Archive | June, 2010

Civil Code 2924

12 Jun

CA Foreclosure Law – Civil Code 2924
Civil Code 2924

2924.
(a) Every transfer of an interest in property, other than in trust, made only as a security for the performance of another act, is to be deemed a mortgage, except when in the case of personal property it is accompanied by actual change of possession, in which case it is to be deemed a pledge. Where, by a mortgage created after July 27, 1917, of any estate in real property, other than an estate at will or for years, less than two, or in any transfer in trust made after July 27, 1917, of a like estate to secure the performance of an obligation, a power of sale is conferred upon the mortgagee, trustee, or any other person, to be exercised after a breach of the obligation for which that mortgage or transfer is a security, the power shall not be exercised except where the mortgage or transfer is made pursuant to an order, judgment, or decree of a court of record, or to secure the payment of bonds or other evidences of indebtedness authorized or permitted to be issued by the Commissioner of Corporations, or is made by a public utility subject to the provisions of the Public Utilities Act, until all of the following apply:

(1) The trustee, mortgagee, or beneficiary, or any of their authorized agents shall first file for record, in the office of the recorder of each county wherein the mortgaged or trust property or some part or parcel thereof is situated, a notice of default. That notice of default shall include all of the following:

(A) A statement identifying the mortgage or deed of trust by stating the name or names of the trustor or trustors and giving the book and page, or instrument number, if applicable, where the mortgage or deed of trust is recorded or a description of the mortgaged or trust property.

(B) A statement that a breach of the obligation for which the mortgage or transfer in trust is security has occurred.

(C) A statement setting forth the nature of each breach actually known to the beneficiary and of his or her election to sell or cause to be sold the property to satisfy that obligation and any other obligation secured by the deed of trust or mortgage that is in default.

(D) If the default is curable pursuant to Section 2924c, the statement specified in paragraph (1) of subdivision (b) of Section 2924c.

(2) Not less than three months shall elapse from the filing of the notice of default.

(3) After the lapse of the three months described in paragraph (2), the mortgagee, trustee or other person authorized to take the sale shall give notice of sale, stating the time and place thereof, in the manner and for a time not less than that set forth in Section 2924f.

(b) In performing acts required by this article, the trustee shall incur no liability for any good faith error resulting from reliance on information provided in good faith by the beneficiary regarding the nature and the amount of the default under the secured obligation, deed of trust, or mortgage. In performing the acts required by this article, a trustee shall not be subject to Title 1.6c (commencing with Section 1788) of Part 4.

(c) A recital in the deed executed pursuant to the power of sale of compliance with all requirements of law regarding the mailing of copies of notices or the publication of a copy of the notice of default or the personal delivery of the copy of the notice of default or the posting of copies of the notice of sale or the publication of a copy thereof shall constitute prima facie evidence of compliance with these requirements and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value and without notice.

(d) All of the following shall constitute privileged communications pursuant to Section 47:

(1) The mailing, publication, and delivery of notices as required by this section.

(2) Performance of the procedures set forth in this article.

(3) Performance of the functions and procedures set forth in this article if those functions and procedures are necessary to carry out the duties described in Sections 729.040, 729.050, and 729.080 of the Code of Civil Procedure.

(e) There is a rebuttable presumption that the beneficiary actually knew of all unpaid loan payments on the obligation owed to the beneficiary and secured by the deed of trust or mortgage subject to the notice of default. However, the failure to include an actually known default shall not invalidate the notice of sale and the beneficiary shall not be precluded from asserting a claim to this omitted default or defaults in a separate notice of default.

2924.3.
(a) Except as provided in subdivisions (b) and (c), a person who has undertaken as an agent of a mortgagee, beneficiary, or owner of a promissory note secured directly or collaterally by a mortgage or deed of trust on real property or an estate for years therein, to make collections of payments from an obligor under the note, shall mail the following notices, postage prepaid, to each mortgagee, beneficiary or owner for whom the agent has agreed to make collections from the obligor under the note:

(1) A copy of the notice of default filed in the office of the county recorder pursuant to Section 2924 on account of a breach of obligation under the promissory note on which the agent has agreed to make collections of payments, within 15 days after recordation.

(2) Notice that a notice of default has been recorded pursuant to Section 2924 on account of a breach of an obligation secured by a mortgage or deed of trust against the same property or estate for years therein having priority over the mortgage or deed of trust securing the obligation described in paragraph (1), within 15 days after recordation or within three business days after the agent receives the information, whichever is later.

(3) Notice of the time and place scheduled for the sale of the real property or estate for years therein pursuant to Section 2924f under a power of sale in a mortgage or deed of trust securing an obligation described in paragraphs (1) or (2), not less than 15 days before the scheduled date of the sale or not later than the next business day after the agent receives the information, whichever is later.

(b) An agent who has undertaken to make collections on behalf of mortgagees, beneficiaries or owners of promissory notes secured by mortgages or deeds of trust on real property or an estate for years therein shall not be required to comply with the provisions of subdivision (a) with respect to a mortgagee, beneficiary or owner who is entitled to receive notice pursuant to subdivision (c) of Section 2924b or for whom a request for notice has been recorded pursuant to subdivision (b) of Section 2924b if the agent reasonably believes that the address of the mortgagee, beneficiary, or owner described in Section 2924b is the current business or residence address of that person.

(c) An agent who has undertaken to make collections on behalf of mortgagees, beneficiaries or owners of promissory notes secured by mortgages or deeds of trust on real property or an estate for years therein shall not be required to comply with the provisions of paragraph (1) or (2) of subdivision (a) if the agent knows or reasonably believes that the default has already been cured by or on behalf of the obligor.

(d) Any failure to comply with the provisions of this section shall not affect the validity of a sale in favor of a bona fide purchaser or the rights of an encumbrancer for value and without notice.

2924.5.
No clause in any deed of trust or mortgage on property containing four or fewer residential units or on which four or fewer residential units are to be constructed or in any obligation secured by any deed of trust or mortgage on property containing four or fewer residential units or on which four or fewer residential units are to be constructed that provides for the acceleration of the due date of the obligation upon the sale, conveyance, alienation, lease, succession, assignment or other transfer of the property subject to the deed of trust or mortgage shall be valid unless the clause is set forth, in its entirety in both the body of the deed of trust or mortgage and the promissory note or other document evidencing the secured obligation. This section shall apply to all such deeds of trust, mortgages, and obligations secured thereby executed on or after July 1, 1972.

2924.6.
(a) An obligee may not accelerate the maturity date of the principal and accrued interest on any loan secured by a mortgage or deed of trust on residential real property solely by reason of any one or more of the following transfers in the title to the real property:

(1) A transfer resulting from the death of an obligor where the transfer is to the spouse who is also an obligor.

(2) A transfer by an obligor where the spouse becomes a coowner of the property.

(3) A transfer resulting from a decree of dissolution of the marriage or legal separation or from a property settlement agreement incidental to such a decree which requires the obligor to continue to make the loan payments by which a spouse who is an obligor becomes the sole owner of the property.

(4) A transfer by an obligor or obligors into an inter vivos trust in which the obligor or obligors are beneficiaries.

(5) Such real property or any portion thereof is made subject to a junior encumbrance or lien.

(b) Any waiver of the provisions of this section by an obligor is void and unenforceable and is contrary to public policy.

(c) For the purposes of this section, “residential real property” means any real property which contains at least one but not more than four housing units.

(d) This act applies only to loans executed or refinanced on or after January 1, 1976.

2924.7.
(a) The provisions of any deed of trust or mortgage on real property which authorize any beneficiary, trustee, mortgagee, or his or her agent or successor in interest, to accelerate the maturity date of the principal and interest on any loan secured thereby or to exercise any power of sale or other remedy contained therein upon the failure of the trustor or mortgagor to pay, at the times provided for under the terms of the deed of trust or mortgage, any taxes, rents, assessments, or insurance premiums with respect to the property or the loan, or any advances made by the beneficiary, mortgagee, or his or her agent or successor in interest shall be enforceable whether or not impairment of the security interest in the property has resulted from the failure of the trustor or mortgagor to pay the taxes, rents, assessments, insurance premiums, or advances.

(b) The provisions of any deed of trust or mortgage on real property which authorize any beneficiary, trustee, mortgagee, or his or her agent or successor in interest, to receive and control the disbursement of the proceeds of any policy of fire, flood, or other hazard insurance respecting the property shall be enforceable whether or not impairment of the security interest in the property has resulted from the event that caused the proceeds of the insurance policy to become payable.

2924a.
If, by the terms of any trust or deed of trust a power of sale is conferred upon the trustee, the attorney for the trustee, or any duly authorized agent, may conduct the sale and act in the sale as the auctioneer for the trustee.

2924b.
(a) Any person desiring a copy of any notice of default and of any notice of sale under any deed of trust or mortgage with power of sale upon real property or an estate for years therein, as to which deed of trust or mortgage the power of sale cannot be exercised until these notices are given for the time and in the manner provided in Section 2924 may, at any time subsequent to recordation of the deed of trust or mortgage and prior to recordation of notice of default thereunder, cause to be filed for record in the office of the recorder of any county in which any part or parcel of the real property is situated, a duly acknowledged request for a copy of the notice of default and of sale. This request shall be signed and acknowledged by the person making the request, specifying the name and address of the person to whom the notice is to be mailed, shall identify the deed of trust or mortgage by stating the names of the parties thereto, the date of recordation thereof, and the book and page where the deed of trust or mortgage is recorded or the recorder’ s number, and shall be in substantially the following form:

“In accordance with Section 2924b, Civil Code, request is hereby made
that a copy of any notice of default and a copy of any notice of sale
under the deed of trust (or mortgage) recorded ______, ____, in
Book_____ page ____ records of ____ County, (or filed for record with
recorder’s serial number ____, _______County) California, executed
by ____ as trustor (or mortgagor) in which ________ is named as
beneficiary (or mortgagee) and ______________ as
trustee be mailed to
_________________ at ____________________________.
Name Address

NOTICE: A copy of any notice of default and of
any notice of sale will be sent only to the address contained in this
recorded request. If your address changes, a new
request must be recorded.

Signature _________________”

Upon the filing for record of the request, the recorder shall index in the general index of grantors the names of the trustors (or mortgagor) recited therein and the names of persons requesting copies.

(b) The mortgagee, trustee, or other person authorized to record the notice of default or the notice of sale shall do each of the following:

(1) Within 10 business days following recordation of the notice of default, deposit or cause to be deposited in the United States mail an envelope, sent by registered or certified mail with postage prepaid, containing a copy of the notice with the recording date shown thereon, addressed to each person whose name and address are set forth in a duly recorded request therefor, directed to the address designated in the request and to each trustor or mortgagor at his or her last known address if different than the address specified in the deed of trust or mortgage with power of sale.

(2) At least 20 days before the date of sale, deposit or cause to be deposited in the United States mail an envelope, sent by registered or certified mail with postage prepaid, containing a copy of the notice of the time and place of sale, addressed to each person whose name and address are set forth in a duly recorded request therefor, directed to the address designated in the request and to each trustor or mortgagor at his or her last known address if different than the address specified in the deed of trust or mortgage with power of sale.

(3) As used in paragraphs (1) and (2), the “last known address” of each trustor or mortgagor means the last business or residence physical address actually known by the mortgagee, beneficiary, trustee, or other person authorized to record the notice of default. For the purposes of this subdivision, an address is “actually known” if it is contained in the original deed of trust or mortgage, or in any subsequent written notification of a change of physical address from the trustor or mortgagor pursuant to the deed of trust or mortgage. For the purposes of this subdivision, “physical address” does not include an e-mail or any form of electronic address for a trustor or mortgagor. The beneficiary shall inform the trustee of the trustor’s last address actually known by the beneficiary. However, the trustee shall incur no liability for failing to send any notice to the last address unless the trustee has actual knowledge of it.

(4) A “person authorized to record the notice of default or the notice of sale” shall include an agent for the mortgagee or beneficiary, an agent of the named trustee, any person designated in an executed substitution of trustee, or an agent of that substituted trustee.

(c) The mortgagee, trustee, or other person authorized to record the notice of default or the notice of sale shall do the following:

(1) Within one month following recordation of the notice of default, deposit or cause to be deposited in the United States mail an envelope, sent by registered or certified mail with postage prepaid, containing a copy of the notice with the recording date shown thereon, addressed to each person set forth in paragraph (2), provided that the estate or interest of any person entitled to receive notice under this subdivision is acquired by an instrument sufficient to impart constructive notice of the estate or interest in the land or portion thereof which is subject to the deed of trust or mortgage being foreclosed, and provided the instrument is recorded in the office of the county recorder so as to impart that constructive notice prior to the recording date of the notice of default and provided the instrument as so recorded sets forth a mailing address which the county recorder shall use, as instructed within the instrument, for the return of the instrument after recording, and which address shall be the address used for the purposes of mailing notices herein.

(2) The persons to whom notice shall be mailed under this subdivision are:

(A) The successor in interest, as of the recording date of the notice of default, of the estate or interest or any portion thereof of the trustor or mortgagor of the deed of trust or mortgage being foreclosed.

(B) The beneficiary or mortgagee of any deed of trust or mortgage recorded subsequent to the deed of trust or mortgage being foreclosed, or recorded prior to or concurrently with the deed of trust or mortgage being foreclosed but subject to a recorded agreement or a recorded statement of subordination to the deed of trust or mortgage being foreclosed.

(C) The assignee of any interest of the beneficiary or mortgagee described in subparagraph (B), as of the recording date of the notice of default.

(D) The vendee of any contract of sale, or the lessee of any lease, of the estate or interest being foreclosed which is recorded subsequent to the deed of trust or mortgage being foreclosed, or recorded prior to or concurrently with the deed of trust or mortgage being foreclosed but subject to a recorded agreement or statement of subordination to the deed of trust or mortgage being foreclosed.

(E) The successor in interest to the vendee or lessee described in subparagraph (D), as of the recording date of the notice of default.

(F) The office of the Controller, Sacramento, California, where, as of the recording date of the notice of default, a “Notice of Lien for Postponed Property Taxes” has been recorded against the real property to which the notice of default applies.

(3) At least 20 days before the date of sale, deposit or cause to be deposited in the United States mail an envelope, sent by registered or certified mail with postage prepaid, containing a copy of the notice of the time and place of sale addressed to each person to whom a copy of the notice of default is to be mailed as provided in paragraphs (1) and (2), and addressed to the office of any state taxing agency, Sacramento, California, which has recorded, subsequent to the deed of trust or mortgage being foreclosed, a notice of tax lien prior to the recording date of the notice of default against the real property to which the notice of default applies.

(4) Provide a copy of the notice of sale to the Internal Revenue Service, in accordance with Section 7425 of the Internal Revenue Code and any applicable federal regulation, if a “Notice of Federal Tax Lien under Internal Revenue Laws” has been recorded, subsequent to the deed of trust or mortgage being foreclosed, against the real property to which the notice of sale applies. The failure to provide the Internal Revenue Service with a copy of the notice of sale pursuant to this paragraph shall be sufficient cause to rescind the trustee’s sale and invalidate the trustee’s deed, at the option of either the successful bidder at the trustee’s sale or the trustee, and in either case with the consent of the beneficiary. Any option to rescind the trustee’s sale pursuant to this paragraph shall be exercised prior to any transfer of the property by the successful bidder to a bona fide purchaser for value. A recision of the trustee’ s sale pursuant to this paragraph may be recorded in a notice of recision pursuant to Section 1058.5.

(5) The mailing of notices in the manner set forth in paragraph (1) shall not impose upon any licensed attorney, agent, or employee of any person entitled to receive notices as herein set forth any duty to communicate the notice to the entitled person from the fact that the mailing address used by the county recorder is the address of the attorney, agent, or employee.

(d) Any deed of trust or mortgage with power of sale hereafter executed upon real property or an estate for years therein may contain a request that a copy of any notice of default and a copy of any notice of sale thereunder shall be mailed to any person or party thereto at the address of the person given therein, and a copy of any notice of default and of any notice of sale shall be mailed to each of these at the same time and in the same manner required as though a separate request therefor had been filed by each of these persons as herein authorized. If any deed of trust or mortgage with power of sale executed after September 19, 1939, except a deed of trust or mortgage of any of the classes excepted from the provisions of Section 2924, does not contain a mailing address of the trustor or mortgagor therein named, and if no request for special notice by the trustor or mortgagor in substantially the form set forth in this section has subsequently been recorded, a copy of the notice of default shall be published once a week for at least four weeks in a newspaper of general circulation in the county in which the property is situated, the publication to commence within 10 business days after the filing of the notice of default. In lieu of publication, a copy of the notice of default may be delivered personally to the trustor or mortgagor within the 10 business days or at any time before publication is completed, or by posting the notice of default in a conspicuous place on the property and mailing the notice to the last known address of the trustor or mortgagor.

(e) Any person required to mail a copy of a notice of default or notice of sale to each trustor or mortgagor pursuant to subdivision (b) or (c) by registered or certified mail shall simultaneously cause to be deposited in the United States mail, with postage prepaid and mailed by first-class mail, an envelope containing an additional copy of the required notice addressed to each trustor or mortgagor at the same address to which the notice is sent by registered or certified mail pursuant to subdivision (b) or (c). The person shall execute and retain an affidavit identifying the notice mailed, showing the name and residence or business address of that person, that he or she is over the age of 18 years, the date of deposit in the mail, the name and address of the trustor or mortgagor to whom sent, and that the envelope was sealed and deposited in the mail with postage fully prepaid. In the absence of fraud, the affidavit required by this subdivision shall establish a conclusive presumption of mailing.

(f) No request for a copy of any notice filed for record pursuant to this section, no statement or allegation in the request, and no record thereof shall affect the title to real property or be deemed notice to any person that any person requesting copies of notice has or claims any right, title, or interest in, or lien or charge upon the property described in the deed of trust or mortgage referred to therein.

(g) “Business day,” as used in this section, has the meaning specified in Section 9.

2924c.
(a)

(1) Whenever all or a portion of the principal sum of any obligation secured by deed of trust or mortgage on real property or an estate for years therein hereafter executed has, prior to the maturity date fixed in that obligation, become due or been declared due by reason of default in payment of interest or of any installment of principal, or by reason of failure of trustor or mortgagor to pay, in accordance with the terms of that obligation or of the deed of trust or mortgage, taxes, assessments, premiums for insurance, or advances made by beneficiary or mortgagee in accordance with the terms of that obligation or of the deed of trust or mortgage, the trustor or mortgagor or his or her successor in interest in the mortgaged or trust property or any part thereof, or any beneficiary under a subordinate deed of trust or any other person having a subordinate lien or encumbrance of record thereon, at any time within the period specified in subdivision (e), if the power of sale therein is to be exercised, or, otherwise at any time prior to entry of the decree of foreclosure, may pay to the beneficiary or the mortgagee or their successors in interest, respectively, the entire amount due, at the time payment is tendered, with respect to (A) all amounts of principal, interest, taxes, assessments, insurance premiums, or advances actually known by the beneficiary to be, and that are, in default and shown in the notice of default, under the terms of the deed of trust or mortgage and the obligation secured thereby, (B) all amounts in default on recurring obligations not shown in the notice of default, and (C) all reasonable costs and expenses, subject to subdivision (c), which are actually incurred in enforcing the terms of the obligation, deed of trust, or mortgage, and trustee’s or attorney’s fees, subject to subdivision (d), other than the portion of principal as would not then be due had no default occurred, and thereby cure the default theretofore existing, and thereupon, all proceedings theretofore had or instituted shall be dismissed or discontinued and the obligation and deed of trust or mortgage shall be reinstated and shall be and remain in force and effect, the same as if the acceleration had not occurred. This section does not apply to bonds or other evidences of indebtedness authorized or permitted to be issued by the Commissioner of Corporations or made by a public utility subject to the Public Utilities Code. For the purposes of this subdivision, the term “recurring obligation” means all amounts of principal and interest on the loan, or rents, subject to the deed of trust or mortgage in default due after the notice of default is recorded; all amounts of principal and interest or rents advanced on senior liens or leaseholds which are advanced after the recordation of the notice of default; and payments of taxes, assessments, and hazard insurance advanced after recordation of the notice of default. Where the beneficiary or mortgagee has made no advances on defaults which would constitute recurring obligations, the beneficiary or mortgagee may require the trustor or mortgagor to provide reliable written evidence that the amounts have been paid prior to reinstatement.

(2) If the trustor, mortgagor, or other person authorized to cure the default pursuant to this subdivision does cure the default, the beneficiary or mortgagee or the agent for the beneficiary or mortgagee shall, within 21 days following the reinstatement, execute and deliver to the trustee a notice of rescission which rescinds the declaration of default and demand for sale and advises the trustee of the date of reinstatement. The trustee shall cause the notice of rescission to be recorded within 30 days of receipt of the notice of rescission and of all allowable fees and costs.

No charge, except for the recording fee, shall be made against the trustor or mortgagor for the execution and recordation of the notice which rescinds the declaration of default and demand for sale.

(b)

(1) The notice, of any default described in this section, recorded pursuant to Section 2924, and mailed to any person pursuant to Section 2924b, shall begin with the following statement, printed or typed thereon:

“IMPORTANT NOTICE (14-point boldface type if printed or in
capital letters if typed)

IF YOUR PROPERTY IS IN FORECLOSURE BECAUSE YOU ARE BEHIND IN YOUR
PAYMENTS, IT MAY BE SOLD WITHOUT ANY COURT ACTION, (14-point boldface
type if printed or in capital letters if typed) and you may have the
legal right to bring your account in good standing by paying all of
your past due payments plus permitted costs and expenses within the
time permitted by law for reinstatement of your account, which is
normally five business days prior to the date set for the sale of
your property. No sale date may be set until three months from the
date this notice of default may be recorded (which date of
recordation appears on this notice).

This amount is ___________________ as of ______________________
(Date)
and will increase until your account becomes current.

While your property is in foreclosure, you still must pay other
obligations (such as insurance and taxes) required by your note and
deed of trust or mortgage. If you fail to make future payments on
the loan, pay taxes on the property, provide insurance on the
property, or pay other obligations as required in the note and deed
of trust or mortgage, the beneficiary or mortgagee may insist that
you do so in order to reinstate your account in good standing. In
addition, the beneficiary or mortgagee may require as a condition to
reinstatement that you provide reliable written evidence that you
paid all senior liens, property taxes, and hazard insurance premiums.

Upon your written request, the beneficiary or mortgagee will give
you a written itemization of the entire amount you must pay. You may
not have to pay the entire unpaid portion of your account, even
though full payment was demanded, but you must pay all amounts in
default at the time payment is made. However, you and your
beneficiary or mortgagee may mutually agree in writing prior to the
time the notice of sale is posted (which may not be earlier than the
end of the three-month period stated above) to, among other things,
(1) provide additional time in which to cure the default by transfer
of the property or otherwise; or (2) establish a schedule of payments
in order to cure your default; or both (1) and (2).
Following the expiration of the time period referred to in the
first paragraph of this notice, unless the obligation being
foreclosed upon or a separate written agreement between you and your
creditor permits a longer period, you have only the legal right to
stop the sale of your property by paying the entire amount demanded
by your creditor.
To find out the amount you must pay, or to arrange for payment to
stop the foreclosure, or if your property is in foreclosure for any
other reason, contact:

______________________________________
(Name of beneficiary or mortgagee)

______________________________________
(Mailing address)

______________________________________
(Telephone)

If you have any questions, you should contact a lawyer or the
governmental agency which may have insured your loan.
Notwithstanding the fact that your property is in foreclosure, you
may offer your property for sale, provided the sale is concluded
prior to the conclusion of the foreclosure.
Remember, YOU MAY LOSE LEGAL RIGHTS IF YOU DO NOT TAKE PROMPT
ACTION. (14-point boldface type if printed or in capital letters if
typed)”

Unless otherwise specified, the notice, if printed, shall appear in at least 12-point boldface type.

If the obligation secured by the deed of trust or mortgage is a contract or agreement described in paragraph (1) or (4) of subdivision (a) of Section 1632, the notice required herein shall be in Spanish if the trustor requested a Spanish language translation of the contract or agreement pursuant to Section 1632. If the obligation secured by the deed of trust or mortgage is contained in a home improvement contract, as defined in Sections 7151.2 and 7159 of the Business and Professions Code, which is subject to Title 2 (commencing with Section 1801), the seller shall specify on the contract whether or not the contract was principally negotiated in Spanish and if the contract was principally negotiated in Spanish, the notice required herein shall be in Spanish. No assignee of the contract or person authorized to record the notice of default shall incur any obligation or liability for failing to mail a notice in Spanish unless Spanish is specified in the contract or the assignee or person has actual knowledge that the secured obligation was principally negotiated in Spanish. Unless specified in writing to the contrary, a copy of the notice required by subdivision (c) of Section 2924b shall be in English.

(2) Any failure to comply with the provisions of this subdivision shall not affect the validity of a sale in favor of a bona fide purchaser or the rights of an encumbrancer for value and without notice.

(c) Costs and expenses which may be charged pursuant to Sections 2924 to 2924i, inclusive, shall be limited to the costs incurred for recording, mailing, including certified and express mail charges, publishing, and posting notices required by Sections 2924 to 2924i, inclusive, postponement pursuant to Section 2924g not to exceed fifty dollars ($50) per postponement and a fee for a trustee’s sale guarantee or, in the event of judicial foreclosure, a litigation guarantee. For purposes of this subdivision, a trustee or beneficiary may purchase a trustee’s sale guarantee at a rate meeting the standards contained in Sections 12401.1 and 12401.3 of the Insurance Code.

(d) Trustee’s or attorney’s fees which may be charged pursuant to subdivision (a), or until the notice of sale is deposited in the mail to the trustor as provided in Section 2924b, if the sale is by power of sale contained in the deed of trust or mortgage, or, otherwise at any time prior to the decree of foreclosure, are hereby authorized to be in a base amount that does not exceed three hundred dollars ($300) if the unpaid principal sum secured is one hundred fifty thousand dollars ($150,000) or less, or two hundred fifty dollars ($250) if the unpaid principal sum secured exceeds one hundred fifty thousand dollars ($150,000), plus one-half of 1 percent of the unpaid principal sum secured exceeding fifty thousand dollars ($50,000) up to and including one hundred fifty thousand dollars ($150,000), plus one-quarter of 1 percent of any portion of the unpaid principal sum secured exceeding one hundred fifty thousand dollars ($150,000) up to and including five hundred thousand dollars ($500,000), plus one-eighth of 1 percent of any portion of the unpaid principal sum secured exceeding five hundred thousand dollars ($500,000). Any charge for trustee’s or attorney’s fees authorized by this subdivision shall be conclusively presumed to be lawful and valid where the charge does not exceed the amounts authorized herein. For purposes of this subdivision, the unpaid principal sum secured shall be determined as of the date the notice of default is recorded.

(e) Reinstatement of a monetary default under the terms of an obligation secured by a deed of trust, or mortgage may be made at any time within the period commencing with the date of recordation of the notice of default until five business days prior to the date of sale set forth in the initial recorded notice of sale.

In the event the sale does not take place on the date set forth in the initial recorded notice of sale or a subsequent recorded notice of sale is required to be given, the right of reinstatement shall be revived as of the date of recordation of the subsequent notice of sale, and shall continue from that date until five business days prior to the date of sale set forth in the subsequently recorded notice of sale.

In the event the date of sale is postponed on the date of sale set forth in either an initial or any subsequent notice of sale, or is postponed on the date declared for sale at an immediately preceding postponement of sale, and, the postponement is for a period which exceeds five business days from the date set forth in the notice of sale, or declared at the time of postponement, then the right of reinstatement is revived as of the date of postponement and shall continue from that date until five business days prior to the date of sale declared at the time of the postponement.

Nothing contained herein shall give rise to a right of reinstatement during the period of five business days prior to the date of sale, whether the date of sale is noticed in a notice of sale or declared at a postponement of sale.

Pursuant to the terms of this subdivision, no beneficiary, trustee, mortgagee, or their agents or successors shall be liable in any manner to a trustor, mortgagor, their agents or successors or any beneficiary under a subordinate deed of trust or mortgage or any other person having a subordinate lien or encumbrance of record thereon for the failure to allow a reinstatement of the obligation secured by a deed of trust or mortgage during the period of five business days prior to the sale of the security property, and no such right of reinstatement during this period is created by this section. Any right of reinstatement created by this section is terminated five business days prior to the date of sale set forth in the initial date of sale, and is revived only as prescribed herein and only as of the date set forth herein.

As used in this subdivision, the term “business day” has the same meaning as specified in Section 9.

2924d.
(a) Commencing with the date that the notice of sale is deposited in the mail, as provided in Section 2924b, and until the property is sold pursuant to the power of sale contained in the mortgage or deed of trust, a beneficiary, trustee, mortgagee, or his or her agent or successor in interest, may demand and receive from a trustor, mortgagor, or his or her agent or successor in interest, or any beneficiary under a subordinate deed of trust, or any other person having a subordinate lien or encumbrance of record those reasonable costs and expenses, to the extent allowed by subdivision (c) of Section 2924c, which are actually incurred in enforcing the terms of the obligation and trustee’s or attorney’s fees which are hereby authorized to be in a base amount which does not exceed four hundred twenty-five dollars ($425) if the unpaid principal sum secured is one hundred fifty thousand dollars ($150,000) or less, or three hundred sixty dollars ($360) if the unpaid principal sum secured exceeds one hundred fifty thousand dollars ($150,000), plus 1 percent of any portion of the unpaid principal sum secured exceeding fifty thousand dollars ($50,000) up to and including one hundred fifty thousand dollars ($150,000), plus one-half of 1 percent of any portion of the unpaid principal sum secured exceeding one hundred fifty thousand dollars ($150,000) up to and including five hundred thousand dollars ($500,000), plus one-quarter of 1 percent of any portion of the unpaid principal sum secured exceeding five hundred thousand dollars ($500,000). For purposes of this subdivision, the unpaid principal sum secured shall be determined as of the date the notice of default is recorded. Any charge for trustee’s or attorney’ s fees authorized by this subdivision shall be conclusively presumed to be lawful and valid where that charge does not exceed the amounts authorized herein. Any charge for trustee’s or attorney’s fees made pursuant to this subdivision shall be in lieu of and not in addition to those charges authorized by subdivision (d) of Section 2924c.

(b) Upon the sale of property pursuant to a power of sale, a trustee, or his or her agent or successor in interest, may demand and receive from a beneficiary, or his or her agent or successor in interest, or may deduct from the proceeds of the sale, those reasonable costs and expenses, to the extent allowed by subdivision (c) of Section 2924c, which are actually incurred in enforcing the terms of the obligation and trustee’s or attorney’s fees which are hereby authorized to be in an amount which does not exceed four hundred twenty-five dollars ($425) or one percent of the unpaid principal sum secured, whichever is greater. For purposes of this subdivision, the unpaid principal sum secured shall be determined as of the date the notice of default is recorded. Any charge for trustee’s or attorney’s fees authorized by this subdivision shall be conclusively presumed to be lawful and valid where that charge does not exceed the amount authorized herein. Any charges for trustee’s or attorney’s fees made pursuant to this subdivision shall be in lieu of and not in addition to those charges authorized by subdivision (a) of this section and subdivision (d) of Section 2924c.

(c)

(1) No person shall pay or offer to pay or collect any rebate or kickback for the referral of business involving the performance of any act required by this article.

