presumption of standing. The entire process is in derogation of centuries of civil precedent (including foreclosure-law precedent in the judicial foreclosure states) which requires a party claiming to be entitled to foreclose to prove the legal ability to do so and to obtain a Final Judgment before a foreclosure sale date can be scheduled. Rule 120 reverses the process, saddling the homeowner with a “presumption of guilt” and permitting the foreclosing party to take the home without any discovery being provided and without any Final Judgment being entered.

The “remedy” to challenge an OAS is to bring a separate action under Rule 120(d) after the entry of an OAS and before the sale date, requiring the homeowner to (a) institute litigation including a Complaint and Motion for Temporary Restraining Order to try to stop the sale, which (b) requires the posting of some sort of bond and (c) conversion of any TRO to a preliminary injunction to prevent any sale for the duration of the litigation, which generally requires an evidentiary hearing. Thus, the borrower has to advance thousands of dollars up front just for the privilege of being able to make a challenge to the foreclosure without the foreclosing party having to provide discovery to support its position and without having to obtain a judgment before a sale date is set.

The case law in Colorado is that an action filed under Rule 120(d) is to be considered “de novo”, meaning that it is to be considered a fresh action and with any “findings” of a Rule 120 hearing (which is non-adversarial as there is no “Plaintiff” or “Defendant” and there is no “judgment” entered in a 120 proceeding) having no res judicata or collateral estoppel effect on the Rule 120(d) challenge. There is case law in Colorado which so holds. However, Colorado Judges have been shown not to follow this law: in fact, one Judge stated, in a 120(d) injunction hearing, that he could consider the “findings” of the Rule 120 hearing as “persuasive”, thus acting in derogation of the case law and not treating the 120(d) action as de novo as required by law.

The entire 120 process was railroaded through the Colorado legislature by a foreclosure mill attorney whose Firm was thereafter sued by the Colorado Attorney General for fraud. It has been discovered that there were hundreds of the “qualified holder” forms which were signed by his Firm without any real investigation as to the truth of the matters being “checked off” in the boxes on the form. However, Rule 120 remains on the books.

The Petition filed by Mr. Barnes and his affiliated counsel involves a case where Citibank claimed, for over 4 years, that it was the “qualified holder” of the homeowners’ loan which position continued through the 120 proceeding, the sale, the 120(d) action filed by the homeowners, the issuance of the Trustee’s Deed on Sale, and into a FED (eviction) action which remains pending. Mr. Barnes took the deposition of the representative of Citibank in the eviction proceeding, which he could not have done in the 120 proceeding (as no discovery is permitted in a 120 proceeding) and as he was precluded from doing in the 120(d) proceeding as Colorado does not permit discovery to be instituted until a civil case is at a point where an Answer is filed and as the District Judge dismissed the 120(d) case without an Answer being filed by Citibank.

Citibank’s designated representative (from Ocwen) testified under oath in the deposition taken in the FED case that Citibank never, ever, had an interest in the loan; that the loan was never in a Citibank securitization trust (as Citibank had claimed since 2014); and that all of the foreclosure filings by Citibank were erroneous. Citibank was thus able to hide its fraud for over four years, and but for Mr. Barnes’ insistence on the deposition, Citibank would have essentially stolen the homeowner’s residence based on false evidence continuously presented to the Colorado courts for over four years.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

SWORN TESTIMONY FROM TWO OPPOSING EXPERTS IS CONSISTENT: BORROWERS PAY PREMIUMS ON INSURANCE AS TO RISK OF DEFAULT IN SECURITIZATIONS

July 3, 2019

Two opposing expert witnesses in the same case have both consistently testified that there are insurances and reserves to cover the risk of borrower defaults on loans placed into a securitization trust, and that the premiums for these insurances and reserves are paid for by the borrowers from a portion of their interest payments. The homeowner’s expert Richard Kahn, a 40-year veteran of the Wall Street securitization business, and Bank of America’s expert Laura Borrelli, a former member of the New Jersey Banking Commission, provided this consistent testimony in depositions.

This evidence directly contradicts the fallacious argument, made by “bank” and servicer foreclosure attorneys (and accepted by many Judges), that such resources are not available to a borrower as a source of defense or challenge to the amount claimed due under the loan the subject of a foreclosure as “the borrower is not a party to such contracts”. The sworn testimony demonstrates that it is the BORROWER WHO IS PAYING FOR THE INSURANCE AGAINST THE RISK OF HIS OWN DEFAULT. As such, a borrower should properly be permitted to assert a setoff-related defense and engage in discovery to ascertain information as to the specific insurances and reserves available to the securitization trust into which the borrower’s loan was placed, and the payments to the trust by any insurer as a result of claims arising from defaults for any tranche into which the borrower’s loan was placed. Mr. Kahn has also testified that one loan may serve as collateral for several tranches, so it is entirely possible that the default on one loan could result in multiple payments to the trust.

