Case Law Newsletter

Noonan and Lieberman keeps you current on litigation news with its regular Case Law Update focusing on important and emerging trends in federal and state case law. Case Law Update is edited by attorney James V. Noonan.

Sign up for the list

The newsletter is sent out monthly.

Archive

June 2011

ABBREVIATED INDORSEMENT DID NOT IDENTIFY THE TRUSTEE AND WAS NOT COMPETENT EVIDENCE THAT TRUSTEE IS THE HOLDER OF THE NOTE

In re David A. Simpson, P.C., (NC Ct. of Appeals, COA10-361, May 3, 2011), a foreclosure action, the trial court found that the petitioner was the owner and holder of the mortgage after it produced the original note and allonge for the trial court’s inspection, as well as affidavits attesting to the petitioner’s ownership. Borrowers appealed the trial court’s finding arguing that petitioner did not prove it was the holder of the note and thus the party entitled to proceed with the foreclosure. In reversing the trial court’s finding, the court of appeals observed that the petitioner was “Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006–QA6.” The note’s indorsement contained an allonge reading: “PAY TO THE ORDER OF Deutsche Bank Trust Company Americas as Trustee.” The court of appeals found that the indorsement did not identify the petitioner as required by North Carolina’s codified version of § 3-110 of the UCC, which state: “For the purpose of determining the holder of an instrument, the following rules apply: … (2) If an instrument is payable to (i) a trust, an estate, or a person described as trustee or representative of a trust or estate, the instrument is payable to the trustee, the representative, or a successor of either, whether or not the beneficiary or estate is also named…”. The court of appeals concluded that the abbreviated name on the indorsement was insufficient as it was not the same as the petitioner. It therefore was not competent evidence that petitioner was the holder of the note. The court of appeals also rejected the affidavits of two employees of petitioner’s servicer in support of its claim that was the holder. The court ignored one affidavit because it contained inadmissible legal conclusions that the petitioner was the current owner and holder of the note. The court was also particularly troubled that the same affiant was found to have submitted a false affidavit in a separate case in the United States District Court of Maine. As to the second affidavit, which attested that petitioner had the possession of the original note and mortgage, the court held that the affidavit provided no basis upon which the court could conclude the affiant had personal knowledge of this alleged fact. The affidavit did not show how the affiant came to have such knowledge.

MERS DOES NOT MEET MICHIGAN’S REQUIREMENTS TO FORECLOSE BY ADVERTISEMENT

Residential Funding Co. v. Saurman (No. 290248 and No. 291443, Ct. of Appeals MI April 21, 2011.) In this consolidation of two appeals, each of the defendants obtained a mortgage loan with MERS named as the mortgagee under the mortgage. Both defendants defaulted and MERS began non-judicial foreclosure by advertisement pursuant to Michigan’s statute. When Plaintiff began eviction the defendants challenged the foreclosures as invalid because MERS did not have authority under law to foreclose by advertisement. The district courts rejected the defendants’ challenge and the respective circuit courts affirmed on appeal. In reversing these decisions, the majority court of appeals began its analysis by finding that MERS only has an interest in the security instrument, i.e., the mortgage, and it does not have any ownership interest in the note itself. The court then proceeded to analyze the pertinent statutory language and found that only the owner of the note, the owner of an interest in the note, or servicing agent of the mortgage are allowed to foreclose by advertisement. Because MERS status did not fall within any of these three categories it lacked authority to foreclose by advertisement and the proceedings in both cases were void ab initio. The court of appeals also rejected Plaintiff’s argument that MERS can foreclose by advertisement because it was an agent or nominee of the lender, i.e., an agent of the owner of the note. The court found that the statutory language only allowed the “servicing agent of the mortgage” to foreclose by advertisement; not any agent of the owner of the note. The court observed, however, that while Michigan law limited foreclosure by advertisement to those parties that were entitled to enforce the note, because MERS has an interest in the mortgage it can still foreclose using Michigan’s judicial foreclosure process.

HAMP TRIAL PERIOD PLAN IS NOT A CONTRACT OR PROMISE FOR PERMANENT MODIFICATION

In Morales v. Chase Home Finance LLC, (C 10-02068, N.D. Cal. April 11, 2011), two borrowers filed a putative class action on behalf of California homeowners who complied with HAMP Trial Period Plan (TPP) contract, but who had not received a permanent HAMP modification. The borrowers’ alleged that they executed a HAMP TPP contract, submitted updated income documentation, paid the required three trial period payments and continued making payments under the TPP after the initial trial period ended. Despite their meeting the conditions under the TPP and despite the servicer’s acceptance of payments, the servicer did not give the borrowers a final modification agreement because they lacked sufficient income and documentation for their income. The borrowers sued seeking relief for breach of contract, breach of the covenant of good faith and fair dealing, and promissory estoppel, as well as, for breach of the Servicer Participation Agreement (SPA). The servicer moved to dismiss the complaint which was granted. In dismissing the breach of contract claim, the district court observed that the TPP contracts contained the condition that the loan will not be modified until a fully executed copy of a Modification Agreement is received by each borrower. The court found that the borrowers failed to allege that they received “a fully executed copy of a Modification Agreement” and therefore failed to allege the existence of a binding contract regarding the loan modification. The court found that breach of the covenant of good faith claim also failed because the borrowers must establish the existence of a contractual duty along with conduct that frustrates the borrowers’ right to benefit from the contract. Because they failed to sufficiently allege the existence of a contractual obligation by the servicer to give them a final loan modification, the borrowers failed to allege a claim for breach of the covenant of good faith and fair dealing. The court also dismissed the promissory estoppel claim. The court observed that prior to a HAMP amendment in January 2010 directing servicers to offer a TPP only on verified income documentations; HAMP did not require servicers to verify eligibility prior to accepting borrowers into the TPP. The amendment actually allowed servicers to accept borrowers to TPP based on verbal financial information presented by the borrowers and subject to later verification during the trial period. The court concluded that when the borrowers were offered a trial modification there was no promise that they could rely on that they would also be deemed eligible for permanent loan modification. Because a showing of reliance on a promise is essential for promissory estoppel, the court found that the claim failed as a matter of law. Lastly, the court dismissed borrower’s breach of contract claim under the SPA finding that they are incidental and not the intended beneficiaries to the HAMP servicer’s participation agreement.