(2) Any person who violates this subdivision shall be liable to the trustor for three times the amount of any rebate or kickback, plus reasonable attorney’s fees and costs, in addition to any other remedies provided by law.

(3) No violation of this subdivision shall affect the validity of a sale in favor of a bona fide purchaser or the rights of an encumbrancer for value without notice.

(d) It shall not be unlawful for a trustee to pay or offer to pay a fee to an agent or subagent of the trustee for work performed by the agent or subagent in discharging the trustee’s obligations under the terms of the deed of trust. Any payment of a fee by a trustee to an agent or subagent of the trustee for work performed by the agent or subagent in discharging the trustee’s obligations under the terms of the deed of trust shall be conclusively presumed to be lawful and valid if the fee, when combined with other fees of the trustee, does not exceed in the aggregate the trustee’s fee authorized by subdivision (d) of Section 2924c or subdivision (a) or (b) of this section.

(e) When a court issues a decree of foreclosure, it shall have discretion to award attorney’s fees, costs, and expenses as are reasonable, if provided for in the note, deed of trust, or mortgage, pursuant to Section 580c of the Code of Civil Procedure.

2924e.
(a) The beneficiary or mortgagee of any deed of trust or mortgage on real property either containing one to four residential units or given to secure an original obligation not to exceed three hundred thousand dollars ($300,000) may, with the written consent of the trustor or mortgagor that is either effected through a signed and dated agreement which shall be separate from other loan and security documents or disclosed to the trustor or mortgagor in at least 10-point type, submit a written request by certified mail to the beneficiary or mortgagee of any lien which is senior to the lien of the requester, for written notice of any or all delinquencies of four months or more, in payments of principal or interest on any obligation secured by that senior lien notwithstanding that the loan secured by the lien of the requester is not then in default as to payments of principal or interest.

The request shall be sent to the beneficiary or mortgagee, or agent which it might designate for the purpose of receiving loan payments, at the address specified for the receipt of these payments, if known, or, if not known, at the address shown on the recorded deed of trust or mortgage.

(b) The request for notice shall identify the ownership or security interest of the requester, the date on which the interest of the requester will terminate as evidenced by the maturity date of the note of the trustor or mortgagor in favor of the requester, the name of the trustor or mortgagor and the name of the current owner of the security property if different from the trustor or mortgagor, the street address or other description of the security property, the loan number (if available to the requester) of the loan secured by the senior lien, the name and address to which notice is to be sent, and shall include or be accompanied by the signed written consent of the trustor or mortgagor, and a fee of forty dollars ($40). For obligations secured by residential properties, the request shall remain valid until withdrawn in writing and shall be applicable to all delinquencies as provided in this section, which occur prior to the date on which the interest of the requester will terminate as specified in the request or the expiration date, as appropriate. For obligations secured by nonresidential properties, the request shall remain valid until withdrawn in writing and shall be applicable to all delinquencies as provided in this section, which occur prior to the date on which the interest of the requester will terminate as specified in the request or the expiration date, as appropriate. The beneficiary or mortgagee of obligations secured by nonresidential properties that have sent five or more notices prior to the expiration of the effective period of the request may charge a fee up to fifteen dollars ($15) for each subsequent notice. A request for notice shall be effective for five years from the mailing of the request or the recording of that request, whichever occurs later, and may be renewed within six months prior to its expiration date by sending the beneficiary or mortgagee, or agent, as the case may be, at the address to which original requests for notice are to be sent, a copy of the earlier request for notice together with a signed statement that the request is renewed and a renewal fee of fifteen dollars ($15). Upon timely submittal of a renewal request for notice, the effectiveness of the original request is continued for five years from the time when it would otherwise have lapsed. Succeeding renewal requests may be submitted in the same manner. The request for notice and renewals thereof shall be recorded in the office of the county recorder of the county in which the security real property is situated. The rights and obligations specified in this section shall inure to the benefit of, or pass to, as the case may be, successors in interest of parties specified in this section. Any successor in interest of a party entitled to notice under this section shall file a request for that notice with any beneficiary or mortgagee of the senior lien and shall pay a processing fee of fifteen dollars ($15). No new written consent shall be required from the trustor or mortgagor.

(c) Unless the delinquency has been cured, within 15 days following the end of four months from any delinquency in payments of principal or interest on any obligation secured by the senior lien which delinquency exists or occurs on or after 10 days from the mailing of the request for notice or the recording of that request, whichever occurs later, the beneficiary or mortgagee shall give written notice to the requester of the fact of any delinquency and the amount thereof.

The notice shall be given by personal service, or by deposit in the mail, first-class postage paid. Following the recording of any notice of default pursuant to Section 2924 with respect to the same delinquency, no notice or further notice shall be required pursuant to this section.

(d) If the beneficiary or mortgagee of any such senior lien fails to give notice to the requester as required in subdivision (c), and a subsequent foreclosure or trustee’s sale of the security property occurs, the beneficiary or mortgagee shall be liable to the requester for any monetary damage due to the failure to provide notice within the time period specified in subdivision (c) which the requester has sustained from the date on which notice should have been given to the earlier of the date on which the notice is given or the date of the recording of the notice of default under Section 2924, and shall also forfeit to the requester the sum of three hundred dollars ($300). A showing by the beneficiary or mortgagee by a preponderance of the evidence that the failure to provide timely notice as required by subdivision (c) resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error shall be a defense to any liability for that failure.

(e) If any beneficiary or mortgagee, or agent which it had designated for the purpose of receiving loan payments, has been succeeded in interest by any other person, any request for notice received pursuant to this section shall be transmitted promptly to that person.

(f) Any failure to comply with the provisions of this section shall not affect the validity of a sale in favor of a bona fide purchaser or the rights of an encumbrancer for value and without notice.

(g) Upon satisfaction of an obligation secured by a junior lien with respect to which a notice request was made pursuant to this section, the beneficiary or mortgagee that made the request shall communicate that fact in writing to the senior lienholder to whom the request was made. The communication shall specify that provision of notice pursuant to the prior request under this section is no longer required.

2924f.
(a) As used in this section and Sections 2924g and 2924h, “property” means real property or a leasehold estate therein, and “calendar week” means Monday through Saturday, inclusive.

(b)

(1) Except as provided in subdivision (c), before any sale of property can be made under the power of sale contained in any deed of trust or mortgage, or any resale resulting from a rescission for a failure of consideration pursuant to subdivision (c) of Section 2924h, notice of the sale thereof shall be given by posting a written notice of the time of sale and of the street address and the specific place at the street address where the sale will be held, and describing the property to be sold, at least 20 days before the date of sale in one public place in the city where the property is to be sold, if the property is to be sold in a city, or, if not, then in one public place in the judicial district in which the property is to be sold, and publishing a copy once a week for three consecutive calendar weeks, the first publication to be at least 20 days before the date of sale, in a newspaper of general circulation published in the city in which the property or some part thereof is situated, if any part thereof is situated in a city, if not, then in a newspaper of general circulation published in the judicial district in which the property or some part thereof is situated, or in case no newspaper of general circulation is published in the city or judicial district, as the case may be, in a newspaper of general circulation published in the county in which the property or some part thereof is situated, or in case no newspaper of general circulation is published in the city or judicial district or county, as the case may be, in a newspaper of general circulation published in the county in this state that (A) is contiguous to the county in which the property or some part thereof is situated and (B) has, by comparison with all similarly contiguous counties, the highest population based upon total county population as determined by the most recent federal decennial census published by the Bureau of the Census. A copy of the notice of sale shall also be posted in a conspicuous place on the property to be sold at least 20 days before the date of sale, where possible and where not restricted for any reason. If the property is a single-family residence the posting shall be on a door of the residence, but, if not possible or restricted, then the notice shall be posted in a conspicuous place on the property; however, if access is denied because a common entrance to the property is restricted by a guard gate or similar impediment, the property may be posted at that guard gate or similar impediment to any development community. Additionally, the notice of sale shall conform to the minimum requirements of Section 6043 of the Government Code and be recorded with the county recorder of the county in which the property or some part thereof is situated at least 14 days prior to the date of sale. The notice of sale shall contain the name, street address in this state, which may reflect an agent of the trustee, and either a toll-free telephone number or telephone number in this state of the trustee, and the name of the original trustor, and also shall contain the statement required by paragraph (3) of subdivision (c). In addition to any other description of the property, the notice shall describe the property by giving its street address, if any, or other common designation, if any, and a county assessor’s parcel number; but if the property has no street address or other common designation, the notice shall contain a legal description of the property, the name and address of the beneficiary at whose request the sale is to be conducted, and a statement that directions may be obtained pursuant to a written request submitted to the beneficiary within 10 days from the first publication of the notice. Directions shall be deemed reasonably sufficient to locate the property if information as to the location of the property is given by reference to the direction and approximate distance from the nearest crossroads, frontage road, or access road. If a legal description or a county assessor’s parcel number and either a street address or another common designation of the property is given, the validity of the notice and the validity of the sale shall not be affected by the fact that the street address, other common designation, name and address of the beneficiary, or the directions obtained therefrom are erroneous or that the street address, other common designation, name and address of the beneficiary, or directions obtained therefrom are omitted. The term “newspaper of general circulation,” as used in this section, has the same meaning as defined in Article 1 (commencing with Section 6000) of Chapter 1 of Division 7 of Title 1 of the Government Code.

The notice of sale shall contain a statement of the total amount of the unpaid balance of the obligation secured by the property to be sold and reasonably estimated costs, expenses, advances at the time of the initial publication of the notice of sale, and, if republished pursuant to a cancellation of a cash equivalent pursuant to subdivision (d) of Section 2924h, a reference of that fact; provided, that the trustee shall incur no liability for any good faith error in stating the proper amount, including any amount provided in good faith by or on behalf of the beneficiary. An inaccurate statement of this amount shall not affect the validity of any sale to a bona fide purchaser for value, nor shall the failure to post the notice of sale on a door as provided by this subdivision affect the validity of any sale to a bona fide purchaser for value.

(2) If the sale of the property is to be a unified sale as provided in subparagraph (B) of paragraph (1) of subdivision (a) of Section 9604 of the Commercial Code, the notice of sale shall also contain a description of the personal property or fixtures to be sold. In the case where it is contemplated that all of the personal property or fixtures are to be sold, the description in the notice of the personal property or fixtures shall be sufficient if it is the same as the description of the personal property or fixtures contained in the agreement creating the security interest in or encumbrance on the personal property or fixtures or the filed financing statement relating to the personal property or fixtures. In all other cases, the description in the notice shall be sufficient if it would be a sufficient description of the personal property or fixtures under Section 9108 of the Commercial Code. Inclusion of a reference to or a description of personal property or fixtures in a notice of sale hereunder shall not constitute an election by the secured party to conduct a unified sale pursuant to subparagraph (B) of paragraph (1) of subdivision (a) of Section 9604 of the Commercial Code, shall not obligate the secured party to conduct a unified sale pursuant to subparagraph (B) of paragraph (1) of subdivision (a) of Section 9604 of the Commercial Code, and in no way shall render defective or noncomplying either that notice or a sale pursuant to that notice by reason of the fact that the sale includes none or less than all of the personal property or fixtures referred to or described in the notice. This paragraph shall not otherwise affect the obligations or duties of a secured party under the Commercial Code.

(c)

(1) This subdivision applies only to deeds of trust or mortgages which contain a power of sale and which are secured by real property containing a single-family, owner-occupied residence, where the obligation secured by the deed of trust or mortgage is contained in a contract for goods or services subject to the provisions of the Unruh Act (Chapter 1 (commencing with Section 1801) of Title 2 of Part 4 of Division 3).

(2) Except as otherwise expressly set forth in this subdivision, all other provisions of law relating to the exercise of a power of sale shall govern the exercise of a power of sale contained in a deed of trust or mortgage described in paragraph (1).

(3) If any default of the obligation secured by a deed of trust or mortgage described in paragraph (1) has not been cured within 30 days after the recordation of the notice of default, the trustee or mortgagee shall mail to the trustor or mortgagor, at his or her last known address, a copy of the following statement:

YOU ARE IN DEFAULT UNDER A
___________________________________________________,
Deed of trust or mortgage
DATED ______. UNLESS YOU TAKE ACTION TO PROTECT
YOUR PROPERTY, IT MAY BE SOLD AT A PUBLIC SALE.
IF YOU NEED AN EXPLANATION OF THE NATURE OF THE
PROCEEDING AGAINST YOU, YOU SHOULD CONTACT A LAWYER.

(4) All sales of real property pursuant to a power of sale contained in any deed of trust or mortgage described in paragraph (1) shall be held in the county where the residence is located and shall be made to the person making the highest offer. The trustee may receive offers during the 10-day period immediately prior to the date of sale and if any offer is accepted in writing by both the trustor or mortgagor and the beneficiary or mortgagee prior to the time set for sale, the sale shall be postponed to a date certain and prior to which the property may be conveyed by the trustor to the person making the offer according to its terms. The offer is revocable until accepted. The performance of the offer, following acceptance, according to its terms, by a conveyance of the property to the offeror, shall operate to terminate any further proceeding under the notice of sale and it shall be deemed revoked.

(5) In addition to the trustee fee pursuant to Section 2924c, the trustee or mortgagee pursuant to a deed of trust or mortgage subject to this subdivision shall be entitled to charge an additional fee of fifty dollars ($50).

(6) This subdivision applies only to property on which notices of default were filed on or after the effective date of this subdivision.

2924g.
(a) All sales of property under the power of sale contained in any deed of trust or mortgage shall be held in the county where the property or some part thereof is situated, and shall be made at auction, to the highest bidder, between the hours of 9 a.m. and 5 p.m. on any business day, Monday through Friday.

The sale shall commence at the time and location specified in the notice of sale. Any postponement shall be announced at the time and location specified in the notice of sale for commencement of the sale or pursuant to paragraph (1) of subdivision (c).

If the sale of more than one parcel of real property has been scheduled for the same time and location by the same trustee, (1) any postponement of any of the sales shall be announced at the time published in the notice of sale, (2) the first sale shall commence at the time published in the notice of sale or immediately after the announcement of any postponement, and (3) each subsequent sale shall take place as soon as possible after the preceding sale has been completed.

(b) When the property consists of several known lots or parcels, they shall be sold separately unless the deed of trust or mortgage provides otherwise. When a portion of the property is claimed by a third person, who requires it to be sold separately, the portion subject to the claim may be thus sold. The trustor, if present at the sale, may also, unless the deed of trust or mortgage otherwise provides, direct the order in which property shall be sold, when the property consists of several known lots or parcels which may be sold to advantage separately, and the trustee shall follow that direction. After sufficient property has been sold to satisfy the indebtedness, no more can be sold.

If the property under power of sale is in two or more counties, the public auction sale of all of the property under the power of sale may take place in any one of the counties where the property or a portion thereof is located.

(c)

(1) There may be a postponement or postponements of the sale proceedings, including a postponement upon instruction by the beneficiary to the trustee that the sale proceedings be postponed, at any time prior to the completion of the sale for any period of time not to exceed a total of 365 days from the date set forth in the notice of sale. The trustee shall postpone the sale in accordance with any of the following:

(A) Upon the order of any court of competent jurisdiction.

(B) If stayed by operation of law.

(C) By mutual agreement, whether oral or in writing, of any trustor and any beneficiary or any mortgagor and any mortgagee.

(D) At the discretion of the trustee.

(2) In the event that the sale proceedings are postponed for a period or periods totaling more than 365 days, the scheduling of any further sale proceedings shall be preceded by giving a new notice of sale in the manner prescribed in Section 2924f. New fees incurred for the new notice of sale shall not exceed the amounts specified in Sections 2924c and 2924d, and shall not exceed reasonable costs that are necessary to comply with this paragraph.

(d) The notice of each postponement and the reason therefor shall be given by public declaration by the trustee at the time and place last appointed for sale. A public declaration of postponement shall also set forth the new date, time, and place of sale and the place of sale shall be the same place as originally fixed by the trustee for the sale. No other notice of postponement need be given. However, the sale shall be conducted no sooner than on the seventh day after the earlier of (1) dismissal of the action or (2) expiration or termination of the injunction, restraining order, or stay that required postponement of the sale, whether by entry of an order by a court of competent jurisdiction, operation of law, or otherwise, unless the injunction, restraining order, or subsequent order expressly directs the conduct of the sale within that seven-day period. For purposes of this subdivision, the seven-day period shall not include the day on which the action is dismissed, or the day on which the injunction, restraining order, or stay expires or is terminated. If the sale had been scheduled to occur, but this subdivision precludes its conduct during that seven-day period, a new notice of postponement shall be given if the sale had been scheduled to occur during that seven-day period. The trustee shall maintain records of each postponement and the reason therefor.

(e) Notwithstanding the time periods established under subdivision

(d), if postponement of a sale is based on a stay imposed by Title 11 of the United States Code (bankruptcy), the sale shall be conducted no sooner than the expiration of the stay imposed by that title and the seven-day provision of subdivision (d) shall not apply.

2924h.
(a) Each and every bid made by a bidder at a trustee’s sale under a power of sale contained in a deed of trust or mortgage shall be deemed to be an irrevocable offer by that bidder to purchase the property being sold by the trustee under the power of sale for the amount of the bid. Any second or subsequent bid by the same bidder or any other bidder for a higher amount shall be a cancellation of the prior bid.

(b) At the trustee’s sale the trustee shall have the right (1) to require every bidder to show evidence of the bidder’s ability to deposit with the trustee the full amount of his or her final bid in cash, a cashier’s check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee prior to, and as a condition to, the recognizing of the bid, and to conditionally accept and hold these amounts for the duration of the sale, and (2) to require the last and highest bidder to deposit, if not deposited previously, the full amount of the bidder’s final bid in cash, a cashier’s check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee, immediately prior to the completion of the sale, the completion of the sale being so announced by the fall of the hammer or in another customary manner. The present beneficiary of the deed of trust under foreclosure shall have the right to offset his or her bid or bids only to the extent of the total amount due the beneficiary including the trustee’s fees and expenses.

(c) In the event the trustee accepts a check drawn by a credit union or a savings and loan association pursuant to this subdivision or a cash equivalent designated in the notice of sale, the trustee may withhold the issuance of the trustee’s deed to the successful bidder submitting the check drawn by a state or federal credit union or savings and loan association or the cash equivalent until funds become available to the payee or endorsee as a matter of right.

For the purposes of this subdivision, the trustee’s sale shall be deemed final upon the acceptance of the last and highest bid, and shall be deemed perfected as of 8 a.m. on the actual date of sale if the trustee’s deed is recorded within 15 calendar days after the sale, or the next business day following the 15th day if the county recorder in which the property is located is closed on the 15th day. However, the sale is subject to an automatic rescission for a failure of consideration in the event the funds are not “available for withdrawal” as defined in Section 12413.1 of the Insurance Code. The trustee shall send a notice of rescission for a failure of consideration to the last and highest bidder submitting the check or alternative instrument, if the address of the last and highest bidder is known to the trustee.

If a sale results in an automatic right of rescission for failure of consideration pursuant to this subdivision, the interest of any lienholder shall be reinstated in the same priority as if the previous sale had not occurred.

(d) If the trustee has not required the last and highest bidder to deposit the cash, a cashier’s check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee in the manner set forth in paragraph (2) of subdivision (b), the trustee shall complete the sale. If the last and highest bidder then fails to deliver to the trustee, when demanded, the amount of his or her final bid in cash, a cashier’s check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee, that bidder shall be liable to the trustee for all damages which the trustee may sustain by the refusal to deliver to the trustee the amount of the final bid, including any court costs and reasonable attorneys’ fees.

If the last and highest bidder willfully fails to deliver to the trustee the amount of his or her final bid in cash, a cashier’s check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee, or if the last and highest bidder cancels a cashiers check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent that has been designated in the notice of sale as acceptable to the trustee, that bidder shall be guilty of a misdemeanor punishable by a fine of not more than two thousand five hundred dollars ($2,500).

In the event the last and highest bidder cancels an instrument submitted to the trustee as a cash equivalent, the trustee shall provide a new notice of sale in the manner set forth in Section 2924f and shall be entitled to recover the costs of the new notice of sale as provided in Section 2924c.

(e) Any postponement or discontinuance of the sale proceedings shall be a cancellation of the last bid.

(f) In the event that this section conflicts with any other statute, then this section shall prevail.

(g) It shall be unlawful for any person, acting alone or in concert with others, (1) to offer to accept or accept from another, any consideration of any type not to bid, or (2) to fix or restrain bidding in any manner, at a sale of property conducted pursuant to a power of sale in a deed of trust or mortgage. However, it shall not be unlawful for any person, including a trustee, to state that a property subject to a recorded notice of default or subject to a sale conducted pursuant to this chapter is being sold in an “as-is” condition.

In addition to any other remedies, any person committing any act declared unlawful by this subdivision or any act which would operate as a fraud or deceit upon any beneficiary, trustor, or junior lienor shall, upon conviction, be fined not more than ten thousand dollars ($10,000) or imprisoned in the county jail for not more than one year, or be punished by both that fine and imprisonment.

2924i.
(a) This section applies to loans secured by a deed of trust or mortgage on real property containing one to four residential units at least one of which at the time the loan is made is or is to be occupied by the borrower if the loan is for a period in excess of one year and is a balloon payment loan.

(b) This section shall not apply to (1) open end credit as defined in Regulation Z, whether or not the transaction is otherwise subject to Regulation Z, (2) transactions subject to Section 2956, or (3) loans made for the principal purpose of financing the construction of one or more residential units.

(c) At least 90 days but not more than 150 days prior to the due date of the final payment on a loan that is subject to this section, the holder of the loan shall deliver or mail by first-class mail, with a certificate of mailing obtained from the United States Postal Service, to the trustor, or his or her successor in interest, at the last known address of that person, a written notice which shall include all of the following:

(1) A statement of the name and address of the person to whom the final payment is required to be paid.

(2) The date on or before which the final payment is required to be paid.

(3) The amount of the final payment, or if the exact amount is unknown, a good faith estimate of the amount thereof, including unpaid principal, interest and any other charges, such amount to be determined assuming timely payment in full of all scheduled installments coming due between the date the notice is prepared and the date when the final payment is due.

(4) If the borrower has a contractual right to refinance the final payment, a statement to that effect.

If the due date of the final payment of a loan subject to this section is extended prior to the time notice is otherwise required under this subdivision, this notice requirement shall apply only to the due date as extended (or as subsequently extended).

(d) For purposes of this section:

(1) A “balloon payment loan” is a loan which provides for a final payment as originally scheduled which is more than twice the amount of any of the immediately preceding six regularly scheduled payments or which contains a call provision; provided, however, that if the call provision is not exercised by the holder of the loan, the existence of the unexercised call provision shall not cause the loan to be deemed to be a balloon payment loan.

(2) “Call provision” means a loan contract term that provides the holder of the loan with the right to call the loan due and payable either after a specified period has elapsed following closing or after a specified date.

(3) “Regulation Z” means any rule, regulation, or interpretation promulgated by the Board of Governors of the Federal Reserve System under the Federal Truth in Lending Act, as amended (15 U.S.C. Sec. 1601 et seq.), and any interpretation or approval thereof issued by an official or employee of the Federal Reserve System duly authorized by the board under the Truth in Lending Act, as amended, to issue such interpretations or approvals.

(e) Failure to provide notice as required by subdivision (a) does not extinguish any obligation of payment by the borrower, except that the due date for any balloon payment shall be the date specified in the balloon payment note, or 90 days from the date of delivery or mailing of the notice required by subdivision (a), or the due date specified in the notice required by subdivision (a), whichever date is later. If the operation of this section acts to extend the term of any note, interest shall continue to accrue for the extended term at the contract rate and payments shall continue to be due at any periodic interval and on any payment schedule specified in the note and shall be credited to principal or interest under the terms of the note. Default in any extended periodic payment shall be considered a default under terms of the note or security instrument.

(f)

(1) The validity of any credit document or of any security document subject to the provisions of this section shall not be invalidated solely because of the failure of any person to comply with this section. However, any person who willfully violates any provision of this section shall be liable in the amount of actual damages suffered by the debtor as the proximate result of the violation, and, if the debtor prevails in any suit to recover that amount, for reasonable attorney’s fees.

(2) No person may be held liable in any action under this section if it is shown by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid any such error.

(g) The provisions of this section shall apply to any note executed on or after January 1, 1984.

2924j.
(a) Unless an interpleader action has been filed, within 30 days of the execution of the trustee’s deed resulting from a sale in which there are proceeds remaining after payment of the amounts required by paragraphs (1) and (2) of subdivision (a) of Section 2924k, the trustee shall send written notice to all persons with recorded interests in the real property as of the date immediately prior to the trustee’s sale who would be entitled to notice pursuant to subdivisions (b) and (c) of Section 2924b. The notice shall be sent by first-class mail in the manner provided in paragraph (1) of subdivision (c) of Section 2924b and inform each entitled person of each of the following:

(1) That there has been a trustee’s sale of the described real property.

(2) That the noticed person may have a claim to all or a portion of the sale proceeds remaining after payment of the amounts required by paragraphs (1) and (2) of subdivision (a) of Section 2924k.

(3) The noticed person may contact the trustee at the address provided in the notice to pursue any potential claim.

(4) That before the trustee can act, the noticed person may be required to present proof that the person holds the beneficial interest in the obligation and the security interest therefor. In the case of a promissory note secured by a deed of trust, proof that the person holds the beneficial interest may include the original promissory note and assignment of beneficial interests related thereto. The noticed person shall also submit a written claim to the trustee, executed under penalty of perjury, stating the following:

(A) The amount of the claim to the date of trustee’s sale.

(B) An itemized statement of the principal, interest, and other charges.

(C) That claims must be received by the trustee at the address stated in the notice no later than 30 days after the date the trustee sends notice to the potential claimant.

(b) The trustee shall exercise due diligence to determine the priority of the written claims received by the trustee to the trustee’ s sale surplus proceeds from those persons to whom notice was sent pursuant to subdivision (a). In the event there is no dispute as to the priority of the written claims submitted to the trustee, proceeds shall be paid within 30 days after the conclusion of the notice period. If the trustee has failed to determine the priority of written claims within 90 days following the 30-day notice period, then within 10 days thereafter the trustee shall deposit the funds with the clerk of the court pursuant to subdivision (c) or file an interpleader action pursuant to subdivision (e). Nothing in this section shall preclude any person from pursuing other remedies or claims as to surplus proceeds.

(c) If, after due diligence, the trustee is unable to determine the priority of the written claims received by the trustee to the trustee’s sale surplus of multiple persons or if the trustee determines there is a conflict between potential claimants, the trustee may file a declaration of the unresolved claims and deposit with the clerk of the superior court of the county in which the sale occurred, that portion of the sales proceeds that cannot be distributed, less any fees charged by the clerk pursuant to this subdivision. The declaration shall specify the date of the trustee’s sale, a description of the property, the names and addresses of all persons sent notice pursuant to subdivision (a), a statement that the trustee exercised due diligence pursuant to subdivision (b), that the trustee provided written notice as required by subdivisions (a) and (d) and the amount of the sales proceeds deposited by the trustee with the court. Further, the trustee shall submit a copy of the trustee’s sales guarantee and any information relevant to the identity, location, and priority of the potential claimants with the court and shall file proof of service of the notice required by subdivision (d) on all persons described in subdivision (a).

The clerk shall deposit the amount with the county treasurer or, if a bank account has been established for moneys held in trust under paragraph (2) of subdivision (a) of Section 77009 of the Government Code, in that account, subject to order of the court upon the application of any interested party. The clerk may charge a reasonable fee for the performance of activities pursuant to this subdivision equal to the fee for filing an interpleader action pursuant to Chapter 5.8 (commencing with Section 70600) of Title 8 of the Government Code. Upon deposit of that portion of the sale proceeds that cannot be distributed by due diligence, the trustee shall be discharged of further responsibility for the disbursement of sale proceeds. A deposit with the clerk of the court pursuant to this subdivision may be either for the total proceeds of the trustee’ s sale, less any fees charged by the clerk, if a conflict or conflicts exist with respect to the total proceeds, or that portion that cannot be distributed after due diligence, less any fees charged by the clerk.

(d) Before the trustee deposits the funds with the clerk of the court pursuant to subdivision (c), the trustee shall send written notice by first-class mail, postage prepaid, to all persons described in subdivision (a) informing them that the trustee intends to deposit the funds with the clerk of the court and that a claim for the funds must be filed with the court within 30 days from the date of the notice, providing the address of the court in which the funds were deposited, and a telephone number for obtaining further information.

Within 90 days after deposit with the clerk, the court shall consider all claims filed at least 15 days before the date on which the hearing is scheduled by the court, the clerk shall serve written notice of the hearing by first-class mail on all claimants identified in the trustee’s declaration at the addresses specified therein. Where the amount of the deposit is twenty-five thousand dollars ($25,000) or less, a proceeding pursuant to this section is a limited civil case. The court shall distribute the deposited funds to any and all claimants entitled thereto.

(e) Nothing in this section restricts the ability of a trustee to file an interpleader action in order to resolve a dispute about the proceeds of a trustee’s sale. Once an interpleader action has been filed, thereafter the provisions of this section do not apply.

(f) “Due diligence,” for the purposes of this section means that the trustee researched the written claims submitted or other evidence of conflicts and determined that a conflict of priorities exists between two or more claimants which the trustee is unable to resolve.

(g) To the extent required by the Unclaimed Property Law, a trustee in possession of surplus proceeds not required to be deposited with the court pursuant to subdivision (b) shall comply with the Unclaimed Property Law (Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure).

(h) The trustee, beneficiary, or counsel to the trustee or beneficiary, is not liable for providing to any person who is entitled to notice pursuant to this section, information set forth in, or a copy of, subdivision (h) of Section 2945.3.

2924k.
(a) The trustee, or the clerk of the court upon order to the clerk pursuant to subdivision (d) of Section 2924j, shall distribute the proceeds, or a portion of the proceeds, as the case may be, of the trustee’s sale conducted pursuant to Section 2924h in the following order of priority:

(1) To the costs and expenses of exercising the power of sale and of sale, including the payment of the trustee’s fees and attorney’s fees permitted pursuant to subdivision (b) of Section 2924d and subdivision (b) of this section.

(2) To the payment of the obligations secured by the deed of trust or mortgage which is the subject of the trustee’s sale.

(3) To satisfy the outstanding balance of obligations secured by any junior liens or encumbrances in the order of their priority.

(4) To the trustor or the trustor’s successor in interest. In the event the property is sold or transferred to another, to the vested owner of record at the time of the trustee’s sale.

(b) A trustee may charge costs and expenses incurred for such items as mailing and a reasonable fee for services rendered in connection with the distribution of the proceeds from a trustee’s sale, including, but not limited to, the investigation of priority and validity of claims and the disbursement of funds. If the fee charged for services rendered pursuant to this subdivision does not exceed one hundred dollars ($100), or one hundred twenty-five dollars ($125) where there are obligations specified in paragraph (3) of subdivision (a), the fee is conclusively presumed to be reasonable.

2924l.
(a) In the event that a trustee under a deed of trust is named in an action or proceeding in which that deed of trust is the subject, and in the event that the trustee maintains a reasonable belief that it has been named in the action or proceeding solely in its capacity as trustee, and not arising out of any wrongful acts or omissions on its part in the performance of its duties as trustee, then, at any time, the trustee may file a declaration of nonmonetary status. The declaration shall be served on the parties in the manner set forth in Chapter 5 (commencing with Section 1010) of Title 14 of the Code of Civil Procedure.