The problem at this point is undoing the damage caused by bankster lawyers who pervert and misrepresent the facts, just as they have done with the same false argument that “the borrower has no standing to challenge an assignment” which is based upon their selective use of only a portion of a ruling from the U.S. Court of Appeals for the 6th Circuit in the Livonia Properties case, which the same 6th Circuit later clarified in another decision by holding that the true ruling in Livonia Properties is that a borrower DOES have standing to challenge a putative assignment. Mr. Barnes has obtained a ruling from a Pennsylvania Federal Court which so holds, and which is the subject of a recent post.

Jeff Barnes, Esq,, www.ForeclosureDefenseNationwide.com

FEDERAL JUDGE RULES THAT BORROWER HAS STANDING TO CHALLENGE ASSIGNMENT AND ALSO AS TO BANK’S FAILURE OF PROOF

The entire Opinion, which we have already discussed, is set forth below. Mr. Barnes represents the Gerbers and prepared all of the briefing on this matter for the Gerbers:

Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 1 of 17

IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
U.S. BANK NATIONAL : CIVIL ACTION NO. 1:17-CV-1466
ASSOCIATION, AS TRUSTEE, :
SUCCESSOR IN INTEREST TO : (Chief Judge Conner)
BANK OF AMERICA, NATIONAL :
ASSOCIATION AS TRUSTEE AS :
SUCCESSOR BY MERGER TO :
LASALLE BANK NATIONAL :
ASSOCIATION, AS TRUSTEE FOR :
CERTIFICATEHOLDERS OF BEAR :
STEARNS ASSET BACKED :
SECURITIES I LLC, ASSET- :
BACKED CERTIFICATES, SERIES :
2007-HE7, :
:
Plaintiff :
:
v. :
:
BRIAN A. GERBER and TRACY L. :
GERBER, :
:
Defendants :
MEMORANDUM
Plaintiff is U.S. Bank National Association, as Trustee, Successor in Interest to Bank of America, National Association as Trustee as Successor by Merger to LaSalle Bank National Association, as Trustee for Certificateholders of Bear Stearns Asset Backed Securities I LLC, Asset-Backed Certificates, Series 2007-HE7 (“U.S. Bank”). U.S. Bank filed a complaint in mortgage foreclosure against defendants Brian A. Gerber and Tracy L. Gerber (“the Gerbers”). The Gerbers move to amend their answer and a counterclaim and for partial summary judgment as to one legal issue. (Docs. 33, 36). U.S. Bank moves for summary judgment on its Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 1 of 17


