The following is general legal information only, and just my interpretation of the Weisband case.  Other interpretations may be possible.  In addition, law often changes, please check to make sure this is good and valid case law at the time if reading.  Steve Vondran is a Phoenix Foreclosure and Bankruptcy Lawyer and also serves Clients in California where he is also licensed to practice law.  He can be reached at  (877) 276-5084.

Facts:

Barry Weisband filed for Chapter 13 Bankruptcy in March of 2009.  One of his listed assets was his real property located at 5424 E. Placita Apan in Tucson, AZ.  Weisband obtained the property when he executed a promissory note for $540,000 to GreenPoint Mortgage Funding secured by a deed of trust on October 6, 2006.  The deed of trust was signed by Weisband on October 9 and recorded October 13 of the same year (2006).  Importantly, the deed of trust named GreenPoint as the lender and MERS as the beneficiary “solely as nominee for GreenPoint, its successors and assigns.”  On an undated and separate piece of paper, GreenPoint endorsed the note to GMAC. GMAC therefore had physical possession of the original note in late 2006.

LOAN SECURITIZATION – THE FIVE CONTRACTS AT ISSUE IN THIS CASE:

(1) 4/10/06 FLOW INTERIM SERVICING AGREEMENT (between Green Point and Lehman) – The “FISA” AGREEMENT.

According to GMAC, GreenPoint entered into an agreement with Lehman to sell loans it originated to Lehman Brothers Holdings under a “Flow Interim Servicing Agreement” (FISA) executed on an earlier date of 4/10/06.  Under this Flow Agreement, GreenPoint agreed to sell certain loans to Lehman, and Green Point was to remain as servicer of these loans.  As the Court later discussed, there was never any proof that Lehman got any transfer of notes from Green Point (recall the endorsement above was to GMAC, not to Lehman), and no assignment of the Deed of Trust from MERS.

(2) 11/1/06 MORTGAGE LOAN SALE AND ASSIGNMENT AGREEMENT (between Lehman and SASC Corporation) – The “MLSAA” AGREEMENT.

Under this agreement Lehman would sell/transfer the loans it received from Green Point to Structured Asset Securities Corporation (SASC).  SASC Corporation would then create a securitized loan trust (called the “Green Point Funding Trust”) under a separate Trust Agreement (discussed below) and SASC would be entitled to receive the principle and interest payments.  As discussed below, there was again no proof that SASC ever got any transfer of any note or deed of trust in regard to the debtors loan as GMAC had argued.

(3) 11/1/06 SECURITIZED LOAN TRUST AGREEMENT (between SASC, Aurora Loan Services, and US National Bank).  Under this agreement, the following parties assumed the following roles:

(1) SASC, was Trustor

(2) U.S. Bank, was Trustee

(3) Aurora, was “Master Loan Servicer”

(4) 11/1/06 – RECONSTITUTED SERVICING CONTRACT (which essentially claimed Green Point would be the servicer of the loans in the trust.  However, Green Point went out of business in 2007).

(5) 11/1/06 SECURITIZED SERVICING AGREEMENT – (“SSA”) (between GMAC, Lehman, and Aurora Loan Services)

Under this agreement, GMAC was to service the loans in the securitized loan trust (essentially leaving Aurora Loan Services as the “master servicer” and GMAC as the “sub-servicer”).

IF YOU ARE STILL FOLLOWING THE STORY YOU ARE TO BE COMMENDED.  AT THIS POINT, TO RECAP, GREEN POINT ORIGINATES THE LOANS, MERS IS THE BENEFICIARY UNDER THE DEED OF TRUST IN A NOMINEE CAPACITY FOR GREEN POINT AND ITS SUCCESSORS AND ASSIGNS, AND THE ORIGINAL NOTE WAS TRANSFERRED AND ENDORSED TO GMAC, BUT THE LOANS ARE SOLD TO LEHMAN, AND THEN ASSIGNED TO SASC WHO CREATES A LOAN TRUST WHERE THE LOANS ARE ALLEGEDLY HELD AND SASC HAS THE RIGHT TO PRINCIPLE AND INTEREST PAYMENTS EVEN THOUGH GMAC HAS THE ORIGINAL NOTE.  WELCOME TO SECURITZED LOANS.

At some point, the debtor became delinquent on the loan, and filed for Chapter 13 bankruptcy protection.  While the automatic stay was in effect, MERS assigned the Deed of Trust to GMAC (apparently trying to convey standing on GMAC to file the motion to lift the automatic stay).  There was never any proof of any transfer of the loan or deed of trust to Lehman, or to SASC, and no proof the note or deed of trust wound up in the securitized trust, or that the debtors loan was subject to the SSA (servicing agreement purporting to confer sub-servicer status on GMAC).

