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Appeals Court Upholds MERS Mortgage Assignment System

by Rich Vetstein on July 25, 2017

Strawbridge v. Bank of NY Mellon:  Appeals Court Justice Peter Agnes Gives Judicial Blessing to MERS Assignment System, Rejects Other Foreclosure Challenges

The most recent foreclosure case heard by a Massachusetts appellate court should allow title underwriters and foreclosing lenders to sleep better at night. In Strawbridge v. Bank of NY Mellon, No. 16-P-1244, embedded below, Appeals Court Justice Peter Agnes upheld the MERS system of holding and assigning mortgages in Massachusetts as a “nominee.” Judge Agnes also ruled that the borrower lacked standing to raise defects in the pooling and servicing agreement by which the bank created a securitized mortgage trust, because she is not a party to that intra-lender agreement. This ruling should simultaneously benefit the housing market, while taking away a major weapon for foreclosure defense attorneys.

The case was brought by well-respected foreclosure defense attorney Glenn Russell, Esq. who represented the borrower, Sandra Strawbridge. Attorney Russell’s cases are typically on the cutting edge of foreclosure defense law, and thus, should always be read with interest.

Foreclosure Challenge

Strawbridge challenged the foreclosure on the grounds that the Bank did not comply with Massachusetts foreclosure law after the SJC’s decision in Eaton v. FNMA which held that a foreclosing lender must establish it holds both the promissory note and the mortgage. (Title companies have issued comprehensive underwriting guidelines after the Eaton ruling). Strawbridge also claimed that MERS’s assignment of her mortgage to the Bank was void because the assignment occurred after a date established in the pooling service agreement (PSA) of the securitzed trust.

Countrywide-MERS Assignment System

In 2007, Strawbridge obtained a $370,000 mortgage from Countrywide Home Loans. The mortgage designated Mortgage Electronic Systems, Inc. (MERS) as the nominee for Countrywide. In 2009, Strawbridge defaulted on her note by failing to keep up with her mortgage payments. In February, 2010, MERS assigned Strawbridge’s mortgage to Bank of New York Mellon which held the mortgage as part of a securitized trust. A MERS “Assistant Secretary and Vice President” executed the assignment, which was notarized and recorded at the appropriate registry of deeds. Later, in March, 2015, a “Second Assistant Vice President” at the Bank’s loan servicer executed an “Affidavit Regarding Note Secured by Mortgage Being Foreclosed.” That affidavit states that the Bank is the holder of the note. In addition, in April, 2015, the Bank’s loan servicer executed a “Certificate Relative to Foreclosing Mortgagee’s Right to Foreclose Pursuant to 209 C.M.R. 18.21A(2)(c),” which certified that the Bank is the “holder of the Mortgage” and “the holder of the Note or is authorized agent of the Note holder with the specific authority to enforce payment and pursue foreclosure of the Mortgage on behalf of such Note holder.” Finally, in July, 2015, the Bank sent Strawbridge a notice of foreclosure sale, informing her that a foreclosure sale would take place in August. The borrower challenged the sale in the Superior Court which ruled against her.

Appellate Rulings

On appeal, Judge Agnes ruled that “MERS’s nominee status does not preclude it from validly assigning the mortgage, or does it limit MERS’s power to exercise a right of [foreclosure] sale.” The Court also rejected the borrower’s argument that the Bank is required to provide a complete chain of assignments of the mortgage, opting instead to hold the Bank to a less onerous standard of merely producing a single assignment directly from MERS, the last holder of record. Lastly, the judge ruled that the borrower lacked standing to raise defects in the pooling and servicing agreement because she is not a party to that intra-lender agreement.

Take Aways

The impact of this decision is a reaffirmation that the MERS system of assigning mortgages remains legal and binding in Massachusetts. MERS mortgages account for the vast majority of conventional mortgage financing in Massachusetts. This ruling will also make it more difficult for distressed homeowners to challenge foreclosures, clearing the way for banks to sell REO property. I spoke to Attorney Russell about the case, and he indicated that he is considering taking an appeal up to the Supreme Judicial Court. So this may not be the last word on the matter.

Strawbridge v. Bank of NY Mellon by Richard Vetstein on Scribd

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P_154_092811110348Guest Post By:  Philip B. Posner, Esq., 

Part independent living, part assisted living and part skilled nursing home, a Continuing Care Retirement Community (CCRC) offers a tiered approach to the aging process, accommodating residents’ changing needs. Upon entering, healthy adults can reside independently in single-family homes, apartments or condominiums. When assistance with everyday activities becomes necessary, they can move into assisted living or nursing care facilities within the same community. CCRCs give older adults the option to live in one location for the duration of their life, with much if not all of their future care already figured out.

With the Baby Boomer generation hitting retirement age, CCRC’s are now a multibillion-dollar industry, particularly among the upper-middle class and affluent. At least 745,000 older adults now live in such communities, according to the American Association of Homes and Services for the Aging. And those numbers are expected to rise as baby boomers hit their 70s.

This Isn’t Your Grandparents’ Nursing Home

Building styles of CCRCs run the gamut from urban high-rises to mid-rise suburban campuses to garden apartments, cottages cluster homes, or single-family homes. Some are as luxurious as five star hotels. Some CCRCs provide units that are designed for people with special medical conditions, such as Alzheimer’s disease. Because of the substantial up front Entry Fee, CCRCs are targeted toward a middle and upper middle class demographic. All CCRCs have large staffs, necessary to provide the diverse and elaborate services and amenities which are provided as part of the CCRC model and are demanded by those seniors interested in this type of housing and lifestyle.

CCRC residents typically pay a hefty entry fee and a monthly fee in return for the “promise” of care for the rest of the residents’ lives. Of course, this “promise” sets CCRCs apart from over-55 and assisted living facilities and nursing homes. And CCRCs are very distinct from the ‘aging in place’ model which may require extensive adaptation of a residence for the physical needs of an aging senior and the delivery of services through various community and other means. CCRCs are designed from the ground up to provide increasingly intensive services under the ‘continuum of care’ model to accommodate the needs of their residents.

The continuum of facilities and services available to CCRC residents typically includes:

  • An independent residential unit with one or more meals, housekeeping, social and recreational activities, and some transportation.
  • A separate assisted living area on the same campus, where additional support services are provided. Some of these are secure for people with memory loss.
  • A separate health care and skilled nursing facility on the premises, with nursing and/or physical rehabilitation, either short-term or long-term.

The on-site community, services, healthcare and activities are factors that attract many people to CCRCs. In addition entry into a CCRC requires only one major transition to a new “home” for those resident for whom stability is appealing or necessary. The facilities and options will vary widely so residents and their families considering this housing option are cautioned to thoroughly review each project on an individual and intensive basis.

It is also important to recognize that entry into the skilled nursing facility that is a part of the CCRC cannot in all cases by guaranteed. In the event that the nursing units are filled or otherwise unavailable, typical CCRC agreements permit placement of an ailing resident in an alternate nursing facility.  This reality should be carefully reviewed with the CCRC and with a potential resident and information gathered with regard to the likelihood of such an event.

CCRCs generally maintain a diverse suite of on-site medical and social services and facilities. Residents may enter a CCRC while still relatively healthy and then move on to more intensive care as it becomes necessary. CCRCs offer various options for lively communal living not available in many age-limited (over-55) properties and available only with more effort for seniors who may choose to remain in their own homes.

MI-BF100_Family_NS_20100806204302CCRC Fee Structures:  Costly, Confusing And Not Without Risk

The downside of a CCRC is the substantial cost of the Entry Fee and the confusing structure of the contracts and agreements between the CCRC and the resident. Prices depend on the amount of care provided, the type of contract, and the unit’s size and geographic location. Entry fees may range from $100,000 to more than $500,000 depending on the CCRC project, real estate market and factors such as whether or not the Entry Fee will be refunded in full or in part at such time as the resident leaves the CCRC or passes away. Monthly Service Charges and Fees range widely based, not only on the real estate market and prevailing regional costs but also the type of contract between the CCRC and the resident. Unlike other types of senior housing, the costs of CCRCs is highly variable and has been difficult to quantify in national surveys. For more info, here are links to a recent cost surveys by Metlife Mature Market Institute and Genworth Financial.

Seniors often use the proceeds from the sale of their home to pay the Entry Fee of the CCRC. However, the resident should be cautioned than in most CCRCs, the payment of the Entry Fee is not the same as the purchase of an apartment or real estate of any kind. The agreements in many cases are akin to a lease. Moreover, to the extent that the current federal and state tax law (also highly changeable) results in a taxable gain upon the sale of the residence – no “roll over” to defer a gain of potentially highly appreciated real estate will be available upon entry into a CCRC.

Nationally, CCRCs typically provide for three basic fee schedules:

  1. Extensive contracts, which include unlimited long-term nursing care at little or no increase in the monthly fee. This arrangement requires residents to pay a higher fee initially.
  2. Modified contracts, which include a specified duration of long-term nursing care, beyond which fees rise as care increases.
  3. Fee-for-service contracts, in which residents pay a reduced monthly fee but pay full daily rates for long-term nursing care.

CCRC contracts have evolved over time with new and confused variations within each fee schedule. For example, a CCRC might offer two different extensive contracts and one modified contract, with different levels of refundability for each. CCrcdata.org provides a national directory of CCRCs and general information regarding the amenities provided by a CCRC and the contract terms.  Many facilities now provide samples of the their contract and related documents on-line in PDF format. Care should be taken, however, to review not only the CCRC contracts but also the financial information and individual project data to determine whether or not the particular CCRC being reviewed is financially stable and likely to remain so over time.image2

CCRC Entry Requirements

Most CCRCs require that a resident be in good health, be able to live independently when entering the facility, and be within minimum and maximum age limits. As a prerequisite to admission, facilities may also require both Medicare Part A and Part B, and perhaps Medigap coverage as well. A few are now even requiring long-term care coverage as a way of keeping fees down. Some CCRCs are affiliated with a specific religious, ethnic or fraternal order and membership in these groups may be a requirement. Of course, applicants will have to demonstrate that they have the means to meet the required fees. The applicant may be placed on a waiting list, since CCRCs have, until relatively recently been highly sought after.