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foreclosure action. (Doc. 38). We will grant in part and deny in part the Gerbers’ motion to amend and deny the parties’ cross-motions for summary judgment.
I. Factual Background & Procedural History1
In 2007, the Gerbers borrowed $247,500 from HOMELOANADVISORS.COM and executed a promissory note in consideration for the loan. (Doc. 39 at 7 ¶¶ 1-2; Doc. 1-2, Ex. A; Doc. 8 at 2 ¶ 8, 19 ¶ 38). The loan was a refinance transaction, not a purchase-money loan. (Doc. 39 at 7 ¶ 3; Doc. 8 at 19 ¶ 38). The Gerbers secured the note with a mortgage, which offers as collateral real property located in Dillsburg, Pennsylvania. (Doc. 39 at 8 ¶¶ 8, 14; Doc. 8 at 2-3 ¶¶ 8, 12, 17). The Gerbers are the record owners of the mortgaged property, and the mortgage was duly recorded. (Doc. 39 at 8 ¶¶ 8, 15; Doc. 1-2, Ex. B; Doc. 8 at 3 ¶¶ 12 & 18, 19 ¶ 38). A series of alleged indorsements and assignments then followed.
1 Local Rule 56.1 requires that a motion for summary judgment pursuant to Federal Rule of Civil Procedure 56 be supported “by a separate, short, and concise statement of the material facts, in numbered paragraphs, as to which the moving party contends there is no genuine issue to be tried.” LOCAL RULE OF COURT 56.1. A party opposing a motion for summary judgment must file a separate statement of material facts, responding to the numbered paragraphs set forth in the moving party’s statement and identifying genuine issues to be tried. Id. Unless otherwise noted, the factual background herein derives from the parties’ Rule 56.1 statements of material facts. (See Docs. 34, 39, 44). To the extent the parties’ statements are undisputed or supported by uncontroverted record evidence, the court cites directly to the Rule 56.1 statements.
It appears that the Gerbers failed to respond to U.S. Bank’s Rule 56.1 statement, (see Doc. 39 at 7-11 ¶¶ 1-20), instead filing a counterstatement identifying additional facts the Gerbers deem to be material, (see Doc. 44). We decline to construe the Gerbers’ nonconforming response as a per se admission to all facts in U.S. Bank’s statement. Instead, we have considered the parties’ statements and scrutinized the entire record to determine the uncontroverted facts of this matter. Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 2 of 17
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According to U.S. Bank, HOMELOANADVISORS.COM indorsed the note to Encore Credit, and Encore Credit indorsed the note in blank. (Doc. 39 at 8 ¶¶ 5-6). U.S. Bank claims that it possesses the original note with indorsements. (Id. ¶ 7; Doc. 40, Ex. 1 ¶¶ 10-11). The Gerbers dispute the validity of the indorsements to Encore Credit and in blank. (Doc. 8 at 2 ¶¶ 9-10). HOMELOANADVISORS.COM assigned the mortgage to Mortgage Electronic Registration Systems, Inc. (“MERS”) on July 23, 2007, which assignment was recorded several months later. (Doc. 39 at 8-9 ¶ 9; Doc. 39-1 at 10-15).
U.S. Bank maintains that some time after the mortgage was assigned to MERS and before September 1, 2007, the Gerbers’ note and mortgage were properly deposited into the Bear Stearns Asset Backed Securities I Trust 2007-HE7, Asset-Backed Certificates, Series 2007-HE7 (the “Trust”). (Doc. 39 at 9 ¶ 10; Doc. 39-2 at 2). In other words, the mortgage was “securitized.”2 The Gerbers steadfastly dispute that their note and mortgage were ever transferred into the Trust. They aver that the “Cut-off Date” under the operative Trust Pooling and Servicing Agreement (“PSA”) required the note and mortgage to be deposited by September 1, 2007, and contend that there is no evidence that such a transfer ever occurred. (See Doc. 39-2 at 17; Doc. 44 ¶¶ 4-5; Doc. 46 at 2-9).
2 “Securitization is a process in which lenders transfer mortgage loans into a single pool or trust and sell interests in that pool or trust to investors who receive certificates entitling them to share in the stream of income generated by repayment of the underlying loans.” In re Walker, 466 B.R. 271, 273 n.2 (Bankr. E.D. Pa. 2012). Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 3 of 17
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The next purported assignment occurred in September 2010, when MERS assigned the mortgage to Bank of America, National Association as Successor by Merger to LaSalle Bank National Association, as Trustee for Certificateholders of Bear Stearns Asset Backed Securities I LLC, Asset-Backed Certificates, Series 2007-HE7 (“Bank of America”). (Doc. 39 at 9 ¶ 11; Doc. 39-1 at 17-19; Doc. 44 ¶¶ 2, 5). This assignment was recorded approximately three months later. (Doc. 39-1 at 20). Finally, in October 2016, Bank of America allegedly assigned the mortgage to U.S. Bank, which had succeeded Bank of America as trustee. (Doc. 39 at 9 ¶¶ 12-13; Doc. 39-1 at 22-23; Doc. 44 ¶ 3). This assignment was recorded the following month. (Doc. 39-1 at 24).
Beginning in March 2009 and continuing thereafter, the Gerbers failed to make loan payments as required under the note. (Doc. 39 at 10 ¶ 16; Doc. 40, Ex. 9, B. Gerber Dep. 48:3-50:11; Doc. 40, Ex. 10, T. Gerber Dep. 19:16-21). U.S. Bank provided the Gerbers notice of default and notice of its intention to foreclose on the mortgaged property. (Doc. 39 at 10 ¶¶ 17-18; Doc. 39-1, Exs. 7-8).
In August 2017, U.S. Bank filed the instant complaint in mortgage foreclosure. At that time, U.S. Bank claimed the Gerbers owed approximately $456,000 in outstanding principal, interest, escrow deficit, and costs. (Doc. 1 ¶¶ 21-22). U.S. Bank avers that, as of July 17, 2018, this amount now stands at $479,075. (Doc. 39 at 11 ¶ 19). The Gerbers answered the complaint, raised 22 affirmative defenses, and asserted two declaratory judgment counterclaims. On motion by U.S. Bank, we struck eight affirmative defenses and dismissed the counterclaims, one with prejudice and one without. Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 4 of 17
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The Gerbers move for leave to amend,3 seeking to add another affirmative defense and to re-plead the counterclaim that was dismissed without prejudice. The Gerbers also move for partial summary judgment on a discrete legal issue. U.S. Bank moves for summary judgment on its foreclosure action. The motions are fully briefed and ripe for disposition.
II. Legal Standards
A. Leave to Amend
Under Federal Rule of Civil Procedure 15, leave to amend should be freely given “when justice so requires.” FED. R. CIV. P. 15(a)(2). In the seminal case of Foman v. Davis, 371 U.S. 178 (1962), the Supreme Court of the United States provided guidance for when leave to amend may be denied. Circumstances that weigh against granting leave to amend include undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility of amendment. Foman, 371 U.S. at 182. Rule 15 aims to offer the “maximum opportunity for each claim to be decided on its merits rather than on procedural technicalities.” United States v. Thomas, 221 F.3d 430, 435 (3d Cir. 2000) (citations omitted).