(b) The declaration of nonmonetary status shall set forth the status of the trustee as trustee under the deed of trust that is the subject of the action or proceeding, that the trustee knows or maintains a reasonable belief that it has been named as a defendant in the proceeding solely in its capacity as a trustee under the deed of trust, its reasonable belief that it has not been named as a defendant due to any acts or omissions on its part in the performance of its duties as trustee, the basis for that knowledge or reasonable belief, and that it agrees to be bound by whatever order or judgment is issued by the court regarding the subject deed of trust.

(c) The parties who have appeared in the action or proceeding shall have 15 days from the service of the declaration by the trustee in which to object to the nonmonetary judgment status of the trustee. Any objection shall set forth the factual basis on which the objection is based and shall be served on the trustee.

(d) In the event that no objection is served within the 15-day objection period, the trustee shall not be required to participate any further in the action or proceeding, shall not be subject to any monetary awards as and for damages, attorneys’ fees or costs, shall be required to respond to any discovery requests as a nonparty, and shall be bound by any court order relating to the subject deed of trust that is the subject of the action or proceeding.

(e) In the event of a timely objection to the declaration of nonmonetary status, the trustee shall thereafter be required to participate in the action or proceeding.

Additionally, in the event that the parties elect not to, or fail to, timely object to the declaration of nonmonetary status, but later through discovery, or otherwise, determine that the trustee should participate in the action because of the performance of its duties as a trustee, the parties may file and serve on all parties and the trustee a motion pursuant to Section 473 of the Code of Civil Procedure that specifies the factual basis for the demand. Upon the court’s granting of the motion, the trustee shall thereafter be required to participate in the action or proceeding, and the court shall provide sufficient time prior to trial for the trustee to be able to respond to the complaint, to conduct discovery, and to bring other pretrial motions in accordance with the Code of Civil Procedure.

(f) Upon the filing of the declaration of nonmonetary status, the time within which the trustee is required to file an answer or other responsive pleading shall be tolled for the period of time within which the opposing parties may respond to the declaration. Upon the timely service of an objection to the declaration on nonmonetary status, the trustee shall have 30 days from the date of service within which to file an answer or other responsive pleading to the complaint or cross-complaint.

(g) For purposes of this section, “trustee” includes any agent or employee of the trustee who performs some or all of the duties of a trustee under this article, and includes substituted trustees and agents of the beneficiary or trustee.

JP Morgan 18,000 affidavids per month

11 Jun

Posted 3 days ago by Neil Garfield on Livinglies’s Weblog

The bottom line is that none of these signors of affidavits have ANY personal knowledge regarding any document, event, or transaction relating to any of the loans they are “processing.” It’s all a lie.

In a 35 hour workweek, 18,000 affidavits per month computes as 74.23 affidavits per JPM signor per hour and 1.23 per minute. Try that. See if you can review a file, verify the accounting, execute the affidavit and get it notarized in one minute. It isn’t possible. It can only be done with a system that incorporates automation, fabrication and forgery.
Editor’s Note: Besides the entertaining writing, there is a message here. And then a hidden message. The deponent is quoted as saying she has personal knowledge of what her fellow workers have as personal knowledge. That means the witness is NOT competent in ANY court of law to give testimony that is allowed to be received as evidence. Here is the kicker: None of these loans were originated by JPM. Most of them were the subject of complex transactions. The bottom line is that none of these signors of affidavits have ANY personal knowledge regarding any document, event, or transaction relating to any of the loans they are “processing.” It’s all a lie.
In these transactions, even though the investors were the owners of the loan, the servicing and other rights were rights were transferred acquired from WAMU et al and then redistributed to still other entities. This was an exercise in obfuscation. By doing this, JPM was able to control the distribution of profits from third party payments on loan pools like insurance contracts, credit defaults swaps and other credit enhancements.
Having that control enabled JPM to avoid allocating such payments to the investors who put up the bad money and thus keep the good money for itself. You see, the Countrywide settlement with the FTC focuses on the pennies while billions of dollars are flying over head.

The simple refusal to allocate third party payments achieves the following:

* Denial of any hope of repayment to the investors
* Denial of any proper accounting for all receipts and disbursements that are allocable to each loan account
* 97% success rate in sustaining Claims of default that are fatally defective being both wrong and undocumented.
* 97% success rate on Claims for balances that don’t exist
* 97% success rate in getting a home in which JPM has no investment

(THE DEPONENT’S NAME IS COTRELL NOT CANTREL)

JPM: Cantrel deposiition reveals 18,000 affidavits signed per month
HEY, CHASE! YEAH, YOU… JPMORGAN CHASE! One of Your Customers Asked Me to Give You a Message…

Hi JPMorgan Chase People!

Thanks for taking a moment to read this… I promise to be brief, which is so unlike me… ask anyone.

My friend, Max Gardner, the famous bankruptcy attorney from North Carolina, sent me the excerpt from the deposition of one Beth Ann Cottrell, shown below. Don’t you just love the way he keeps up on stuff… always thinking of people like me who live to expose people like you? Apparently, she’s your team’s Operations Manager at Chase Home Finance, and she’s, obviously, quite a gal.

Just to make it interesting… and fun… I’m going to do my best to really paint a picture of the situation, so the reader can feel like he or she is there… in the picture at the time of the actual deposition of Ms. Cottrell… like it’s a John Grisham novel…

FADE IN:

SFX: Sound of creaking door opening, not to slowly… There’s a ceiling fan turning slowly…

It’s Monday morning, May 17th in this year of our Lord, two thousand and ten, and as we enter the courtroom, the plaintiff’s attorney, representing a Florida homeowner, is asking Beth Ann a few questions… We’re in the Circuit Court of the Fifteenth Judicial Circuit, Palm Beach County, Florida.

Deposition of Beth Ann Cottrell – Operations Manager of Chase Home Finance LLC

Q. So if you did not review any books or records or electronic records before signing this affidavit of payments default, how is it that you had personal knowledge of all of the matters stated in this sworn document?

A. Well, it is pretty simple, I have personal knowledge that my staff has personal knowledge of what is in the affidavit on personal knowledge. That is how our process works.

Q. So, when signing an affidavit, you stated you have personal knowledge of the matters contained therein of Chase’s business records yet you never looked at the data bases or anything else that would contain those records; is that correct?

A. That is correct. I rely on my staff to do that part.

Q. And can you tell me in a given week how many of these affidavits you might sing?

A. Amongst all the management on my team we sign about 18,000 a month.

Q. And how many folks are on what you call the management?

A. Let’s see, eight.

And… SCENE.

Isn’t that just irresistibly cute? The way she sees absolutely nothing wrong with the way she’s answering the questions? It’s really quite marvelous. Truth be told, although I hadn’t realized it prior to reading Beth Ann’s deposition transcript, I had never actually seen obtuse before.

In fact, if Beth’s response that follows with in a movie… well, this is the kind of stuff that wins Oscars for screenwriting. I may never forget it. She actually said:

“Well, it is pretty simple, I have personal knowledge that my staff has personal knowledge of what is in the affidavit on personal knowledge. That is how our process works.”

No you didn’t.

Isn’t she just fabulous? Does she live in a situation comedy on ABC or something?

ANYWAY… BACK TO WHY I ASKED YOU JPMORGAN CHASE PEOPLE OVER…

Well, I know a homeowner who lives in Scottsdale, Arizona… lovely couple… wouldn’t want to embarrass them by using their real names, so I’ll just refer to them as the Campbell’s.

So, just the other evening Mr. Campbell calls me to say hello, and to tell me that he and his wife decided to strategically default on their mortgage. Have you heard about this… this strategic default thing that’s become so hip this past year?

It’s when a homeowner who could probably pay the mortgage payment, decides that watching any further incompetence on the part of the government and the banks, along with more home equity, is just more than he or she can bear. They called you guys at Chase about a hundred times to talk to you about modifying their loan, but you know how you guys are, so nothing went anywhere.

Then one day someone sent Mr. Campbell a link to an article on my blog, and I happened to be going on about the topic of strategic default. So… funny story… they had been thinking about strategically defaulting anyway and wouldn’t you know it… after reading my column, they decided to go ahead and commence defaulting strategically.

So, after about 30 years as a homeowner, and making plenty of money to handle the mortgage payment, he and his wife stop making their mortgage payment… they toast the decision with champagne.

You see, they owe $865,000 on their home, which was just appraised at $310,000, and interestingly enough, also from reading my column, they came to understand the fact that they hadn’t done anything to cause this situation, nothing at all. It was the banks that caused this mess, and now they were expecting homeowners like he and his wife, to pick up the tab. So, they finally said… no, no thank you.

Luckily, she’s not on the loan, so she already went out and bought their new place, right across the street from the old one, as it turns out, and they figure they’ve got at least a year to move, since they plan to do everything possible to delay you guys from foreclosing. They’re my heroes…

Okay, so here’s the message I promised I’d pass on to as many JPMorgan Chase people as possible… so, Mr. Campbell calls me one evening, and tells me he’s sorry to bother… knows I’m busy… I tell him it’s no problem and ask how he’s been holding up…

He says just fine, and he sounds truly happy… strategic defaulters are always happy, in fact they’re the only happy people that ever call me… everyone else is about to pop cyanide pills, or pop a cap in Jamie Dimon’s ass… one or the other… okay, sorry… I’m getting to my message…

He tells me, “Martin, we just wanted to tell you that we stopped making our payments, and couldn’t be happier. Like a giant burden has been lifted.”

I said, “Glad to hear it, you sound great!”

And he said, “I just wanted to call you because Chase called me this evening, and I wanted to know if you could pass a message along to them on your blog.”

I said, “Sure thing, what would you like me to tell them?”

He said, “Well, like I was saying, we stopped making our payments as of April…”

“Right…” I said.

“So, Chase called me this evening after dinner.”

“Yes…” I replied.

He went on… “The woman said: Mr. Campbell, we haven’t received your last payment. So, I said… OH YES YOU HAVE!”

Hey, JPMorgan Chase People… LMAO. Keep up the great work over there.