CCRC residents usually self-fund their residency and care out of their own pockets. As noted above, CCRCs are generally targeted toward seniors with middle to upper class means.  However, Medicare, and at times Medicaid, can be used to pay for certain services, and most CCRCs accept either Medicare or Medicaid. Although Medicare does not generally cover long-term nursing care, it often covers specific services that a CCRC resident might receive, such as physician services and hospitalization. Because the financial requirements for residence are fairly strict and the costs are relatively high, very few CCRC residents are eligible for Medicaid.

Recent Financial Challenges

According to a recent survey prepared by underwriter of financing for non-profit senior living providers, there were approximately 1850 CCRCs in the United States as of the end of 2009. Approximately 30% of CCRCs currently under development are for-profit status according to the survey. This represents a shift from the current norm of non-profit ownership of CCRCs. Profit and non profit projects alike, are developed utilizing complex financial instruments including municipal bonds, tiered financings, and oftimes complex management contracts between ongoing non-profit management companies controlled by the project developer. Moreover the CCRC “model” relies on the up front provision of large sums of money from each resident raising issues of financial management, disclosure and security of such deposits.

Due, in part, to the recent financial crises, the Erickson Retirement Communities, Inc. (the developer of the various ‘Erickson’ communities) was forced to reorganize in Chapter 11 Bankruptcy and its real estate and financial assets under management were acquired by in an auction. New capital was injected into the operations of all of the individual CCRCs by the successful bidder. Notwithstanding the financial concerns, occupancy rates and confidence in the individual Erickson communities (as well as other CCRCs nationally) has remained high.

The risk in the CCRC industry has led the U.S. Senate Special Committee on Aging to seek a Government Accountability Office investigation into CCRC operations and finances. Although the prospects for the industry remain positive, given importance to seniors of maintaining stability in their housing accommodations, a thorough review of a particular CCRCs financial position is an important component of counsel’s overall review of a CCRC project.

Despite their risks, CCRCs still hold widespread appeal. They promise to alleviate one of the biggest worries facing families with aging loved ones: how to secure, and in many cases pay for, future long-term care.

How To Evaluate A Facility And CCRC Contract

Deciding on a CCRC may be an once-in-a-lifetime choice, and it is a decision that should be made carefully and with the benefit of expert counsel. CCRC contracts are extremely complex and variable. An experienced elder law attorney’s assistance is, in my opinion, invaluable in selecting a community and reviewing its contract. Assistance from a certified financial planner may also be beneficial.

For your information, please download my own FREE CCRC Checklist For Clients.

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pposner_photoPhilip Posner, Esq. is a Massachusetts attorney with offices in Wakefield, Massachusetts. Phil practices primarily in land-use law. Phil can be reached at [email protected] or 781-224-1900.

 

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11119985-homeowners-stop-foreclosureWe introduce this subject with a riddle: What entity is not a bank but claims to hold title to approximately half of all the mortgaged homes in the country? The answer is MERS. –Circuit Judge Bruce Seyla in Culhane v. Aurora Loan Servicing of Nebraska,

For the second time in a week, the U.S. Court of Appeals for the First Circuit has issued a major foreclosure opinion, this one in Culhane v. Aurora Loan Servicing of Nebraska, No. 12-1285 (click to download opinion and embedded below). Writing for a distinguished panel which included retired U.S. Supreme Court Justice David Souter, Circuit Judge Bruce Seyla held that the MERS system passes legal muster, but — overruling numerous lower court decisions to the contrary — gave borrowers the right to challenge mortgage assignments in the wrongful foreclosure setting. In my opinion, the net effect of this decision will put to rest the ubiquitous challenges to the MERS regime in Massachusetts, yet could result in a slight uptick in foreclosure challenges by blessing borrowers with much sought after legal standing to challenge faulty mortgage assignments.

This opinion is a must read. Judge Seyla is well known for his linguistic talents. Make sure you get out your dictionaries — Judge Seyla likes big words.

MERS — Mortgage Electronic Registration System, Inc.

For those who have not read our prior posts on MERS, it is an electronic registry of mortgages created by lenders in the 1990′s in order to facilitate the securitization and sale of mortgage back securities on Wall Street. Basically, when mortgages are bought and sold by various investors and lenders, MERS documents the transfers in its electronic database. However, historically the MERS-assisted transfers were not recorded through mortgage assignments in the state registries of deeds, a practice subject to much criticism. As for who “owns” the actual mortgage — another issue subject to much criticism and litigation — MERS claims that it acts solely as a “nominee” for the actual lender and holds only bare legal title to the mortgage as the mortgage holder of record.

When a loan go into default status and into foreclosure, MERS would, as in the Culhane case, facilitate the execution of a mortgage assignment to the current loan servicer, Aurora Servicing in this case. In another much criticized practice, one person wearing “two hats” would often execute these mortgage assignments. For the Culhane loan, an Aurora employee who was also a MERS “certifying officer” executed the assignment transferring the mortgage from MERS to Aurora. Ms. Culhane challenged this practice in her lawsuit seeking to void the foreclosure conducted by Aurora.

Borrower Has Legal Standing To Challenge Mortgage Assignments In Certain Cases

In a question of first impression in the First Circuit, the court considered whether borrowers have standing to challenge a MERS-initiated mortgage assignment even though a borrower is not a party to it. Overruling a significant number of cases around the country, the panel held that borrowers do have legal standing to challenge assignments  as “invalid, ineffective, or void (if, say, the assignor had nothing to assign or had no authority to make an assignment to a particular assignee).” Judge Seyla adopted some common-sense reasoning, noting that under Massachusetts’ non-judicial foreclosure system, borrowers would be effectively left without a remedy to challenge a faulty foreclosure without giving them standing to contest a defective mortgage assignment.

MERS System Is Legal And Borrower Ultimately Loses

Ms. Culhane’s victory as this point unfortunately became Pyrrhic. Although the court held that borrowers could challenge mortgage assignments going forward, it did Ms. Culhane no good because she could not muster an adequate challenge to the MERS-Aurora mortgage assignment in her case. The court rejected Culhane’s argument that MERS did not legally hold the mortgage so it could not assign it, reasoning that nothing in Massachusetts mortgage law prohibited splitting the note and mortgage as the MERS system does. The court also found no legal problem with the same person signing on behalf of both MERS and Aurora.

Not The Last Word…

Culhane, however, may not be the last word on MERS and foreclosures in Massachusetts, as the Supreme Judicial Court always has the last and final say on these matters. Coincidentally, this week the SJC announced that it was soliciting friend-of-the-court briefs in Galiastro v. MERS, on whether MERS “has standing to pursue a foreclosure in its own right as a named ‘mortgagee’ with ability to act limited solely as a ‘nominee’ and without any ownership interest or rights in the promissory note associated with the mortgage; whether the prospective mandate of Eaton v. Federal National Mortgage Association, 462 Mass. 569 (2012), applies to cases that were pending on appeal at the time that case was decided.” The Galiastro case is scheduled for argument in April 2013.

As always, I’ll be on top of the latest developments in this ever-fluid area of law. Now, it’s time to eat those bagels and lox I’ve been waiting for.

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a Massachusetts real estate attorney who writes frequently about new foreclosure issues concerning the real estate industry. He can be reached at [email protected].

Culhane v. Aurora Loan Servicing (1st Cir. Feb. 15. 2013) by

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Email Disclaimers: Toothless, Useful, Or A Little Of Both?

by Rich Vetstein on February 2, 2013

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A Simple Email Disclaimer Cannot Hurt & Can Only Help

Boilerplate email disclaimers at the bottom of messages are so ubiquitous that most of us hardly notice them anymore. They certainly take up a lot of text space and can be annoying to some, but are they legally effective or just plain toothless?

In the real estate context, where Realtors and attorneys write in the language of contract everyday, I believe that a short and simple email disclaimer may help, and certainly cannot hurt, the sender (aside from annoying a snarky recipient or two). In this post, I will discuss a few common real estate situations where an email disclaimer could come into play, then give you the disclaimer that I use in my emails. Now I have my own disclaimer here: A court will determine each case individually, and there is no guarantee that any particular disclaimer will be effective in any given case.

Contract Negotiations

The most common situation where an email disclaimer could come into play is during real estate contract negotiations. For many agents and attorneys, e-mail has become the default mode of communication, replacing the telephone and the outdated fax. E-mail, however, can provide the “smoking gun” in litigation because it’s nearly impossible to delete permanently, and people tend to be more casual and less introspective before hitting “send.” And don’t get me started with texting, which is even worse.

Realtors must remember that under Massachusetts agency law they are agents with actual or apparent legal authority to bind their clients to the statements they make in emails and other forms of communication. Like the Miranda warnings given by the police, a real estate agents’ statements “can and will be used against them in a court of law.” The same is true for attorneys.

A case in point: In the recent well-publicized case of Feldberg v. Coxall, a Massachusetts judge ruled that a series of e-mail exchanges between the buyer and seller’s attorney, the last one attaching a revised, but unsigned, offer to purchase, could create a binding contract even though no formal written agreement was ever signed. This is also one of the first cases applying the new Massachusetts E-Sign law to preliminary negotiations in real estate deals. There have been cases in other jurisdictions holding that e-mails can result in a binding contract even though the parties may have assumed otherwise.

