December 20, 2013

The United States District Court for the District of Rhode Island released its opinion last month in the matter of Cosajay v. Mortgage Electronic Registration Systems, Inc., 2013 WL 5912569 (D. Rhode Island, Nov. 5, 2013) which permits a homeowner to challenge a post-trust closing assignment in defending a foreclosure action. The Defendants’ “lack of standing because you are not a party to the assignment” argument was soundly rejected as an “absurd position” which would “unduly insulate assignments” and deprive homeowners of their legally protected right to have a foreclosure proceed legally and correctly.

The homeowner challenged a MERS assignment to a securitized mortgage loan trust which had occurred outside of the time specified by the securitized trust for such an assignment. The challenged MERS assignment was on March 12, 2008; however, the trust had closed on April 30, 2007, and thus no 2008 assignment was possible. The homeowner sought a declaration that the assignment was invalid, that the Defendants did not hold her mortgage and note, and that the Defendants lacked standing to foreclose or to enforce the note.

The Magistrate recommended that the case be dismissed because the homeowner lacked standing as she was not a party to the challenged assignments. The court rejected the Magistrate’s Report and Recommendation, and thoroughly and repeatedly rejected the Defendants’ “lack of standing to challenge the assignment” argument citing to holdings from the United States Court of Appeals for the First Circuit which held that there is “no principled basis for employing standing doctrine as a sword to deprive mortgagors of legal protection conferred upon them under state law”, and that the Defendants’ argument as to an alleged lack of standing by the homeowner to challenge the assignment was “extreme and incongruous”.

Bravo to the Hon. John J. McConnell, Jr. for this opinion, which is another in the recent line of cases permitting such challenges including the Glaski decision from California; the Erobobo decision from New York; and the In Re Saldivar decision from the Texas Bankruptcy Court, which follow the reasoning of the earlier Horace decision from Alabama and the Hendricks decision from Michigan (where Mr. Barnes represented the homeowner (Hendricks) with the court granting summary judgment to the homeowner when it was shown that there was no compliance with the mortgage loan transfer provisions of the PSA). A Federal court has cited Hendricks in another case, stating that its logic is plausible.

It has taken six long years of work across the US, but the courts are finally coming to the realization that the one-theme mantra of the banks and servicers of “we have the note, thus we win” no longer carries the day, and that the banks and servicers now have a lot more to allege and prove before they can be permitted to seek the drastic remedy of foreclosure.

Jeff Barnes, Esq.; www.ForeclosureDefenseNationwide.com


December 16, 2013

With the release of the US Bank admissions per our post of November 6, 2013; the issuance of the opinions from the Supreme Courts of Oregon and Montana holding that MERS is not the “beneficiary”; and recent opinions from various jurisdictions which are now, finally, holding that securitization-related issues are relevant in a foreclosure, a host of new legal issues are about to be litigated in the trial and appellate courts throughout the country. It has taken six (6) years and coast-to-coast work to get courts to realize that securitization of a mortgage loan raises issues as to standing, real party in interest, and the alleged authority to foreclose, and that the simplistic mantra of the “banks” and servicers of “we have the note, thus we win” is no longer to be blindly accepted.

One issue which we and others are litigating relates to mortgage loans originated by Option One, which changed its name to Sand Canyon Corporation and thereafter ceased all mortgage loan operations. Pursuant to the sworn testimony of the former President of Sand Canyon, it stopped owning mortgage loans as of 2008. However, even after this cessation of any involvement with servicing or ownership of mortgage loans, we see “Assignments” from Option One or Sand Canyon to a securitization trustee bank or other third party long after 2008.

The United States District Court for the District of New Hampshire concluded, with the admission of the President of Sand Canyon, that the homeowner’s challenge to the foreclosure based on a 2011 alleged transfer from Sand Canyon to Wells Fargo was not an “attack on the assignment” which certain jurisdictions have precluded on the alleged basis that the borrower is not a party to the assignment, but is a situation where no assignment occurred because it could not have as a matter of admitted fact, as Sand Canyon could not assign something it did not have. The case is Drouin v. American Home Mortgage Servicing, Inc. and Wells Fargo, etc., No. 11-cv-596-JL.

The Option One/Sand Canyon situation is not unique: there are many originating “lenders” which allegedly “assigned” mortgages or Deeds of Trust long after they went out of business or filed for Bankruptcy, with no evidence of post-closing assignment authority or that the Bankruptcy court having jurisdiction over a bankrupt lender ever granted permission for the alleged transfer of the loan (which is an asset of the Bankruptcy estate) out of the estate. Such a transfer without proof of authority to do so implicates bankruptcy fraud (which is a serious crime punishable under United States criminal statutes), and fraud on the court in a foreclosure case where such an alleged assignment is relied upon by the foreclosing party.

As we stated in our post of November 6, the admission of US Bank that a borrower is a party to any MBS transaction and that the loan is governed by the trust documents means that the borrower is, in fact, a party to any assignment of that borrower’s loan, and should thus be permitted to seek discovery as to any alleged assignment and all issues related to the securitization of the loan. We have put this issue out in many of our cases, and will be arguing this position at both the trial and appellate levels beginning early 2014.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com