MERS Brief

8 Jun

i
TABLE OF CONTENTS
TABLE OF AUTHORITIES …………………………………………………………………………. i
INTERESTS OF AMICI CURIAE…………………………………………………………………..1
PRELIMINARY STATEMENT …………………………………………………………………….2
ARGUMENT……………………………………………………………………………………………….4
I. The MERS System Was Designed Without Regard to Consumers’ Rights4
II. MERS’ Claims That the MERS System Is Beneficial to
Consumers Are Unsupported. …………………………………………………………….6
III. Homeowners Have a Right to Know Who Owns Their Loans………………..8
IV. The MERS System Causes Significant Confusion Among Borrowers,
and Has a Particularly Detrimental Impact on the Elderly and
Other Vulnerable Borrowers Frequently Victimized by
Predatory Lenders. ………………………………………………………………………… 14
V. The Public Has a Significant and Enduring Interest in Preserving and
Protecting the Free Public Databases Created by the Land and Court
Records of This Nation. …………………………………………………………………. 18
A. Public land and court data records facilitate research investigating
the root causes of a variety of mortgage and other land related
problems………………………………………………………………………………….. 18
B. The public databases have played an important role in facilitating
understanding and government response to the recent “foreclosure
boom.”…………………………………………………………………………………….. 23
C. Through its penetration of the public databases MERS has caused
a dramatic deterioration in the quality and quantity of publicly
available information. ……………………………………………………………….. 28
D. The MERS Shield Creates an Irretrievable Void in the Property
Records that Harms Many Constituencies……………………………………. 32
ii
E. Restoration and enhancement of the public database is critical to enable
government to function effectively……………………………………………… 33
F. More, not less public data is needed to enable a carefully targeted and
rapid governmental response to problems in the housing market. …… 35
VI. MERS’ Subversion of the Public Policy Behind Public Recordings Costs
County and City Clerks Over a Billion Dollars. ………………………………… 38
VII. MERS Lacks Standing to Bring Foreclosure Actions in Its Name……….. 39
CONCLUSION…………………………………………………………………………………………. 46
i
TABLE OF AUTHORITIES
Cases
Altegra Credit Co. v. Tin Chu et al.,
No. 04326-2004 (Kings County Supreme Ct. March 25, 2004) ………………. 24, 36
Associates Home Equity v. Troup,
343 N.J. Super. 254 (App. Div. 2001)……………………………………………………….. 21
Countrywide Home Loans v. Hannaford,
2004 WL 1836744 (Ohio Ct. App. Aug. 18, 2004). ……………………………………. 17
Deutsche Bank National Trust Company as Trustee v. Primrose,
No. 05-25796 (N.Y. Sup. Ct., Suffolk Cty., July 13, 2006);…………………………. 46
Everhome Mortgage Company v. Hendriks,
No. 05-024042 (N.Y. Sup. Ct., Suffolk Cty., June 27, 2006);………………………. 46
Freedom Mortg. Corp. v. Burnham Mortg., Inc.,
2006 WL 695467 (N.D. Ill., Mar. 13, 2006) ………………………………………………. 17
In re BNT Terminals, Inc.,
125 B.R. 963, 970 (Bankr. N.D. Ill. 1990)…………………………………………………. 45
Kluge v. Fugazy,
145 A.D.2d 537, 536 N.Y.S.2d 92 (2d Dept. 1988)…………………………………….. 44
LaSalle Bank v. Holguin, No. 06-9286, slip opinion (N.Y. Sup. Ct. Suffolk Cty.,
Aug. 9, 2006);…………………………………………………………………………………… 43, 45
LaSalle Bank v. Lamy,
2006 N.Y. Misc. Lexis 2127 (NY. Sup. Ct., Suffolk Cty., Aug. 17, 2006)……. 46
MERS v. Bomba,
No. 1645/03 (N.Y. Sup. Ct., Kings County). ……………………………………………… 48
MERS v. DeMarco,
No. 05-1372, slip op. (N.Y. Sup. Ct., Suffolk Cty., April 11, 2005) ……………… 46
MERS v. Griffin,
No.16-2004-CA-002155, slip op. (Fla. Cir. Ct. May 27, 2004)…………………….. 49
MERS v. Ramdoolar,
No. 05-019863 (N.Y. Sup. Ct., Suffolk Cty., Mar. 7, 2006);………………………… 46
MERS v. Shuster,
No. 05-26354/06 (N.Y. Sup. Ct., Suffolk Cty., July 13, 2006)………………… 44, 46
MERS v. Trapani,
No. 04-19057, slip op. at 1 (N.Y. Sup. Ct., Suffolk Cty., Mar. 7, 2005):……….. 48
MERS v. Wells,
No. 06-5242, slip op. at 2 (N.Y. Sup. Ct., Suffolk Cty., Sept. 25, 2006)………… 45
MERS v.Delzatto,
No. 05-020490 (N.Y. Sup. Ct., Suffolk Cty., Dec. 9, 2005)…………………………. 46
ii
MERS, Inc. v. Parker,
No. 017622/2004, slip op. at 2 (N.Y. Sup. Ct., Suffolk Cty. Oct. 19, 2004) …… 46
MERS, Inc. v. Schoenster,
No. 16969-2004, (N.Y. Sup. Ct., Suffolk Cty., Sept. 15, 2004); …………………… 47
MERS. v. Burek,
798 N.Y.S.2d 346 (N.Y. Sup. Ct. 2004)…………………………………………………….. 44
MERS. v. Burek,
798 N.Y.S.2d 346, 347 (N.Y. Sup. Ct., Richmond Cty. 2004)……………………… 46
Merscorp, Inc. v. Romaine,
No. 9688/01, slip op. (N.Y. Sup. Ct., Suffolk Co. May 12, 2004)…………………….8
Miguel v. Country Funding Corp.,
309 F.3d 1161 (9th Cir. 2002). …………………………………………………………………. 16
Mortg. Elec. Registration Sys. v. Estrella,
390 F.3d 522 (7th Cir. 2004) ……………………………………………………………………. 16
Mortg. Elec. Registration Sys. v. Neb. Dep’t of Banking & Fin.,
704 N.W.2d 784 (Neb. 2005) ……………………………………………………………… 16, 17
Mortg. Elec. Registration Sys., Inc. v. Griffin,
No.16-2004-CA-002155, slip op. (Fla. Cir. Ct. May 27, 2004)…………………….. 47
Mortg. Elec. Registration Sys., Inc. v. Azize,
No. 05-001295-CI-11 (Fla. Cir. Ct. Pinellas Cty. Apr. 18, 2005)………………….. 47
Mortgage Electronic Registration Systems, Inc. v. Rees,
2003 Conn. Super. LEXIS 2437 (Conn. Superior Ct. September 4, 2003). ……. 44
People v. Albertina,
09141-2005 (Kings County Supreme Ct. Sept. 28, 2006) ………………………. 24, 36
People v. Constant,
No. 01843A-2006 (Suffolk Supreme Ct. Oct. 12, 2006)( ……………………….. 24, 36
People v. Larman,
No. 06253-2005 (Kings County Supreme Ct. Sept. 20, 2006) ………………… 24, 36
People v. Sandella,
No. 02899-2006 (Kings County Supreme. Ct. Sept. 27, 2006) ……………….. 24, 36
Roberts v. WMC Mortg. Corp.,
173 Fed. Appx. 575 (9th Cir. 2006). …………………………………………………………. 16
Taylor, Bean & Whitaker, Mortg. Corp. v. Brown,
583 S.E.2d 844 (Ga. 2003) ………………………………………………………………………. 47
Statutes
Home Mortgage Disclosure Act, 12 USC § 2801 et. seq ………………………………… 28
N.Y. Banking Law § 6-1…………………………………………………………………………….. 31
N.Y. General Business Law § 349……………………………………………………………….. 18
iii
N.Y. Gen. Bus. Law § 771-a……………………………………………………………………….. 31
N.Y. Real Prop. Acts. Law § 1302 ………………………………………………………………. 31
Truth-in-Lending Act, 15 U.S.C. § 1601 et seq………………………………………… 15, 16
Truth in Lending Act, Regulation Z § 226.23 ……………………………………………….. 15
U.C.C. §§ 9-203(g), 9-308(e); …………………………………………………………………….. 44
Regulations
69 Fed. Reg. 16,769 (Mar. 31, 2004),…………………………………………………………… 16
Secondary Sources
40 Millionth Loan Registered on MERS (Inside MERS, May/ June 2006),
available at http://www. mersinc.com/newsroom/currentnews.aspx …………….. 42
Alan M. White and Cathy Lesser Mansfield,
Literacy and Contract, 13 STAN. L & POL’Y REV 233 …………………………………. 19
Andrew Harris,
Suffolk Judge Denies Requests by Mortgage Electronic Registration Systems,
N.Y. LAW J. (Aug. 31, 2004) ……………………………………………………………………. 47
Bunce, Harold, Gruenstein, Debbie et al.,
Subprime Lending: The Smoking Gun of Predatory Lending? (HUD 2001),
http://www.huduser.org/Publications/pdf/brd/12Bunce.pdf ………………. 24, 27, 32
D. Rose, Chicago Foreclosure Update 2005, http://www.nticus.
org/currentevents/press/pdf/chicagoforeclosure_update.pdf…………………….. 25
D. Rose, Chicago Foreclosure Update 2006 (July), http://www.nticus.
org/documents/ChicagoForeclosureUpdate2006.pdf ………………………………. 25
Daniel Immergluck & Geoff Smith,
The External Costs of Foreclosure: The Impact of Single-Family Mortgage
Foreclosures on Property Values,
17 Housing Pol’y Debate, Issue 1 (2006)……………………………………………… 28, 39
David Rice, Predatory Lending Bill Caught in Debate, Winston-Salem Journal,
April 27, 1999………………………………………………………………………………………… 30
Debbie Gruenstein & Christopher Herbert,
Analyzing Trends in Subprime Originations and Foreclosures: A Case Study of
the Boston Metro Area, 1995-1999 (2000), http://www.abtassociates.com
/reports/20006470781991.pdf ………………………………………………………………….. 27
Duda & Apgar, Mortgage Foreclosures in Atlanta: Patterns and Policy Issues,
2000-2005 (2005) …………………………………………………………………… 30, 35, 38, 39
Federal Financial Institutions Examination Council,
A Guide to HMDA: Getting it Right! (Dec. 2003). ……………………………………… 41
iv
Jill D. Rein,
Significant Changes to Commencing Foreclosure Actions in the Name of MERS,
available at http://www.usfn.org/AM/Template.cfm?Section=
Article_Library&template=/CM/HTMLDisplay.cfm&ContentID=3899……….. 49
Kathe Newman & Elvin K. Wyly,
Geographies of Mortgage Market Segmentation: The Case of Essex County,
New Jersey, 19 Housing Stud. 53, 54 (Jan. 2004) ………………………………………. 38
Kathleen C. Engel, Do Cities Have Standing? Redressing the Externalities of
Predatory Lending, 38 Conn. L. Rev. 355 (2006). ……………………………………… 25
Kimberly Burnett, Bulbul Kaul, & Chris Herbert,
Analysis of Property Turnover Patterns in Atlanta, Baltimore, Cleveland and
Philadelphia (2004), http://
http://www.abtassociates.com/reports/analysis_property_turnover_patterns.pdf 27, 31
Kimberly Burnett, Chris Herbert et al.,
Subprime Originations and Foreclosures in New York State: A Case Study of
Nassau, Suffolk, and Westchester Counties (2002)……………………… 21, 24, 30, 31
Les Christie, “Foreclosures Spiked in August,” (Sept. 13, 2006), available at:
http://money.cnn.com/2006/09/13/real_estate/foreclosures_spiking/index.htm?po
stversion=2006091305 ……………………………………………………………………………. 39
Lindley Higgins, Effective Community-Based Strategies for Preventing
Foreclosures,1993-2004 (2005) ………………………………………………………….. 26, 27
Lorain County Reinvestment Fund,
The Expanding Role of Subprime Lending in Ohio’s Burgeoning Foreclosure
Problem: A Three County Study of a Statewide Problem, (2002),
http://cohhio.org/projects/ocrp/SubprimeLendingReport.pdf……………………….. 23
Lynne Dearborn, Mortgage Foreclosures and Predatory Lending in St. Clair
County, Illinois 1996-2000 (2003) ……………………………………………………………. 23
Margot Saunders and Alys Cohen,
Federal Regulation of Consumer Credit: The Cause or the Cure for Predatory
Lending? (Joint Center for Housing Studies 2004)……………………………………… 28
Neal Walters & Sharon Hermanson,
Subprime Mortgage Lending and Older Borrowers (AARP Public Policy
Institute), Data Digest Number 74 (2001)………………………………………………….. 28
Neighborhood Housing Services (NHS) of Chicago,
Preserving Homeownership: Community-Development Implications of the New
Mortgage Market (2004) …………………………………………………………………………. 26
Paul Bellamy, The Expanding Role of Subprime Lending in Ohio’s Burgeoning
Foreclosure Problem: A Three County Study of a Statewide Problem, 1994-2001
(2002)……………………………………………………………………………………………………. 29
v
Phyllis K. Slesinger and Daniel McLaughlin,
Mortgage Electronic Registration System, 31 IDAHO L. REV. 805, 811, 814-15
(1995)……………………………………………………………………………………………………….9
Ramon Garcia, Residential Foreclosures in the City of Buffalo,
1990-2000 (2003) ……………………………………………………………………………… 24, 27
Richard Lord, AMERICAN NIGHTMARE: PREDATORY LENDING AND THE
FORECLOSURE OF THE AMERICAN DREAM 157 (Common Courage Press 2005). 22
Richard Stock, Center for Business and Economic Research,
Predation in the Sub-Prime Lending Market: Montgomery County Vol. I., 1994-
2001 (2001), http://www.mvfairhousing.com/cber/pdf/
Executive%20summary.PDF………………………………………………………………. 26, 29
Robert Avery, Kenneth Brevoort, Glenn Canner,
Higher-Priced Home Lending and the 2005 HMDA Data (Sept. 8, 2006) …….. 28
Steve C. Bourassa, Predatory Lending In Jefferson County: A Report to the
Louisville Urban League (Urban Studies Institute, University of Louisville)
(December 2003) ……………………………………………………………………………………. 35
T. Nagazumi & D. Rose,
Preying on Neighborhoods: Subprime mortgage lending and Chicagoland
foreclosures, 1993-1998 (Sept. 21, 1999 …………………………………… 25, 26, 31, 34
The Reinvestment Fund, Mortgage Foreclosure Filings in Delaware (2006) …… 23
The Reinvestment Fund, A Study of Mortgage Foreclosures in Monroe County and
The Commonwealth’s Response (2004) …………………………………………………….. 23
The Reinvestment Fund, Mortgage Foreclosure Filings in Pennsylvania (2005). 23
William C. Apgar & Mark Duda, Collateral Damage: The Municipal Impact of
Today’s Mortgage Foreclosure Boom 1996-2000 (May 11, 2005),
http://www.nw.org/Network/neighborworksprogs/
foreclosuresolutions/documents/Apgar-DudaStudyFinal.pdf…………………. passim
William Apgar, The Municipal Cost of Foreclosures: A Chicago Case Study
(Feb. 27, 2005) http://www.hpfonline.org/PDF/Apgar-
Duda_Study_Full_Version.pdf………………………………………………………. 25, 26, 38
Zach Schiller, Foreclosure Growth in Ohio (2006) ………………………………………… 23
Zach Schiller and Jeremy Iskin, Foreclosure Growth in Ohio: A Brief Update
(2005), http://www.policymattersohio.org/pdf/
Foreclosure_Growth_Ohio_2005.pdf………………………………………………………… 23
Zach Schiller, Whitney Meredith, & Pam Rosado, Home Insecurity 2004:
Foreclosure Growth in Ohio, available at
http://www.policymattersohio.org/pdf/Home_Insecurity_2004.pdf………………. 23
Treatises
Restatement (3d), Property (Mortgages) § 5.4(a) (1997) ………………………………… 44
vi
Other Authorities
American Community Survey, U.S. Census Bureau (2005). …………………………… 21
Black’s Law Dictionary 727 (6th ed. abr.) ……………………………………………………. 17
Consumer Protection: Federal and State Agencies in Combating Predatory
Lending, United States General Accounting Office, Report to the Chairman and
Ranking Minority Member, Special Committee on Aging, U.S. Senate (January
2004), pp. 99-102……………………………………………………………………………………. 20
Curbing Predatory Home Mortgage Lending, U.S. Dept. of Housing and Urban
Development and U.S. Dept. of the Treasury, 47 (2000), available at
http://www.huduser.org/publications/hsgfin/curbing.html ………………… 19, 32, 41
Housing Characteristics: 2000 (US Census Bureau 10/01)……………………………… 19
Informal Op. New York State Att’y Gen 2001-2 (April 5, 2001);………………… 8, 13
Inside B&C Lending at 2 (February 3, 2006)………………………………………………… 13
Pennsylvania Department of Banking, Losing the American Dream: A Report on
Residential Mortgage Foreclosures and Abusive Lending Practices in
Pennsylvania (2005). ………………………………………………………………………………. 23
Press Release, Office of Attorney General, N.J. Div. of Criminal Justice Targets
financial crime (Nov. 14, 2004),
http://nj.gov/lps/newsreleases04/pr20041117b.html……………………………………. 25
Press Release, Sen. Mikulski Formed Task Force and Secured Federal Assistance
to Address Flipping Problem (Oct. 9, 2003) ………………………………………………. 25
U.S. Census 2000………………………………………………………………………………………. 21
1
INTERESTS OF AMICI CURIAE
Amici are non-profit legal services and public interest organizations who
have special expertise in defending foreclosures and in documenting how the
mortgage market works. Amici South Brooklyn Legal Services, Jacksonville Area
Legal Aid, Inc., Empire Justice Center, Legal Services for the Elderly, Queens
Legal Aid, Legal Aid Bureau of Buffalo, Legal Services of New York City–Staten
Island, Fair Housing Justice Center of HELP USA, and AARP’s Foundation
Litigation and Legal Counsel for the Elderly provide free legal representation to
low-income individuals and families who are victims of abusive mortgage lending
and servicing practices, and who are at risk of foreclosure. Amici Center for
Responsible Lending, National Consumer Law Center, National Association of
Consumer Advocates, and Neighborhood Economic Development Advocacy
Project are non-profit research and policy organizations dedicated to exposing and
eliminating abusive practices in the mortgage market. AARP advocates on behalf
of consumers in the mortgage marketplace and through its Public Policy Institute
conducts research on a wide variety of issues affecting older persons, including
subprime mortgage lending and mortgage broker practices.
Collectively, amici represent or counsel thousands of low to moderate
income homeowners each year. Amici prevent foreclosures through defense of
foreclosure actions in court; negotiating with foreclosing lenders to address
2
servicing abuses that inflate mortgage balances and to modify mortgages to give
homeowners a fresh start; filing administrative claims with city, state, and federal
agencies; conducting community outreach and education to address predatory
lending and abusive servicing; and working on various policy issues to protect
consumers and prevent abusive mortgage lending and servicing practices.
The Mortgage Electronic Registration Systems, Inc. (“MERS”) has a
substantial and detrimental impact on amici as it curtails their ability to conduct
research and advocacy and impairs the rights of their homeowner clients. In
particular, MERS’ failure to conform to New York law significantly undermines
the public interest in preserving the free public database created by land and court
records and imposes substantial harms on amici’s homeowner clients. Therefore
amici urge this court to reverse the decision below and to find in favor of
Respondents-Appellants.
PRELIMINARY STATEMENT
Through their extensive experience representing individual homeowners and
closely studying both the national and local mortgage markets, amici have learned
first-hand the detrimental effect of MERS’ electronic registration system on
homeowners, and its destructive impact on the public land records that serve the
public interest in a variety of critical ways. Although this case turns on a question
of New York law, amici and the homeowners they represent nationwide have
3
experienced the same obstacles, confusion, and frustration that are created by the
MERS system in New York State.
The MERS system harms homeowners and undermines the public interest
by concealing information that is essential both to the maintenance of accurate
public land and court records, and to individual homeowners, particularly those
who seek redress for predatory mortgages or face foreclosure. Three issues
highlight the importance of these concerns to homeowners and to the public
interest. First, because MERS obfuscates the true owner of the note, MERS
creates significant and detrimental confusion among borrowers and homeowners,
their advocates, and the courts. Second, MERS frustrates established public
policy, which dictates that title information must be publicly available, thus
causing harm to state and local governments, advocacy groups, and academic
researchers who routinely rely on public database information to inform legislative
decision-making, to support law enforcement, and to advance policy solutions to a
wide variety of housing and mortgage issues. Third, MERS’ routine practice of
improperly commencing foreclosure actions solely in its name, even though it is
not the true owner of the note, flaunts courts rules and raises significant standing
concerns. Accordingly, amici urge this Court to reverse the decision of the court
below and find in favor of Respondents-Appellants Edward P. Romaine and the
County of Suffolk, and against Petitioners-Respondents MERS.
4
ARGUMENT
I. The MERS System Was Designed Without Regard to Consumers’
Rights
MERS is the brainchild of the mortgage industry, designed to facilitate the
transfer of mortgages on the secondary mortgage market and save lenders the cost
of filing assignments. See, e.g., Br. for Petitioners-Respondents MERS
(hereinafter “MERS Br.”) at 6-7 (listing the founding members of MERS as, inter
alia, Mortgage Bankers Association of America, the Federal National Mortgage
Association…and others within the real estate finance industry); Record on Appeal
(hereinafter “R.__”) at 604-6. (MERS is in an “administrative capacity to serve the
sole purpose of appearing in the county land records”). MERS is not a mortgage
lender; nor does it ever own or have any beneficial interest in the note or mortgage.
See, e.g., Merscorp, Inc. v. Romaine, No. 9688/01, slip op. at 2 n.3 (N.Y. Sup. Ct.,
Suffolk Co. May 12, 2004); Informal Op. New York State Att’y Gen 2001-2 (April
5, 2001), 2001 N.Y. AG LEXIS 2; R. at 727-28. Nevertheless, MERS substitutes
its name on the public records for the name of the actual owners of mortgage loans.
In so doing, MERS is rapidly undermining the accuracy of the public land and
court records databases, establishing in their place a proprietary national electronic
registry system that “tracks” beneficial ownership and servicing rights and whose
information is inaccessible to the public. Yet the design of MERS’ registration
system and foreclosure procedures considered neither the public’s interest, nor the
5
rights and interests of consumers. See, e.g., Phyllis K. Slesinger and Daniel
McLaughlin, Mortgage Electronic Registration System, 31 IDAHO L. REV. 805,
811, 814-15 (1995) (MERS initially sought input from industry representatives; no
input sought from consumers).
Not surprisingly, MERS operates in derogation of the rights and interests of
consumers and the public interest. MERS claims that the MERS system is
beneficial to consumers because the “cost savings are substantial,” the flow of
funds are sped up, and the consumer can determine which company services her
mortgage by calling a toll-free number. MERS Br. at 9-11, 37-38. However, these
arguments are unsupported and disregard the significant obstacles and confusion
that MERS creates. As described below, the detrimental effects of MERS—the
hiding of the true note and mortgage holder and the insulation of the holder from
potential liability in situations involving predatory loans— substantially outweigh
any purported benefit to consumers of the MERS system. Indeed, MERS is
fundamentally unfair to homeowners who are trapped in the system because it
transmutes public mortgage loan ownership information, required to be recorded in
the public databases, into secret and proprietary information, inaccessible to both
the borrower and the public.
6
II. MERS’ Claims That the MERS System Is Beneficial to Consumers Are
Unsupported.
MERS has not ushered in a beneficent new regime in the mortgage lending
industry, nor does it impart cost savings or greater access to information to
homeowners. See MERS Br. at 11, 37, 39. In fact, the opposite is true. The only
beneficiaries of the MERS system are MERS and its member lenders and servicers.
The losers are millions of homeowners who are unwittingly drawn into MERS’
virtual black hole of information, and the public at large. Far from filling an
information void, the MERS system creates an information drain, removing the
true note holder’s identity from the public records and substituting MERS in its
stead. Significantly, while systematically eliminating any public record of
mortgage loan ownership and assignments, MERS has not even bothered to
maintain a private database of intermediate assignments—tracking only the
identity of the loan servicer. R. at 635-637. As a result, the judges and court staff
who are forced to deal with the confusion spawned by the increasing number of
land records and foreclosures filed in the name of MERS can also be counted
among the casualties of the MERS system.
Any cost savings resulting from the MERS system benefit its member
lenders, who are freed from the costs of filing mortgage assignments, not
homeowners or the public. These cost savings are touted as MERS’ core purpose:
“This [MERS process] eliminates the need to record an assignment to your
7
MERS® Ready buyer, saving on average $22 per loan.” (“What is MERS?”
promotional materials) and “Save at least $22 on each loan by eliminating
assignments.” (MERS benefit materials). See also
http://www.mersinc.com/why_mers (last visited September 20, 2006).
Moreover, MERS’ assertion that homeowners are the beneficiaries of the
MERS system simply cannot be reconciled with the practices espoused by MERS
or those of its members. MERS Br. at 11, 38. While MERS claims that its
member lenders pass on savings to their borrowers, MERS Br. at 11, there is no
indication this is actually happening; nor is it any part of the MERS sales pitch to
lenders. To the contrary, thanks to MERS, an additional fee frequently appears on
the HUD-1 Settlement Statement: a MERS fee of $3.95. See R. at 48. MERS
encourages its members to charge this additional fee:
Q. Can I pass the MERS registration fee on to the borrower?
A. YES. On conventional loans you may be able to pass this fee
on to the borrower, but you should check with your legal
advisors to ensure that you are in compliance with federal and
state laws. On government loans, please check with your local
field office for availability and approval.
(MERS promotional FAQ).
There is no record evidence that any costs savings are passed on to
borrowers. The opposite is true. The $3.95 MERS assignment fee is built into the
standard fees charged by lenders at closing and variously denominated as
8
“origination fee,” “underwriting fee,” “processing fee,” “administration fee,”
“funding fee,” etc. on the HUD-1 settlement sheet. Under the MERS system, it is
MERS and its members who are gaining financially, clerk’s offices which are
deprived of valuable operating funds, and consumers who are losing ground.
MERS erroneously touts its system as providing greater access to
information through the availability of a toll-free number to identify the
homeowner’s loan servicer. See R. at 48; MERS Br. at 37, 39. MERS’ repeated
emphasis, MERS Br. at 9-10, 39, on this issue is a red herring. The identity of the
servicer is well known to the homeowner, who receives the servicer’s monthly bills
and makes mortgage payments to the servicer. In fact, the identity of the servicer
is perhaps the only information homeowners know about their loan once MERS is
involved. MERS does not offer homeowners a toll-free number to learn who
actually owns their note and mortgage; indeed MERS does not track that
information itself. Yet this is the key piece of information that homeowners no
longer possess and are unable to access because MERS has eliminated it from the
public records.
III. Homeowners Have a Right to Know Who Owns Their Loans.
MERS’ existence is justified by a slender reed of an opinion letter of its
counsel, a letter which cavalierly asserts that “there is no reason why, under a
mortgage, the entity holding or owning the note may not keep the fact of its
9
ownership confidential. . . The public has no significant interest in learning the true
identity of the holder of the note.” R. at 731. This self-serving opinion is utterly
incorrect, and dangerously ignores consumer rights and the strong public interest in
maintaining an accurate and complete public recordation system.
The 2001 Opinion of the Attorney General of the State of New York is a
clear refutation of MERS’ foundational principle that MERS’ elimination of public
records does not violate public policy:
Designating MERS as the mortgagee in the mortgagor-mortgagee
indices would not satisfy the intent of Real Property Law’s recording
provisions to inform the public about the existence of encumbrances,
and to establish a public record containing identifying information as
to those encumbrances. If MERS ever went out of business, for
example, it would be virtually impossible for someone relying on the
public record to ascertain the identity of the actual mortgagee if only
MERS had been designated as the mortgagee of record.
2001 N.Y. Op. Attorney General 1010; 2001 N.Y. AG LEXIS 2.
Moreover, the importance of maintaining public records that accurately
identify the mortgage holder has assumed greater importance in recent years, as
mortgages are increasingly transferred into the secondary market and are only
rarely retained by the originating mortgage lender. A booming secondary
mortgage market has emerged with the issuance of mortgage-backed securities
which are sold to Wall Street firms in pools and securitized. These securitized
mortgages have skyrocketed from $11 billion in 1994 to more than $500 billion in
2005. Inside B&C Lending at 2 (February 3, 2006).
10
What this securitization boom means for consumers is that the entity that
owns the note and mortgage is likely to change several times over the life of the
loan. Before MERS, the easiest way to determine the current owner was to check
the public records for the last assignment of the mortgage.1 In the MERS system,
however, assignments are never filed except when the mortgage is initially
assigned to MERS or assigned to a non-MERS member mortgagee. As a result,
when MERS is the nominee for a mortgage, the homeowner cannot determine who
owns her note by checking the public records, nor can she obtain this information
from MERS. The MERS system thus actively subverts the public policy of
maintaining a transparent, public title history of real property.
It is essential for consumers to be able to identify the owner of their loan,
since the owner alone retains the power to make certain decisions about the loan,
particularly when borrowers fall behind. Knowing the identity of the servicer is
rarely sufficient for consumers who are having problems with their loans, as
servicers often lack the necessary authority to enter into loan modifications with
borrowers or restructure overdue payments. Borrowers may also benefit from
direct contact with owners when servicers’ interests in collecting late fees and
collection fees run counter to borrowers’ interests in bringing their loans current.
1 The recording of an assignment is beneficial to the borrower, and the public, by openly stating
the current owner of the mortgage.
11
Thus, the homeowner’s ability to locate the owner of the note and mortgage is
important both to informal resolution of payment delinquencies and when more
serious problems arise.
The homeowner’s inability to determine quickly who owns the note and
mortgage also prevents the exercise of important rights under federal and state law
and makes it difficult to adequately defend foreclosure proceedings. Federal law
creates a right of rescission whenever a homeowner refinances a home, or
otherwise enters into a nonpurchase money mortgage. If the lender fails to comply
fully with the dictates of the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., the
borrower is entitled to exercise the right of rescission for an extended three year
period. 15 U.S.C. § 1635(f). When exercised, this right is extremely powerful: it
cancels the lender’s security interest or mortgage, credits all payments entirely to
principal, relieves the homeowner of the obligation to repay any closing costs or
fees financed, and provides the possibility of recovering statutory and
compensatory damages. 12 C.F.R. § 226.23. Of critical importance in the context
of this proceeding, the right to rescind may be asserted against assignees of the
obligation, i.e. the note holder itself; in fact, rescission is one of the few tools
available to homeowners to stop a foreclosure. 15 U.S.C. § 1641(c).
Unlike note holders, servicers are not liable for rescission, 15 U.S.C.
§1641(f)(1), and some courts have refused to honor a homeowner’s rescission even
12
where the servicer’s identity is the only information available to the homeowner.