Practice Pointer:

“Emails sent or received shall neither constitute acceptance of conducting transactions via electronic means nor shall create a binding contract in the absence of a fully signed written agreement.”

This is the new email disclaimer that I’ve formulated after the Feldberg ruling. It does two things. First, it provides that only a fully signed contract can bind the parties. Second, it attempts to counter the presumption in the E-sign Act of conducting the transaction electronically via email. It has not been tested in court yet, but again, aside from taking up some pixel space, it can’t hurt. Now remember, this type of disclaimer would favor a selling/listing agent, but not necessarily a buyer’s agent, because the buyer’s agent would typically want to enforce preliminary negotiations. So, caveat emptor (buyer beware).

Practice Pointer: “Subject to final client review/approval”

Another best practice that Realtors and attorneys should get in the habit of doing is to write “subject to final client review and approval” or words to that effect in the midst of email contract negotiations and draft agreements being circulated. This could sway a court from determining that a binding deal was formed, and plus, it gives you an “out” in case a client has last minute changes.

Confidential Communications

Attorneys love to use long confidentiality disclaimers in their email. Do they work? Occasionally. Do they matter in real estate? I still think so.

First, the concept of legal confidentiality is limited to those situations governed by legal privilege. There is an attorney-client privilege between lawyers and their clients, obviously. While there is no legal privilege between a Realtor and his/her client as for communications solely between the agent and the client, the attorney client privilege will likely attach to emails and communications between and among the real estate agent, the attorney, and the client provided that legal advice is being given. But a particular email does not automatically get confidentiality protection simply because the attorney is copied on it. Some courts have pointed to email disclaimers as a factor in upholding the confidentiality. But there have been many court rulings where judges have discarded the disclaimers.

While attorneys should absolutely have a confidentiality email disclaimer, do Realtors need one? I say yes, because sometimes emails between attorney and client wind up in Realtors’ inboxes and sometimes they get forwarded on purpose or by mistake when they shouldn’t, and that could waive any privilege which is attached and become the “smoking gun.”

Practice Pointer:

I use this simple email disclaimer:

CONFIDENTIALITY: This e-mail message and any attachments are confidential and may be privileged.

The best practice, of course, is to cleanse and delete portions of any email with attorney-client or confidential information before forwarding. And of course, THINK BEFORE YOU HIT SEND!

**Thank you to Cambridge MA Realtor Charles Cherney for suggesting this topic!

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a nationally recognized real estate attorney who writes frequently about legal issues facing the real estate industry. He can be reached at [email protected].

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69 Year Old Woman Found Dead After Neighbor’s Handyman Cuts 30-foot Arborvitaes; Estate Recovers $150,000 Wrongful Death Settlement

In a tragic case out of Somerset, Massachusetts reported by Massachusetts Lawyers Weekly, a woman’s estate has recovered a $150,000 wrongful death settlement after she dropped dead when her neighbor cut down a row of trees which she and her husband planted 40 years ago.

According to Taunton lawyer Claudine A. Cloutier, who represented the woman’s estate, the neighbor hired a worker to remove some of the trees. When the woman discovered they had been cut down, she apparently became emotionally distraught. Her son found her dead in a chair the next day. There were no signs of trauma. Her estate brought negligence and tort claims against the neighbor, alleging wrongful death partially caused by stress arising from the destruction of the plants. The case went to mediation, and was settled before trial for $150,000.

Massachusetts Illegal Tree Cutting Law

Disputes over tree pruning and cutting are very common in Massachusetts. Indeed, Massachusetts has one of the oldest tree cutting and trimming laws on the books which provides for triple damages for any illegal cutting:

A person who without license willfully cuts down, carries away, girdles or otherwise destroys trees, timber, wood or underwood on the land of another shall be liable to the owner in tort for three times the amount of the damages assessed therefor; but if it is found that the defendant had good reason to believe that the land on which the trespass was committed was his own or that he was otherwise lawfully authorized to do the acts complained of, he shall be liable for single damages only.

Nevertheless, at common law, a neighbor may remove branches extending over a shared property line onto his or her own property. Also, the neighbor has no liability for roots growing into your yard and causing damage. Massachusetts law does not allow a person to cross or enter a neighbor’s property for these purposes without the neighbor’s consent, nor to remove any branches or other vegetation within the confines of the neighbor’s property. You can trim the branches and roots back, but you cannot kill the tree. This is the “Massachusetts Rule.”

Damages are assessed that either the market value of the timber or the replacement cost of the trees. Replacement cost typically requires the assistance of an expert arborist or landscaper. In a case out of Martha’s Vineyard, the appeals court upheld a $30,000 award for the replacement cost of 10 mature oak trees. Upon a finding of maliciousness under the tree cutting law, those damages were tripled.

Before cutting, trimming or pruning trees on or near your property line, it’s always a good idea to consult your plot plan or survey and speak to your neighbor before taking out the chain saws.

Utility Tree Cutting

I’ve been reading about many recent disputes between property owners and utility companies (Wayland v. NStar) over tree cutting within utility easements. The law provides a public utility the right to remove or trim your tree if it interferes with the necessary and reasonable operation of the utility. Furthermore, the utility is required to perform tree trimming as part of its program to maintain reliable service for its customers. The National Electric Safety Code requires utilities to trim or remove trees growing near power lines that threaten to disrupt service. Proper and regular tree trimming helps prevent the danger and inconvenience of outages.

More ResourcesMassachusetts Law Library

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Richard D. Vetstein, Esq. is an experience real estate attorney who has litigated numerous illegal tree cutting cases. If you are dealing with a Massachusetts unlawful tree cutting or trimming situation, please contact him at 508-620-5352 or via email at [email protected].

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Huge Sigh of Relief For Mortgage and Foreclosure Industry

The much awaited opinion by the SJC in Eaton v. Fannie Mae has just been released, and it is a huge Maalox for the banking and real estate community. Case embedded below. I have written a more detailed analysis here but here are the highlights:

  • Although the Court adopted some of the Eaton side’s arguments, I believe that lenders and MERS ultimately came out as the winners, as initial reports indicate. The Court basically gave lenders a pass on prior defective foreclosures and created new “rules of the road” for foreclosures going forward. There will definitely be more litigation after this case to sort out what foreclosing lenders and servicers need to prove in order to foreclose.
  • Agreeing with the Eaton/homeowner side, the Court ruled that going forward, lenders will have establish that they “hold” both the mortgage and promissory note, in order to foreclose. However, the court endorsed several methods in which lenders will be able to satisfy this requirement, thereby potentially creating several exceptions which will swallow the general rule.
  • Agreeing with lenders and Fannie Mae, the Court took the rare step of declining to apply the the key holding retroactively. The ruling will apply prospectively and will have no impact on previously completed or in process foreclosures. Those foreclosures will likely be immune from challenge along the lines Eaton asserted. This saved the lender and title insurance industry millions of dollars in claims.
  • Critically for the lending and title community, the Court ruled that lenders do not need to physically hold both note and mortgage at time of foreclosure, striking a huge blow to the “produce the note” defense:  The court acknowledged that the Massachusetts foreclosure statute, enacted well before the proliferation of securitization and MERS, was unclear in the modern era of securitizing mortgages.
  • The court essentially blesses the current MERS and current servicer system where mortgage servicers can show that they have legal authority to act on behalf of mortgage holder/lender to foreclose. The SJC overturned the injunction against the lender and the case was remanded below where the servicer, Green Tree, will have the opportunity to establish they have the legal authority and agency to foreclose on behalf of the mortgage holder.
  • We will see new attorney and custodian of records affidavits being filed and used to establish the chain of ownership the court said would comply with the foreclosure laws.
  • More Coverage:  Banker & Tradesman, BusinessWeek, Wall St. Journal, Credit Slips (Prof. Adam Levitin)

Eaton v. Fannie Mae SJC Ruling

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Banker and Tradesman is reporting that Bristol, Plymouth and Norfolk County Registrars of Deeds plan to file a class action suit against Mortgage Electronic Registration System (MERS), aiming to recoup land recording fees they believe they are owed. B&T reporter Colleen Sullivan reports that:

The counties are being represented by Bernstein Liebhard LLP, a New York firm specializing in class actions which has already brought a similar suit on behalf of all the counties of Ohio. John Mitchell, a Bristol County commissioner, said the board considered pursuing a claim last year, but decided to hold off until the national mortgage settlement between the banks and the states’ attorneys general was resolved. But as it became clear that the vast bulk of the funds in that settlement would go towards foreclosures and loan modifications, he said the county decided to pursue the matter. Bristol County officials estimate the county may have lost out on millions of dollars in fees over the past decade because of the alleged use of MERS as a kind of private registry among large banks. A rough calculation prepared by county officials last year came up with a figure of between $3.1 million and $6.5 million lost, using a conservative estimate of one or two additional non-recorded assignments per MERS- registered property.

“Over the last month, we were approached by [Bernstein Liebhard] and other firms….they already had Norfolk and Plymouth, and we thought it made sense to get as many counties together,” Mitchell told Banker & Tradesman. Mitchell said he wasn’t sure if the remaining Massachusetts counties with county-level governance would join the suit. The relatively small size of counties like Nantucket and Dukes would mean far smaller sums at stake.

County-level governance was abolished in Massachusetts in eight of the state’s 14 counties around the turn of the century. Only Barnstable, Bristol, Norfolk, Plymouth, and Dukes retain county boards; Nantucket has a combined city-county government. The remaining boards retain the right to bring independent actions in court.

“We’re familiar with their claims, and there’s no merit to them,” said Janis Smith, spokeswoman for MERS. Smith said that by registering under the MERS name, banks fulfill the purpose of having a registry, that is, alerting the public of any existing leins on a property. “MERS does not eliminate or replace county records, and the recording fees are paid,” she said. “The MERS business model is legal in all 50 states and has been affirmed by Massachusetts courts.”