3 The Gerbers’ initial motion (Doc. 29) to amend was filed several hours before we issued our memorandum and order regarding U.S. Bank’s Rule 12 motion. The Gerbers have moved for leave to amend their initial motion to amend, which essentially moots their original filing. (See Doc. 36). We will therefore only address the Gerbers’ most recent motion to amend. Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 5 of 17
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B. Summary Judgment
Through summary adjudication, the court may dispose of those claims that do not present a “genuine dispute as to any material fact” and for which a jury trial would be an empty and unnecessary formality. FED. R. CIV. P. 56(a). The burden of proof tasks the non-moving party to come forth with “affirmative evidence, beyond the allegations of the pleadings,” in support of its right to relief. Pappas v. City of Lebanon, 331 F. Supp. 2d 311, 315 (M.D. Pa. 2004); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). This evidence must be adequate, as a matter of law, to sustain a judgment in favor of the non-moving party on the claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-57 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-89 (1986). Only if this threshold is met may the cause of action proceed. See Pappas, 331 F. Supp. 2d at 315.
Courts are permitted to resolve cross-motions for summary judgment concurrently. See Lawrence v. City of Philadelphia, 527 F.3d 299, 310 (3d Cir. 2008); see also Johnson v. Fed. Express Corp., 996 F. Supp. 2d 302, 312 (M.D. Pa. 2014); 10A CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 2720 (3d ed. 2015). When doing so, the court is bound to view the evidence in the light most favorable to the non-moving party with respect to each motion. FED. R. CIV. P. 56; Lawrence, 527 F.3d at 310 (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968)).
III. Discussion
The Gerbers move for leave to amend their answer to add an affirmative defense and to reassert a dismissed counterclaim. U.S. Bank opposes the proposed Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 6 of 17
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amendments as unduly delayed and futile. We will address the motion to amend before turning to the parties’ Rule 56 arguments.
A. Motion to Amend
The Gerbers’ initial responsive pleading asserted a counterclaim for declaratory relief based on an alleged unilateral modification of their mortgage loan. In our July 26, 2018 opinion, we dismissed the first iteration of this claim, explaining that the Gerbers had failed “to plausibly plead exactly how the terms of their contract were unilaterally changed or amended” when their loan was purportedly securitized. U.S. Bank Nat’l Assoc. v. Gerber, No. 1:17-CV-1466, 2018 WL 3585084, *3 (M.D. Pa. July 26, 2018). We held that the counterclaim failed Rule 12(b)(6) scrutiny because it did not identify where the alleged rights were established in the original contract or how those “rights or obligations under the contract were modified” upon securitization. Id.
The proposed amended counterclaim does not cure its prior deficiencies. The Gerbers provide some additional facts, but those facts do not address the shortcomings that we identified when dismissing the first version of this claim. For example, the Gerbers now aver that securitization of the mortgage loan changed the essence of their obligation from making payments on the note to an established lender to “fund[ing] an income stream to pay numerous non-parties,” which “was a unilateral modification of the loan contract” to which the Gerbers did not consent. (Doc. 36-3 at 12 ¶ 9). The Gerbers also assert that the loan was paid in full upon transfer to the Trust, creating a “phantom obligation” to repay under a nonexistent, liquidated note, which is a “unilateral modification of the loan Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 7 of 17
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contract.” (Id. ¶ 10). They further allege that a unilateral change was effected because “any request to modify the payment terms of the loan would be subject to the discretion of” third-party servicers or a percentage of investors and because “a precondition of being considered for loan modification” was being in default. (Id. at 13-14 ¶ 12, 16 ¶ 21).
Many of these proposed additions provide mere legal conclusions, which we must reject. See Santiago v. Warminster Township, 629 F.3d 121, 131-32 (3d Cir. 2010). More importantly, as we stressed in our prior opinion, the Gerbers fail to identify any provision of their note or mortgage that has been changed through the securitization process. See Gerber, 2018 WL 3585084, at *3. To state a claim for unilateral contract modification, one must, quite logically, set forth how the agreement’s original rights or obligations have been changed. See Modification, BLACK’S LAW DICTIONARY (10th ed. 2014). Simply alleging that an agreement is now different, without identifying how its original terms have purportedly been altered, is plainly insufficient. We will therefore deny leave to amend to reassert the proposed counterclaim due to futility of amendment. See U.S. ex rel. Schumann v. Astrazeneca Pharm., L.P., 769 F.3d 837, 849 (3d Cir. 2014). And we decline to give the Gerbers a third bite at the apple; dismissal will be with prejudice for repeated failure to cure the deficiencies in this claim. See id.
The Gerbers also seek leave to add an affirmative defense of economic duress. U.S. Bank argues that the Gerbers have not proffered good cause for the delay in raising this defense and that U.S. Bank will be prejudiced if amendment is permitted. We disagree. The Gerbers first asserted economic duress after certain Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 8 of 17
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details surfaced during Brian Gerber’s deposition and before the close of discovery. To the extent U.S. Bank perceives any potential prejudice due to its inability to examine Brian Gerber about this defense, we see no reason why U.S. Bank may not seek to re-depose him as to this limited issue. The Gerbers themselves make this suggestion, indicating that they will not oppose such a request. (See Doc. 43 at 4). Accordingly, we will grant leave to amend insofar as the Gerbers will be permitted to assert an affirmative defense of economic duress as set forth in their proposed amended answer. (See Doc. 36-2 at 7).
B. Motions for Summary Judgment
The Gerbers’ partial summary judgment motion concerns a single legal issue: whether, because their loan was never legally or properly transferred into the Trust before the cut-off date, U.S. Bank (as successor trustee) has no legal right—or standing—to foreclose on the Gerbers’ mortgage. U.S. Bank moves for summary judgment on its action in mortgage foreclosure. Because these cross-motions are inextricably intertwined, we will address them together but will separate pertinent legal issues and arguments raised by the parties.