See Miguel v. Country Funding Corp., 309 F.3d 1161 (9th Cir. 2002). While the
Federal Reserve Board subsequently amended its Official Staff Commentary to
clarify that service upon an agent of the holder, as defined by state law, is
sufficient, where the creditor does not designate a person to receive the notice of
rescission, 69 Fed. Reg. 16,769 (Mar. 31, 2004), many ambiguities remain and
courts have continued to question the adequacy of notice unless given to the holder
of the loan. See, e.g., Roberts v. WMC Mortg. Corp., 173 Fed. Appx. 575 (9th Cir.
2006). Prudent practice makes it essential for a rescinding homeowner to identify
and notify the holder.
Identifying the holder of the note is dependent upon accurate land records, as
servicers incur no liability for withholding this information. While the Truth-in-
Lending Act requires servicers to tell borrowers, upon request, who the holder is,
15 U.S.C. §1641(f)(2), there is no requirement that the response be timely and
there is no remedy for its violation. The experience of amici is that servicers rarely,
if ever, provide this information.
Service upon MERS is likewise ineffective, as MERS is neither the holder
nor the servicer. See Mortg. Elec. Registration Sys. v. Estrella, 390 F.3d 522 (7th
Cir. 2004) (MERS is a nominee on the mortgage only); Mortg. Elec. Registration
Sys. v. Neb. Dep’t of Banking & Fin., 704 N.W.2d 784 (Neb. 2005) (MERS argues
13
that it is only nominee of mortgages). As “nominee,” MERS is not an agent of the
holder for purposes of receipt of rescission notices. Cf., e.g., Black’s Law
Dictionary 727 (6th ed. abr.) (defining nominee as “one designated to act for
another as his representative in a rather limited sense”); Mortg. Elec. Registration
Sys. v. Neb. Dep’t of Banking & Fin., 704 N.W.2d 784 (Neb. 2005) (MERS argues
that it is only nominee of mortgages and is contractually prohibited from
exercising any rights to the mortgages). Moreover, the history of litigation
involving MERS confirms that it would be foolish to rely on notice to MERS as
notice to the holder of the mortgage. See, e.g., Freedom Mortg. Corp. v. Burnham
Mortg., Inc., 2006 WL 695467 (N.D. Ill., Mar. 13, 2006) (lender arguing that it is
not bound by foreclosure bids of MERS as its nominee); Countrywide Home Loans
v. Hannaford, 2004 WL 1836744 (Ohio Ct. App. Aug. 18, 2004).
This leaves a homeowner in a trick box. In order to exercise an important
right, the homeowner must provide notice to the holder of the note or its agent.
MERS does not serve as the holder, nor does it serve as the holder’s agent for this
purpose; it does not believe it is required to comply with the Truth-in-Lending Act
at all, according to a memo prepared by MERS’ counsel (R. at 745-6); and it
refuses or is incapable of providing the homeowner with the name or address of the
holder of the note. Surely this is not an unexpected consequence of the MERS
system. As architect of a system that, by design, withholds information from
14
homeowners that is key to their exercising a critical federal right, MERS has and
continues to infringe on homeowners’ rights of rescission.
MERS’ obfuscation of the true holder of the note further infringes on
homeowners’ rights to rescind abusive, high-cost home loans pursuant to New
York State’s Banking Law 6-l, which was enacted in October 2002 to counter
predatory lending abuses in the mortgage market. Many other state and common
law rights of borrowers are also imperiled by the MERS system. In foreclosure
proceedings, assignee note holders often claim that they are a holder in due course
when a consumer raises certain defenses such as common law fraud or deceptive
acts and practices (codified in New York State as General Business Law § 349).
Before MERS, consumers could easily access the complete chain of title through
the public records by identifying each assignment of the loan. Under the MERS
system, all of this information is lost to the homeowner, putting homeowners at a
significant and unwarranted disadvantage in defending foreclosures.
IV. The MERS System Causes Significant Confusion Among Borrowers,
and Has a Particularly Detrimental Impact on the Elderly and Other
Vulnerable Borrowers Frequently Victimized by Predatory Lenders.
In the last decade scholars and government regulatory agencies examining
mortgage lending practices, including predatory lending, have spotlighted the
importance of creating transparency in the mortgage marketplace through
improved disclosures to borrowers and enhanced consumer literacy. See Curbing
15
Predatory Home Mortgage Lending, U.S. Dept. of Housing and Urban
Development and U.S. Dept. of the Treasury, 47 (2000), available at
http://www.huduser.org/publications/hsgfin/curbing.html (“HUD-Treasury
Report”). The MERS system flies in the face of this goal—obfuscating the
mortgage process and violating consumers’ right to know. The confusion
engendered by MERS has a particularly detrimental impact on the most vulnerable
homeowners.
According to the 2000 Census, 12.9 percent of New York State’s population
is comprised of people who are 65 years and older. Of these elderly state residents,
over 66% are homeowners, while 42.8% of seniors residing in New York City own
their homes.2 These numbers suggest that a large number of the consumers
affected by the MERS system are older New Yorkers.
Declining vision, hearing, mobility and cognitive skills make it more
difficult for older borrowers to extract the critical information they need from
federally mandated disclosure documents. See Alan M. White and Cathy Lesser
Mansfield, Literacy and Contract, 13 STAN. L & POL’Y REV 233. Like many
consumers, older adults often can not understand mortgage documents, as they are
written in extremely complex and technical language. MERS amplifies this
2 See Housing Characteristics: 2000 (US Census Bureau 10/01).
16
problem by intentionally layering new legal terms, and inserting a new and foreign
legal entity, into already complicated consumer contracts and transactions.
As a result, many of amici’s clients are unaware of MERS’ involvement and
are thoroughly confused when MERS begins to act on behalf of their servicer or
mortgagee. The confusion and obstacles that are created by this MERS system are
significant, particularly for homeowners whose predatory loans put them at an
increased risk of default and foreclosure. For example, one of SBLS’ elderly
clients, in default on her mortgage, was receiving a tremendous number of
solicitations from “foreclosure rescue” companies and mortgage brokers and
lenders which promised to save her from foreclosure. When she received the
foreclosure summons and complaint naming MERS as the plaintiff, she
disregarded it because she thought that MERS was simply another company trying
to scare her. As a result of her confusion over MERS, the client nearly lost her
home.
Government agencies and consumer organizations consistently report that
older citizens are disproportionately victimized by predatory mortgage brokers and
lenders. See Consumer Protection: Federal and State Agencies in Combating
Predatory Lending, United States General Accounting Office, Report to the
Chairman and Ranking Minority Member, Special Committee on Aging, U.S.
Senate (January 2004), pp. 99-102. Older homeowners are more likely to have
17
substantial equity in their homes, making them attractive targets. Their fixed
incomes (over 20% of elderly city residents live below the poverty level) and agerelated
mental and physical impairments, affecting nearly half of city residents,
make them more vulnerable to mortgage abuse. 3 In addition, many older New
Yorkers living in inner-city homes lack access to traditional lending institutions,
placing them at greater risk of becoming victims of high cost, predatory, subprime
lenders. See Associates Home Equity v. Troup, 343 N.J. Super. 254 (App. Div.
2001).4
Subprime lending has proven to offer opportunities for unscrupulous – or
predatory-lenders to take advantage of borrowers by charging excessive
interest rates and fees and using mortgage proceeds to pay inflated costs for
home repairs or insurance products. The most common victims of these
predatory lending practices have been found to include the elderly,
minorities, and low income households.
Kimberly Burnett, Chris Herbert, et al., Subprime Originations and Foreclosures
in New York State: A Case Study of Nassau, Suffolk, and Westchester Counties
(2002) at ii.
By creating an additional, confusing overlay to the predatory loan
transaction, MERS’ involvement serves to compound the very significant problems
3 See U.S. Census 2000; see also American Community Survey, U.S. Census Bureau (2005).
4 After finding that the lender had targeted a 74 year old African American home owner in
Newark, the Court in Troup held that the lender “participated in the targeting of inner-city
borrowers who lack access to traditional lending institutions, charged them a discriminatory
interest rate, and imposed unreasonable terms.” Associates Home Equity, 343 N.J. Super.254
(App. Div. 2001).
18
that already exist for homeowners with predatory loans. MERS shields these
unscrupulous lenders, hiding the identities of assignees and muddying records
which are vital to victims seeking immediate redress.
V. The Public Has a Significant and Enduring Interest in Preserving and
Protecting the Free Public Databases Created by the Land and Court
Records of This Nation.
MERS . . . represents the future of foreclosure: a brave new world of
anonymity and unaccountability . . . The ostensible purpose is to save
companies the county filing fees they often must pay when they buy
mortgages or transfer servicing. An added benefit: if a foreclosure
filing becomes necessary that filing, too, can be in MERS’ name.
That makes it harder for journalists, community groups and
researchers to determine whose mortgages are actually ending in
foreclosure. If MERS has its way, it will become increasingly
difficult to tell whose mortgages are failing.
Richard Lord, AMERICAN NIGHTMARE: PREDATORY LENDING AND THE
FORECLOSURE OF THE AMERICAN DREAM 157 (Common Courage Press 2005).
A. Public land and court data records facilitate research
investigating the root causes of a variety of mortgage and other
land related problems.
The public land and court records have served as a vitally important, free
and accessible source of data that have been relied upon by broad constituencies,
including government, academics, non-profit advocacy organizations, businesses
and private individuals throughout the past century. These records have assisted
the legislative branches of government in formulating policy and providing a
legislative response to crises, including redressing abusive mortgage lending
19
practices. 5 See Zach Schiller, Foreclosure Growth in Ohio (2006), available at
available at: http://www.policymattersohio.org/pdf/foreclosure_growth_
ohio_2006 (supporting recently enacted Amended Substitute Senate Bill No. 185,
126th Cong., which expanded the Ohio Consumer Sales Practices Act to cover
mortgage lending; 6 TRF, Mortgage Foreclosure Filings in Pennsylvania (2005),
available at http://www.trfund.com/resource/downloads/policypubs/Mortgage-
Foreclosure-Filings.pdf (Study resulting from Pennsylvania state legislative
request to gather information and analyze foreclosures); 7 Burnett et.al, Subprime
5 The studies listed represent only a small sampling of the numerous studies and reports reliant
on public land and court records data that have influenced legislative decision-making. See e.g.,
The Reinvestment Fund (“TRF”), Mortgage Foreclosure Filings in Delaware (2006),
http://www.trfund.com/resource/downloads/policypubs/Delaware_Foreclosure.pdf (Study
commissioned by the Office of the State Bank Commissioner to analyze foreclosure activity in
Delaware); TRF, A Study of Mortgage Foreclosures in Monroe County and The
Commonwealth’s Response (2004), http://www.banking.state.pa.us/banking/cwp/
view.asp?a=1354&q=547305 (Study commissioned by the Pennsylvania Department of Banking
and the Housing Finance Agency to investigate foreclosure trends in Monroe County); Lynne
Dearborn, Mortgage Foreclosures and Predatory Lending in St. Clair County, Illinois 1996-
2000 (2003) (U.S. Department of Housing and Urban Development (“HUD”) funded study of
loan terms and foreclosure trends commissioned by St. Clair County); Lorain County
Reinvestment Fund, The Expanding Role of Subprime Lending in Ohio’s Burgeoning
Foreclosure Problem: A Three County Study of a Statewide Problem, (2002), http://cohhio.org/
projects/ocrp/SubprimeLendingReport.pdf (Study of foreclosure trends in three Ohio counties).
6 See also Zach Schiller and Jeremy Iskin, Foreclosure Growth in Ohio: A Brief Update (2005),
http://www.policymattersohio.org/pdf/Foreclosure_Growth_Ohio_2005.pdf; Zach Schiller,
Whitney Meredith, & Pam Rosado, Home Insecurity 2004: Foreclosure Growth in Ohio,
available at http://www.policymattersohio.org/pdf/Home_Insecurity_2004.pdf.
7See also Pennsylvania Department of Banking, Losing the American Dream: A Report on
Residential Mortgage Foreclosures and Abusive Lending Practices in Pennsylvania (2005),
available at http://www.banking.state.pa.us/banking/lib/banking/about_dob/special%20
initiatives/mortgage%20forecloser/statewide%20foreclosure%20report.pdf. This report was
presented to the Pennsylvania House of Representatives by the Secretary of the Pennsylvania
20
Originations and Foreclosures in New York State (Study supported passage of
New York predatory lending law, N.Y. Banking Law § 6-1).8
The land and court records data have been utilized by the executive branches
of government to inform their regulatory activities related to land ownership, see
e.g. Ramon Garcia, Residential Foreclosures in the City of Buffalo, 1990-2000
(2003)9 (New York Federal Reserve Bank investigation),10 and are a source of
information for law enforcement agencies seeking to prosecute offenders for
mortgage fraud, property flipping and other criminal mortgage-related offenses.11
See e.g. People v. Larman, No. 06253-2005 (Kings County Supreme Ct. Sept. 20,
2006) (Indictment for fraudulent mortgage transactions); People v. Sandella, No.
02899-2006 (Kings County Supreme. Ct. Sept. 27, 2006) (indictments for multi-
Department of Banking and includes information from several sources, including TRF, Mortgage
Foreclosures in Pennsylvania.
8 Executive Summary available at: http://www.abtassociates.com/reports/ESSuburban_
NY_Foreclosures_study_final.pdf (Public records and HMDA data demonstrated that
subprime foreclosures impacted both urban and suburban communities)
9 This report is available at: http://www.newyorkfed.org/aboutthefed/
buffalo/foreclosure_study.pdf (10 year study of foreclosure trends in Buffalo)
10 The following are a small sampling of executive branch studies relying on data in the public
domain. See e.g., Bunce, Harold, Gruenstein, Debbie et al., Subprime Lending: The Smoking Gun
of Predatory Lending? (HUD 2001), http://www.huduser.org/Publications/ pdf/brd/12Bunce.pdf;
Dearborn, Mortgage Foreclosures in St. Clair.
11 For a sampling of New York criminal indictments relying on land records data, see People v.
Albertina, 09141-2005 (Kings County Supreme Ct. Sept. 28, 2006) (Attorney General indictment
for a multi-million dollar scheme to sell houses with fake deeds); People v. Constant, No.
01843A-2006 (Suffolk Supreme Ct. Oct. 12, 2006)(Suffolk County grand jury indictment of six
for roles in real estate scam); Altegra Credit Co. v. Tin Chu, et al., No. 04326-2004 (Kings
County Supreme Ct. March 25, 2004)
21
million dollar residential property flipping scheme).12 These data also inform local
governments about the cost and impact of abusive lending practices on both their
constituents and the public purse. See T. Nagazumi & D. Rose, Preying on
Neighborhoods: Subprime mortgage lending and Chicagoland foreclosures, 1993-
1998 (Sept. 21, 1999) 13 (NTIC study investigated the effects of subprime mortgage
lending on foreclosures in Chicago); Kathleen C. Engel, Do Cities Have Standing?
Redressing the Externalities of Predatory Lending, 38 Conn. L. Rev. 355 (2006).
12 Criminal property flipping is rampant throughout the country. For a sampling of this problem
see e.g. Press Release, Office of Attorney General, N.J. Div. of Criminal Justice Targets
financial crime (Nov. 14, 2004), http://nj.gov/lps/newsreleases04/pr20041117b.html (Indictment
of North Jersey businessman for mortgage fraud scheme that netted more than $677,000 in
fraudulent loans); Lessons learned from the laboratory (Community Law Center (CLC) 2002)(A
report by the CLC – Baltimore City flipping and Predatory Lending Task Force (47 individuals
were indicted, pled guilty, or were convicted in federal court for property flipping and mortgage
fraud)), http://www.communitylaw.org/Executive%20 Summary.htm; see also Press Release,
Sen. Mikulski Formed Task Force and Secured Federal Assistance to Address Flipping Problem
(Oct. 9, 2003), http://mikulski.senate.gov/record.cfm?id=213248 (70 people convicted of
property flipping in Baltimore); Press Release, FBI, U.S. Attorney’s Office, Ohio, (May 9,
2006); Press Release, U.S. Attorney’s Office, S.D. Mississippi (Feb.16, 2006); Press Release,
Office of the Attorney General, Florida (June 25, 2004)
13 This report is available at: http://www.ntic-us.org/preying/preying.pdf ; For a sampling of
other relevant studies, see D. Rose, Chicago Foreclosure Update 2006 (July), http:// http://www.nticus.
org/documents/ChicagoForeclosureUpdate2006.pdf (NTIC study analyzes foreclosure trends
in Chicago); D. Rose, Chicago Foreclosure Update 2005, http://www.nticus.
org/currentevents/press/pdf/chicagoforeclosure_update.pdf; William C. Apgar & Mark Duda.
Collateral Damage: The Municipal Impact of Today’s Mortgage Foreclosure Boom 1996-2000
(May 11, 2005), http://
http://www.nw.org/Network/neighborworksprogs/foreclosuresolutions/documents/Apgar-
DudaStudyFinal.pdf (Documents the financial costs of foreclosure to municipalities); Apgar, The
Municipal Cost of Foreclosures: A Chicago Case Study (Feb. 27, 2005), http://
http://www.hpfonline.org/PDF/Apgar-Duda_Study_Full_Version.pdf (Also documents indirect costs
that result from the domino effect that foreclosures have on communities).
22
Non-profit groups and academics rely upon data in the public domain to
illustrate trends, spotlight the impact of various mortgage practices on minority and
low income communities and uncover abusive practices that injure their
constituencies. They use this information to advocate for policy initiatives that
benefit the public interest. See e.g. Nagazumi, Chicago Update 2006; Apgar and
Duda, Collateral Damage; Apgar, Municipal Cost of Foreclosures; Lindley
Higgins, Effective Community-Based Strategies for Preventing Foreclosures,1993-
2004 (2005), 14 (A 2005 analysis of the factors that led to foreclosure generated
proposals for foreclosure prevention programs)15; Neighborhood Housing Services
(NHS) of Chicago, Preserving Homeownership: Community-Development
Implications of the New Mortgage Market (2004) (Study of foreclosures from
1998-2003 proposes foreclosure prevention initiatives for community based
organizations working cooperatively with private industry and federal, state, and
local governments).16
14 This report is available at: http://www.nw.org/network/pubs/studies/documents
/foreclosureReport092905.pdf.
15 See also Nagazumi, Preying on Neighborhoods; Richard Stock, Center for Business and
Economic Research (CBER), Predation in the Sub-Prime Lending Market: Montgomery County
Vol. I., 1994-2001 (2001), http://www.mvfairhousing.com/cber/pdf/Executive%20summary.PDF
(Study examines predatory lending in Montgomery County, Ohio).
16 This report is available at: http://www.nw.org/network/pubs/studies/documents/
preservingHomeownershipRpt2004_000.pdf. See also Nagazumi, Preying on Neighborhoods at
36-37 (urging legislature to pass Illinois legislation to end predatory subprime lending and to
disclose predatory pricing and practices to Illinois regulators and the public); Higgins,
Community-Based Strategies at i. (Objective is to increase capacity of local community based
23
Businesses utilize the public land and court records data as the providers of
research services that convert public information into customized databases. See
e.g. NYForeclosures.com; Atlanta Foreclosure Report;17 Boston Foreclosure
Report and Foreclosure Report of Chicago 18). These data collection businesses
serve a wide variety of business customers, including mortgage brokers seeking
leads, bankruptcy attorneys, and real estate agents, as well as government and nonprofit
research entities. See id.19
B. The public databases have played an important role in facilitating
understanding and government response to the recent
“foreclosure boom.”
Land and court records data have become a particularly important public
resource over the past decade, as the nation has experienced what some have
characterized as a “foreclosure boom.” See generally Apgar and Duda, Collateral
organizations to revitalize communities); Apgar & Duda, Collateral Damage at 16 (Report
identifies foreclosure avoidance strategies for municipalities).
17 See http://www.equitydepot.net.
18 See http://www.chicagoforeclosurereport.com.
19 Non-profit and government researchers that have relied on these data collection businesses to
do the primary research legwork that provides them with land and court records data to support
their analyses include, the Federal Reserve Bank of New York’s Buffalo Branch, see Ramon
Garcia, Residential Foreclosures in the City of Buffalo, 1990-2000 (2003); see Bunce, Subprime
Lending; Kimberly Burnett, Bulbul Kaul, & Chris Herbert, Analysis of Property Turnover
Patterns in Atlanta, Baltimore, Cleveland and Philadelphia (2004),
http://www.abtassociates.com/reports/analysis_property_turnover_patterns.pdf; Debbie
Gruenstein & Christopher Herbert, Analyzing Trends in Subprime Originations and
Foreclosures: A Case Study of the Boston Metro Area, 1995-1999 (2000),
http://www.abtassociates.com/reports/20006470781991.pdf; Nagazumi, Preying on
Neighborhoods; Rose, Chicago Foreclosure Update 2006.
24
Damage; see also Daniel Immergluck & Geoff Smith, The External Costs of
Foreclosure: The Impact of Single-Family Mortgage Foreclosures on Property
Values, 17 Housing Pol’y Debate, Issue 1 (2006).20 As subprime mortgage lending
escalated from $35 billion in 1994 to $140 billion in 200021 to more than $600
billion in 2005, foreclosure rates jumped by an alarming 335.6%. See Robert
Avery, Kenneth Brevoort, Glenn Canner, Higher-Priced Home Lending and the
2005 HMDA Data at A125 (Sept. 8, 2006).22 These skyrocketing subprime
foreclosures disproportionately impacted low-income and minority communities.
Id. at 63.
Struggling to understand the origins of this foreclosure crisis, government
and researchers have turned to the public data. See supra Schiller; TRF, Delaware;
TRF, Pennsylvania; Dearborn, Mortgage Foreclosures in St. Clair; Paul Bellamy,
The Expanding Role of Subprime Lending in Ohio’s Burgeoning Foreclosure
20 This report is available at: http://www.fanniemaefoundation.org/programs/hpd/pdf/
hpd_1701_immergluck.pdf#search=%22%22Immergluck%22%20and%20%22Geoff%22%22
21 See Neal Walters & Sharon Hermanson, Subprime Mortgage Lending and Older Borrowers
(AARP Public Policy Institute), Data Digest Number 74 (2001). Data Digest available at:
http://assets.aarp.org/rgcenter/consume/dd74_finance.pdf
22 This report is available at:
http://www.federalreserve.gov/pubs/bulletin/2006/hmda/bull06hmda.pdf; “HMDA” refers to the
Home Mortgage Disclosure Act, 12 USC § 2801 et. seq.; see also Margot Saunders and Alys
Cohen, Federal Regulation of Consumer Credit: The Cause or the Cure for Predatory Lending?
at 11 (Joint Center for Housing Studies 2004),
http://www.jchs.harvard.edu/publications/finance/babc/babc_04-21.pdf
25
Problem: A Three County Study of a Statewide Problem, 1994-2001 (2002).23 This
effort to learn the root causes of the “foreclosure boom,” to understand whether
particular regions or demographic groups are most affected by rising foreclosures,
to evaluate the impact of these foreclosures on the surrounding community, and to
address and seek to remedy any abuses that enabled this crisis to develop, has
spawned a virtual explosion of research studies. See e.g. TRF, Delaware; Rose,
Chicago (2006); Engel, Do Cities Have Standing?; Rose, Chicago Foreclosure
Update 2006; Rose, Chicago Foreclosure Update 2005 (Updating foreclosure
activity in Chicago); Apgar & Duda, Collateral Damage; Apgar, Municipal Cost of
Foreclosures; TRF, Pennsylvania; TRF, Monroe County; Nagazumi, Preying on
Neighborhoods; NHS of Chicago, Preserving Homeownership; Dearborn,
Mortgage Foreclosures in St. Clair; Paul Bellamy, The Expanding Role; Burnett,
Subprime Originations; Garcia, Buffalo supra note 10; Bunce, Subprime Lending;
Nagazumi, Preying on Neighborhoods.
Standing alone, land and court records data serve as a valuable resource to
confirm the existence of the foreclosure boom, identify any key participants in the
foreclosure process, and identify those geographic areas hardest hit. See supra,
Dearborn, Mortgage Foreclosures in St. Clair; Stock, Predation at 8; Apgar,
23 This report is available at: http://www.cohhio.org/projects/ocrp/ SubprimeLendingReport.pdf
26
Chicago at 5.24 In fact, research derived from courthouse and public land records
motivated the North Carolina legislature to become one of the first states to crack
down on predatory mortgage lending. See Habitat for Humanity Refinances,
Coalition for Responsible Lending (updated July 25, 2000) (This ground breaking
study examined refinances of affordable Habitat for Humanity mortgages into
unaffordable predatory loans); David Rice, Predatory Lending Bill Caught in
Debate, Winston-Salem Journal, April 27, 1999.
Land and court records data are even more valuable and informative when
analyzed in conjunction with several other “puzzle pieces” of publicly available
data. See e.g. Duda & Apgar, Mortgage Foreclosures in Atlanta: Patterns and
Policy Issues, 2000-2005 (2005)25; see Apgar, Collateral Damage; Rose, Chicago
Foreclosure Update 2006; Burnett, Subprime Originations. When combined with
other sources of data, such as census tract and HMDA data, land and court records
data enable researchers to layer information to develop a comprehensive picture
that identifies the leading foreclosure filers, the geographic location and racial
composition of foreclosure hotspots and the loan characteristics associated with
concentrated and quick foreclosures. See e.g. Duda, Atlanta at 15; see also
24Similarly, Mountain State Justice, a West Virginia legal services organization that represents
victims of predatory lending, has conducted an annual review of foreclosure filings in the state
since July 2001. See Report of West Virginia Foreclosures, available from Mount State Justice.
25This report is available at: http://www.nw.org/network/neighborworksprogs/
foreclosuresolutions/documents/foreclosure1205.pdf
27
Burnett, Atlanta, Baltimore, Cleveland and Philadelphia at iii; Nagazumi, Preying
on Neighborhoods at 9; Stock, Predation at 1.
In the past, the availability of detailed public information has enabled
researchers to pinpoint some of the root causes of increased foreclosures and, for
example, informed the New York State legislature in crafting a legislative response
to abusive practices associated with high cost loans. There, a New York study
which combined public records data with HMDA data to identify subprime lenders
and the distribution of subprime foreclosures demonstrated that subprime
foreclosures were prevalent in suburban as well as urban areas.26 See Burnett,
Subprime Originations. Comprehensive research similarly enabled the State of
Illinois and the City of Chicago to redress abusive lending practices and thereby
put the brakes on the foreclosure boom in Chicago. See e.g. Nagazumi, Preying on
Neighborhoods (study demonstrated that subprime foreclosures were both an urban
and suburban problem; that most non-performing loans were subprime, and
identified the top foreclosers of high interest loans); see also, subsequently enacted
Illinois predatory lending law, 815 ILCS § 137. Data from land and court records
26 The New York predatory lending law enacted April 1, 2003 can be found at N.Y.
Banking Law § 6-1, N.Y. Gen. Bus. Law § 771-a, and N.Y. Real Prop. Acts. Law § 1302.
28
has played an important role in analyzing other trends in the mortgage market,
such as identifying unfair or discriminatory lending patterns and practices.27
Unfortunately, in recent years MERS’ increasing emergence as a
placeholder for the true note and mortgage holders in land and court records
databases has corrupted these sources of data and undermined their utility as a
research source.
C. Through its penetration of the public databases MERS has caused
a dramatic deterioration in the quality and quantity of publicly
available information.
In New York city alone, MERS has rapidly replaced true owners in the city
maintained public database—ACRIS—increasing its filings from a nominal fewer
than 100 in 2000, to approximately 90,000 in 2005 and an expected 120,000 filings
in 2006.28 Since the MERS label on the public records shields the identity of the
27 Bunce, Subprime Lending; In 2001, a joint HUD and U.S. Dept. of the Treasury report found
that “[i]n predominantly black neighborhoods, subprime lending accounted for 51 percent of
refinance loans in 1998 – compared with only 9 percent in predominantly white neighborhoods.”
Curbing Predatory Home Mortgage Lending, U.S. Dept. of Housing and Urban Development
and U.S. Dept. of the Treasury, 47 (2000),
http://www.huduser.org/publications/hsgfin/curbing.html.
28 AARP accessed the New York City Department of Finance’s Automated City Register
Information System (ACRIS) website on September 12, 2006 to research the number of MERS,
MERS as nominee and Mortgage Electronic Registration System filings in all boroughs for each
of two months—March and August during the years 2000 through 2006. The results of this
search are included below.
March 2000 7; August 2000 8; March 2001 610; August 2001 126;
March 2002 414; August 2002 663; March 2003 1,277; August 2003 2,785;
March 2004 4,384; August 2004 4,697; March 2005 7,064; August 2005 8,009;
March 2006 10,619; August 2006 10,411.
29
actual participants in the mortgage and foreclosure processes—the true noteholders