“I commend the counties,” said John O’Brien, the registrar of deeds in Essex County, who has been an active critic of MERS for the past two years. O’Brien was the first public official in Massachusetts to calculate how much the MERS system may have cost the state in allegedly lost recording fees, coming up with a figure of $22 million for his county alone. “If I had the authority, I would have filed this suit two years ago.”

The other registries fall under Secretary of State William Galvin’s jurisdiction. O’Brien said he plans to petition the legislature to recover his ability to bring suit on behalf of Essex County as one of its elected officials.

The Registrars are reportedly incensed that the MERS private recording system has deprived them of millions of recording fees. We will keep tabs on this important case.

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Mass. AG Martha Coakley Credit: Reuters

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…” — Charles Dickens, A Tale of Two Cities

AG Martha Coakley Files Major Civil Action Against Big Banks

First, the big news. Attorney General Martha Coakley has filed a huge consumer protection lawsuit over wrongful foreclosures against the top 5 U.S. lenders, Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial. Coakley also names Mortgage Electronic Registration System, or MERS, the electronic mortgage registration system which proliferated during the securitization boom of the last decade. The lawsuit said it sought “to hold multiple banks accountable for their rampant violations of Massachusetts law and associated unfair and deceptive conduct amidst the foreclosure crisis that has gripped Massachusetts and the nation since 2007.” Specifically, Coakley blames the banks for not complying with the U.S. Bank v. Ibanez decision in foreclosing mortgages without evidence of legal ownership of the underlying debt, improper statutory foreclosure notices and illegal “robo-signing.”

I’m sure Coakley will be able to extract a sizable settlement from the banks, but the question remains, what about the foreclosure mess and toxic titles left in its wake? I hope Coakley seriously considers setting up a toxic title monetary fund to assist homeowners who lack title insurance with clearing their titles due to bungled foreclosures in their chain of title.

Here is a link to the AG’s Complaint.

Culhane v. Aurora Loan Servicers: Federal Judge William Young Grapples With Legality Of MERS System

While AG Coakley was putting the finishing touches on her lawsuit, across the way at the Moakley Courthouse at Fan Pier, U.S. District Judge William G. Young and his cadre of law clerks were attempting to work their way through the legal maze which is the MERS (Mortgage Electronic Registration System) system. The case is Culhane v. Aurora Loan Services of Nebraska. We’ve written about MERS quite a bit here on the blog.

I can say with confidence that Judge Young is one of the smartest jurists on the federal bench and in the Commonwealth. I know this first-hand because I clerked for him in law school.

It took him 59 pages to sort though the myriad of legal issues implicated by the complex MERS system, and he had some very choice (and funny) remarks about the system:

“MERS is the Wikipedia of Land Registration Systems.” . . . “A MERS certifying officer is more akin to an Admiral in the Georgia navy or a Kentucky Colonel with benefits than he is to any genuine financial officer.”

Judge William G. Young

But ultimately, Judge Young concluded that MERS did not run afoul of Massachusetts law, by the “thinnest of venires.” So there you have it. MERS is kosher in Massachusetts, at least according to Judge Young.

However, Judge Young’s ruling came with some important caveats. First, he held that MERS does not have the power to foreclose in its own name. This is no longer an issue as MERS new policy is not to foreclosure in its name. But what about prior foreclosures in MERS’ name? Are those still considered valid?

Second, in accordance with Mass. Gen. Laws ch. 183, sec. 54B, he ruled that assignments from MERS’ vice presidents to loan servicers or holders are valid despite the signer’s lack of personal knowledge or proof of actual authority. This is a direct contradiction with AG Coakley’s claim that the MERS assignments are invalid.

Lastly, the most important aspect of Judge Young’s ruling was his agreement that foreclosing lenders must hold both the loan (promissory note) and the mortgage together in unity, to foreclose, following the controversial Superior Court opinion in Eaton v. FNMA which is now on appeal with the Supreme Judicial Court. However, Judge Young added an important distinction to this rule, saying that that loan servicers could foreclose in their names where the loan is held in a pooled securitized trust, provided they otherwise comply with Massachusetts foreclosure law. This is a very important distinction as a fair amount of foreclosures are brought in the name of the loan servicer. I’m not so sure Judge Young got this one right as a loan servicer rarely if ever holds the note as assignee, as Professor Adam Levitin notes, but the ruling certainly assists the industry.

So all eyes are back on the SJC awaiting its ruling in the Eaton case which could have even far more impact than the Ibanez decision. Of course, these two events underscore that foreclosures are still a mess crying out for legislative help (which hasn’t come at all), and the crucial importance of title insurance, which all buyers should elect at their closings.

I’ve done a quick video analysis and embedded Judge Young’s opinion below.

Culhane v. Aurora Loan Services

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Update (6/22/12): SJC Issues Final Opinion (click to read)

I just finished watching the oral arguments in the SJC case of Eaton v. Federal National Mortgage Ass’n, The webcast should be up soon on the SJC Website. You can read the briefs in the case here.

As outlined in my prior post on the case, the Court is considering the very important question of whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. If the SJC rules against lenders, it will be another national headline story — potentially bigger than U.S. Bank v. Ibanez.

Quick Recap: Ultimately, the SJC will have to decide how old common law decided in the late 1800′s now applies to mortgages in the 21st century with securitization, servicers and MERS. Does the law need to be modernized? I think it’s time. Unlike the U.S. Bank v. Ibanez case, this one is much harder to handicap. So I’m not even going to try!

For those unfamiliar with the facts of the case, I’ll state them again.

Borrower Able To Stop Foreclosure

As with many sub-prime mortgage borrowers, Henrietta Eaton had defaulted on her mortgage to Green Tree Mortgage. This was a MERS mortgage (Mortgage Electronic Registration System) originally granted to BankUnited then assigned to Green Tree. Green Tree foreclosed in 1999 and assigned its winning bid to Fannie Mae who attempted to evict Eaton in January 2010.

Eaton was able to obtain an injunction from the Superior Court halting the eviction on the grounds that Green Tree did not possess the promissory note underlying the mortgage when the foreclosure occurred. This has been coined the “produce the note” defense and has been gaining steam across across the country. This is the first Massachusetts appellate case that I’m aware of to consider the defense and surrounding legal issues.

The Superior Court judge, Francis McIntyre, wrote a 10 page opinion, explaining that Massachusetts has long recognized that although the promissory note and the mortgage can travel different paths after the borrower signs them, both instruments must be “reunited” to foreclose. “The mortgage note has a parasitic quality, in that its vitality depends on the promissory note,” the judge ruled. As is becoming increasingly prevalent, neither Green Tree nor Fannie Mae could located the original signed promissory note; they were only able to produce a copy endorsed in blank without an amendment, or allonge, indicating when it was endorsed or who held it at the time of the foreclosure. Without the note properly endorsed and assigned to Green Tree, the foreclosure was a nullity, the judge held.

Pointed Questions During Oral Argument

The oral argument was pretty interesting with the majority of the justices’ questions centered around questions of the mortgage servicer’s authority to foreclose or enter into a loan modification, Fannie Mae’s role and the role of MERS. Here’s my running diary of the argument.

Fannie Mae Arguments

  • Attorney Richard Briansky, who did a solid job, represented the Fannie Mae side, and started first. Judge Gants asked whether there was any evidence that Ms. Eaton, the borrower, failed to pay insurance or real estate taxes to justify foreclosure  on other grounds? There was no evidence; purely breach of note, replied Briansky.
  • The justices raised a question of the authority of the signer of the mortgage assignment. The signer was a “Monica” who worked for Green Tree Servicing and had signatory authority for MERS. Of course, this is the robo-signing question which is being raised across the county. (Read our post on the high percentage of robo-signed documents found at the Essex Registry of Deeds here). The justices asked was she employee or MERS or Green Tree?  Dual roles. However, they agreed that this issue is not properly raised in this case.
  • Justice Cordy asked whether Green Tree, the servicer, was in a position to extinguish the debt? The answer was no. The loan proceeds are held in trust for note holder.
  • Justice Botsford was worried about the possibility of double liability where the note holder sues Eaton on note. Never been an issue, says Briansky.
  • Justice Lenk asked who determines whether or not to foreclose? Attorney Briansky said Green Tree, because it has been collecting payments and acts as servicer. Now the justices started exploring the contractual relationship between servicer and note holder. The discussed turned to the servicer’s authority for loan mods, etc.
  • Justice Botsford had questions over who could make important decisions under mortgage.
  • Justice Duffly asked about the status of MERS as nominee. It’s a “tripartite relationship,” explained Briansky. The justices seemed very skeptical of the MERS relationship.
  • Justice Ireland, citing the friend of the court brief, asked Briansky point blank whether Massachusetts law required unity of the note and mortgage holder at foreclosure. Briansky countered with argument that times have changed and current complex mortgage securitization requires a modernization of the law.
  • Justice Duffly pointed out that the proliferation of servicers and MERS has created a unique situation and is bad for consumers. She thinks that there is a disincentive for servicers to modify loans; that they make more money for foreclosure. An interesting point.
  • Justice Lenk asked a very good question: What would preclude Fannie Mae from holding the mortgage? I can tell you that as a matter of policy, Fannie Mae prefers not to hold mortgages themselves, instead letting the servicers do the “dirty work” of defaults and foreclosures.

That concluded the Fannie Mae side.

Eaton Arguments

Now for the Eaton side, Sam Levine, a Harvard Law student, argued under a SJC Rule permitting third year law students to argue in court. What a thrill it must have been for a law student who hasn’t even passed the Bar, to be arguing a major case in front of the SJC. However, his inexperienced showed at times, as he often slipped into prepared remarks when the justices where looking for an answer far more specific. But all in all, the kid did OK for not even being a real lawyer yet.