  1. Transfer into the Trust and the PSA
    The Gerbers’ argument may be summarized as follows. The PSA unequivocally establishes a cut-off date of September 1, 2007, by which time mortgages to be securitized must have been deposited into the Trust through specific procedures set forth in the PSA. The Gerbers’ note and mortgage were allegedly assigned to MERS on July 23, 2007, leaving roughly 40 days in which to be deposited into the Trust pursuant to the terms of the PSA. There is no evidence—
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    beyond their loan being listed on the PSA’s attached, undated, and undetailed Mortgage Loan Schedule
    4—that their note and mortgage were properly and timely deposited into the Trust. In fact, the Gerbers observe, the only Rule 56 record evidence of transfer following assignment to MERS in 2007 is an alleged assignment by MERS to Bank of America (as successor trustee) in 2010, three years after the cut-off date and over a year after the mortgage went into default. According to the Gerbers, because Bank of America was acting as trustee for the Trust, there is no legally permissible way MERS could have assigned a defaulted mortgage to Bank of America three years after the Trust’s closing date, as this would have violated multiple provisions of the PSA as well as federal regulations. Because no 2010 assignment was possible to Bank of America as trustee, no 2016 assignment was possible from Bank of America to U.S. Bank as successor trustee. Thus, the Gerbers claim, U.S. Bank never acquired their note and mortgage and therefore has no legal right to foreclose.
    U.S. Bank’s response is twofold. First, U.S. Bank contends that the record evidence “conclusively” establishes that the Gerbers’ note and mortgage were properly deposited into the Trust. Second, U.S. Bank posits that the Gerbers are not parties to the mortgage assignments or the PSA, and thus have no right to
    4 The “Mortgage Loan Schedule” is a comprehensive list of the loans that were allegedly pooled together and securitized into the Trust. (See Doc. 39-2 at 21). The list was attached to the PSA as “Exhibit B.” (Id.) The schedule contains loan information including, inter alia, the location of the property, mortgage interest rate, type of interest rate, principal balance, and maturity date. (Id.) Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 10 of 17
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    challenge the validity of, or compliance with, those contracts. We disagree with both of U.S. Bank’s arguments.
    a. Proper Deposit into the Trust
    U.S. Bank maintains that the record evidence indisputably demonstrates that the Gerbers’ note and mortgage were properly securitized. For support, U.S. Bank relies on the Mortgage Loan Schedule to the PSA and the deposition testimony of its corporate designee, Patrick Pittman (“Pittman”).
    As the Gerbers observe, the Mortgage Loan Schedule is simply a list of numerous mortgage loans that were allegedly pooled together and securitized. Noticeably absent from the schedule, however, is any detail about when or how the listed loans were deposited into the Trust or when the schedule was created. Section 2.01 of the PSA mandates specific procedures for transferring loans into the Trust. (See Doc. 39-2 at 41). In particular, the Depositor, Bearn Stearns Asset Backed Securities I LLC (“Bear Stearns”), must deliver (1) the original note indorsed in blank (when registered on the MERS system); (2) the original or a true copy of the recorded mortgage; (3) an original or true copy of all intervening recorded assignments; and (4) proof of title insurance. (Id.) The PSA also requires the Seller, EMC Mortgage Corporation (“EMC”), to indicate in the MERS system that each deposited mortgage loan has been assigned by EMC to Bear Stearns and by Bear Stearns to the original Trustee (LaSalle Bank National Association (“LaSalle Bank”)) for the benefit of the certificateholders under the PSA. (Id.)
    As the PSA makes clear, there were multiple assignments involved in the securitization of the pooled loans. We count at least three for which we have no Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 11 of 17
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    record evidence: assignment to EMC, the purported seller of all securitized loans; assignment from EMC to Bear Stearns; and assignment from Bear Stearns to LaSalle Bank as trustee. Presumably, these assignments would be tracked through the MERS system, rather than individually recorded in local recording offices.
    5