and mortgagees, the MERS filings have created a significant hole in this
important public database.
The void in the mortgage database will directly and measurably harm the
constituents of community groups, such as the University Neighborhood Housing
Program (UNHP), who will no longer reap benefits achieved through negotiations
with the largest foreclosing entities in the Bronx, entities which have been
identified through UNHP’s tracking of information about Bronx residential
lending.29 These benefits have included negotiated loss mitigation procedures and
the creation of an Asset Control Area program to renovate and sell 300 FHA
insured foreclosed homes to qualified first time moderate-income homebuyers.
Moreover, MERS’ anticipated penetration of the Bronx multi-family market will
likely cripple UNHP’s Building Indicator Project (BIP), whose database has
enabled the identification and repair of distressed rental housing. The BIP’s
database of more than 7,000 Bronx multifamily apartment buildings, including
ownership, building size, housing code violation, city lien, and critically, mortgage
Estimated annual filings for 2000 and 2006 were based on the two months of filings for those
years.
29 UNHP’s research shows MERS was plaintiff in 305 (11%) of the 2,770 auctions scheduled in
the Bronx over the past 4 ½ years. If the use of MERS continues to grow, it will become
increasingly difficult for groups like UNHP to track who is foreclosing in their neighborhoods
and to undertake remediation efforts with the foreclosers that they have successfully engaged in
the past.
30
holder data, has enabled UNHP to engage lenders who, in turn, have pressured
building owners to make numerous repairs to Bronx rental housing stock.30
New York is not alone in facing the deterioration of its public mortgage
databases. MERS’ penetration of the City of Chicago’s database starkly presents
this problem. In 1999, NTIC undertook its comprehensive study of subprime
lending in the Chicago area over a five year period from 1993-1998. At that time,
no lender or mortgagee’s identity was hidden by the MERS label. See Nagazumi,
Preying on Neighborhoods at 25. (Figure 10 displays the top 34 lenders
responsible for high interest rate foreclosures in 1998). By 2005 MERS itself was
identified as the largest foreclosing entity in Chicagoland, with 1,100 foreclosure
filings. Hidden from public view were the identities of the actual foreclosing
lenders and possibly the perpetrators of the most egregious lending practices. See
Rose, Chicago Update 2006 at 11 (Table 8 shows the most active foreclosing
institutions in 2005). As in Chicago, MERS topped the list of the largest
foreclosure filers during the period 2000-2005 in Atlanta, named as the foreclosing
agent on 41,467 or 16.1 percent of all filings, and was the largest filer in
30 Similarly, St. Ambrose Housing Aid Center, a housing advocacy group in Baltimore,
Maryland representing homeowners victimized by predatory mortgage lending regularly
searched the land records to identify homeowner victims of suspect lenders and to identify any
assignees. St. Ambrose is no longer able to identify many of these assignees and can no longer
assess their complicity in promoting the origination of abusive mortgages.
31
foreclosure tracts with very high foreclosure rates. Duda, Atlanta at 15 -17 &
Figure 3-1.31
The erroneous identification of MERS as lender of record in Jefferson
County and throughout the state during 2000 to 2002 tainted research into
foreclosure trends in Kentucky. See Steve C. Bourassa, Predatory Lending In
Jefferson County: A Report to the Louisville Urban League, 2 (Urban Studies
Institute, University of Louisville) (December 2003).32 As one of the largest
foreclosers of predatory loans, MERS’ presence on the public record masked the
identity of its constituent lenders, the true mortgagees, and obscured the true make
up of the loan portfolio foreclosed upon.
The MERS filing spreads a cloak of invisibility over any member
mortgage/note-holder that purchases a loan following origination. The lender
whose loose underwriting guidelines or careless oversight facilitated the
origination and sale of foreclosure-prone loans is carefully hidden from public
view by the MERS system. See e.g. Duda, Atlanta at 19. In shielding the identity
of these mortgage transaction participants, the MERS label hobbles researchers,
who, because of missing data, are less able to ascertain whether escalating
31Over the past year, from July 1, 2005-June 30, 2006, MERS, has also become one of the four
top foreclosers in West Virginia. See Report of West Virginia Foreclosures, available from
Mountain State Justice.
32 This report is available at: http://www.lul.org/Predatory%20Lending%20Report.pdf
32
foreclosures are caused by a small number of rogue players—who may be dealt
with through enforcement actions—or are part of a systemic problem that requires
a targeted legislative response. Whether this cloaking of its members’ transactions
resulted from a conscious plan or was simply a felicitous byproduct of MERS’
money saving scheme, the result is the same—a dangerous and destructive attack
on the public databases.
D. The MERS Shield Creates an Irretrievable Void in the Property
Records that Harms Many Constituencies.
The void in the property records harms a broad array of entities and, unless
this process is reversed, these data will be irretrievably lost to the public. Law
enforcement agencies may be stymied in their efforts to investigate and prosecute
criminal mortgage fraud and property flipping if deprived of important data
sources on which they have relied in the past. See, e.g., People v. Albertina;
People v. Larman; People v. Sandella; People v. Constant; Altegra Credit Co. v.
Tin Chu, supra. State legislatures will face obstacles to understanding the root
causes of mortgage-related problems and will be unable to identify offending
entities if they can no longer rely on public databases that have served to inform
them about past foreclosure crises in their jurisdictions. Similarly, local
governments which have turned to the land and court records data to understand
the origins of escalating foreclosures in their communities will no longer have the
necessary data upon which to base their analyses. Instead, those lenders and
33
investors who are the primary offenders will be able to hide behind the cloak of
invisibility provided by MERS.
E. Restoration and enhancement of the public database is critical to
enable government to function effectively.
It is essential that the land and court records of this nation remain public and
contain the information required by law—namely, the true identity of the
participants in the mortgage transaction. Governments and researchers must
continue to have the ability to evaluate the full range of public data, including the
land and court records, in investigating the root causes of foreclosures and other
problems and trends in the housing markets. Without this data they will be unable
to discover whether specific entities are primarily responsible for increased
foreclosures, or whether there is an industry-wide problem. They will be unable to
assess which secondary market lenders facilitate abusive lending, or which
servicers are quick to foreclose.
State and local government have a particular interest in preserving the
integrity of the public data sources in the land and court records, as these records
have been a key component of research analyzing the costs imposed by
foreclosures on municipalities and neighboring homeowners and businesses.
Concentrations of foreclosures impose a particularly high societal cost on
surrounding neighborhoods (through reduced property values) and on government
for neighborhood services (for increased policing, social services, fire and trash)
34
and reductions in the tax base. One recent study estimated that foreclosures in high
foreclosure areas imposed costs up to $34,000 on the city and up to $220,000 on
neighboring homeowners. See Apgar, Municipal Cost of Foreclosures; Apgar,
Collateral Damage; Duda, Atlanta at 15 33 These studies have also revealed the
devastating impact of predatory lending on long overdue gains in inner city
minority homeownership, as foreclosures have decimated equity and destroyed
neighborhood vitality virtually overnight. See Kathe Newman & Elvin K. Wyly,
Geographies of Mortgage Market Segmentation: The Case of Essex County, New
Jersey, 19 Housing Stud. 53, 54 (Jan. 2004); Housing Council (2003), Residential
Foreclosures in Rochester, New York 10 (foreclosures erode sales prices of nearby
homes). Government has a right to seek to minimize these societal costs and to
transfer those costs to the mortgage participants responsible for the transactions.
However, since foreclosure avoidance strategies, targeted legislation and
regulation depend on the availability of data to inform decision-making, where
MERS has caused a critical source of heretofore public data to disappear, states,
cities and advocates no longer have sufficient information to respond in a carefully
33 See also Immergluck, External Costs of Foreclosure; Daniel Immergluck & Geoff Smith,
There Goes the Neighborhood: The Effect of Single-Family Mortgage and Foreclosures on
Property Values at 9. (2005). This report is available at:
http://www.woodstockinst.org/publications/task,doc_download/gid,52/Itemid,%2041/
(Homes in low and moderate income neighborhoods in Chicago experience between 1.44 and 1.8
percent decline in value for every home foreclosed within one-eighth of a mile).
35
targeted and not overly inclusive way. See Duda, Atlanta at viii. Thus, “in Fulton
County [GA] and other places with foreclosure problems, the fact that entities
without the legal ability to make servicing decisions [MERS] are registered with
the county has been identified as a major obstacle to municipal foreclosureavoidance
efforts. . . .” Duda, Atlanta at 15. Similarly, the University
Neighborhood Housing Program in the Bronx and many other community groups
are losing an important tool that has enabled them to improve the communities of
their constituents.
F. More, not less public data is needed to enable a carefully targeted
and rapid governmental response to problems in the housing
market.
Foreclosure remains34 a key problem in today’s housing markets.
Particularly in low-income neighborhoods, foreclosures can lead to vacant or
abandoned properties that, in turn, contribute to physical disorder in a community.
See Immergluck, External Costs of Foreclosure, supra. This disorder can create a
haven for criminal activity, discourage the formation of social capital, and lead to
disinvestment in communities.
34 Foreclosure rates continue their meteoric rise, presenting significant problems and hardships
for affected homeowners, their surrounding communities and local governments. In August
2006, 115,292 properties throughout the nation entered foreclosure, a 24 percent increase over
the foreclosure level in July and 53 percent increase over foreclosures in 2005. See Les Christie,
“Foreclosures Spiked in August,” (Sept. 13, 2006), available at:
http://money.cnn.com/2006/09/13/real_estate/foreclosures_spiking/index.htm?postversion=2006
091305.
36
The costs flowing from problems in the housing market impact not only
lenders and borrowers directly involved in the sale or purchase of homes. The
costs can have a significant effect on entire communities. See id. For instance,
concentrated foreclosures can affect the property values of homes in the same or
adjoining neighborhoods. If policymakers are to truly understand the context in
which foreclosures take place and subsequently create legislation to obviate the
problems created by foreclosures (and thereby alleviate related social and
economic difficulties faced by individuals and communities), more data is
necessary and its accessibility to the public is imperative.
Researchers agree and have suggested that the solution to understanding
complex mortgage related problems is to require more not less information and to
further impose more not fewer costs on mortgage participants. See NHS of
Chicago, Preserving Homeownership, supra. Contrary to the attack on the public
databases and public revenues undertaken by MERS, the authors recommend
creating loan performance and foreclosure databases that contain sufficient
information to enable the tracking and assessment of key causes of delinquency
and default.35 These databases would be used to shape more effective legislation,
mitigate public costs and abusive practices and target foreclosure hotspots “without
35 Apgar and Duda recommend tracking all loans, all parties to the loans, loan terms, and would
at a minimum require the disclosure of the note holder and servicer whenever foreclosure is
threatened.
37
stemming the flow of credit to low-income, low-wealth and credit-impaired
borrowers. Id. at 84.
States such as Illinois have already demonstrated a strong interest in
gathering more information about high cost mortgage loans. Illinois’s newly
created data collection program requires all licensed mortgage brokers and loan
originators to enter detailed information into a database for residential mortgage
loans in designated areas in Chicago. See Public Act 094-0280 (HB 4050). This
database project is designed to address predatory practices and high foreclosure
rates. The federal government has also moved to increase data collection for high
cost loans.36
Another key recommendation that has emerged from municipal studies is to
increase public awareness of the significant foreclosure costs imposed on
communities by mortgage participants and reallocate those costs that are
“rightfully the responsibility of borrowers, lenders and others that are direct parties
to the mortgage transaction” to the transactions that created them through increased
filing fees and creation of an industry fund. Duda, Atlanta at 26-27; see also
36 Reacting to a 2001 joint HUD-U.S. Department of the Treasury report that found a
disproportionately high level of high cost, subprime refinance lending in predominantly black
neighborhoods, as compared to predominantly white neighborhoods, the Federal Reserve Board
ramped up its HMDA data reporting requirements in 2004. See HUD-Treasury Report 2000,
supra. Lenders who make high cost, subprime loans must now provide pricing information for
these loans. See Federal Financial Institutions Examination Council, A Guide to HMDA: Getting
it Right! (Dec. 2003).
38
Apgar, Municipal Cost of Foreclosures at 35. Such fees would reduce the
municipal expenditures and loss of neighboring equity that currently function as
effective subsidies to the most abusive transactions.
Land and court records serve as vitally important research tools for
government, community organizations and academic researchers. A private entity,
such as MERS, must not be allowed to deplete the public databases of land and
court records or to undermine the public’s significant and enduring interest in
preserving the integrity of these public databases of land and court records.
VI. MERS’ Subversion of the Public Policy Behind Public Recordings Costs
County and City Clerks Over a Billion Dollars.
MERS’ erosion of the public databases has, as its designers intended, created
a drain on the public treasuries. This transfer of significant revenues from county
and city clerks throughout the country to MERS and its members, is an
unwarranted interference with the clerks’ public recordation function.
In April 2006, MERS announced that 40 million mortgages were registered
with MERS. 40 Millionth Loan Registered on MERS (Inside MERS, May/ June
2006), available at http://www. mersinc.com/newsroom/currentnews.aspx. MERS
admits that a loan is transferred many times during its life. MERS Br. at 51. With
an average recordation cost of $22 for each mortgage assignment, multiplied by 40
million loans and then multiplied again to account for the many transfers that occur
during the life of a loan, the appropriation of public funds effected by the MERS
39
system is staggering. See http://www.mersinc.com/why_mers/index.aspx (last
visited October 4, 2006). Based on a conservative estimate that each of the 40
million loans on the MERS system is assigned three times each during the life of
the loan, the cost to county and city clerks nationwide from the inception of the
MERS system through April 2006, has been an astounding $2.64 billion. This
figure is continuing to grow as new mortgages are registered daily on the MERS
system.
Through its charge of $3.95 per loan, MERS has instead diverted gross
revenues of $158 million to itself. The MERS artifice has enabled the redirection
of far greater revenues away from the public treasuries and back to lenders through
improper avoidance of recordation costs. In so doing, MERS has subverted the
important public function of the county clerks and interfered with the rightful
collection of funds owing to the public treasuries.
VII. MERS Lacks Standing to Bring Foreclosure Actions in Its Name.
MERS’ standing to commence a foreclosure action in New York is a matter
of great dispute, and has led to much confusion in the courts. As a general matter,
standing to foreclose in New York requires ownership of the note. See, e.g.,
LaSalle Bank National Ass’n. v. Holguin, No. 06-9286, slip opinion at 1 (N.Y. Sup.
Ct. Suffolk Cty., Aug. 9, 2006); Kluge v. Fugazy, 145 A.D.2d 537, 536 N.Y.S.2d
40
92 (2d Dept. 1988). Neither MERS’ status as nominee for the beneficial owner nor
its status as mortgagee is sufficient to create standing.
As noted in a Connecticut case denying MERS summary judgment due to a
dispute as to ownership of the note, MERS, as nominee, generally has rather
limited rights and standing:
A nominee is one designated to act for another as his/her
representative in a rather limited sense…in its commonly accepted
meaning, the word ‘nominee’ connotes the delegation of authority to
the nominee in a representative capacity only, and does not connote
the transfer or assignment to the nominee of any property in or
ownership of the rights of the person nominating him/her.
Mortgage Electronic Registration Systems, Inc. v. Rees, 2003 Conn. Super. LEXIS
2437 (Conn. Superior Ct. September 4, 2003). See also MERS v. Shuster, No. 05-
26354/06 (N.Y. Sup. Ct., Suffolk Cty., July 13, 2006) (denying MERS’s motion
for default since MERS is merely nominee); MERS. v. Burek, 798 N.Y.S.2d 346
(N.Y. Sup. Ct. 2004) (distinguishing Fairbanks Capital Corp. v. Nagel, 289
A.D.2d 99, 735 N.Y.S.2d 13 (1st Dep’t 2001), since Fairbanks was a servicer and
identified itself as such).
The splitting of the ownership of the note and the mortgage is even more
problematic. Under well-established principles, the mortgage follows the note. See
U.C.C. §§ 9-203(g), 9-308(e); Restatement (3d), Property (Mortgages) § 5.4(a)
(1997). As an Illinois court noted, “It is axiomatic that any attempt to assign the
41
mortgage without transfer of the debt will not pass the mortgagee’s interest to the
assignee.” In re BNT Terminals, Inc., 125 B.R. 963, 970 (Bankr. N.D. Ill. 1990).
MERS has no status as mortgagee if the note is in fact owned and held by another
entity, as is always the case with MERS. Thus, MERS’ status as mere nominee is
insufficient to give it standing to foreclose, or take any legal action against a
borrower whatsoever. The recording of MERS as mortgagee when it does not and
cannot own the note is inherently confusing and misleading.
There have now been a large number of recent New York decisions denying
foreclosures brought by MERS, on the basis that MERS does not own the note and
mortgage, and therefore does not have either standing to sue or the right to assign
ownership of the note and mortgage to a foreclosing plaintiff. See, e.g., MERS v.
Wells, No. 06-5242, slip op. at 2 (N.Y. Sup. Ct., Suffolk Cty., Sept. 25, 2006) (“It
is axiomatic that the Court, for the security of ensuring a proper chain of title, must
be able to ascertain from the papers before it that the Plaintiff has the clear
authority to foreclose on property and bind all other entities by its actions”);
LaSalle Bank Natl Assn. v. Holguin, supra., slip op. at 2 (“Since MERS was
without ownership of the note and mortgage at the time of its assignment thereof to
the plaintiff, the assignment did not pass ownership of the note and mortgage to the
plaintiff”, and the plaintiff thus failed to establish ownership of the note and
mortgage); LaSalle Bank v. Lamy, 2006 N.Y. Misc. Lexis 2127 (NY. Sup. Ct.,
42
Suffolk Cty., Aug. 17, 2006) (the “assignment of the mortgage to the plaintiff,
upon which the plaintiff originally predicated its claims of ownership to the subject
mortgage, was made by an entity (MERS) which had no ownership interest in
either the note or the mortgage at the time the purported assignment thereof was
made”); MERS. v. Burek, 798 N.Y.S.2d 346, 347 (N.Y. Sup. Ct., Richmond Cty.
2004) (denying summary judgment to MERS since MERS “is merely the selfdescribed
agent of a principal”); MERS v. Shuster, No. 05-26354/06 (N.Y. Sup.
Ct., Suffolk Cty., July 13, 2006) (denying MERS’s motion for default since MERS
owns neither the note or mortgage); MERS v. DeMarco, No. 05-1372, slip op. at 1-
2 (N.Y. Sup. Ct., Suffolk Cty., April 11, 2005) (ex-parte motion for default denied
because: a) the plaintiff was not named as the lender in either the note or
mortgage, and b) there was no proof that the plaintiff was the owner of the note
and mortgage at the time the action was commenced by reason of assignment or
otherwise”); Deutsche Bank National Trust Company as Trustee v. Primrose, No.
05-25796 (N.Y. Sup. Ct., Suffolk Cty., July 13, 2006); Everhome Mortgage
Company v. Hendriks, No. 05-024042 (N.Y. Sup. Ct., Suffolk Cty., June 27, 2006);
MERS v. Ramdoolar, No. 05-019863 (N.Y. Sup. Ct., Suffolk Cty., Mar. 7, 2006);
MERS v.Delzatto, No. 05-020490 (N.Y. Sup. Ct., Suffolk Cty., Dec. 9, 2005);
MERS, Inc. v. Parker, No. 017622/2004, slip op. at 2 (N.Y. Sup. Ct., Suffolk Cty.
Oct. 19, 2004) (denying MERS’ motion for default judgment since MERS does not
43
own the note); MERS, Inc. v. Schoenster, No. 16969-2004, (N.Y. Sup. Ct., Suffolk
Cty., Sept. 15, 2004); see also Andrew Harris, Suffolk Judge Denies Requests by
Mortgage Electronic Registration Systems, N.Y. LAW J. (Aug. 31, 2004)
(discussing four foreclosure cases in Suffolk County that were dismissed in one
day because the judge held that MERS cannot foreclose because it is not the owner
of the note or mortgage).
Other state courts have also questioned MERS’ standing to proceed with
foreclosures. For example, in Florida, there have been a string of decisions
dismissing foreclosures brought by MERS based on its lack of standing. See, e.g.,
Mortg. Elec. Registration Sys., Inc. v. Azize, No. 05-001295-CI-11 (Fla. Cir. Ct.
Pinellas Cty. Apr. 18, 2005) (dismissing 28 individual foreclosures brought by
MERS on the basis of MERS’ lack of ownership of the notes), appeal docketed,
No. 2D05-4544 (Fla. Dist. Ct. App. 2d Dist. 2005); Mortg. Elec. Registration Sys.,
Inc. v. Griffin, No.16-2004-CA-002155, slip op. at 1 (Fla. Cir. Ct. May 27, 2004)
(dismissing foreclosure initiated by MERS based on lack of standing); see also
MERS v. Rees, supra. (denying summary judgment to MERS because a genuine
issue of fact existed regarding the current ownership of the note; a discrepancy
existed between the affidavit submitted by MERS claiming that it owned the note
and the information on the note); Taylor, Bean & Whitaker, Mortg. Corp. v.
Brown, 583 S.E.2d 844 (Ga. 2003) (reserving for the trial court a determination of
44
whether “MERS as nominee for the original lender and its successors, has the
power to foreclose . . .”).
Amici have represented homeowners in many cases in which MERS has
commenced a foreclosure in its name claiming to own the note and mortgage yet
has never been able to adduce any proof of its ownership of either. For example,
in Kings County Supreme Court, MERS sued Jean Roger M. Bomba and Martin C.
Bomba in a foreclosure action. MERS v. Bomba, No. 1645/03 (N.Y. Sup. Ct.,
Kings County). The Bomba complaint is riddled with mistruths and obfuscations,
including: (1) the true note holder is never mentioned; (2) MERS alleges that its
address is 400 Countrywide Way, Simi Valley, CA 93065 (which is actually
Countrywide Home Loans’ address, not MERS’ address); and (3) MERS alleges
on information and belief that it is the “sole, true and lawful owner of said
bond/note and mortgage.” Id. Amicus SBLS is representing Martin C. Bomba, and
has raised defenses, including the lack of MERS’ standing to bring the foreclosure,
but the merits have not yet been reached in the case. The confusion that MERS
engenders in the courts is typified by the judge’s order denying MERS’ unopposed
motion for an order appointing a referee in MERS v. Trapani, No. 04-19057, slip
op. at 1 (N.Y. Sup. Ct., Suffolk Cty., Mar. 7, 2005):
The submissions reflect that neither the nominal plaintiff, Mortgage
Electronic Recording Systems, Inc. (“MERS”), nor Countrywide
Home Loans, Inc. (“Countrywide”), for which MERS purports to be
the “nominee”, is the record owner of the mortgage sought to be
45
foreclosed herein. The note and mortgage that are the subject of this
foreclosure action identify the lender as Alliance Mortgage Banking
Corp. MERS is identified in the mortgage instrument only as ‘a
separate corporation that is acting solely as a nominee for Lender and
Lender’s successors and assigns.’ There is no allegation or proof in
the submissions as to any assignment of the note and mortgage to
Countrywide, to MERS, or to any other entity, and plaintiff’s counsel
has asserted no authority, statutory or otherwise, for the bare assertion
that ‘[w]here ‘MERS’ is the mortgagee of record there is no need to
prepare an assignment.’
MERS has, in revisions to its Rule 8 governing how foreclosures are
brought, attempted to address the standing problem.37 Now foreclosures can no
longer be brought in MERS’ name in Florida. They may be brought in MERS’
name elsewhere only if the note is endorsed in blank, held by the servicer, and
MERS cannot be pled as the note holder. MERS thus admits that it does not own
the note, and never owns the note. MERS also admits that it is not the entity
initiating or controlling the foreclosure. However, MERS still continues to endorse
hiding the true owner from the borrower: MERS does not require the note holder
to be identified; and MERS permits the owner of the note to designate anyone,
other than MERS, to foreclose, so long as the mortgage, but not the note, is
assigned to the third party.
In its brief, MERS attempts to characterize the various cases denying
standing to MERS to foreclose as cases that are decided based on defective
37 See Jill D. Rein, Significant Changes to Commencing Foreclosure Actions in the Name of
MERS, available at http://www.usfn.org/AM/Template.cfm?Section=Article_Library&
template=/CM/HTMLDisplay.cfm&ContentID=3899.
46
pleading rather than on fundamental standing problems. MERS Br. at 57-66.
However, the pleading defects and the standing problems are one and the same.
MERS creates categories not recognized by the law, and intentionally and
systematically conceals from borrowers, attorneys, and judges the true owner of
the note. It is this concealment that consistently causes both the pleading defects
and the standing problems. MERS continues to flaunt rules of civil procedure for
private gain, causing massive confusion among borrowers, counsel, and the courts.
CONCLUSION
Without any legal authority, MERS is eroding the public databases of this
nation and unjustly withholding critically important information from
homeowners. MERS is designed as a profit-engine for the mortgage industry,
without regard to its infringement of essential public and individual rights.
Because MERS has no beneficial interest in mortgages and should not be permitted
to forcibly effect its intentionally obfuscating recordations, this Court should find
in favor of Respondents-Appellants, Edward P. Romaine and the County of
Suffolk and against Petitioners-Appellants-Respondents, MERS.
Dated: October 6, 2006
Brooklyn, NY
47
Respectfully Submitted,
___________________________
Meghan Faux, Esq.
Josh Zinner, Esq.
Foreclosure Prevention Project
SOUTH BROOKLYN LEGAL SERVICES
105 Court Street
Brooklyn, NY 11201
(718) 237-5500
Attorneys for Amicus Curiae
Nina F. Simon, Esq.*
AARP FOUNDATION LITIGATION
601 E Street, NW
Washington, DC 20049
(202) 434-2059
For Amicus Curiae AARP
Seth Rosebrock, Esq.*
CENTER FOR RESPONSIBLE LENDING
910 17th Street, N.W., Suite 500
Washington, D.C. 20006
202-349-1850
James B. Fishman, Esq., Of Counsel
NATIONAL CONSUMER LAW CENTER
77 Summer Street, 10th Floor
Boston, MA 02110-1006
(617) 542-8010
(Fishman & Neil, LLP
305 Broadway Suite 900
New York, NY 10007)
Brian L. Bromberg, Esq., Of Counsel
NATIONAL ASSOCIATION OF CONSUMER ADVOCATES
1730 Rhode Island Ave., NW, #805
Washington, D.C. 20038
(202) 452-1989
(Bromberg Law Office, P.C.
48
40 Exchange Place, Suite 2010
New York, NY 10005)
April Carrie Charney, Esq.*
JACKSONVILLE AREA LEGAL AID, INC.
126 West Adams Street
Jacksonville, FL 32202
(904) 356-8371
Ruhi Maker, Esq.
EMPIRE JUSTICE CENTER
One West Main Street, 2nd Floor
Rochester, NY 14614
(585) 295-5808
Donna Dougherty, Esq.
Dianne Woodburn, Esq.
LEGAL SERVICES FOR THE ELDERLY IN QUEENS
97-77 Queens Blvd. Suite 600
Rego Park, New York 11374
Ph 718-286-1500, ext 1515
Diane Houk, Esq.
Pamela Sah, Esq.
FAIR HOUSING JUSTICE CENTER
HELP USA
5 Hanover Square, 17th Floor
New York, NY 10004
(212) 400-7000
Sarah Ludwig, Esq.
NEIGHBORHOOD ECONOMIC DEVELOPMENT
ADVOCACY PROJECT
73 Spring Street, Suite 50
New York, NY 10012
212-680-5100, ext. 207
Oda Friedheim, Esq.
THE LEGAL AID SOCIETY
120-46 Queens Boulevard
49
Kew Gardens, New York 11415
Tel 718 286 2450
Margaret Becker, Esq.
Foreclosure Prevention Project
LEGAL SERVICES FOR NEW YORK CITY – STATEN ISLAND
36 Richmond Terrace
Staten Island, NY 10301
(718) 233-6480
Treneeka Cusack, Esq.
LEGAL AID BUREAU OF BUFFALO
237 Main Street, Suite 1602
Buffalo, New York 14203
(716) 853-9555, ext 522
* Pro Hac Vice
50
CERTIFICATE OF COMPLIANCE
I hereby certify that the above brief was prepared on a computer using
Microsoft Word, and using Point 14 Times New Roman typeface, in double space.
The total word count, exclusive of the cover, table of contents, table of citations,
proof of service, and certificate of compliance, is 9,451.
__________________________
Meghan Faux