  • The justices ask about all the lower court and bankruptcy court decisions holding that you don’t need pure unity of note holder and mortgage holder to foreclose. Levine stood his ground on the older cases holding that this isn’t the law. The justices will have to grapple with whether the law needs to be modernized.
  • Justice Gants asked what’s wrong with an agent acting as servicer? Levine said for servicing it’s fine, but for foreclosure, the principal must foreclose.
  • There was an extended discussion over the standard MERS mortgage form as to MERS’ authority to invoke power of sale and foreclose. The justices appeared confused as to who has the right to invoke the power of sale and foreclose. Does MERS or does the lender, or both? And who is MERS’ successors and assigns?
  • Justice Cordy asked hasn’t borrower agreed in the mortgage that MERS can foreclose? Didn’t she waive any common law right that the note holder and mortgage holder be united for foreclosure. Good question.
  • Justice Lenk asked that if Fannie Mae had foreclosed, everything would have been fine. That’s ultimately true.
  • Justices Cordy and Spina were definitely getting frustrated with the simple fact that Eaton simply didn’t pay mortgage. Look for them to vote to reverse the lower court opinion in this case.

What’s Next?

The SJC will release a final opinion within 120 days or so. A lot of the questioning centered on side issues not squarely relevant in the case. The question in the case is simply whether a foreclosing lender must hold both the note and mortgage at foreclosure. Clearly, the justices have been reading the press reports about the foreclosure crisis and are trying to be responsive to it. But they have to decide cases based on the facts before them. Again, I’m not going to try to handicap this one, but I have a feeling it will be a close decision with concurring and dissenting opinions. If the SJC rules against lenders, it will be another national headline story, rest assured.

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Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous foreclosure defense and title defect cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure and title dispute.

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Update: Update (6/22/12): SJC Issues Final Opinion (click to read)

SJC Orders Additional Briefing On Potential Impact of Ruling (1/6/12)

Oral Argument Analysis (10/3/11)

Do Lenders Need To Hold Both Promissory Note & Mortgage At Foreclosure?

In a rare “sua sponte” (on their own) direct appellate review, the Massachusetts Supreme Judicial Court has agreed to hear an appeal considering the controversial “produce the note” defense in foreclosure cases and whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. Based on arguments asserted by the lender, the court may also consider the circumstances by which a mortgage granted to Mortgage Electronic Registration System (MERS) can be effectively foreclosed in Massachusetts.

This could be a very important decision — potentially as important as the landmark U.S. Bank v. Ibanez case issued in the spring. A ruling against the lenders could expose a gaping and fatal legal black hole with many foreclosure-bound mortgages that were hastily bundled and sold to Wall Street during the real estate boom years. A rejection of the borrower’s arguments as recently made by a bankruptcy judge in Worcester, however, could significantly reduce some MERS induced anxiety and heartburn presently being experienced by lenders and foreclosure attorneys.

The case is Eaton v. Federal National Mortgage Association (Fannie Mae), SJC-11041. The court will hear arguments in October, with a decision coming several months later. The court is also seeking amicus, or friend of the court, briefs from interested parties.

Where’s The Note?

As with many sub-prime mortgage borrowers, Henrietta Eaton had defaulted on her mortgage to Green Tree Mortgage. This was a MERS mortgage originally granted to BankUnited then assigned to Green Tree. Green Tree foreclosed in 1999 and assigned its winning bid to Fannie Mae who attempted to evict Eaton in January 2010.

Eaton was able to obtain an injunction from the Superior Court halting the eviction on the grounds that Green Tree did not possess the promissory note underlying the mortgage when the foreclosure occurred. This has been coined the “produce the note” defense and has been gaining steam across across the country. This is the first Massachusetts appellate case that I’m aware of to consider the defense and surrounding legal issues.

The Superior Court judge, Francis McIntyre, wrote a well-reasoned 10 page opinion, explaining that Massachusetts has long recognized that although the promissory note and the mortgage can travel different paths after the borrower signs them, both instruments must be “reunited” to foreclose. “The mortgage note has a parasitic quality, in that its vitality depends on the promissory note,” the judge ruled. As is becoming increasingly prevalent, neither Green Tree nor Fannie Mae could located the original signed promissory note; they were only able to produce a copy endorsed in blank without an amendment, or allonge, indicating when it was endorsed or who held it at the time of the foreclosure. Without the note properly endorsed and assigned to Green Tree, the foreclosure was a nullity, the judge held.

Potential Impacts Far and Wide

As I mentioned before, a ruling that foreclosing lenders must produce both the note and mortgage held by the same entity would drastically alter existing foreclosure practice in Massachusetts, and may open existing foreclosures to legal challenge. Although I don’t practice in foreclosures, I do know that rarely, if ever, are properly endorsed and assigned promissory notes in the hands of lenders when they foreclose. As with this case, they are typically endorsed in blank, that is, to no one, and in storage somewhere in New Jersey or Ohio held by a loan servicer. In fact, obtaining such promissory notes from lenders can be nearly impossible. They are often lost, missing pages, or destroyed.

This case, which is typical, illustrates the problem with the entire system. According to Fannie Mae’s brief, after the loan funded, the note was indorsed in blank and allegedly transferred to Fannie Mae. How does an entity as sophisticated as Fannie Mae purchase a loan without getting the promissory note properly indorsed and assigned to it? God only knows. So the best Fannie could do was produce a copy of the note indorsed to no one. That’s just great…

The mortgage took a different path along the securitization trail. This was a MERS mortgage, so it was originally granted to MERS, the electronic registry who admittedly acts only as a “nominee” and holds no financial stake in the loan. A Mass. bankruptcy court judge recently voided the foreclosure of a MERS mortgage for some of these reasons. Now while the paper is held by Fannie Mae, the mortgage supposedly gets assigned to Green Tree, the loan servicer, which like MERS has no financial stake in the loan. Green Tree then conducts the foreclosure sale, although it has no real financial interest in the loan–that remains with Fannie Mae. Now it doesn’t take a Louis Brandeis to ask, why didn’t the mortgage get assigned to Fannie Mae, and why didn’t Fannie Mae conduct the foreclosure sale since it held all the financial cards in this transaction? I would love someone to explain this to me because I don’t get it, and I’m not the only one. At this point, the whole system is FUBAR.

Of course, a favorable ruling for lenders would preserve the status quo and business-as-usual atmosphere for foreclosures in Massachusetts, while upholding the effectiveness of the MERS mortgage. The SJC wasn’t afraid to drop a bombshell in U.S. Bank v. Ibanez. Eaton v. Fannie Mae may be next. At the very least, the SJC joins a steady stream of jurists who have concerns about the way in which foreclosures are being conducted in a post-subprime world. When the decision comes down, I’ll be on it!

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Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous foreclosure defense and title defect cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure and title dispute.

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Mass. Bankruptcy Judge Voids Foreclosure Of MERS Mortgage

by Rich Vetstein on August 23, 2011

Judge Tells Lenders You Can’t Have Your MERS Cake & Eat It Too

“The sophisticated financial minds who wrought the MERS regime sought to simplify the process of repeatedly transferring mortgage loans by obviating the need and expense of recording mortgage assignments with each transfer. No doubt they failed to consider the possibility of a collapse of the residential real estate market, the ensuing flood of foreclosures and the intervention of state and federal courts.”

–Judge Melvin S. Hoffman, U.S. Bankruptcy Court Judge for Massachusetts, In Re. Schwartz, Aug. 22, 2011

Coming off a ruling (In re. Marron) that the MERS mortgage registration system does not run afoul of Massachusetts law, the same jurist, Bankruptcy Court Judge Melvin Hoffman, on Monday issued a ruling voiding a MERS-held mortgage which fell victim to sloppy paperwork. As Banker & Tradesman reports, the case is potentially troubling for any MERS held mortgage in default. The case is In Re. Schwartz and is embedded below.

Debtor Challenges Foreclosure Of Securitized Mortgage

During her bankruptcy proceeding, the debtor, Sima Schwartz, challenged the May 24, 2006 foreclosure of her Worcester home by Deutsche Bank. She asserted that under the U.S. Bank v. Ibanez decision issued by the Massachusetts Supreme Judicial Court earlier in the year, Deutsche did not own the mortgage on the property when it first started the foreclosure process.

The “lender” on her original mortgage was Mortgage Electronic Registration System (MERS), as nominee for First NLC. Many housing advocates have criticized MERS’ role in the foreclosure crisis, with the New York Times weighing in most recently. The mortgage loan was securitized and subsequently transferred at least 3 times, ultimately winding up held by Deutsche Bank. No assignments of mortgage were recorded with the registry of deeds until a day before the foreclosure sale on May 23, 2006. That assignment was executed by Liquenda Allotey, one of the hundreds of deputized vice presidents of MERS, and an alleged “robo-signer” for Lender Processing Service (LPS) which has come under fire for document irregularities. The assignment ran to Deutsche Bank, which completed the foreclosure sale on May 24, bid its mortgage debt and purchased the property.

There was no dispute that under the U.S. Bank v. Ibanez case, the late-filed mortgage assignment rendered the foreclosure defective unless Deutsche could establish its ownership of the mortgage loan when the foreclosure process started. During the trial, Deutsche submitted all the various agreements documenting the securitization process including the pooling and servicing agreement (PSA), loan purchase agreement, bill of sale and custodial log.