GMAC then filed a motion to lift the automatic stay (to try to sell the property) and the Debtor objected to GMAC’s proof of claim.  In filing its proof of claim in support of its motion to lift the automatic stay, GMAC attached a copy of the note and the MERS assignment of the Deed of Trust, and an endorsement on a separate piece of paper (the endorsement was on an allonge and not attached to the note).

This dispute set the stage for an evidentiary hearing to determine whether or not GMAC had the legal right to lift the automatic stay in bankruptcy.

As discussed in the case: “GMAC advances three different arguments in support of its claim to be a “party in interest” with standing to seek relief from stay:

(1) First, GMAC asserts it has standing because the Note was endorsed to GMAC and GMAC has physical possession of the Note (although recall the loans were supposedly sold to Lehman and then to SASC who would theoritcally own the debtors loan).   In essence GMAC seemed to be claiming it owned the loan as evidenced by its attachment to the proof of claim.  This simply was not true.  This was GMAC’s so called “custodian assignee” argument (i.e. we hold the note as a custodial guardian for the true owner of the loan).

(2) Second, GMAC asserts that by virtue of the MERS Assignment of the Deed of Trust, it is a beneficiary of the DOT and entitled to enforce and foreclose the DOT under Arizona law. (again, how could GMAC have a security interest in the debtors property if the loans were sold to Lehman, and then to SASC who had the right to receive principle and interest payments – a traditional concept of “beneficiary”)?  There is also legal authority that MERS assignment of the Deed of Trust, without the note, is null and void and conveys nothing.  See our blog posting on In re Walker case in California Bankruptcy Court.

(3) Third, GMAC asserts it has standing because it is the servicer of the Note. The court addresses each of GMAC’s claims in turn.”

As a last resort, GMAC argued it was the authorized loan servicer (sub-servicer under the 11/1/06 SSA agreement).   The Court would eventually hold there was no proof the trust ever got the note and deed of trust so there was no way to know for sure that GMAC was the authorized servicer of a loan that did not appear to be covered or included in the SSA.

Legal Issue:

Did GMAC have constitutional / prudential standing to bring the Motion to Lift the Automatic Stay in Bankruptcy Court and was it the real party interest to bring such claim?

Holding:

No.  GMAC was not the holder of the note under entitled to enforce such under Arizona law and did not have constitutional standing as a “custodian’s assignee,” and was not the real party in interest entitled to seek relief from the automatic bankruptcy stay.  Their motion to lift the automatic stay was therefore denied.

The Court’s Rationale:

The Court first discussed the two relevant concepts of (a) CONSTITUTIONAL STANDING and (b) PRUDENTIAL STANDING - Real Party in Interest (both are required to bring the lift-stay motion:

CONSTITUTIONAL STANDING / PRUDENTIAL STANDING (REAL PARTY IN INTEREST)

To this point the Court held:

“Nevertheless, in order to establish a colorable claim, a movant for relief from stay bears the burden of proof that it has standing to bring the motion. In re Wilhelm, 407 B.R. 392, 400 (Bankr. D. Idaho 2009). The issue of standing involves both “constitutional limitations on federal court jurisdiction and prudential limitations on its exercise.” Warth v. Seldin, 422 U.S. 490, 498 (1975). Constitutional standing concerns whether the plaintiff’s personal stake in the lawsuit is sufficient to have a “case or controversy” to which the federal judicial power may extend under Article III. Id.; see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60 (1992); Pershing Park Villas Homeowners Ass’n v. United Pac. Ins. Co., 219 F.3d 895, 899 (9th Cir. 2000).

Additionally, the “prudential doctrine of standing has come to encompass several judicially self-imposed limits on the exercise of federal jurisdiction.’” Pershing Park Villas, 219 F.3d at 899. Such limits are the prohibition on third-party standing and the requirement that suits be maintained by the real party in interest. See Warth v. Seldin, 422 U.S. at 498-99; Gilmartin v. City of Tucson, 2006 WL 5917165, at *4 (D. Ariz. 2006). Thus, prudential standing requires the plaintiff to assert its own claims rather than the claims of another. The requirements of Fed. R. Civ. P. 17, made applicable in stay relief motions by Rule 9014, “generally falls within the prudential standing doctrine.” In re Wilhelm, 407 B.R. at 398.

NEXT, THE COURT APPLIED THE LAW TO THE FACTS OF THE CASE TO DETERMINED WHETHER GMAC HAD STANDING TO BRING THE LIFT-STAY MOTION.