TERRY MABRY et al., opinion 2923.5 Cilvil code

7 Jun

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

TERRY MABRY et al.,

Petitioners,

v.

THE SUPERIOR COURT OF ORANGE COUNTY,

Respondent;

AURORA LOAN SERVICES, et al.,

Real Parties in Interest.

G042911

(Super. Ct. No. 30-2009-003090696)

O P I N I O N

Original proceedings; petition for a writ of mandate to challenge an order of the Superior Court of Orange County, David C. Velazquez, Judge. Writ granted in part and denied in part.
Law Offices of Moses S. Hall and Moses S. Hall for Petitioners.
No appearance for Respondent.
Akerman Senterfitt, Justin D. Balser and Donald M. Scotten for Real Party in Interest Aurora Loan Services.
McCarthy & Holthus, Matthew Podmenik, Charles E. Bell and Melissa Robbins Contts for Real Party in Interest Quality Loan Service Corporation.
Bryan Cave, Douglas E. Winter, Christopher L. Dueringer, Sean D. Muntz and Kamae C. Shaw for Amici Curiae Bank of America and BAC Home Loans Servicing on behalf of Real Parties in Interest.
Wright, Finlay & Zak, Thomas Robert Finlay and Jennifer A. Johnson for Amici Curiae United Trustee’s Association and California Mortgage Association.
Leland Chan for Amicus Curiae California Bankers Association.

I. SUMMARY
Civil Code section 2923.5 requires, before a notice of default may be filed, that a lender contact the borrower in person or by phone to “assess” the borrower’s financial situation and “explore” options to prevent foreclosure. Here is the exact, operative language from the statute: “(2) A mortgagee, beneficiary, or authorized agent shall contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” There is nothing in section 2923.5 that requires the lender to rewrite or modify the loan.
In this writ proceeding, we answer these questions about section 2923.5, also known as the Perata Mortgage Relief Act :
(A) May section 2923.5 be enforced by a private right of action? Yes. Otherwise the statute would be a dead letter.
(B) Must a borrower tender the full amount of the mortgage indebtedness due as a prerequisite to bringing an action under section 2923.5? No. To hold otherwise would defeat the purpose of the statute.
(C) Is section 2923.5 preempted by federal law? No — but, we must emphasize, it is not preempted because the remedy for noncompliance is a simple postponement of the foreclosure sale, nothing more.
(D) What is the extent of a private right of action under section 2923.5? To repeat: The right of action is limited to obtaining a postponement of an impending foreclosure to permit the lender to comply with section 2923.5.
(E) Must the declaration required of the lender by section 2923.5, subdivision (b) be under penalty of perjury? No. Such a requirement is not only not in the statute, but would be at odds with the way the statute is written.
(F) Does a declaration in a notice of default that tracks the language of section 2923.5, subdivision (b) comply with the statute, even though such language does not on its face delineate precisely which one of the three categories set forth in the declaration applies to the particular case at hand? Yes. There is no indication that the Legislature wanted to saddle lenders with the need to “custom draft” the statement required by the statute in notices of default.
(G) If a lender did not comply with section 2923.5 and a foreclosure sale has already been held, does that noncompliance affect the title to the foreclosed property obtained by the families or investors who may have bought the property at the foreclosure sale? No. The Legislature did nothing to affect the rule regarding foreclosure sales as final.
(H) In the present case, did the lender comply with section 2923.5? We cannot say on this record, and therefore must return the case to the trial court to determine which of the two sides is telling the truth. According to the lender, the borrowers themselves initiated a telephone conversation in which foreclosure-avoidance options were discussed, and there were many, many phone calls to the borrowers to attempt to discuss foreclosure-avoidance options. According to the borrowers, no one ever contacted them about nonforeclosure options. The trial judge, however, never reached this conflict in the facts, because he ruled strictly on legal grounds: namely (1) that section 2923.5 does not provide for a private right of action and (2) section 2923.5 is preempted by federal law. As indicated, we have concluded otherwise as to those two issues.
(I) Can section 2923.5 be enforced in a class action in this case? Not under these facts. The operation of section 2923.5 is highly fact-specific, and the details as to what might, or might not, constitute compliance can readily vary from lender to lender and borrower to borrower.
II. BACKGROUND
In December 2006, Terry and Michael Mabry refinanced the loan on their home in Corona from Paul Financial, borrowing about $700,000. In April 2008, Paul Financial assigned to Aurora Loan Services the right to service the loan. In this opinion, we will treat Aurora as synonymous with the lender and use the terms interchangeably.
According to the lender, in mid-July 2008 — before the Mabrys missed their August 2008 loan payment — the couple called Aurora on the telephone to discuss the loan with an Aurora employee. The discussion included mention of a number of options to avoid foreclosure, including loan modification, short sale, deed-in-lieu of foreclosure, and even a special forbearance. The Aurora employee sent a letter following up on the conversation. The letter explained the various options to avoid foreclosure, and asked the Mabrys to forward current financial information to Aurora so it could consider the Mabrys for these options.
According to the lender, the Mabrys missed their September 2008 payment as well, and mid-month Aurora sent them another letter describing ways to avoid foreclosure. Aurora employees called the Mabrys “many times” to discuss the situation. The Mabrys never picked up.
It is undisputed that later in September, the Mabrys filed Chapter 11 bankruptcy and Aurora did not contact the Mabrys while the bankruptcy was pending. (See 11 U.S.C. § 362 [automatic stay].) The Mabrys had their Chapter 11 case dismissed, however, in late March 2009.
According to the lender, Aurora once again began trying to call the Mabrys, calling them “numerous times,” including “three times on different days.” Meanwhile, in mid-April the Mabrys sent an authorization to discuss the loan with their lawyers.
According to the lender, finally, in June, the Mabrys sent two faxes to Aurora, the aggregate effect of which was to propose a short sale to the Mabrys’ attorney, Moses S. Hall, for $350,000. If accepted, the short sale would have meant a loss of over $400,000 on the loan. Aurora rejected that offer, and an attorney in Hall’s law office proposed a sale price of $425,000, which would have meant a loss to the lender of about $340,000.
It is undisputed that on June 18, 2009, Aurora recorded a notice of default. The notice of default used this (obviously form) language: “The Beneficiary or its designated agent declares that it has contacted the borrower, tried with due diligence to contact the borrower as required by California Civil Code section 2923.5, or the borrower has surrendered the property to the beneficiary or authorized agent, or is otherwise exempt from the requirements of section 2923.5.” Aurora sent six copies of the recorded notice of default to the Mabrys’ home by certified mail, and the certifications showed they were delivered.
It is also undisputed that on October 7, the Mabrys filed a complaint in Orange County Superior Court based on Aurora’s alleged failure to comply with section 2923.5.
According to the borrowers, no one had ever contacted them about their foreclosure options. Michael Mabry stated the following in his declaration: “We have never been contacted by Aurora nor [sic] any of its agents in person, by telephone or by first class mail to explore options for us to avoid foreclosure as required in CC § 2923.5.”
The complaint sought a temporary restraining order to prevent the foreclosure sale then scheduled just a week away, on October 14, 2009. Based on the allegation of no contact, the trial court issued a temporary restraining order, and scheduled a hearing for October 20.
But exactly one week before the October 20 hearing, the Mabrys filed an amended complaint, this one specifically adding class action allegations and seeking injunctive relief for an entire class. This new filing came with another request for a temporary restraining order, which was also granted, with a hearing on that temporary restraining order scheduled for October 27 (albeit the order was directed at Aurora only).
The first restraining order was vacated on October 20, the second on October 27. The trial judge did not, however, resolve the conflict in the facts presented by the pleadings. Rather he concluded: (1) the action is preempted by federal law; (2) there is no private right of action under section 2923.5 — the statute can only be enforced by members of pooling and servicing agreements; and (3) the Mabrys were required to at least tender all arrearages to enjoin any foreclosure proceedings.
The Mabrys filed a motion for reconsideration and a third request for a restraining order based on supposedly new law. The new law was a now review-granted Court of Appeal opinion which, let us merely note here, appears to have been quite off-point in regards to any issue which the trial judge had just decided. So it is not surprising that the requested restraining order was denied. The foreclosure sale was now scheduled for November 30, 2009. Six days before that, though, the Mabrys filed this writ proceeding, and two days later this court stayed all proceedings. We invited amicus curiae to give their views on the issues raised by the petition, and subsequently scheduled an order to show cause to consider those issues.
III. DISCUSSION
A. Private Right of Action? Yes
1. Preliminary Considerations
A private right of action may inhere within a statute, otherwise silent on the point, when such a private right of action is necessary to achieve the statute’s policy objectives. (E.g., Cannon v. University of Chicago (1979) 441 U.S. 677, 683 [implying private right of action into Title IX of the Civil Rights Act because such a right was necessary to achieve the statute’s policy objectives]; Basic Inc. v. Levinson (1988) 485 U.S. 224, 230-231 [implying private right of action to enforce securities statute].)
That is, the absence of an express private right of action is not necessarily preclusive of such a right. There are times when a private right of action may be implied by a statute. (E.g., Siegel v. American Savings & Loan Assn. (1989) 210 Cal.App.3d 953, 966 [“Before we reach the issue of exhaustion of administrative remedies, we must determine, therefore, whether plaintiffs have an implied private right of action under HOLA.”].)
California courts have, of recent date, looked to Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 (Moradi-Shalal) for guidance as to whether there is an implied private right of action in a given statute. In Moradi-Shalal, for example, the presence of a comprehensive administrative means of enforcement of a statute was one of the reasons the court determined that there was no private right of action to enforce a statute (Ins. Code, § 790.03, subd. (h)) regulating general insurance industry practices. (See Moradi-Shalal, supra, 46 Cal.3d at p. 300.)
There is also a pre-Moradi Shalal approach, embodied in Middlesex Ins. Co. v. Mann (1981) 124 Cal.App.3d 558, 570 (Middlesex). (The Middlesex opinion itself copied the idea from the Restatement Second of Torts, section 874A.) The approach looks to whether a private remedy is “appropriate” to further the “purpose of the legislation” and is “needed to assure the effectiveness of the provision.” (Middlesex, supra, 124 Cal.App.3d at p. 570.)
Obviously, where the two approaches conflict, the one used by our high court in Moradi-Shalal trumps the Middlesex approach. But we may note at this point that as regards section 2923.5, there is no alternative administrative mechanism to enforce the statute. By contrast, in Moradi-Shalal, there was an existing administrative mechanism at hand (by way of the Insurance Commissioner) available to enforce section 790.03, subdivision (h) of the Insurance Code.
There are other corollary principles as well.
First, California courts, quite naturally, do not favor constructions of statutes that render them advisory only, or a dead letter. (E.g., Petropoulos v. Department of Real Estate (2006) 142 Cal.App.4th 554, 567; People v. Stringham (1988) 206 Cal.App.3d 184, 197.) Our colleagues in Division One of this District nicely summarized this point in Goehring v. Chapman University (2004) 121 Cal.App.4th 353, 375: “The question of whether a regulatory statute creates a private right of action depends on legislative intent . . . . In determining legislative intent, ‘[w]e first examine the words themselves because the statutory language is generally the most reliable indicator of legislative intent . . . . The words of the statute should be given their ordinary and usual meaning and should be construed in their statutory context. . . . These canons generally preclude judicial construction that renders part of the statute “meaningless or inoperative.”’” (Italics added.)
Second, statutes on the same subject matter or of the same subject should be construed together so that all the parts of the statutory scheme are given effect. (Lexin v. Superior Court (2010) 47 Cal.4th 1050, 1090-1091.) This canon is particularly important in the case before us, where there is an enforcement mechanism available at hand to enforce section 2923.5, in the form, as we explain below, of section 2924g. Ironically though, the enforcement mechanism at hand, in direct contrast to the one in Moradi-Shalal, is one that strongly implies individual enforcement of the statute.
Third, historical context can also shed light on whether the Legislature intended a private right of action in a statute. As noted by one federal district court that has found a private right of action in section 2923.5, the fact that a statute was enacted as an emergency statute is an important factor in determining legislative intent. (See Ortiz v. Accredited Home Lenders, Inc. (S.D. 2009) 639 F.Supp.2d 1159, 1166 [agreeing with argument that “the California legislature would not have enacted this ‘urgency’ legislation, intended to curb high foreclosure rates in the state, without any accompanying enforcement mechanism”]; cf. County of San Diego v. State of California (2008) 164 Cal.App.4th 580, 609 [admitting that private right of action might exist, even if the Legislature did not imply one, if “‘compelling reasons of public policy’” required “judicial recognition of such a right”].) Section 2923.5 was enacted in 2008 as a manifestation of a felt need for urgent action in the midst of a cascading torrent of foreclosures.
Finally, of course, there is recourse to legislative history. Alas, in this case, there is silence on the matter as regards the existence of a private right of action in the final draft of the statute, and we have been cited to nothing in the history that suggests a clear legislative intent one way or the other. (See generally J.A. Jones Construction Co. v. Superior Court (1994) 27 Cal.App.4th 1568, 1575 (J.A. Jones) [emphasizing importance of clear intent appearing in legislative history].) To be sure, as we were reminded at oral argument, an early version of section 2923.5 had an express provision for a private right of action and that provision did not make its way into the final version of the statute. And we recognize that this factor suggests the Legislature may not have wanted to have section 2923.5 enforced privately.
On the other hand, the bottom line was an outcome of silence, not a clear statement that there should be no individual enforcement. And silence, as this court pointed out in J.A. Jones, has its own implications. There, we cited Professor Eskridge’s work on statutory interpretation (see Eskridge, The New Textualism (1990) 37 U.C.L.A. L.Rev. 621, 670-671 (hereinafter “Eskridge on Textualism”)) to recognize that ambiguity in a statute may itself be the result of both sides in the legislative process agreeing to let the courts decide a point: “[I]f there is ambiguity it is because the legislature either could not agree on clearer language or because it made the deliberate choice to be ambiguous — in effect, the only ‘intent’ is to pass the matter on to the courts.” (J.A. Jones, supra, 27 Cal. App.4th at p. 1577.) As Professor Eskridge put it elsewhere in his article: “The vast majority of the Court’s difficult statutory interpretation cases involve statutes whose ambiguity is either the result of deliberate legislative choice to leave conflictual decisions to agencies or the courts.” (Eskridge on Textualism, supra, 37 UCLA L.Rev. at p. 677.)
We have a concrete example in the case at hand. Amicus curiae, the California Bankers Association, asserts that if section 2923.5 had included an express right to a private right of action, the association would have vociferously opposed the legislation. Let us accept that as true. But let us also accept as a reasonable premise that the sponsors of the bill (2008, Senate Bill No. 1137) would have vociferously opposed the legislation if it had an express prohibition on individual enforcement. The point is, the bankers did not insist on language expressly or even impliedly precluding a private right of action, or, if they did, they didn’t get it. The silence is consonant with the idea that section 2923.5 was the result of a legislative compromise, with each side content to let the courts struggle with the issue.
With these observations, we now turn to the language, structure and function of the statute at issue.
2. Operation of Section 2923.5
Section 2923.5 is one of a series of detailed statutes that govern mortgages that span sections 2920 to 2967. Within that series is yet another long series of statutes governing rules involving foreclosure. This second series goes from section 2924, and then follows with sections 2924a through 2924l. (There is no section 2924m . . . yet.)
Section 2923.5 concerns the crucial first step in the foreclosure process: The recording of a notice of default as required by section 2924. (Just plain section 2924 — this one has no lower case letter behind it.)
The key text of section 2923.5 — “key” because of the substantive obligation it imposes on lenders — basically says that a lender cannot file a notice of default until the lender has contacted the borrower “in person or by telephone.” Thus an initial form letter won’t do. To quote the text directly, lenders must contact the borrower by phone or in person to “assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” The statute, of course, has alternative provisions in cases where the lender tries to contact a borrower, and the borrower simply won’t pick up the phone, the phone has been disconnected, the borrower hides or otherwise evades contact.
The contrast between section 2923.5 and one of its sister-statutes, section 2923.6, is also significant. By its terms, section 2923.5 operates substantively on lenders. They must do things in order to comply with the law. In Hohfeldian language, it both creates rights and corresponding obligations.
But consider section 2923.6, which does not operate substantively. Section 2923.6 merely expresses the hope that lenders will offer loan modifications on certain terms. By contrast, section 2923.5 requires a specified course of action. (There is a reason for the difference, as we show in part III.C., dealing with federal preemption. In a word, to have required loan modifications would have run afoul of federal law.)
As noted above, other steps in the foreclosure process are set forth in sections 2924a through 2924l. The topic of the postponement of foreclosure sales is addressed in section 2924g.
Subdivision (c)(1)(A) of section 2924g sets forth the grounds for postponements of foreclosure sales. One of those grounds is the open-ended possibility that any court of competent jurisdiction may issue an order postponing the sale. Section 2923.5 and section 2924g, subdivision (c)(1)(A), when read together, establish a natural, logical whole, and one wholly consonant with the Legislature’s intent in enacting 2923.5 to have individual borrowers and lenders “assess” and “explore” alternatives to foreclosure: If section 2923.5 is not complied with, then there is no valid notice of default, and without a valid notice of default, a foreclosure sale cannot proceed. The available, existing remedy is found in the ability of a court in section 2924g, subdivision (c)(1)(A), to postpone the sale until there has been compliance with section 2923.5. Reading section 2923.5 together with section 2924g, subdivision (c)(1)(A) gives section 2923.5 real effect. The alternative would mean that the Legislature conferred a right on individual borrowers in section 2923.5 without any means of enforcing that right.
By the same token, compliance with section 2923.5 is necessarily an individualized process. After all, the details of a borrower’s financial situation and the options open to a particular borrower to avoid foreclosure are going to vary, sometimes widely, from borrower to borrower. Section 2923.5 is not a statute, like subdivision (h) of section 790.03 of the Insurance Code construed in Moradi-Shalal, which contemplates a frequent or general business practice, and thus its very text is necessarily directed at those who regulate the insurance industry. (Insurance Code section 790.03, subdivision (h) begins with the words, “Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices: . . . .”; see generally Moradi-Shalal, supra, 46 Cal.3d 287.)
Rather, in order to have its obvious goal of forcing parties to communicate (the statutory words are “assess” and “explore”) about a borrower’s situation and the options to avoid foreclosure, section 2923.5 necessarily confers an individual right. The alternative proffered by the trial court — enforcement by the servicer of pooling agreements — involves the facially unworkable problem of fitting individual situations into collective pools.
The suggestion of one amicus that the Legislature intended enforcement of section 2923.5 to reside within the Attorney General’s office is one of which we express no opinion. Our decision today should thus not be read as precluding such enforcement by the Attorney General’s office. But we do note that the same individual-collective problem would dog Attorney General enforcement of the statute. To be sure (which is why the possibility should be left open), there might, ala Insurance Code section 790.03, subdivision (h), be lenders who systematically ignore section 2923.5, and their “general business practice” would be susceptible to some sort of collective enforcement. Even so, the Attorney General’s office can hardly be expected to take up the cause of every individual borrower whose diverse circumstances show noncompliance with section 2923.5.
3. Application
We now put the preceding ideas and factors together.
While the dropping of an express provision for private enforcement in the legislative process leading to section 2923.5 does indeed give us pause, it is outweighed by two major opposing factors. First, the very structure of section 2923.5 is inherently individual. That fact strongly suggests a legislative intention to allow individual enforcement of the statute. The statute would become a meaningless dead letter if no individual enforcement were allowed: It would mean that the Legislature created an inherently individual right and decided there was no remedy at all.
Second, when section 2923.5 was enacted as an urgency measure, there already was an existing enforcement mechanism at hand — section 2924g. There was no need to write a provision into section 2923.5 allowing a borrower to obtain a postponement of a foreclosure sale, since such a remedy was already present in section 2924g. Reading the two statutes together as allowing a remedy of postponement of foreclosure produces a logical and natural whole.
B. Tender Full Amount of Indebtedness? No
The right conferred by section 2923.5 is a right to be contacted to “assess” and “explore” alternatives to foreclosure prior to a notice of default. It is enforced by the postponement of a foreclosure sale. Therefore it would defeat the purpose of the statute to require the borrower to tender the full amount of the indebtedness prior to any enforcement of the right to — and that’s the point — the right to be contacted prior to the notice of default. Case law requiring payment or tender of the full amount of payment before any foreclosure sale can be postponed (e.g., Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, 578 [“It is settled that an action to set aside a trustee’s sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security.”]) arises out of a paradigm where, by definition, there is no way that a foreclosure sale can be avoided absent payment of all the indebtedness. Any irregularities in the sale would necessarily be harmless to the borrower if there was no full tender. (See 4 Miller & Starr, Cal. Real Estate (2d ed. 1989) § 9:154, pp. 507-508.) By contrast, the whole point of section 2923.5 is to create a new, even if limited right, to be contacted about the possibility of alternatives to full payment of arrearages. It would be contradictory to thwart the very operation of the statute if enforcement were predicated on full tender. It is well settled that statutes can modify common law rules. (E.g., Evangelatos v. Superior Court
44 Cal.3d 1188, 1192 [noting that Civil Code sections 1431 to 1431.5 had modified traditional common law doctrine of joint and several liability].)
C. Preempted by Federal Law? No — As Long
As Relief Under Section 2923.5 is Limited to Just Postponement
1. Historical Context
A remarkable aspect of section 2923.5 is that it appears to have been carefully drafted to avoid bumping into federal law, precisely because it is limited to affording borrowers only more time when lenders do not comply with the statute. To explain that, though, we need to make a digression into state debtors’ relief acts as they have manifested themselves in four previous periods of economic distress.
The first period of economic distress was the depression of the mid-1780’s that played a large part in engendering the United States Constitution in the first place. As Chief Justice Charles Evans Hughes would later note for a majority of the United States Supreme Court, there was “widespread distress following the revolutionary period and the plight of debtors, had called forth in the States an ignoble array of legislative schemes for the defeat of creditors and the invasion of contractual obligations.” (Home Building and Loan Ass’n. v. Blaisdell (1934) 290 U.S. 398, 427 (Blaisdell).) Consequently, the federal Constitution of 1789 contains the contracts clause, which forbids states from impairing contracts. (See Siegel, Understanding the Nineteenth Century Contract Clause: The Role of the Property-Privilege Distinction and ‘Takings’ Clause Jurisprudence (1986) 60 So.Cal. L.Rev. 1, 21, fn. 86 [“Although debtor relief legislation was frequently enacted in the Confederation era, it was intensely opposed. It was among the chief motivations for the convening of the Philadelphia convention, and the Constitution drafted there was designed to eliminate such legislation through a variety of means.”].)
The second period of distress arose out of the panic of 1837, which prompted, in 1841, the Illinois state legislature to enact legislation severely restricting foreclosures. The legislation (1) gave debtors 12 months after any foreclosure sale to redeem the property; and (2) prevented any foreclosure sale in the first place unless the sale fetched at least two-thirds of the appraised value of the property. (See Bronson v. Kinzie (1843) 42 U.S. 311 (Bronson); Blaisdell, supra, 290 U.S. at p. 431.) In an opinion, the main theme of which is the interrelationship between contract rights and legal remedies to enforce those rights (see generally Bronson, supra, 42 U.S. at pp. 315-321), the Bronson court reasoned that the Illinois legislation had effectively destroyed the contract rights of the lender as regards a mortgage made in 1838. (See id. at p. 317 [“the obligation of the contract, and the rights of a party under it, may, in effect, be destroyed by denying a remedy altogether”].)
The third period of distress was, of course, the Great Depression of the 1930’s. In 1933, the Minnesota Legislature enacted a mortgage moratorium law that extended the period of redemption under Minnesota law until 1935. (See Blaisdell, supra, 290 U.S. at pp. 415-416.) But — and the high court majority found this significant — the law required debtors, in applying for an extension of the redemption period — to pay the reasonable value of the income of the property, or reasonable rental value if it didn’t produce income. (Id. at. pp. 416-417.) The legislation was famously upheld in Blaisdell. In distinguishing Bronson, the Blaisdell majority made the point that the statute did not substantively impair the debt the way the legislation in Bronson had: “The statute,” said the court, “does not impair the integrity of the mortgage indebtedness.” (Id. at p. 425.) The court went on to emphasize the need to pay the fair rental value of the property, which, it noted, was “the equivalent of possession during the extended period.”
Finally, the fourth period was within the living memory of many readers, namely, the extraordinary inflation and high interest rates of the late 1970’s. That period engendered Fidelity Federal Savings & Loan Association v. de la Cuesta (1982) 458 U.S. 141 (de la Cuesta). Many mortgages had (still have) what is known as a “due-on-sale” clause. As it played out in the 1970’s, the clause effectively required any buyer of a new home to obtain a new loan, but at the then-very high market interest rates. To circumvent the need for a new high rate mortgage, creative wrap-around financing was invented where a buyer would assume the obligation of the old mortgage, but that required the due-on-sale clause not be enforced.
An earlier decision of the California Supreme Court, Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, had encouraged this sort of creative financing by holding that due-on-sale clauses violated California state law as an unreasonable restraint on alienation. Despite that precedent, the trial judge in the de la Cuesta case (Edward J. Wallin, who would later join this court) held that regulations issued by the Federal Home Loan Bank Board, by the authority of the Home Owners’ Loan Act of 1933 preempted state law that invalidated due-on-sale clause. A California appellate court in the Fourth District (in an opinion by Justice Marcus Kaufman, who would later join the California Supreme Court) reversed the trial court. The United States Supreme Court, however, agreed with Judge Wallin’s determination, and reversed the appellate judgment and squarely held the state law to be preempted.
The de la Cuesta court observed that the bank board’s regulations were plain — “even” the California appellate court had been required to recognize that. (de la Cuesta, supra, 458 U.S. at p. 154). On top of the express preemption, Congress had expressed no intent to limit the bank board’s authority to “regulate the lending practices of federal savings and loans.” (Id. at p. 161.) Further, going into the history of the Home Owners’ Loan Act, the de la Cuesta court pointed out that “mortgage lending practices” are a “critical” aspect of a savings and loan’s “‘operation,’” and the Home Loan Bank Board had issued the due-on-sale regulations in order to protect the economic solvency of such lenders. (See id. at pp. 167-168.) In what is perhaps the most significant part of the rationale for our purposes, the bank board had concluded that “the due-on-sale clause is ‘an important part of the mortgage contract,’” consequently its elimination would have an adverse effect on the “financial stability” of federally chartered lenders. (Id. at p. 168.) For example, invalidation of the due-on-sale clause would make it hard for savings and loans “to sell their loans in the secondary markets.” (Ibid.)
With this history behind us, we now turn to the actual regulations at issue in the case before us.
2. The HOLA Regulations
Under the Home Owner’s Loan Act of 1933 (12 U.S.C. § 1461 et seq.) the federal Office of Thrift Supervision has issued section 560.2 of title 12 of the Code of Federal Regulations, a regulation that itself delineates what is a matter for federal regulation, and what is a matter for state law. Interestingly enough, section 560.2 is written in the form of examples, using the “ejusdem generis” approach of requiring a court to figure out what is, and what is not, in the same general class or category as the items given in the example.
On the preempted side, section 560.2 includes:
— “terms of credit, including amortization of loans and the deferral and capitalization of interest and adjustments to the interest rate” (§ 560.2(b)(4));
— “balance, payments due, or term to maturity of the loan” (§ 560.2(b)(4)); and, most importantly for this case,
— the “processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages.” (§ 560.2(b)(10), italics added.)
On the other side, left for the state courts, is “Real property law.” (12 C.F.R. § 560.2(c)(2).)
We agree with the Mabrys that the process of foreclosure has traditionally been a matter of state real property law, a point both noted by the United States Supreme Court in BFP v. Resolution Trust Corp. (1994) 511 U.S. 531, 541-542, and academic commentators (e.g., Alexander, Federal Intervention in Real Estate Finance: Preemption and Federal Common Law (1993) 71 N.C. L. Rev. 293, 293 [“Historically, real property law has been the exclusive domain of the states.”]), including at least one law professor who laments that diverse state foreclosure laws tend to hinder efforts to achieve banking stability at the national level. (See Nelson, Confronting the Mortgage Meltdown: A Brief for the Federalization of State Mortgage Foreclosure Law (2010) 37 Pepperdine L.Rev. 583, 588-590 [noting that mortgage foreclosure law varies from state to state, and advocating federalization of mortgage foreclosure law].) By contrast, we have not been cited to anything in the federal regulations that govern such things as initiation of foreclosure, notice of foreclosure sales, allowable times until foreclosure, or redemption periods. (Though there are commentators, like Professor Nelson, who argue there should be.)
Given the traditional state control over mortgage foreclosure laws, it is logical to conclude that if the Office of Thrift Supervision wanted to include foreclosure as within the preempted category of loan servicing, it would have been explicit. Nothing prevented the office from simply adding the words “foreclosure of” to section 560.2(b)(10).
D. The Extent of Section 2923.5?
More Time and Only More Time
State law should be construed, whenever possible, to be in harmony with federal law, so as to avoid having the state law invalidated by federal preemption. (See Greater Westchester Homeowners Assn. v. City of Los Angeles (1979) 26 Cal.3d 86, 93; California Arco Distributors, Inc. v. Atlantic Richfield Co. (1984) 158 Cal.App.3d 349, 359.)
We emphasize that we are able to come to our conclusion that section 2923.5 is not preempted by federal banking regulations because it is, or can be construed to be, very narrow. As mentioned above, there is no right, for example, under the statute, to a loan modification.
A few more comments on the scope of the statute:
First, to the degree that the words “assess” and “explore” can be narrowly or expansively construed, they must be narrowly construed in order to avoid crossing the line from state foreclosure law into federally preempted loan servicing. Hence, any “assessment” must necessarily be simple — something on the order of, “why can’t you make your payments?” The statute cannot require the lender to consider a whole new loan application or take detailed loan application information over the phone. (Or, as is unlikely, in person.)
Second, the same goes for any “exploration” of options to avoid foreclosure. Exploration must necessarily be limited to merely telling the borrower the traditional ways that foreclosure can be avoided (e.g., deeds “in lieu,” workouts, or short sales), as distinct from requiring the lender to engage in a process that would be functionally indistinguishable from taking a loan application in the first place. In this regard, we note that section 2923.5 directs lenders to refer the borrower to “the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency.” The obvious implication of the statute’s referral clause is that the lender itself does not have any duty to become a loan counselor itself.
Finally, to the degree that the “assessment” or “exploration” requirements impose, in practice, burdens on federal savings banks that might arguably push the statute out of the permissible category of state foreclosure law and into the federally preempted category of loan servicing or loan making, evidence of such a burden is necessary before the argument can be persuasive. For the time being, and certainly on this record, we cannot say that section 2923.5, narrowly construed, strays over the line.
Given such a narrow construction, section 2923.5 does not, as the law in Blaisdell did not, affect the “integrity” of the basic debt. (Cf. Lopez v. World Savings & Loan Assn. (2003) 105 Cal.App.4th 729 [section 560.2 preempted state law that capped payoff demand statement fees].)
E. The Wording of the Declaration:
Okay If Not Under Penalty of Perjury
In addition to the substantive act of contacting the borrower, section 2923.5 requires a statement in the notice of default. The statement is found in subdivision (b), which we quote here: “(b) A notice of default filed pursuant to Section 2924 shall include a declaration that the mortgagee, beneficiary, or authorized agent has contacted the borrower, has tried with due diligence to contact the borrower as required by this section, or that no contact was required pursuant to subdivision (h).” (Italics added.)
The idea that this “declaration” must be made under oath must be rejected. First, ordinary English usage of the word “declaration” imports no requirement that it be under oath. In the Oxford English Dictionary, for example, numerous definitions of the word are found, none of which of require a statement under oath or penalty of perjury. In fact, the second legal definition given actually juxtaposes the idea of a declaration against the idea of a statement under oath: “A simple affirmation to be taken, in certain cases, instead of an oath or solemn affirmation.” (4 Oxford English Dict. (2d. ed. 1991) at p. 336.)
Second, even the venerable Black’s Law Dictionary doesn’t define “declaration” to necessarily be under oath. Its very first definition of the word is: “A formal statement, proclamation or announcement, esp. one embodied in an instrument.” (Black’s Law Dict. (9th ed. 2009) at p. 467.)
Third, if the Legislature wanted to say that the statement required in section 2923.5 must be under penalty of perjury, it knew how to do so. The words “penalty of perjury” are used in other laws governing mortgages. (E.g., § 2941.7, subdivision (b) [“The declaration provided for in this section shall be signed by the mortgagor or trustor under penalty of perjury.”].)
And, finally — back to our point about the inherent individual operation of the statute — the very structure of subdivision (b) belies any insertion of a penalty of perjury requirement. The way section 2923.5 is set up, too many people are necessarily involved in the process for any one person to likely be in the position where he or she could swear that all three requirements of the declaration required by subdivision (b) were met. We note, for example, that subdivision (a)(2) requires any one of three entities (a “mortgagee, beneficiary, or authorized agent”) to contact the borrower, and such entities may employ different people for that purpose. And the option under the statute of no contact being required (per subdivision (h) ) further involves individuals who would, in any commercial operation, probably be different from the people employed to do the contacting. For example, the person who would know that the borrower had surrendered the keys would in all likelihood be a different person than the legal officer who would know that the borrower had filed for bankruptcy.
The argument for requiring the declaration to be under penalty of perjury relies on section 2015.5 of the Code of Civil Procedure, but that reliance is misplaced. We quote all of section 2015.5 in the margin. Essentially the statute says if a statement in writing is required to be supported by sworn oath, making the statement under penalty of perjury will be sufficient. The key language is: “Whenever, under any law of this state . . . made pursuant to the law of this state, any matter is required . . . to be . . . evidenced . . . by the sworn . . . declaration . . . in writing of the person making the same . . . such matter may with like force and effect be . . . evidenced . . . by the unsworn . . . declaration . . . in writing of such person which recites that it is . . . declared by him or her to be true under penalty of perjury . . . .” (Italics added.) The section sheds no light on whether the declaration required in section 2923.5, subdivision (b) must be under penalty of perjury.
F. The Wording of the Declaration:
Okay If It Tracks the Statute
In light of what we have just said about the multiplicity of persons who would necessarily have to sign off on the precise category in subdivision (b) of the statute that would apply in order to proceed with foreclosure (contact by phone, contact in person, unsuccessful attempts at contact by phone or in person, bankruptcy, borrower hiring a foreclosure consultant, surrender of keys), and the possibility that such persons might be employees of not less than three entities (mortgagee, beneficiary, or authorized agent), there is no way we can divine an intention on the part of the Legislature that each notice of foreclosure be custom drafted.
To which we add this important point: By construing the notice requirement of section 2923.5, subdivision (b), to require only that the notice track the language of the statute itself, we avoid the problem of the imposition of costs beyond the minimum costs now required by our reading of the statute.
G. Noncompliance Before Foreclosure
Sale Affect Title After Foreclosure Sale? No
A primary reason for California’s comprehensive regulation of foreclosure in the Civil Code is to ensure stability of title after a trustee’s sale. (Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249-1250 [“comprehensive statutory scheme” governing foreclosure has three purposes, one of which is “to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser” (internal quotations omitted)].)
There is nothing in section 2923.5 that even hints that noncompliance with the statute would cause any cloud on title after an otherwise properly conducted foreclosure sale. We would merely note that under the plain language of section 2923.5, read in conjunction with section 2924g, the only remedy provided is a postponement of the sale before it happens.
H. Lender Compliance in This Case?
Somebody is Not Telling the Truth
and It’s the Trial Court’s Job to
Determine Who It Is
We have already recounted the conflict in the evidence before the trial court regarding whether there was compliance with section 2923.5. Rarely, in fact, are stories so diametrically opposite: According to the Mabrys, there was no contact at all. According to Aurora, not only were there numerous contacts, but the Mabrys even initiated a proposal by which their attorney would buy the property.
Somebody’s not telling the truth, but appellate courts do not resolve conflicts in evidence. Trial courts do. (Butt v. State of California (1992) 4 Cal.4th 668, 697, fn. 23 [“Moreover, Diaz and Bezemek concede the proffered evidence is disputed; appellate courts will not resolve such factual conflicts.”].) This case will obviously have to be remanded for an evidentiary hearing.
I. Is This Case Suitable for
Class Action Treatment? No
As we have seen, section 2923.5 contemplates highly-individuated facts. One borrower might not pick up the telephone, one lender might only call at the same time each day in violation of the statute, one lender might (incorrectly) try to get away with a form letter, one borrower might, like the old Twilight Zone “pitchman” episode, try to keep the caller on the line but change the subject and talk about anything but alternatives to foreclosure, one borrower might, as Aurora asserts here, try to have his or her attorney do a deal that avoids foreclosure, etcetera.
In short, how in the world would a court certify a class? Consider that in this case, there is even a dispute over the basic facts as to whether the lender attempted to comply at all. We do not have, under these facts at least, a question of a clean, systematic policy on the part of a lender that might be amenable to a class action (or perhaps enforcement by the Attorney General). This case is not one, to be blunt, where the lender admits that it simply ignored the statute and proceeded on the theory that federal law had preempted it. We express no opinion as to any scenario where a lender simply ignored the statute wholesale — that sort of scenario is why we do not preclude, a priori, class actions and have not expressed an opinion as to whether the Attorney General or a private party in such a situation might indeed seek to enforce section 2923.5 in a class action.
Consequently, while we must grant the writ petition so as to allow the Mabrys a hearing on the factual merits of compliance, we deny it insofar as it seeks reinstatement of any claims qua class action. By the same token, in light of the limited right to time conferred under section 2923.5, we also deny the writ petition insofar as it seeks reinstatement of any claim for money damages.
IV. CONCLUSION
Let a writ issue instructing the trial court to decide whether or not Aurora complied with section 2923.5. To the degree that the trial court’s order precludes the assertion of any class action claims, we deny the writ. If the trial court finds that Aurora has complied with section 2923.5, foreclosure may proceed. If not, it shall be postponed until Aurora files a new notice of default in the wake of substantive compliance with section 2923.5.
Given that this writ petition is granted in part and denied in part, each side will bear its own costs in this proceeding.