Judge: Lenders Can’t Have Their MERS Cake And Eat It Too

Critically, as the judge noted, the PSA provided that for a MERS mortgage such as this, assignments of mortgages did not have to be prepared or delivered to the buyer of the loans. As is endemic with most securitized mortgages, the participants in the securitization did not deliver and record any assignments documenting such transfers, instead, relying on the internal MERS registration system, which is out of the public records view. Throwing this provision back in the lenders’ faces, the judge basically said “you can’t have your cake and eat it too” — rendering his ruling that the mortgage itself (as opposed to the underlying loan) was never transferred through the securitization system from entity A, B, C, to Deutsche Bank, and that MERS had always held, and never relinquished, “legal title” to the mortgage. Accordingly, the judge held, Deutsche Bank was never the owner of the mortgage in the first place, could not foreclose in its name, and its foreclosure sale was null and void.

Impact: Are Foreclosures Of MERS Mortgages Now Open To Challenge?

I’m not sure what’s going to happen with Ms. Schwartz’s home. She’s been living in it since 2006 probably mortgage/rent free! Certainly, MERS could (and should have) started a second foreclosure and done it the right way. I’m perplexed why Deutsche and MERS kept fighting this case in court. As for the broader implications, it’s still unclear as to the effect on past and current foreclosures. One this is for certain, the ruling is yet another example of the legal fallout from the deficiencies in the MERS system.

Lastly, while I don’t claim to be a mortgage securitization expert, if the mortgage was not assigned/transferred properly and if it is MERS that holds legal title, then there is a mortgage backed security investor somewhere who THINKS he owns this mortgage but, in fact, does not. Even if MERS wanted to transfer the mortgage to the relevant trust or foreclose, sell the property and transfer cash, they may not be able to for legal and tax reasons. Now multiply by a million. So how many mortgage backed securities are missing how many mortgages? Are there mortgage backed securities out there that don’t actually own ANY mortgages? If someone sells a “mortgage backed” security that doesn’t legally own the mortgages in question, hasn’t that someone committed fraud? And furthermore, how the hell do we clean this up?

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Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous foreclosure defense and title defect cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure and title dispute.

 

In Re Schwartz

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This is the first post in a new series I’ve been wanting to try out for awhile: Rich’s Realty Ramblings (not sold on the name yet–feel free to suggest alternatives). This series will be kind of like a weekly news wire report for those topics I find interesting but not warranting an entire blog post. So let’s go….

MERS Case Reaches U.S. Supreme Court

According to Housing Wire, a controversial case challenging the ability of Mortgage Electronic Registration Systems (MERS) to foreclose on a California man was filed with the U.S. Supreme Court Monday, making it the first major MERS case to reach the nation’s highest court. If the Supreme Court agrees to hear Gomes v. Countrywide, Gomes’ attorney, Ehud Gersten, says the court will have to decide whether a lower court stripped his client, Jose Gomes, of due process by allowing MERS to foreclose without ensuring the registry had the noteholder’s authority to foreclose. “I believe this to be the first case in the country to take MERS to our Supreme Court,” Gersten told HousingWire.

The U.S. Supreme Court rarely takes such cases, and I’m not sure if the due process issues surrounding MERS warrant constitutional intervention, but the case caught my eye and I’ll keep a watch on it.

Old Landfill Found Under New Subdivision

Tampa homeowner Brian Dyer hired a contractor to install a pool in the backyard of his five year old home in the Oak Run Subdivision for his four children. Within hours of breaking ground, construction halted when the contractor discovered a sizable underground dump complete with tires, washing machine tubs, a lawn mower and old trash dating back to the 1970s. With a hole in his yard and a pile of garbage beside it, Dyer approached the county about the eyesore and was told they were unaware of the trash and told him he would be required to handle the problem. (Source: Agent Genius).

Yikes! Mr. Dyer has a potentially large claim against the developer and builder of his subdivision and home. What a stinking mess!

Fannie Mae Abusing Foreclosure Powers?

A Detroit Free Press investigation claims that Fannie Mae spent $27,000 on a foreclosure for a $3,000 debt, and violated its own internal rules to foreclose on struggling homeowners. Fannie Mae has been the target of Congressional ire for some time now. Homeowners across the U.S. are literally begging for loan modifications to stay in their homes in order to avoid foreclosure.

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First the robo-signing controversy. Then the U.S. Bank v. Ibanez ruling. Now the next bombshell ruling in the foreclosure mess has just come down from a New York federal bankruptcy judge.

The case is In Re Agard (click here to download), and essentially throws a huge monkey wrench into a hugely important cog of the entire U.S. mortgage market, the Mortgage Electronic Registration System, Inc. known as MERS.

What Is MERS?

MERS, even for many seasoned real estate professionals, is the most important entity you’ve never heard of. In the mid-1990s, mortgage bankers created MERS to facilitate the complex mortgage securitization system where hundreds of thousands of mortgage loans were (and still are) packaged and bundled as securities for sale on Wall Street. Each mortgage entered into the MERS system has a unique 18 digit Mortgage Identification Number (MIN) used to track a mortgage loan throughout its life, from origination to securitization to payoff or foreclosure. The MERS system was vital to the proliferation of the $10 trillion U.S. residential securitization mortgage market.

Critics say that the decision to create MERS was driven, in large part, to avoid paying recording fees charged by county registry of deeds which required that all mortgage transfers and assignments be properly recorded and indexed in publicly available registries of deeds. Thus, MERS was designed essentially as a privately run, national registry of deeds under which MERS would act as the record “owner” and depository of all mortgages participating in the system, while the mortgage notes and loans themselves were freely bought and sold on the secondary market. About 50% of all U.S. mortgages participate in the MERS system.

The Ruling: MERS Cannot Legally Transfer & Assign Mortgages

Bankruptcy court judge Robert E. Grossman’s ruling is a bombshell and appears to be the first federal ruling holding that MERS cannot legally do what it was set up to do: transfer and assign mortgages through its electronic registry. Judge Grossman ruled that the foreclosing lender had to show that it owned both the note and the mortgage — rejecting the popular theory that the “note-follows-the-mortgage” — and there was no evidence that it held the note. “By MERS’s own account, the note in this case was transferred among its members, while the mortgage remained in MERS’s name,” Grossman wrote. “MERS admits that the very foundation of its business model as described herein requires that the note and mortgage travel on divergent paths.”

The judge found that the MERS membership agreement wasn’t enough to assign the mortgage and that to do so the lender would have to give power of attorney or similar authority to MERS. MERS’s membership rules don’t create “an agency or nominee relationship” and don’t clearly grant MERS authority to take any action with respect to mortgages, including transferring them, Grossman wrote. Because the interests at issue concern “real property” — land and buildings — under state law, any transfer has to be in writing, which isn’t done under the MERS system, he said.

The judge concluded, rather harshly, that “MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best.”

Impact of the Decision

The impact of this ruling may be quite muted. First the ruling is “dicta” which means that the ruling didn’t have much to do with the case since the judge upheld the validity of the foreclosure. Second, this ruling comes from the lowest level of the federal bankruptcy court system in New York, and will surely be appealed to a federal appeals court, and then possibly to the U.S. Supreme Court. Other courts have ruled in favor of MERS on the same issues, as well. The ruling could be overturned ultimately–if it gets there. Third, Congress and state legislatures could intervene, and bless what MERS has been doing for the past decade. The judge invited lawmakers to do just that.

Thus, it’s hard to say how much, if any, impact this ruling with have in other states or nationally. Plus, any easy fix would appear to be for MERS and its lender partners to go back, and record their mortgage assignments and pay the recording fees due.

That said, the decision definitely sends a shot across the bows of MERS and its partners (Fannie and Freddie), and should be watched closely by industry experts.

More Coverage

Wall Street Journal

Bloomberg News

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I am honored to be a panelist — along with the lawyers who prevailed in the U.S. Bank v. Ibanez case –in an upcoming online seminar on February 12 and 15. Here are the details:

The Massachusetts Ibanez Decision:
The Ruling and its Implications for the Industry, the Practitioner and the Consumer

Saturday, February 12th, 2011
12:00 PM Eastern Time
and Tuesday, February 15th, 2011
8:00 PM Eastern Time

Hear from the attorneys and experts directly involved in the recent landmark Massachusetts Supreme
Judicial Court decision that shook up the foreclosure defense landscape.

A virtual panel discussion followed by audience Q&A.

O. Max Gardner III
O. Max Gardner III
www.maxbankruptcybootcamp.com

Max is recognized as one of the leading lawyers in America in the area of Predatory Mortgage Servicing and the standing of Mortgage Servicers in consumer bankruptcy cases. His position on the front lines of the war against predatory lenders and mortgage servicers has captured the attention of ABC News Nightline, CNN, Business Week, The New York Times, The Washington Post and many other news outlets across the country.

**Only participating in the event on Saturday, February 12 at 12:00 PM EST
Marie McDonnell
Marie McDonnell
www.mcdonnellanalytics.com

Marie McDonnell is the President of McDonnell Property Analytics, Inc., a foreclosure defense training and support services company. Her Amicus Brief is widely cited as a key factor in the Ibanez decision. Marie has been a nationally recognized mortgage auditing and forensics expert since 1987.

Jamie Ranney
Jamie Ranney
www.nantucketlaw.pro

Jamie is one of the leading foreclosure defense lawyers in Massachusetts, with a current caseload of approximately 85 cases. He has worked closely with Glenn F. Russell, Jr., and Thomas B. Vawter to develop innovative foreclosure defense strategies, including challenging a foreclosing bank’s standing in Servicemembers cases in the Massachusetts Land Court and in raising standing challenges to post-foreclosure evictions.

Glenn Russell
Glenn F. Russell, Jr.
www.foreclosuresinmass.com

Glenn is a solo practitioner based in Fall River, Massachusetts, whose practice is 100% devoted to the defense of mortgage foreclosure. Attorney Russell represented Mark and Tammy LaRace in the recent Massachusetts Supreme Judicial Court ruling in U.S. Bank v. Ibanez.