    U.S. Bank has proffered no evidence from the MERS system or otherwise that would establish that the Gerbers’ note and mortgage followed the process outlined in the PSA. The only record evidence of any assignment following the July 23, 2007 assignment from HOMELOANADVISORS.COM to MERS is the 2010 assignment from MERS to Bank of America as successor trustee. We find it difficult to believe that no less than three assignments of a $247,500 promissory note and mortgage occurred without any evidence to show that ownership changed hands. The MERS system was specifically designed for this purpose. Consequently, the mere existence of the Gerbers’ mortgage on the Mortgage Loan Schedule, while some proof of proper transfer into the Trust, is by no means “conclusive.”
    Even less convincing is the deposition testimony of U.S. Bank’s corporate designee. Pittman’s elusive and circular responses do little to bolster U.S. Bank’s position. Pittman was repeatedly asked by the Gerbers’ attorney what evidence
    5 “MERS facilitates the secondary market for mortgages by permitting its members to transfer the beneficial interest associated with a mortgage—that is, the right to repayment pursuant to the terms of the promissory note—to one another, recording such transfers in the MERS database to notify one another and establish priority, instead of recording such transfers as mortgage assignments in local land recording offices.” Montgomery County v. MERSCORP Inc., 795 F.3d 372, 374 (3d Cir. 2015) (emphasis added). Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 12 of 17
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    exists to prove that the Gerbers’ note and mortgage were timely and properly transferred into the Trust per the terms of the PSA. (Doc. 40, Ex. 11, Pittman Dep. 81:1-86:24). Pittman’s response, essentially, was that the loan was transferred by the cut-off date because it was listed on the attached Mortgage Loan Schedule and the PSA required all such loans to be deposited by the cut-off date. (See id.) In other words, the loan was deposited into the Trust by September 1, 2007, because it was required to be deposited into the Trust by September 1, 2007. We do not find such testimony compelling or decisive. In light of the competing evidence, we find that a genuine dispute of material fact remains regarding proper deposit into the Trust.
    b. Validity of Assignments
    U.S. Bank’s primary argument is that, regardless of whether the note and mortgage were properly transferred into the Trust, the Gerbers cannot challenge the assignments or compliance with the PSA because the Gerbers are not parties to those contracts. This argument misses the mark.
    U.S. Bank relies on case law that either applies or extends the legal maxim that a plaintiff who is not a party to, or a third-party beneficiary of, a contract lacks standing to sue for violation of that contract. (See Doc. 41 at 12 (citing, inter alia, Ira G. Steffy & Son, Inc. v. Citizens Bank of Pa., 7 A.3d 278 (Pa. Super. Ct. 2010))). We agree with this settled tenet, but disagree that it applies to the case sub judice. The Gerbers are not plaintiffs, nor are they suing on a contract to which they are not a party. They are homeowner defendants in a mortgage foreclosure action asserting, as a defense, that their mortgage was never legally transferred to the
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    entity attempting to foreclose. They rely on the 2010 and 2016 assignments and the PSA only as evidence that there was never a valid assignment or transfer of interest to Bank of America or U.S. Bank, and therefore U.S. Bank has no standing to maintain a foreclosure action against them.
    This is a permissible challenge. The Gerbers are not alleging a mere defect in the assignment that would render the assignment voidable; they are contending that any assignment to Bank of America or U.S. Bank was legally invalid and void ab initio. This distinction makes all the difference:
    A debtor may, generally, assert against an assignee . . . any matters rendering the assignment absolutely invalid or ineffective, and the lack of the plaintiff’s title or right to sue; but, if the assignment is effective to pass legal title, the debtor cannot interpose defects or objections which merely render the assignment voidable at the election of the assignor[.]
    6A C.J.S. Assignments § 133 (2016) (emphasis added). As multiple courts have recognized, a homeowner debtor may challenge the validity of a mortgage assignment if claiming that the alleged assignment was void (rather than voidable) and thus the assignee never took title. See Reinagel v. Deutsche Bank Nat’l Tr. Co., 735 F.3d 220, 224-25 & n.8 (5th Cir. 2013); Conlin v. Mortg. Elec. Registration Sys., Inc., 714 F.3d 355, 361 (6th Cir. 2013); Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 290-91 (1st Cir. 2013); Slorp v. Lerner, Sampson & Rothfuss, 587 F. App’x 249, 255-56 (6th Cir. 2014) (nonprecedential). U.S. Bank’s sweeping contention that the validity of an assignment can never be challenged by a non-party to the assignment goes too far. Under such a theory, as long as a foreclosing entity claimed assignment of a mortgage—no matter how tenuous that claim may be—the Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 14 of 17