SILLS, P. J.
WE CONCUR:

ARONSON, J.

IKOLA, J.

Mers brief Florida Taylor v Deutsche Bank Mers Standing

2 Jun

Appeal No. 5D09-4035
IN THE 5TH DISTRICT FLORIDA COURT OF APPEALS
Gregory Taylor
Appellant
v.
Deutsche Bank National Trust Company
as Trustee for FFMLT 2006-FF4, Mortgage Pass-Through Certificates, Series
2006-FF4
Appellee
APPEAL IN CAUSE NO. 05-2008-CA-065811
IN THE CIRCUIT COURT OF BREVARD COUNTY, FLORIDA
David E. Silverman presiding
APPELLANTS’ OPENING BRIEF
George M. Gingo, FBN 879533
P.O. Box 838
Mims, Florida 32754
321-264-9624 Office
321-383-1105 Fax
ggingo@yahoo.com
1
TABLE OF CONTENTS
Table of Contents . . . . . 2
Table of Citations . . . . . 3
Table of Cases . . . . 3 – 7
Table of Statutes . . . . 7 – 8
Table of Secondary Sources . . 8
Statement of the Case and Statement of Facts 9 – 16
Standard on Appeal . . . . 16
Summary of the Arguments. . . . 17
Arguments . . . . . . 18
Issue 1:
The Appellee presented evidence
that it was not entitled to enforce
the promissory note in question. . 18 – 23
Issue 2:
MERS did not pass an enforceable
interest in the promissory note to
the Appellee. . . . . 23 – 33
Conclusion . . . . . . 33
Certificate of Service . . . . 33
Certificate of Font Compliance . . . 34
2
TABLE OF CITATIONS
TABLE OF CASES
Amacher v. Keel,
358 So. 2d 889
(Fla. 2 DCA 1975) . . . . . . . 24
Anderson v. Liberty Lobby, Inc.,
477 U.S. 242
(1986). . . . . . . . . 16
Booker v. Sarasota, Inc.,
707 So.2d 886
(Fla. App. 1 Dist., 1998). . . . . . . 12
Brown v. Snell,
6 Fla. 741 (1856). . . . . . . . 18
Carpenter v. Longan,
16 Wall. 271,
83 U.S. 271,
21 L.Ed. 313
(1872). . . . . . . . . 24, 32
City of Cocoa v. Leffler,
762 So. 2d 1052
(Fla. 5th DCA 2000). . . . . . . 16
Century Group Inc. v.
Premier Fin. Services East L. P.,
724 So. 2D 661
(Fla. 2 DCA 1999) . . . . . . . 18
Case v. Smith,
200 So. 917
(Fla. 1941). . . . . . . . . 23
3
Collins v. Briggs,
123 So. 833
(Fla. 1929). . . . . . . . . 23
Evins v. Gainsville Nat’l Bank,
85 So. 659
(Fla. 1920). . . . . . . . . 23
Grier v. M.H.C. Realty Co.,
274 So. 2d 21
(Fla. 4 DCA 1973). . . . . . . 18
In re Carlyle,
242 B.R. 881
(Bankr. E.D.Va., 1999). . . . . . . 22
In re Foreclosure Cases,
521 F. Supp. 2D 650
(S.D. Oh. 2007). . . . . . . . 26
In Re Hayes,
393 B.R. 259
(Bankr. D. Mass. 2008). . . . . . . 21
In re Kang Jin Hwang,
396 B.R. 757
(Bankr.C.D.Cal., 2008). . . . . . . 22
In re Mitchell,
Case No. BK-S-07-16226-LBR
(Bankr.Nev. 3/31/2009). . . . . . . 25, 27
In re Sheridan,
Case No. 08-20381-TLM
(Bankr.Idaho, 2009). . . . . . . 28
4
In re Vargas,
396 B.R. 511
(Bankr.C.D.Cal., 2008). . . . . . . 28
In re Wilhelm,
Case No. 08-20577-TLM
(Bankr.Idaho, 2009). . . . . . . 22
Krol v. City of Orlando,
778 So. 2d 490, 492
(Fla. 5th DCA 2001). . . . . . . 16
Landmark National Bank v. Kesler,
216 P.3D 158
(Kansas, 2009). . . . . . . . 31
LaSalle Bank NA v. Lamy,
824 N.Y.S.2d 769
(N.Y. Supp. 2006).. . . . . . . 27
Major League Baseball v.Morsani,
790 So. 2d 1071
(Fla. 2001). . . . . . . . . 16
Mellor v. Goldberg,
658 So. 2d 1162
(Fla. 2 DCA 1995). . . . . . . 18
Margiewicz v. Terco Prop.,
441 So. 2d 1124
(Fla. 3 DCA 1983). . . . . . . 18
Mortgage Electronic Registration System, Inc.
v. Southwest Homes of Arkansas,
08-1299 (Ark. 3/19/2009) (Ark., 2009). . . . 31, 33
5
Miami Mtge. & Guar. Co. v. Drawdy,
127 So. 323
(Fla. 1930). . . . . . . . . 23
Pepe v. Shepherd,
422 So. 2d 910
(Fla. 3 DCA 1982). . . . . . . 18
Rollins v. Alvarez,
792 So. 2d 695
(Fla. 5th DCA 2001). . . . . . . 16
Scott v. Taylor,
58 So. 30
(Fla. 1912). . . . . . . . . 18
Sobel v. Mutual Dev. Inc.,
313 So. 2d 77
(Fla. 1 DCA 1975). . . . . . . 18, 24
So. Colonial Mtge. Co. v. Medeiros,
347 So. 2d 736
(Fla. 4 DCA 1977). . . . . . . 23
Stuyvesant Corp. v. Stahl,
62 So.2d 18, 20
(Fla., 1952). . . . . . . . . 32
Tayton v. American Nat’l Bank,
57 So. 678
(Fla. 1912). . . . . . . . . 18
Thomas v. Hartman,
553 So. 2d 1256
(Fla. 5 DCA 1989). . . . . . . 18
6
Vance v. Fields,
172 So. 2d 613
(Fla. 1 DCA 1965). . . . . . . 24
Volusia County v.
Aberdeen at Ormond Beach, L.P.,
760 So. 2d 126
(Fla. 2000). . . . . . . . . 16
Young v. Victory,
150 So. 624
(Fla. 1933). . . . . . . . . 18
TABLE OF STATUTES
§ 673.1031(1)(a), Fla. Stat.(2009). . . . . 12
§ 673.1031(1)(c), Fla. Stat.(2009). . . . . 12
§ 673.1031(1)(e), Fla. Stat.(2009). . . . . 12
§ 673.1041(1), Fla. Stat.(2009). . . . . . 19
§ 673.1041(2), Fla. Stat.(2009). . . . . . 19
§ 673.1041(5), Fla. Stat. (2009). . . . . 12, 19
§ 673.1051(1), Fla. Stat.(2009). . . . . . 19
§ 673.1051(3), Fla. Stat.(2009). . . . . . 19
§ 673.1091(2), Fla. Stat.(2009). . . . . . 19, 21
§ 673.1101(1), Fla. Stat.(2009). . . . . . 19
§ 673.2011(2), Fla. Stat.(2009). . . . . . 21, 25
§ 673.2014(1), Fla. Stat.(2009). . . . . . 21
7
§ 673.2031(1), Fla. Stat.(2009). . . . . . 20
§ 673.2031(3), Fla. Stat.(2009). . . . . . 21, 22, 25
§ 673.2041(1), Fla. Stat.(2009). . . . . . 12
§ 673.3011, Fla. Stat.(2009). . . . . . 19
§ 673.4121, Fla. Stat.(2009). . . . . . 21
§ 673.4151, Fla. Stat.(2009). . . . . . 21
§ 673, et. seq., , Fla. Stat.(2009). . . . . 19
TABLE OF SECONDARY SOURCES
Christopher L. Peterson, Subprime Mortgage Market
Turmoil: Examining the Role of Securitization,
http://banking.senate.gov/public/index.
cfm?FuseAction=Files.View&FileStore_id=
4f40e1b9-ec5b-4752-ba8f-0c14afc44884. . . . 29
MERS, State-by-State, MERS Recommended
Foreclosure Procedures, (2002), http://www.mersinc.org
/filedownload.aspx?id=176&table=ProductFile. . . 26
Richard R. Powell,
POWELL ON REAL
PROPERTY § 37.27[2] (2000). . . . . . 25
R. K. Arnold, Yes, There is Life on Mers,
Probate & Property, (Aug., 1997),
http://www.abanet.org/genpractice
/magazine/1998/spring-bos/arnold.html). . . . 30
8
STATEMENT OF THE CASE AND FACTS
This appeal is taken from the Circuit Court’s decision to render Summary
Final Judgment against the Appellant. The Appellate Court of Florida has
jurisdiction to consider the issues raised in this appeal under authority of the
Florida Rules of Appellate Procedure, Rule 9.130 et seq.
The nature of the case below was Appellee’s Complaint to foreclose the
residential real property owned and occupied by the Appellant, Gregory Taylor.
(R. I/2) Appellant’s First Amended Answer challenged Appellee’s standing in
affirmative defenses and an incorporated Motion to Dismiss. (R. I/111-112, 117,
118-119, 121-124)
On October 9, 2009, a hearing on the Appellee’s Motion for Summary Final
Judgment was held. (R. I/166) The Appellee offered in evidence the promissory
note, the mortgage instrument and an assignment of mortgage. (R. I/62-87)
Appellant’s Response in Opposition to Appellee’s Motion for Summary Final
Judgment (which was also identified as a cross-motion for summary judgment)
stipulated that this evidence was not in dispute. Appellant contended that the
dispute was as to what that evidence actually proved – that being that Appellee was
not entitled to enforce the promissory note against Appellant.1 (R. 174-175) This
1 The clerk’s Index to Record on Appeal has this document as being filed
subsequent to the Summary Final Judgment of Foreclosure. That is incorrect as
9
argument in the Appellant’s Response in Opposition to the Motion for Summary
Final Judgment was not novel. That document referenced that this argument had
been previously raised in the Motion to Dismiss which was incorporated within the
First Amended Answer. (R. 175) On October 9, 2009, Judge Silverman granted
Summary Final Judgment of Foreclosure in Appellee’s favor. (R. 166-172)
Appellee made the following three claims in it’s Complaint: 1) “On or about
December 21, 2005, a promissory note was executed and delivered in favor of
Plaintiff, or Plaintiff’s assignor, in the original principal amount of $168,000.00.”
(R. I/2, para. 2 of complaint); 2) “The Plaintiff is the present owner and
constructive holder of the promissory note and Mortgage.” (R. I/2, para. 2 of
complaint); and, 3) “The above-described Note and Mortgage were assigned to
Plaintiff. The assignment is attached as Exhibit “C”.” (R. I/3, para. 3 of complaint)
On November 26, 2008, Appellant filed an Answer which substantially
denied the foreclosure allegations. (R. I/49-50) On December 9, 2008, Appellee
filed a Motion for Summary Final Judgment. (R. I/51) In support of the Motion
for Summary Final Judgment, the Appellee relied solely upon the promissory note,
the mortgage instrument and the assignment of mortgage to support its’ claim that:
the file stamp on the document indicates it was filed at 8:27 a.m. on October 9,
2009. (R. I/174) This was prior to the hearing on the motion which was noticed
as set for 8:45 a.m. on October 9, 2009. (R. I/149)
10
The Note and Mortgage are in default. Moreover, Plaintiff owns and
holds the Note and Mortgage and is entitled to recover its principal,
interest, late charges, costs, attorney’s fees, and other expenses, all of
which are more fully set forth in the supporting affidavits to be filed
with the court.
(R. I/52, para. 6)
On February 23, 2009, the Appellee filed the original promissory note,
mortgage instrument and the assignment of mortgage. (R. I/62-87) The
promissory note states:
1. BORROWER’S PROMISE TO PAY
In return for a loan that I have received, I promise to pay U.S. $168,000.00
(this amount is called “principal”), plus interest, to the order of the Lender.
The Lender is FIRST FRANKLIN A DIVISION OF NAT. CITY BANK OF
IN. I understand that the Lender may transfer this Note. The Lender or
anyone who takes this Note by transfer and who is entitled to receive
payments under this Note is called the “Note Holder”.
(R. I/63)
Sections 7 and 9 of the promissory note provide that payments are due to the
Lender until the Lender transfers the note, at which time payments shall be made to
the “Note Holder”, who may enforce its rights under the note. (R. I/65) The
promissory note was never transferred, as evidenced by the lack of an indorsement
on the promissory note. (R. I/66-67)
Though the Appellee is Deutsche Bank National Trust Company, the
promissory note is payable to a different person who is specifically identified in
the promissory note as “First Franklin A Division of Nat. City Bank of IN”
11
(hereafter, “First Franklin”). The promissory note was not indorsed by anyone,
including First Franklin.2 (R. I/66) Additionally, the promissory note did not carry
an allonge.3
The mortgage instrument provides that Mortgage Electronic Registration
Systems, Inc. “MERS” is the mortgagee and that it is a separate corporation that is
acting solely as a nominee for the Lender and Lender’s successors and assigns. (R.
I/68, para. (C) and (D) ) The mortgage instrument does not identify MERS as a
2 Florida Statutes section 673.2041 (1) provides that the term “indorsement”
means a signature, other than that of a signer as maker, drawer, or acceptor, that
alone or accompanied by other words is made on an instrument for the purpose
of negotiating the instrument, restricting payment of the instrument, or incurring
indorser’s liability on the instrument. Appellant is the “maker” of the
promissory note pursuant to Florida Statutes section 673.1031(1)(e) which
provides that “Maker” means a person who signs or is identified in a note as a
person undertaking to pay.” The terms “drawer” and “acceptor’ do not apply in
this case as those terms only apply to a “draft” pursuant to Florida Statutes
section 673.1031(1)(a) & (c). Florida Statutes section 673.1041(5) provides
that “An instrument is a “note” if it is a promise and is a “draft” if it is an order.”
3 For the purpose of determining whether a signature is made on an
instrument, a paper affixed to the instrument is a part of the instrument. (§
673.2041(1), Fla. Stat. (2009)) “An allonge is a piece of paper annexed to a
negotiable instrument or promissory note, on which to write endorsements for
which there is no room on the instrument itself. Such must be so firmly affixed
thereto as to become a part thereof.” BLACK’S LAW DICTIONARY (6th
ed.1990). Florida’s Uniform Commercial Code does not specifically mention an
allonge, but notes that “[f]or the purpose of determining whether a signature is
made on an instrument, a paper affixed to the instrument is part of the instrument.”
§ 673.2041(1), Fla. Stat. (1995)). Booker v. Sarasota, Inc., 707 So.2d 886 (Fla.
App. 1 Dist., 1998)
12
payee. Instead, like the promissory note, the mortgage instrument names First
Franklin as the Lender/payee. (R. I/68, para. (E); also see R. I/70)
Appellee had not filed a reply to the Appellant’s Answer, so on June 1, 2009,
Appellant filed his First Amended Answer. (R. I/111) Appellee did not file an
objection to Appellant’s First Amended Answer. (See Index to Record for lack of
filing) In the First Amended Answer, Appellant:
1) denied that he delivered a promissory note in favor of the Appellee or
the Appellee’s assignors (R. I/110, para. 2);
2) denied that the promissory note was assigned by MERS to Appellee
(R. I/111, para. 3);
3) denied that the mortgage instrument was properly assigned to the
Appellee (R. I/111, para. 3);
4) denied that the promissory note and mortgage instrument are in
default with Appellee (R. I/111, para. 5); and,
5) denied that Appellee is owed any sum due and owing on the
promissory note and mortgage instrument (R. I/111, para. 6).
Appellant had admitted in his First Amended Answer that he is in control of
the subject property and that he resides at the property. (R. I/111, para. 12) And
though the Complaint neglected to specifically state that the Appellant had actually
borrowed money, the Appellant admitted in his Response in Opposition to the
Motion for Summary Final Judgment that he did execute a promissory note and
mortgage, but that someone other than the Appellee is entitled to enforce the
subject promissory note and mortgage against him and his property. (R. I/180)
13
Appellant made several affirmative defenses, the first and ninth of which
were to challenge the standing of the Appellee as not being an owner or holder of
the promissory note or an authorized agent for an identifiable owner or holder of
the promissory note. (R. I/111-112; 117)
The First Amended Answer also incorporated within it a Motion to Dismiss.
(R. I/119; 121-124)) The incorporated Motion to Dismiss challenged the
Appellee’s standing and stated the following:
i. The Plaintiff is clearly acting as a trustee in this action for an entity
not named in either the Mortgage or Note. (Complaint, Caption)
The Plaintiff claims that it is the present owner of the Promissory
Note and Mortgage, yet contrarily, it also claims that it is the
constructive holder of the promissory note and Mortgage.
(Complaint, par. 2) The Plaintiff claims that the Note and Mortgage
were both assigned to the Plaintiff and that the assignment is Exhibit
C to the Complaint. (Complaint, par. 3)
ii. Both the Mortgage and the Note state that payment shall be made to
Lender. (Complaint, Note, par. 1; Mortgage, p. 1)
iii. The assignment referenced in Exhibit C is an assignment by MERS of
the Mortgage to Plaintiff, it is not an assignment of the Note – there is
no assignment of the note in any of the Plaintiff’s documents.
(R. I/119)
The First Amended Answer’s incorporated Motion to Dismiss made the
following argument:
The Plaintiff alleges that it is all things – a trustee acting on behalf of
another entity who owns the Note and Mortgage, and that it is the owner of
the Note and Mortgage. The Mortgage provides that there can be multiple
14
owners of fractional interests of the Note and Mortgage. (Complaint,
Mortgage, par. 20) However, that is not what the Plaintiff alleges. The
Plaintiff alleges that there is only one owner of the Note and Mortgage – it
may be the Plaintiff, or it may be the beneficiary of a trust that the Plaintiff
is trustee of – we can’t possibly know because the Plaintiff pled it both
ways. The proof the Plaintiff provides of its ownership interest is
insignificant. The Plaintiff provides an assignment of the Mortgage but not
an assignment of the Note.
(R. I/123)
On October 9, 2009, at 8:27 a.m., which was prior to the hearing on the
Appellee’s Motion for Summary Final Judgment, the Appellant filed an opposition
to the Motion for Summary Final Judgment and Cross-Motion for Summary Final
Judgment. (R. I/174) In this document the Appellant stipulated that Appellee’s
evidence was authentic, uncontested and that there were no genuine issues of
material fact. (R. I/174-175 ) In the document, Appellant argued that there were
solely legal issues pending before the Court, those being: 1) that because the
promissory note was made payable to a specifically identified person who was not
the Plaintiff or the Plaintiff’s principal, that before Appellee could enforce it
against Appellant, the promissory note had to carry either an indorsement or an
allonge making it payable to the Appellant or to Appellant’s principal; (R. I/175)
and, 2) that MERS could not pass an enforceable interest to Appellee. (R. I/177)
The Appellee’s Motion for Summary Final Judgment was heard on October
9, 2009, at 8:45 a.m. (R. I/149; R. I/166) After oral argument in the absence of a
15
court reporter, the Circuit court granted Summary Final Judgment to the Appellee
after argument. (R. I/166)
STANDARD ON APPEAL
The standard of review for summary judgment is de novo. Major League
Baseball v.Morsani, 790 So. 2d 1071 (Fla. 2001); Rollins v. Alvarez, 792 So. 2d
695 (Fla. 5th DCA 2001); Volusia County v. Aberdeen at Ormond Beach, L.P.,
760 So. 2d 126 (Fla. 2000). In reviewing a summary judgment, the Court must
determine whether there is any “genuine issue as to any material fact” and whether
“the moving party is entitled to judgment as a matter of law.” Fla. R. Civ. P.
1.510(c).
Issues of fact are “genuine” only if a reasonable jury, considering the
evidence presented, could find for the non-moving party. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249 (1986). Generally, “[t]he party moving for
summary judgment has the burden to prove conclusively the nonexistence of any
genuine issue of material fact.” City of Cocoa v. Leffler, 762 So. 2d 1052,1055
(Fla. 5thDCA 2000). The evidence contained in the record, including supporting
affidavits, must be considered in the light most favorable to the non-moving party,
and if the slightest doubt exists, summary judgment must be reversed. Krol v. City
of Orlando, 778 So. 2d 490, 492 (Fla. 5th DCA 2001).
16
SUMMARY OF THE ARGUMENTS
Ownership of the promissory note and the mortgage instrument were
bifurcated. The unindorsed promissory note was not a bearer instrument. Rather,
it was made payable to the lender who is a specifically identified person – First
Franklin – and the mortgage instrument named MERS as the mortgagee, solely as
a nominee. Neither the promissory note nor the mortgage instrument granted
MERS an interest in the promissory note, instead, First Franklin retained
ownership in the promissory note.
The right to foreclose is dependent upon there being an enforceable
promissory note. An assignment of mortgage from MERS to Appellee granted
Appellee all of the interests that MERS had in the promissory note and the
mortgage instrument. By the assignment of mortgage, MERS could not convey a
greater interest to Appellee than that which it already held. Since MERS had no
enforceable interest in the promissory note, it conveyed no enforceable interest in
the promissory note to the Appellee. Even if MERS was an agent of First Franklin
with authority to enforce the promissory note, no evidence of such authority was
presented to the Circuit Court. Without an interest in the promissory note, or
without evidence of authority to enforce the promissory note against Appellant,
Appellee had no standing to foreclose and summary judgment was improper.
17
ARGUMENTS
FIRST ARGUMENT
THE APPELLEE PRESENTED EVIDENCE THAT
IT WAS NOT ENTITLED TO ENFORCE THE
PROMISSORY NOTE IN QUESTION
Every mortgage loan is composed of two documents – the note instrument
and the mortgage instrument. No matter how much the mortgage instrument is
acclaimed as the basis of the agreement, the note instrument is the essence of the
debt. Sobel v. Mutual Dev. Inc., 313 So. 2d 77 (Fla. 1 DCA, 1975); Pepe v.
Shepherd, 422 So. 2d 910 (Fla. 3 DCA 1982); Margiewicz v. Terco Prop., 441 So.
2d 1124 (Fla. 3 DCA 1983).
The promissory note is evidence of the primary mortgage obligation. The
mortgage is only a mere incident to the note. Brown v. Snell, 6 Fla. 741 (1856);
Tayton v. American Nat’l Bank, 57 So. 678 (Fla. 1912); Scott v. Taylor, 58 So. 30
(Fla. 1912); Young v. Victory, 150 So. 624 (Fla. 1933); Thomas v. Hartman, 553
So. 2d 1256 (Fla. 5 DCA 1989). The mortgage instrument is only the security for
the indebtedness. Grier v. M.H.C. Realty Co, 274 So. 2d 21 (Fla. 4 DCA 1973);
Mellor v. Goldberg, 658 So. 2d 1162 (Fla. 2 DCA 1995); Century Group Inc. v.
Premier Fin. Services East L. P . , 724 So. 2d 661 (Fla. 2 DCA 1999)
18
On December 21, 2005, Appellant issued a promissory note. (§673.1051(1),
Fla. Stat. (2009), and § 673.1051(3), Fla. Stat. (2009)) The subject promissory
note is a “negotiable instrument” because it is an unconditional promise to pay a
fixed amount of money and it was payable to the order of First Franklin at the time
it was first issued. (§ 673.1041(1), Fla. Stat. (2009); § 673.1041(2), Fla. Stat.
(2009); § 673.1041(5),Fla. Stat. (2009); and § 673.1091(2), Fla. Stat. (2009)) The
promissory note clearly states the intent of the Appellant to make the Lender, First
Franklin, the Payee. (§ 673.1101(1), Fla. Stat. (2009)) That’s because the
document specifically identifies First Franklin as the Payee.4
Florida law defines those who are entitled to enforce a negotiable instrument
as either a “holder” of the instrument, a non-holder in possession who has the
rights of a holder or a person not in possession who is entitled to enforce it as a lost
instrument. (§ 673.3011, Fla. Stat. (2009)) Florida law goes so far as to permit a
person to be entitled to enforce an instrument even though that person is not the
owner of the instrument or is in wrongful possession of the instrument.
However, the subject promissory note is more restrictive in its’
4 In a mortgage loan, there is only one negotiable instrument, and that is the
promissory note. Neither the mortgage instrument nor the assignment of mortgage
are “negotiable instruments” as the term “instrument” as used in § 673, Fla. Stat.
(2009), et. seq., only means a “negotiable instrument”. (§ 673.1041(2), FLA.
STAT. (2009))
19
characterization of who may enforce it because the subject promissory note and the
subject mortgage instrument together were designed to have been sold in fractional
interests on the secondary market. The subject mortgage instrument provides
“The Note or a partial interest in the Note (together with this Security Instrument)
can be sold one or more times without prior notice to Borrower.” (R. I/77, para.
20)
Having multiple parties attempting to enforce a single promissory note could
destroy the entire secondary market system in mortgages. In order to prevent that
from happening, the subject promissory note does not make a mere possessor of it
a “holder”, rather, one becomes a “holder” of the subject promissory note only
upon “transfer” of the promissory note along with the right to enforce it. The
subject promissory note provides “The Lender or anyone who takes this Note by
transfer and who is entitled to receive payments under this Note is called the “Note
Holder”. (R. I/63, para. 1) This is consistent with Florida Statutes § 673.2031(1)
which provides that an 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.
At the hearing on the Appellee’s Motion for Summary Final Judgment, there
was no evidence presented as to whether First Franklin actually delivered the
20
subject promissory note either to MERS or to the Appellee. That evidence was
necessary to demonstrate that First Franklin transferred the promissory note with
the purpose of giving the Appellee the right to enforce it. In the case of In Re
Hayes, 393 B.R. 259, 266-268 (Bankr. D. Mass. 2008), the movant seeking relief
from stay failed to show that it ever had any interest in the note at issue. In that
case the court found the movant lacked standing altogether because it failed to
show that the note was ever transferred to it, and thus had no rights of its own to
assert. Having a note in one’s possession is not synonymous with “transfer”.
The obligation of an issuer of a note owes that obligation to a person entitled
to enforce the instrument or to an indorser who paid the instrument under Florida
Statutes § 673.4151. (§ 673.4121, Fla. Stat. (2009)) A transfer of possession of a
bearer instrument is sufficient to transfer enforceable rights in the instrument. (§
673.2011(2), Fla. Stat. (2009)) That stands in stark contrast to a promise or order
that is payable to order, which means that it is payable to the identified person. ( §
673.1091(2), Fla. Stat. (2009)) In the case of an instrument payable to a
specifically identified person, transfer of possession of the instrument along with
an indorsement is necessary.5 (§ 673.2011(2), Fla. Stat. (2009) & § 673.2031(3),
Fla. Stat. (2009)) Without that necessary indorsement, the transferee still receives
5 An “indorsement” means a signature, other than that of a signer as maker,
drawer, or acceptor, made on an instrument for the purpose of negotiating the
instrument. (§ 673.2014(1), Fla. Stat. (2009))
21
an enforceable interest – however, it’s not enforceable against the issuer, rather, the
enforceable interest is the specifically enforceable right to the unqualified
indorsement of the transferor.6 (§ 673.2031(3), Fla. Stat. (2009)) Appellant
admitted in his Response in Opposition to the Motion for Summary Final
Judgment that he executed a promissory note, which someone is entitled to enforce
against him – just not the Appellee. (R. I/180)
In the case at hand, if the subject promissory note were delivered to the
Appellee by First Franklin with the purpose of giving Appellee rights to enforce it
against the Appellant, before Appellee could enforce the promissory note against
the Appellant it had to either obtain an indorsement from First Franklin or get an
Order from a court of competent jurisdiction enforcing it’s right to the unqualified
indorsement of First Franklin – the end result either way is that the promissory
note still must be indorsed. Absent that evidence, there is a material factual
dispute.
6 Addressing the same issue, the Court in the case of In re Kang Jin Hwang,
396 B.R. 757, 763 (Bankr.C.D.Cal., 2008) stated “The transfer of a negotiable
instrument has an additional requirement: the transferor must indorse the
instrument to make it payable to the transferee.” In the case of In re Wilhelm,
Case No. 08-20577-TLM (Bankr.Idaho, 2009) the Court recognized that if the
note instrument, by its terms, is not payable to the transferee, then before the
transferee can enforce it the transferee must account for possession of the
unindorsed instrument by proving the transaction through which the transferee
acquired it. (At page 18) The Court in In re Carlyle, 242 B.R. 881 (Bankr.
E.D.Va., 1999) came to the same conclusion at page 887 of the Opinion.
22
From the evidence admitted in Court, it is impossible to know whether
Appellee was ever a “holder” of the promissory note – as that term is defined by
the subject promissory note. Additionally, since this promissory note was payable
to a specifically identifiable person, before it could be enforced against the
Appellant it had to be indorsed. There was no evidence presented of an
indorsement, either by First Franklin or on Order of a court. Therefore, the
evidence presented proved that Appellee was not entitled to enforce the promissory
note against Appellant.
SECOND ARGUMENT
MERS DID NOT PASS AN ENFORCEABLE INTEREST
IN THE PROMISSORY NOTE TO APPELLEE
The note is the instrument of concern in all assignment situations. There is
an old maxim “the mortgage follows the note”. Evins v. Gainsville Nat’l Bank, 85
So. 659 (Fla. 1920); Case v. Smith, 200 So. 917 (Fla. 1941) The note is evidence
of the primary mortgage obligations or the debt. The assignment of the note
carries with it the mortgage and its rights, even though the mortgage instrument
has not been assigned either orally or in writing. Collins v. Briggs, 123 So. 833
(Fla. 1929); Miami Mtge. & Guar. Co. v. Drawdy, 127 So. 323 (Fla. 1930); So.
Colonial Mtge. Co. v. Medeiros, 347 So. 2d 736 (Fla. 4 DCA 1977)
23
The mortgage, as evidenced by the mortgage instrument, is only a mere
incident to the debt. Therefore, the mortgage instrument is of lesser significance.
Because the assignment of the note is an imperative act as to the transferring of the
mortgagee’s right, the assignment of the mortgage instrument without the note is
an ineffective assignment. Vance v. Fields, 172 So. 2d 613 (Fla. 1 DCA 1965);
Sobel v. Mutual Dev. Inc., 313 So. 2d 77 (Fla. 1 DCA 1975); Amacher v. Keel,
358 So. 2d 889 (Fla. 2 DCA 1975)
In the instant case, the assignment of mortgage claims that it assigns the
beneficial interest in both the note instrument and the mortgage instrument to
Appellee. However, the note instrument was bifurcated from the mortgage
instrument and MERS did not have an interest in the Note that it could assign.
MERS act of assigning the mortgage instrument was invalid as it held no beneficial
interest in the mortgage instrument for two reasons: 1) a security instrument, apart
from the promissory note giving rise to the debt has no value because there is no
debt by which it secures payment; and 2) MERS had no beneficial interest in the
mortgage instrument that it could assign.
In Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 274, 21 L.Ed. 313
(1872), the U.S. Supreme Court stated “The note and mortgage are inseparable; the
24
former as essential, the latter as an incident. An assignment of the note carries the
mortgage with it, while an assignment of the latter alone is a nullity.”
“Where the mortgagee has ‘transferred’ only the mortgage, the transaction is
a nullity and his ‘assignee,’ having received no interest in the underlying debt or
obligation, has a worthless piece of paper.” (4 RICHARD R. POWELL, POWELL
ON REAL PROPERTY, § 37.27[2] (2000); In re Mitchell, Case No. BK-S-07-
16226-LBR (Bankr.Nev. 3/31/2009)(At page 12))
As previously stated in Argument 1, the Uniform Commercial Code makes a
distinction between a promissory note that is a bearer instrument and one that is
payable to a specifically identified person – the former not requiring an
indorsement to be enforceable, the latter requiring an indorsement to be
enforceable. (§ 673.2011(2), Fla. Stat. (2009); § 673.2031(3), Fla. Stat. (2009))
Additionally, the subject mortgage instrument states that it can only be
transferred with the sale of the note – and not the other way around where the sale
of the mortgage instrument would include the note. (R. I/77, para. 20) The subject
mortgage instrument provides “The Note or a partial interest in the Note (together
with this Security Instrument) can be sold one or more times without prior notice
to Borrower.” (R. I/77, para. 20) In this case, the only relevant transfer that could
occur is a transfer of the promissory note, which would include a transfer of the
25
mortgage instrument if ownership of that instrument were not bifurcated from the
ownership of the promissory note. So an assignment of the mortgage instrument
from MERS to Appellee would not transfer the promissory note to Appellee.
Appellant’s Opposition to the Appellee’s Motion for Summary Final
Judgment included an affidavit of the contents of the MERS website. The
Opposition stated in relevant part:
MERS has nothing to transfer by an assignment. MERS own website listed
“MERS Recommended Foreclosure Procedures for FLORIDA”.7 In this
document MERS states that it is not the beneficial owner of the promissory
note. This document states:
MERS stands in the same shoes as the servicer to the extent that it is
not the beneficial owner of the promissory note. An investor,
typically a secondary market investor, will be the ultimate owner of
the note. (fn 8)
Foot Note 8:
Even though the servicer has physical custody of the note, custom in
the mortgage industry is that the investor (Fannie Mae, Freddie Mac,
Ginnie Mae or a private investor) owns the beneficial rights to the
promissory note.
(R. I/177-178)
In the consolidated cases of In re Foreclosure Cases, 521 F. Supp. 2D 650,
653 (S.D. Oh. 2007), a standing challenge was made and the Court found that there
was no evidence of record that New Century ever assigned to MERS the
7 http://www.mersinc.org/filedownload.aspx?id=176&table=ProductFile
26
promissory note or otherwise gave MERS the authority to assign the note.
Beginning with this case, courts around the country started to recognize that MERS
had no ownership in the notes and could not transfer an interest in a mortgage
upon which foreclosure could be based.
In LaSalle Bank NA v. Lamy, 824 N.Y.S.2d 769 (N.Y. Supp. 2006), the
Court denied a foreclosure action by an assignee of MERS on the grounds that
MERS itself had no ownership interest in the underlying note and mortgage.
In the case of In re Mitchell, Case No. BK-S-07-16226-LBR (Bankr.Nev.,
2009), the Court stated “In order to foreclose, MERS must establish there has been
a sufficient transfer of both the note and deed of trust, or that it has authority under
state law to act for the note’s holder.” (At page 9) The Court found that MERS has
no ownership interest in the promissory note. The Court found that though MERS
attempts to make it appear as though it is a beneficiary of the mortgage, it in fact is
not a beneficiary. The Court stated “But it is obvious from the MERS’ “Terms and
Conditions” that MERS is not a beneficiary as it has no rights whatsoever to any
payments, to any servicing rights, or to any of the properties secured by the loans.
To reverse an old adage, if it doesn’t walk like a duck, talk like a duck, and quack
like a duck, then it’s not a duck.” (At page 7) MERS Terms and Conditions say
this:
27
MERS shall serve as mortgagee of record with respect to all such mortgage
loans solely as a nominee, in an administrative capacity, for the beneficial
owner or owners thereof from time to time. MERS shall have no rights
whatsoever to any payments made on account of such mortgage loans, to
any servicing rights related to such mortgage loans, or to any mortgaged
properties securing such mortgage loans. MERS agrees not to assert any
rights (other than rights specified in the Governing Documents) with respect
to such mortgage loans or mortgaged properties. References herein to
“mortgage(s)” and “mortgagee of record” shall include deed(s) of trust
and beneficiary under a deed of trust and any other form of security
instrument under applicable state law.
In the case of In re Vargas, 396 B.R. 511, 520 (Bankr.C.D.Cal., 2008) , the
Court stated:
MERS is not in the business of holding promissory notes. (fn 10: MERS,
Inc. is an entity whose sole purpose is to act as mortgagee of record for
mortgage loans that are registered on the MERS System. This system is a
national electronic registry of mortgage loans, itself owned and operated by
MERS, Inc.’s parent company, MERSCORP, Inc.)
In the case of In re Sheridan, Case No. 08-20381-TLM (Bankr.Idaho, 2009)
MERS moved for relief from the stay. The Court stated that MERS “Counsel
conceded that MERS is not an economic “beneficiary” under the Deed of Trust. It
is owed and will collect no money from Debtors under the Note, nor will it realize
the value of the Property through foreclosure of the Deed of Trust in the event the
Note is not paid.” The Court stated “Further, the Deed of Trust’s designation of
MERS as “beneficiary” is coupled with an explanation that “MERS is . . . acting
solely as nominee for Lender and Lender’s successors and assigns.” The Court
28
stated “Even if the proposition is accepted that the Deed of Trust provisions give
MERS the ability to act as an agent (“nominee”) for another, it acts not on its own
account. Its capacity is representative.”
In Landmark National Bank v. Kesler, 216 P.3D 158 (Kansas, 2009), the
Kansas Supreme Court extensively analyzed the position of MERS in relation to
the facts in that case and other non-binding court cases and concluded that MERS
is only a digital mortgage tracking service. (At page 168) The Court recited that
MERS never held the promissory note, did not own the mortgage instrument
(though the documents identified it as “mortgagee”), that it did not lend money, did
not extend credit, is not owed any money by the mortgage debtors, did not receive
any payments from the borrower, suffered no direct, ascertainable monetary loss as
a consequence of the litigation and consequently, has no constitutionally protected
interest in the mortgage loan.
Appellant’s Opposition to the Appellee’s Motion for Summary Final
Judgment included reference to professor Christopher L. Peterson’s writings on
MERS and the secondary market as a source for the court to understand what
MERS is and how it operates. (R. I/179) Christopher L. Peterson, Associate
Professor of Law, University of Florida, testified at a hearing before the U.S.
29
Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on
Securities, Insurance, and Investment and stated:8
MERS is merely a document custodian. . . . The system itself
electronically tracks ownership and servicing rights of mortgages. . . .
The parties obtain two principal benefits from attempting to useMERS as a
“mortgagee of record in nominee capacity.” First, under state secured credit
laws, when a mortgage is assigned, the assignee must record the assignment
with the county recording office, or risk losing priority vis-à-vis other
creditors, buyers, or lienors. Most counties charge a fee to record the
assignment, and use these fees to cover the cost of maintaining the real
property records. Some counties also use recording fees to fund their court
systems, legal aid organizations, or schools. In this respect, MERS’ role in
acting as a mortgagee of record in nominee capacity is simply a tax evasion
tool. By paying MERS a fee, the parties to a securitization lower their
operating costs. The second advantage MERS offers its customers comes
later when homeowners fall behind on their monthly payments. In addition
to its document custodial role, and its tax evasive role, MERS also
frequently attempts to bring home foreclosure proceedings in its own name.
This eliminates the need for the trust—which actually owns the loan—to
foreclose in its own name, or to reassign the loan to a servicer or the
originator to bring the foreclosure.
R.K. Arnold, Senior Vice President, General Counsel and Secretary of
Mortgage Electronic Registration Systems, Inc., stated:
MERS® will act as mortgagee of record for any mortgage loan registered
on the computer system MERS® maintains, called the MERS® System. It
will then track servicing rights and beneficial ownership interests in those
loans and provide a platform for mortgage servicing rights to be traded
electronically among its members without the need to record a mortgage
8 Subprime Mortgage Market Turmoil: Examining the Role of Securitization,
http://banking.senate.gov/public/index.cfm?
FuseAction=Files.View&FileStore_id=4f40e1b9-ec5b-4752-ba8f-
0c14afc44884 . (At page 6 -8)
30
assignment in the public land records each time. . . . Members pay annual
fees to belong and transaction fees to execute electronic transactions on the
MERS® System. . . . A mortgage note holder can sell a mortgage note to
another in what has become a gigantic secondary market. . . . For these
servicing companies to perform their duties satisfactorily, the note and
mortgage were bifurcated. The investor or its designee held the note and
named the servicing company as mortgagee, a structure that became
standard. . . . When a mortgage loan is registered on the MERS® System, it
receives a mortgage identification number (MIN). The borrower executes a
traditional paper mortgage naming the lender as mortgagee, and the lender
executes an assignment of the mortgage to MERS®. Both documents are
executed according to state law and recorded in the public land records,
making MERS® the mortgagee of record. From that point on, no additional
mortgage assignments will be recorded because MERS® will remain the
mortgagee of record throughout the life of the loan. . . . MERS® keeps track
of the new servicer electronically and acts as nominee for the servicing
companies and investors. Because MERS® remains the mortgagee of
record in the public land records throughout the life of a loan, it eliminates
the need to record later assignments in the public land records. Usually,
legal title to the property is not affected again until the loan is paid and the
mortgage is released.
(R.K. Arnold, Yes, There is Life on MERS, Prob.& Prop., Aug. 1997, at p.16;
http://www.abanet.org/genpractice/magazine/1998/spring-bos/arnold.html)
Courts around this country are clearly recognizing that MERS is not an
owner of the promissory note and that it is also only a mortgagee in name alone
and has no beneficial interest in the mortgage instrument. Landmark National Bank
v. Kesler, 216 P.3D 158 (Kansas, 2009); Mortgage Electronic Registration
System, Inc. v. Southwest Homes of Arkansas, 08-1299 (Ark. 3/19/2009) (Ark.,
2009) MERS own website says as much. Therefore, the assignment of
mortgage from MERS to Appellee could not transfer an interest in the promissory
31
note; it could not even transfer an enforceable interest in the mortgage instrument.
One hundred and thirty-eight years ago, the U.S. Supreme Court recognized
that the mortgage instrument is inseparable from the promissory note. Carpenter v.
Longan, 16 Wall. 271, 83 U.S. 271, 21 L.Ed. 313 (1872) That was necessary to
ensure that title to property could be deraigned. However, MERS is a product of
the past two decades and was designed to privatize recorded mortgages in order to
avoid the payment of taxes upon the recording of assignments of mortgage. The
design of bifurcating the mortgage instrument from the promissory note is not
based on law and it impairs the historical ability to deraign title. The logical
conclusion of bifurcating the mortgage instrument to MERS is that it renders a
foreclosure impossible as the promissory note is no longer secured by that
mortgage instrument. What they have sown, they should reap.
In Stuyvesant Corp. v. Stahl, 62 So.2d 18, 20 (Fla., 1952), the Florida
Supreme Court stated:
The rule is settled in this State that a principal is bound by the acts of his
agent. The authority of the agent may be real or it may be apparent and the
public may rely on either unless in the case of apparent authority the
circumstances are such as to put one on inquiry. The agent’s authority may
be conferred by writing, by parol, or it may be inferred from the related facts
of the case. (Cites omitted)
There was no evidence presented that MERS had any authority to act as an
agent for First Franklin. The Arkansas Supreme Court came to the same
32
conclusion in Mortgage Electronic Registration System, Inc. v. Southwest Homes
of Arkansas, 08-1299 (Ark. 3/19/2009) (Ark., 2009)(At page 7) By all
appearances, it seems contrary to the interests of First Franklin that the Appellee
would attempt to collect on a promissory note that was payable to First Franklin.
CONCLUSION
WHEREFORE, the Circuit Court’s judgment should be set aside and the
matter remanded.
Respectfully Submitted,
_________________________
George M. Gingo, FBN 879533
Counsel for Appellant
P.O. Box 838
Mims, FL 32754
321-264-9624 Office
321-383-1105 Fax
ggingo@yahoo.com
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing was
served by U.S. Mail on Jonathan J.A. Paul, Butler & Hosch, P.A., 3185 S. Conway
Road, Suite E, Orlando, Florida 32812 on this 15th day of January, 2010.
___________________________
George M. Gingo, FBN 879533
33
CERTIFICATE OF FONT COMPLIANCE
I certify that the lettering in this brief is Times New Roman 14-point font
and complies with the font requirements of the Florida Rule of Appellate
Procedure 9.210(a)(2).
By: _________________________
George M. Gingo, FBN 8795335-27-10-first-franklin-appeal-george-gingo

non-judicial sale is NOT an available election for a securitized loan

2 Jun

Posted 6 days ago by Neil Garfield on Livinglies’s Weblog
NON-JUDICIAL STATES: THE DIFFERENCE BETWEEN FORECLOSURE AND SALE:

FORECLOSURE is a judicial process herein the “lender” files a lawsuit seeking to (a) enforce the note and get a judgment in the amount owed to them (b) asking the court to order the sale of the property to satisfy the Judgment. If the sale price is lower than the Judgment, then they will ask for a deficiency Judgment and the Judge will enter that Judgment. If the proceeds of sale is over the amount of the judgment, the borrower is entitled to the overage. Of course they usually tack on a number of fees and costs that may or may not be allowable. It is very rare that there is an overage. THE POINT IS that when they sue to foreclose they must make allegations which state a cause of action for enforcement of the note and for an order setting a date for sale. Those allegations include a description of the transaction with copies attached, and a claim of non-payment, together with allegations that the payments are owed to the Plaintiff BECAUSE they would suffer financial damage as a result of the non-payment. IN THE PROOF of the case the Plaintiff would be required to prove each and EVERY element of their claim which means proof that each allegation they made and each exhibit they rely upon is proven with live witnesses who are competent — i.e., they take an oath, they have PERSONAL KNOWLEDGE (not what someone else told them),personal recall and the ability to communicate what they know. This applies to documents they wish to use as well. That is called authentication and foundation.

SALE: Means what it says. In non-judicial sale they just want to sell your property without showing any court that they can credibly make the necessary allegations for a judicial foreclosure and without showing the court proof of the allegations they would be required to make if they filed a judicial foreclosure. In a non-judicial state what they want is to SELL and what they don’t want is to foreclose. Keep in mind that every state that allows non-judicial sale treats the sale as private and NOT a judicial event by definition. In Arizona and many other states there is no election for non-judicial sale of commercial property because of the usual complexity of commercial transactions. THE POINT is that a securitized loan presents as much or more complexity than commercial real property loan transactions. Thus your argument might be that the non-judicial sale is NOT an available election for a securitized loan.

When you bring a lawsuit challenging the non-judicial sale, it would probably be a good idea to allege that the other party has ELECTED NON-JUDICIAL sale when the required elements of such an election do not exist. Your prima facie case is simply to establish that the borrower objects the sale, denies that they pretender lender has any right to sell the property, denies the default and that the securitization documents show a complexity far beyond the complexity of even highly complex commercial real estate transactions which the legislature has mandated be resolved ONLY by judicial foreclosure.

THEREFORE in my opinion I think in your argument you do NOT want to concede that they wish to foreclose. What they want to do is execute on the power of sale in the deed of trust WITHOUT going through the judicial foreclosure process as provided in State statutes. You must understand and argue that the opposition is seeking to go around normal legal process which requires a foreclosure lawsuit.

THAT would require them to make allegations about the obligation, note and mortgage that they cannot make (we are the lender, the defendant owes us money, we are the holder of the note, the note is payable to us, he hasn’t paid, the unpaid balance of the note is xxx etc.) and they would have to prove those allegations before you had to say anything. In addition they would be subject to discovery in which you could test their assertions before an evidentiary hearing. That is how lawsuits work.

The power of sale given to the trustee is a hail Mary pass over the requirements of due process. But it allows for you to object. The question which nobody has asked and nobody has answered, is on the burden of proof, once you object to the sale, why shouldn’t the would-be forecloser be required to plead and prove its case? If the court takes the position that in non-judicial states the private power of sale is to be treated as a judicial event, then that is a denial of due process required by Federal and state constitutions. The only reason it is allowed, is because it is private and “non-judicial.” The quirk comes in because in practice the homeowner must file suit. Usually the party filing suit must allege facts and prove a prima facie case before the burden shifts to the other side. So the Judge is looking at you to do that when you file to prevent the sale.

Legally, though, your case should be limited to proving that they are trying to sell your property, that you object, that you deny what would be the allegations in a judicial foreclosure and that you have meritorious defenses. That SHOULD trigger the requirement of re-orienting the parties and making the would-be forecloser file a complaint (lawsuit) for foreclosure. Then the burden of proof would be properly aligned with the party seeking affirmative relief (i.e., the party who wants to enforce the deed of trust (mortgage), note and obligation) required to file the complaint with all the necessary elements of an action for foreclosure and attach the necessary exhibits. They don’t want to do that because they don’t have the exhibits and the note is not payable to them and they cannot actually prove standing (which is a jurisdictional question). The problem is that a statute passed for judicial economy is now being used to force the burden of proof onto the borrower in the foreclosure of their own home. This is not being addressed yet but it will be addressed soon.

Fannie Mae Policy Now Admits Loan Not Secured

2 Jun

Posted 14 hours ago by Neil Garfield on Livinglies’s Weblog

29248253-Mers-May-Not-Foreclosure-for-Fannie-Mae

Editor’s Note: Their intention was to get MERS and servicers out of the foreclosure business. They now say that prior to foreclosure MERS must assign to the real party in interest.

Here’s their problem: As numerous Judges have pointed out, MERS specifically disclaims any interest in the obligation, note or mortgage. Even the language of the mortgage or Deed of Trust says MERS is mentioned in name only and that the Lender is somebody else.

These Judges who have considered the issue have come up with one conclusion, an assignment from a party with no right, title or interest has nothing to assign. The assignment may look good on its face but there still is the problem that nothing was assigned.

Here’s the other problem. If MERS was there in name only to permit transfers and other transactions off-record (contrary to state law) and if the original party named as “Lender” is no longer around, then what you have is a gap in the chain of custody and chain of title with respect to the creditor’s side of the loan. It is all off record which means, ipso facto that it is a question of fact as to whose loan it is. That means, ipso facto, that the presence of MERS makes it a judicial question which means that the non-judicial election is not available. They can’t do it.

So when you put this all together, you end up with the following inescapable conclusions:

* The naming of MERS as mortgagee in a mortgage deed or as beneficiary in a deed of trust is a nullity.
* MERS has no right, title or interest in any loan and even if it did, it disclaims any such interest on its own website.
* The lender might be the REAL beneficiary, but that is a question of fact so the non-judicial foreclosure option is not available.
* If the lender was not the creditor, it isn’t the lender because it had no right title or interest either, legally or equitably.
* Without a creditor named in the security instrument intended to secure the obligation, the security was never perfected.
* Without a creditor named in the security instrument intended to secure the obligation, the obligation is unsecured as to legal title.
* Since the only real creditor is the one who advanced the funds (the investor(s)), they can enforce the obligation by proxy or directly. Whether the note is actually evidence of the obligation and to what extent the terms of the note are enforceable is a question for the court to determine.
* The creditor only has a claim if they would suffer loss as a result of the indirect transaction with the borrower. If they or their agents have received payments from any source, those payments must be allocated to the loan account. The extent and measure of said allocation is a question of fact to be determined by the Court.
* Once established, the allocation will most likely be applied in the manner set forth in the note, to wit: (a) against payments due (b) against fees and (c) against principal, in that order.
* Once applied against payments, due the default vanishes unless the allocation is less than the amount due in payments.
* Once established, the allocation results in a fatal defect in the notice of default, the statements sent to the borrower, and the representations made in court. Thus at the very least they must vacate all foreclosure proceedings and start over again.
* If the allocation is less than the amount of payments due, then the investor(s) collectively have a claim for acceleration and to enforce the note — but they have no claim on the mortgage deed or deed of trust. By intentionally NOT naming parties who were known at the time of the transaction the security was split from the obligation. The obligation became unsecured.
* The investors MIGHT have a claim for equitable lien based upon the circumstances that BOTH the borrower and the investor were the victims of fraud.

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