Richard D. Vetstein, Esq
www.massrealestatelawblog.com

Richard D. Vetstein, Esq. is the creator and principal author of the Massachusetts Real Estate Law Blog. Rich is a nationally recognized real estate attorney, having written extensively on real estate legal issues and been featured or quoted by the Boston Globe, Bloomberg News, Financial Times, Associated Press, Wall Street Journal, and Banker & Tradesman. Rich was recently selected as one of Inman News’ Top 100 Most Influential in Real Estate.

**Only participating in the event on Tuesday, February 15 at 8:00 PM EST

Click Here for the Registration Page

This should be a fantastic panel discussion for anyone who is interested in the impact of the U.S. Bank v. Ibanez decision.

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The USDA Loan: Not Just for Farmers Anymore

by Rich Vetstein on January 29, 2010

I’m pleased to welcome back guest blogger, David M. Gaffin, a licensed Loan Officer with Greenpark Mortgage Corp. of Needham MA. You can visit him at Greenpark Mortgage or through his LinkedIn profile.

Dave is here to talk about USDA loans which are, surprisingly, available in such *rural* areas of Massachusetts such as Hopkinton, Sudbury, Ashland, South Shore, Cape Cod and many other communities.

Due to the mortgage meltdown that has plagued our county for the past couple of years, lending guidelines have tightened significantly and obtaining a home loan has been more akin to giving birth. In fact, it seems that many lenders want your first born in order to complete the transaction. Low down payment and no down payment loans vanished from the landscape, unless you really knew who to speak with. FHA became the buzzword and savior to those with less than a 10% down payment in a declining real estate market.

Now that FHA is more mainstream (requiring only a 3.5% down payment and having very generous credit and debt tolerances), many think this is the only alternative to the traditional Fannie/Freddie loan.

However, there are some little known loan programs available from the United States Department of Agriculture (USDA) that could benefit borrowers in many parts of Massachusetts and beyond. Known as the Guaranteed Rural Development Housing Section 502 Loans, these programs are designed for low to moderate income individuals or households purchasing a property in a “rural” community. The definition of rural is surprising, as you will see from the list of eligible communities in Massachusetts.

Massachusetts communities eligible for the rural loan include: Ashland, Hopkinton, Sherborn, Sudbury, Maynard, Littleton, Harvard and most of central and western Mass. Most of the South Shore and virtually all of Cape Cod are considered “rural” for this program as well. To see an interactive map of eligible Massachusetts communities follow this link.

There are some exceptional features to these programs, as well as some needed conservative features. Program Features include:

  • No Down-payment
  • No Monthly Mortgage Insurance
  • Unlimited Seller Contributions
  • The ability to repair certain aspects of the property and build in those costs into the total loan.

To be eligible to purchase a home with a Rural Housing loan, borrowers must meet income eligibility requirements.  Here is the link for Massachusetts.  For example, in the Boston-Cambridge-Quincy MSA (which includes most of Middlesex, Norfolk and Suffolk Counties) for Moderate Income a 1-4 person household’s income cannot exceed $95,100. For a 5+ household income cannot exceed $125,550.

Like FHA, the USDA programs requires an upfront fee of 2% that will guarantee the loan for the lender. FHA will allow the borrower to finance the upfront mortgage insurance premium (MIP) (currently 1.75% of the base loan, but scheduled to rise to 2.25% in April). In addition FHA will be reducing the allowable seller contributions from 6% to 3%. USDA will allow the upfront fee to be financed only if the appraised value of the home is greater than the purchase price.

Let’s look at the differences between FHA and USDA loans side by side:

USDA v. FHA FHA USDA
Appraised Value $200,000 $200,000
Purchase Price $175,000 $175,000
Down Payment 3.5% FHA $6,125 $0
Upfront Fee 2.25% FHA 2% USDA $3,800 $3,500
Monthly Mortgage Insurance $77 $0
Allowable Seller Contributions $6,000 $25,000
*Assumes $200 monthly taxes and $50 monthly homeowners insurance.  Interest rate of 5.50%, $400 monthly consumer debt

As you can see, with the upcoming FHA changes, the USDA loan requires less out of pocket, a lower guaranty fee and greater flexibility in managing the closing costs associated with the transaction.

The USDA loan is more conservative in qualifying than FHA, but that is probably a good thing. FHA, with its looser guidelines, is in trouble and may need the dreaded taxpayer bailout. FHA’s overall percentage of loan activity has increased from roughly 3% of closed loans to about 40%. With no minimum credit score and debt to income limits of 55%, the fact that folks are defaulting on these loans and FHA has tightened its requirements is not surprising.

David Gaffin, Greenpark Mortgage

USDA qualifies borrowers with more traditional debt ratios of 29% for housing and 41% for overall indebtedness. This is good for the borrower, who will not bite off more than they can chew, and for the taxpayer as the default rate on these loans is less than FHA. However, you will need to earn a higher income to qualify for the same house with USDA than FHA.

So, what do you do if you want more information about these loans?  Start by visiting the USDA program page.

You may also contact me with any questions you may have at [email protected].

Greenpark Mortgage Corp. is licensed to originate USDA loans in Massachusetts, Maine, New Hampshire, Vermont, Connecticut, Rhode Island and Florida.

Wow, what a great post Dave. I never knew about this program and its availability in some of the most toniest “rural” towns in Massachusetts.

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licensenotary-public-2An Act Regulating Notaries Public to Protect Consumers And The Validity And Effectiveness Of Recorded Instruments

On October 6, 2016 Governor Charlie Baker signed Chapter 289 of the Acts of 2016, An Act Regulating Notaries Public to Protect Consumers And The Validity And Effectiveness Of Recorded Instruments. The Act is a product of cooperation between the Real Estate Bar Association and the title industry. The Act officially codifies Mitt Romney’s Executive Order No. 455 (04-04), which in 2004 reformed the standards of conduct for notaries.  It also codifies the prohibition that a notary public cannot oversee and conduct a real estate closing; only a licensed attorney can handle closings. It also addresses several bankruptcy court rulings which called into question the effectiveness of notary acknowledgements involving powers of attorney.

Unauthorized Practice of Law
In the last decade, the practice of so-called “witness-only closings,” or “notary closings,” by non-lawyer notaries has spread from other states to Massachusetts. This practice has been vigorously opposed by REBA which filed a successful lawsuit effectively barring the practice in REBA v. National Real Estate Information Services, 459 Mass. 512 (2011). The Act codifies the rule of law that a non-attorney notary may only notarize documents but may not conduct a real estate closing. Only licensed attorneys may conduct real estate closings in Massachusetts.

Title Curative Provisions

Recent rulings from the Bankruptcy Court called into question the validity of mortgages with notary acknowledgements involving powers of attorney. The result of these rulings were that many mortgages were held null and void due to defective acknowledgements. The Act addresses these issues by providing, among other things:

● A revision to the standard acknowledgment clause, when the document is executed by the signatory in other than an individual capacity, to assist the notary in making clear that the document is the voluntary act of the principal, not merely the signatory [M.G.L. c. 222, § 15(b)]
● Notaries may vary from the forms set forth in the statute if they are using a form that is authorized or required by statute, regulation or executive order, including one executed in a representative capacity by one who acknowledges his voluntary act but fails to acknowledge the deed or instrument as the voluntary act of the principal or grantor [M.G.L. c. 183, § 42, as revised] [M.G.L. c. 222, §§15(h), 20]
● Failure to state that a document signed by an attorney in fact or in another representative capacity is in fact being signed as the voluntary act of the principal, not merely the signatory, shall not make the document invalid.  [M.G.L. c. 222, § 20(b)(iii)]

Other Provisions

Chapter 289 includes most of the Executive Order’s provisions, some in a modified form. The legislation also added other new provisions in M.G.L. cc. 183 and 222 —

● Notaries shall continue to maintain a chronological official journal of notarial acts, except that attorneys and their office staff shall continue to be exempt from this requirement.  [M.G.L. c. 222, §§ 12, 22, 24]
● Requirements for the notarial seal or stamp (expiration date affixed, exclusive property of the notary, etc.), except that a failure to comply shall not affect the validity of any instrument or the record thereof [M.G.L. c. 222, § 8, as revised]
● Qualifications for a notary; the grounds for which the Governor may decline an application for appointment or renewal of a notary commission, and the seven-year term of office, all as incorporated into the statute [M.G.L. c. 222, §§ 13, 14]
● Types of notarial acts that a notary may perform and prescribed forms for an acknowledgment, jurat, signature witnessing or copy certification [M.G.L. c. 222, § 15]
● Obligations of the notary to determine the appropriateness of the circumstances under which the notary is asked to perform a notarial act (identity and demeanor of the principal, incomplete notarial certificates, no undue influence by the notary, the notary’s relationship to the transaction or to the parties, etc.) [M.G.L. c. 222, §§ 16, 19, 20]
● Prohibition against notarizing signatures of family members shall not apply to notaries who are Massachusetts attorneys, as when the attorney takes the acknowledgement of an employee family member who witnesses a will, as provided in the Executive Order, but also if the family member employed by the attorney is the notary who takes the acknowledgement of the attorney.  [M.G.L. c. 222, § 16(a) (vii)]
● Failure of a document to contain the statutory forms shall not have any effect on the validity of the document or the recording thereof.  [M.G.L. c. 222, §§ 16, 19, 20]
● Notary public’s commission may be revoked for official misconduct, or for other good cause.  [M.G.L. c. 222, §§ 1, 26]

For more information, go to the Mass.gov Notary Public Page.