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    debtor homeowner would be powerless to challenge the purported assignee’s right to foreclose. See Reinagel, 735 F.3d at 225; Culhane, 708 F.3d at 290-91.
    The Gerbers contend that the 2010 and 2016 assignments are void ab initio because it was legally impossible for MERS to assign their note and mortgage to a trustee for a securitization trust three years after that trust closed. U.S. Bank has provided no authority—from Pennsylvania or elsewhere—indicating that such a transfer is legally permissible or would create only a voidable defect in the assignment. Accordingly, the general law regarding non-party challenges to contracts does not bar the Gerbers from asserting their defense that legal title never vested in U.S. Bank, depriving U.S. Bank of standing to foreclose. However, because U.S. Bank has proffered some evidence of proper deposit into the Trust—and may be able to provide more—we will deny the Gerbers’ motion for partial summary judgment on this issue.
  2. Holder in Due Course
    We raise sua sponte the potentially dispositive issue in this case: U.S. Bank may be a holder in due course of a negotiable instrument, which, regardless of validity of assignment, would give U.S. Bank standing to foreclose. Under Pennsylvania law, “a note secured by a mortgage fits the plain language” of Pennsylvania’s Uniform Commercial Code’s definition of a “negotiable instrument.” JP Morgan Chase Bank, N.A. v. Murray, 63 A.3d 1258, 1265 (Pa. Super. Ct. 2013); 13 PA. CONS. STAT. § 3104. According to U.S. Bank, the Gerbers’ note was indorsed Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 15 of 17
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    to Encore Credit, which then indorsed the note in blank.
    6 When a financial instrument is indorsed in blank, it does not specify a particular payee, and instead becomes payable to the possessor of the note. 10 C.J.S. Bills & Notes § 191 (Supp. 2018); 13 PA. CONS. STAT. § 3205(b). A possessor of a negotiable instrument indorsed in blank is entitled to enforce that note as a “holder in due course” if the holder took the instrument, inter alia, for value and in good faith. 13 PA. CONS. STAT. §§ 3104(a)(1); 3109(a)(2); 3203(a), (b); 3301(1); 3302(a); see also PHH Mortg. Corp. v. Powell, 100 A.3d 611, 619-20 (Pa. Super. Ct. 2014).
    U.S. Bank avers that it possesses the original note indorsed in blank. (Doc. 39 at 8 ¶¶ 5-7). If U.S. Bank can establish it is a holder in due course, “it will be entitled to enforce the note against [the Gerbers] even if there remain questions as to the chain of possession of the [n]ote from the time of its making to its arrival in [U.S. Bank]’s figurative hands.” Murray, 63 A.3d at 1268 (citing 13 PA. CONS. STAT. § 3109(a)); Powell, 100 A.3d at 621. This is because ownership of the note and the right to enforce it are two distinct concepts. See Powell, 100 A.3d at 621; 13 PA. CONS. STAT. § 3203 cmt. 1.
    The Gerbers dispute both possession and proper indorsement. (Doc. 8 at 2-3 ¶¶ 8-11; see id. at 4-6). U.S. Bank has not indicated that it has produced the note and allonges for inspection, which Pennsylvania courts have found to be critical when possession is contested. See Murray, 63 A.3d at 1266-67; Powell, 100 A.3d at 620-21. As the record currently stands, we are unable to find as a matter of law that
    6 These indorsements appear on allonges to the note. Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 16 of 17
    U.S. Bank was validly assigned the Gerbers’ mortgage or is a holder in due course of the related note. Hence, we must deny U.S. Bank’s motion for summary judgment because U.S. Bank has not sufficiently demonstrated it has the right to foreclose.7 This denial will be without prejudice to the right of U.S. Bank to reassert its motion for summary judgment following further development of the record.
    IV. Conclusion
    We will grant in part and deny in part the Gerbers’ motion to amend. The Gerbers may file an amended answer in conformity with the foregoing discussion. We will deny the parties’ cross-motions for summary judgment without prejudice. An appropriate order shall issue.
    /S/ CHRISTOPHER C. CONNER Christopher C. Conner, Chief Judge United States District Court Middle District of Pennsylvania
    Dated: March 21, 2019
    7 Even if U.S. Bank had conclusively established that it has standing to foreclose, summary judgment would still be inappropriate due to the existence of multiple affirmative defenses raised by the Gerbers, including rescission of the loan under the Truth in Lending Act. See Gerber, 2018 WL 3585084, at *4, 6; (Doc. 46 at 11-14). U.S. Bank does not address these defenses in its Rule 56 submissions. Case 1:17-cv-01466-CCC Document 59 Filed 03/21/19 Page 17 of 17

FDN ENTERS 11TH YEAR OF DEFENDING HOMEOWNERS

June 25, 2019

FDN is proud to announce that it is about to enter its eleventh (11th) consecutive year of defending homeowners against foreclosure attempts across the United States. Mr. Barnes has recently posted a significant development in the law regarding the ability of homeowners to challenge assignments of their loans as a result of a ruling by a Federal Judge in the Eastern District of Pennsylvania.

Our network continues to grow with new law Firms being added to even more jurisdictions across the United States, including recent associations in Oklahoma City, Oklahoma and Little Rock, Arkansas.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

PENNSYLVANIA FEDERAL COURT RULES THAT HOMEOWNER HAS STANDING TO CHALLENGE AN ASSIGNMENT

June 21, 2019

Our website is back up and running after being hacked several times. We now have a secured password system to deter this.

A Federal Judge in Pennsylvania has issued a lengthy ruling which provides, in part, that a borrower has standing to challenge an assignment in a case where Jeff Barnes. Esq. of W. J. Barnes, P.A. represents the homeowners. The opinion  cites the decisional law which was set forth in Mr. Barnes’ briefing to the Judge on the “bank’s” motion to dismiss. The “bank” has not appealed the ruling.

As those of you who have historically followed this website are aware, there is a divergence in the law across the country as to whether a borrower has standing to challenge an assignment of the loan. Several courts have taken the position that a borrower does not as the borrower is not a “party to the assignment”, which is ridiculous as it is the borrower’s loan which is being assigned. The Pennsylvania Federal Judge agreed that a borrower does have such standing.

Mr. Barnes has also successfully prevented a final judgment of foreclosure from being entered by filing a Federal rescission action. The homeowner, who Mr. Barnes represents in both the state court foreclosure litigation and the Federal litigation, filed the action prior to the foreclosure trial. The homeowner effected a rescission in 2009 well within the time period to do so, but never filed an action to enforce it. Mr. Barnes’ Firm was retained years later to defend the state-court foreclosure action. The state court Judge ruled that although the trial was to progress, no final judgment would be entered until the outcome of the Federal litigation, as if the homeowner prevails in the Federal action, the state court foreclosure claim is mooted.

Mr. Barnes is also involved in a significant appeal in the United States Court of Appeals for the 6th Circuit in a matter where the issue surrounds the application of the correct statute of limitations for purposes of filing an action to enforce a rescission as the TILA provisions on rescission do not contain a statute of limitations, and the decision of the United States Supreme Court in the Jesinoski v. Countrywide case did not address the issue of the time limitation to file an action to ENFORCE a rescission; the opinion only dealt with the proper period to effect a statutory rescission under 15 USC sec. 1635 and 1640.

Jeff Barnes, Esq. www.ForeclosureDefenseNationwide.com