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Foreclosure2-300x225.jpgMany Titles Automatically Cleared As Of Dec. 31, 2016

While 2016 may have been a tough year for some, the new year brings some relief to those affected by foreclosure related title defects. For some homeowners saddled with bad titles due to improper foreclosures, when the Times Square ball dropped, their titles defects magically disappeared under The Act Clearing Title to Foreclosed Properties. They are now free to sell or refinance after waiting many years in most cases.

The Act, now codified in Mass. General Laws Chapter 244, section 15, was enacted by Gov. Charlie Baker last year in an effort to minimize the impact of several troublesome SJC rulings which cast doubt on titles coming out of foreclosures, including the seminal case of U.S. Bank v. Ibanez. The Act, which I testified in support of at the State House, establishes a new three year statute of limitations for challenging foreclosures and clears titles with foreclosures conducted prior to Dec. 31, 2013, unless the homeowner brought a lawsuit and records it with the Registry of Deeds.

Practice Pointer: Under the Act, any defective title stemming from a foreclosure completed prior to Dec. 31, 2013 is now cured, provided there is no legal challenge filed and complaint recorded with the Registry of Deeds and no other statutory exemption applies. Speak to your title underwriter or consult an attorney for guidance.

Covered Time Period

The Act establishes a three-year statute of limitations period to bring a challenge to a foreclosure. To timely bring a challenge, an aggrieved homeowner must file lawsuit challenging the validity of the foreclosure sale, and must also record a copy of the lawsuit in the registry of deeds before the limitations period expires. The Act reaffirms the mortgagee affidavit requirements of the foreclosure law, including the provision that the recording of a valid affidavit is “evidence that the power of sale was duly executed.”  The Act also provides that after three years from the date that the foreclosing lender records a validly executed affidavit, the affidavit serves as “conclusive evidence” that the power of sale was duly executed.

Retroactive Application

The Act applies retroactively. To address constitutionality concerns, for mortgagee affidavits recorded prior to December 31, 2015, the statute of limitations period is the longer of the full three-year period or one year from the effective date of the Act, December 31, 2015. Thus, by the terms of the Act, for all foreclosures completed prior to December 31, 2013, the deadline to assert and record a challenge was December 31, 2016. For foreclosures completed between January 1, 2014 and December 31, 2015, the three year statute of limitations runs from the date of the foreclosure.

No Relief to REO/Fannie Mae Owned Properties, But….

The Act does not apply to mortgagees, noteholders, servicers, their affiliates, or government entities like the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) that continue to hold title to properties following foreclosure sales. The Act only applies “arm’s length third party purchasers for value,” defined as a party who either (1) purchased the property directly at the foreclosure sale, or (2) purchased the property from the bank or another entity at some point after the foreclosure sale, to the extent the power of sale was not duly exercised.” While foreclosing parties, noteholders, and mortgagees will not benefit directly from the Act on properties that they own or service, they will benefit from the resolution of title disputes, the insurability of properties they formerly owned or foreclosed, and the validity of mortgages that they currently service.

Broader Applicability?

The Legislature clearly intended for the Act to resolve title defects arising out of the Ibanez case. But the Act, as drafted, is not limited to just Ibanez defects. It could also be applied to defects arising out of other SJC rulings, including Eaton (promissory note status), Pinti (cure notice) and Schumacher (cure notice).  Because the Act is retroactive and silent as to what specific title issues it resolves, a recorded mortgagee affidavit could cure many other issues aside from Ibanez issues. We will see how title underwriters and the courts apply the Act in the months to come. As always, the best practice is to get your title underwriter’s opinion in an email and place in your file.

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Mortgage Lender Wins Stunning Ruling Challenging $103 Million Fine

Characterizing Director Richard Cordray of the Consumer Financial Protection Bureau as the “single most powerful official in the entire U.S. Government, other than the President,” a federal appeals court ruled yesterday in the case of PHH Corporation v. CFPB, that the CFPB’s organizational structure and authority to impose fines violates the due process provisions of the U.S. Constitution. The surprising 101-page ruling called into question the Director’s authority to impose certain fines and the agency’s authority to enact rules and regulations, although future appeals are likely. The agency, the pet project of Sen. Elizabeth Warren, has long been criticized by the banking industry and congressional Republicans as wielding too much power.

PHH, a mortgage lender, made national headlines when it challenged Director Cordray’s decision to tack on a $103 million increase to a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks in violation of the Real Estate Settlement Procedures Act. The case was one of the first times that a company fought back against the CFPB, the governmental agency championed by Elizabeth Warren and congressional liberals after the Bush era financial crisis and the Dodd-Frank Act.

In a unanimous decision, a three judge panel of the federal appeals court governing Washington D.C. ruled that the CFPB’s current structure allows the director to wield far too much power, more than any other agency in the entire U.S government. “Because the Director alone heads the agency without Presidential supervision, and in light of the CFPB’s broad authority over the U.S. economy, the Director enjoys significantly more unilateral power than any single member of any other independent agency,” the judges reasoned.

The fallout remains unclear, but certainly this ruling gives opponents of the CFPB heavy ammunition to challenge the agency on its decisions and rule-making authority. The Mortgage Bankers Association welcomed the decision and the clarification the decision presents for RESPA. “MBA is gratified that the court has issued an extremely thoughtful opinion.  It addresses all of the key issues raised by the PHH case, including the proper interpretation of the Real Estate Settlement Procedures Act, the need for due process including reasonable statutes of limitations and the very constitutionality of the CFPB itself,” MBA President and CEO David Stevens said.

The National Association of Realtors also welcomed the decision’s clarity surrounding marketing service agreements, which are clearly a target of the CFPB. “Today’s decision offers much-needed clarity on the legality of marketing service agreements, and makes clear that MSAs are compliant with RESPA provided that payment for goods and services actually furnished or performed are made at fair market,” said NAR President Tom Salomone. “We’re hopeful this will address any uncertainty moving forward and offer a clear road ahead for any of our members who have entered into MSAs with settlement service providers,” Salomone continued. “We will continue to monitor this case and the further appeals that are likely, and continue to communicate to Realtors on what this means for them and their business.”

I have been a vocal critic of the CFPB’s massive revision to the closing and settlement disclosure statements which went into effect last year. While there is no indication that the new Closing Disclosure and Loan Estimate will go away, this ruling will hopefully make the agency think twice about going over the top with future rules and regulations.

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TRID Compliance Start Date Pushed Back To Oct. 1

by Rich Vetstein on June 18, 2015

CFPB.pngCFPB Responds To Industry and Consumer Concerns On New Compliance Rules

The Consumer Financial Protection Bureau announced on Wednesday a proposal to delay the effective date of the TILA-RESPA Integrated Disclosure rule until Oct. 1. The rules were originally set to go into effect on Aug 1.

These new forms consolidate the TILA-RESPA and HUD-1 forms and are meant to give consumers more time to review the total costs of their mortgage. Of particular concern to the mortgage industry is the new rule’s requirement that the Closing Disclosure (new HUD-1) is due to borrowers three days before closing. These rules have thrown the mortgage industry into a frenzy as they try to comply by the deadline, and threatened to delay closings during the busy fall real estate market.

CFPB Director Richard Cordray said that “we further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.”

The required loan documentation consists of two new forms: the Loan Estimate and the Closing Disclosure to ensure compliance.

This is good news for the mortgage lenders and real estate conveyancers as we continue to work on achieving full compliance with the new forms and rules.

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Foreclosure2.jpgAbate v. Fremont Investment & Loan:  High Court Rules That “Try Title” Procedure Only Available After Foreclosure Auction Completed

After Deutsche Bank foreclosed his Newton home, Thomas Abate brought a lawsuit in the Land Court challenging the foreclosure under the “try title” procedure under General Laws chapter 240, sections 1-5. Seeking to invalidate the foreclosure, Mr. Abate utilized the popular defense of attacking the assignment of his mortgage from MERS (Mortgage Electronic Registration System) to Deutsche Bank. After several months of legal wrangling in the Land Court, Judge Robert Foster dismissed Abate’s challenges to the MERS assignment, and dismissed his try title claim. Abate then appealed to the SJC.

Prior to the SJC’s ruling, there was confusion in the foreclosure setting regarding the proper method to determine whether the property owner had legal standing to bring a try title case and whether the owner must bring the case before or after the foreclosure. Putting the proverbial nail in this particular foreclosure defense coffin, the SJC held that a borrower can only use the try title procedure after a foreclosure has been concluded, not before. The Court also ruled that lenders can seek to test borrowers’ legal theories and dismiss these claims very early in the proceeding on a motion to dismiss. The net result is a blow to foreclosure challengers — borrowers must wait until after a foreclosure is completed to bring a lawsuit; and it will be easier for lenders to dismiss claims challenging mortgage assignments and the foreclosures based on such assignments.

I asked preeminant foreclosure defense Attorney Glenn Russell for his thoughts on the ruling, and he said this:

Well from a homeowner’s perspective I have to say that I was hoping for a different outcome, however it’s not all bad. Bottom line, borrowers cannot use try title unless the auction happened, or they can make argument that there never was a legally valid mortgage, or one is trying to enforce a void mortgage, or one that has been discharged. The key thing is that a homeowner cannot bring a try title claim (standing under the “first step” of the try title action), unless the mortgage is foreclosed.

So after several key rulings in favor of foreclosure victims in the earlier part of the decade such as the seminal U.S. Bank v. Ibanez case, the SJC has issued several pro-lender decisions of recent vintage. Is this a sign of foreclosure fatigue or are the justices merely following the law? Maybe a bit of both…

With the economy improving as well, the net effect is likely to be less foreclosures and less legal challenges to them — which will only continue to boost an improving housing market.

A link to the Abate v. Fremont Investment & Loan (SJC-11638) opinion can be found here.

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