As to GMAC’s first argument, GMAC did not demonstrate it was the holder of the note under Arizona law (A.R.S. 47-3301 says only the “holder” of the note can enforce it).  The court cited A.R.S. Section 47-1201(B)(21)(a) defining a holder as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”  Because GMAC’s endorsement was on a separate piece of paper (allonge) rather than fixed to the note, it could not be considered the holder of the loan.  The allonge must be affixed to the note to effectuate a legal transfer of the note.  Therefore, the possession of the original note (one GMAC produced in court) meant nothing as GMAC “didn’t prove the note was properly payable to GMAC.”  In addition, the allonge endorsement was not included with GMAC’s proof of claim, further indicating that it had not been affixed to the note at the time of transfer.

NOTE: the Court noted an exception to the allonge rule (the allonge endorsement need not be attached to the note) if 4 elements are shown: (1) if the assignment of the note was signed and notarized on the same day as the trust deed, (2) if the assignment specifically referenced the escrow number, (3) if the assignment identified the original note holder, and (4) if the assignment recited that the note was to be attached.See in re Nash, 49 B.R. 254, 261 (Bankr. D. Ariz. 1985) where “holder” in due course status was established.

Nevertheless, the court concluded that GMAC did not qualify under this exception because there was no proof that that the allonge containing the special endorsement from GreenPoint to GMAC was executed at or near the time the note was executed.  SPECIFICALLY, THE COURT STATED:

“GMAC cannot overcome the problems with the unaffixed Endorsement by its physical possession of the Note because the Note was not endorsed in blank and, even if it was, the problem of the unaffixed endorsement would remain. As a result, because GMAC failed to meet its burden of demonstrating that the Endorsement was proper, it has failed to demonstrate that it is the holder of the Note.”

As to their second argument, the MERS assignment of the deed of trust DID NOT provide GMAC with Standing.  The Court noted that an assignee of a deed of trust “stands in the shoes” of the assignor, taking only those “rights and remedies the assignor held.  SINCE MERS HAD NO FINANCIAL INTEREST IN THE NOTE, THERE WAS NONE TO TRANSFER TO GMAC, AND NO STANDING CONFERRED TO GMAC BY ASSIGNING THE DEED OF TRUST.

HERE IS WHAT THE COURT SAID AS TO THE MERS ASSIGNMENT OF THE DEED OF TRUST TO GMAC:

“GMAC argues that it has standing to bring the Motion as the assignee of MERS. In this case, MERS is named in the DOT as a beneficiary, solely as the “nominee” of GreenPoint, holding only “legal title” to the interests granted to GreenPoint under the DOT. A number of cases have held that such language confers no economic benefit on MERS. See, e.g., In re Sheridan, 2009 WL 631355, *4 (Bankr. D. Idaho 2009); In re Mitchell, 2009 WL 1044368, *3-4 (Bankr. D. Nev. 2009); In re Jacobson, 402 B.R. 359, 367 (Bankr. W.D. Wash. 2009). As noted by the Sheridan court, MERS “collect[s] no money from [d]ebtors under the [n]ote, nor will it realize the value of the [p]roperty through foreclosure of the [d]eed of [t]rust in the event the [n]ote is not paid.” 2009 WL 631355 at *4.

Because MERS has no financial interest in the Note, it will suffer no injury if the Note is not paid and will realize no benefit if the DOT is foreclosed. Accordingly, MERS cannot satisfy the requirements of constitutional standing. GMAC, as MERS’ assignee of the DOT, “stands in the shoes” of the assignor, taking only those rights and remedies the assignor would have had. Hunnicutt Constr., Inc. v. Stewart Title & Trust of Tucson, Trust No. 3496, 187 Ariz. 301, 304 (Ct. App. 1996) citing Van Waters & Rogers v. Interchange Res., Inc., 14 Ariz. App. 414, 417 (1971); In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007). Because GMAC is MERS’ assignee, it cannot satisfy the requirements of constitutional standing either.”

Third, the Court rejected GMAC’s argument that they had standing to pursue the lift stay motion as the servicer of the note.  The court reasoned that because there was insufficient evidence that the note and the deed of trust were transferred to the final Trust (ex. from Green Point to Lehman, to SASC to the Trust), GMAC could not claim that it was the servicer of the note as claimed – there was no proof the NOTE AND DEED OF TRUST were part of the Trust.  To this point the Court discussed the nature of securitized loans:

Securitization of residential mortgages is “the process of aggregating a large number of notes secured by deeds of trust in what is called a mortgage pool, and then selling security interests in that pool of mortgages.” Kurt Eggert, Held Up In Due Course: Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35 CREIGHTON L. REV. 503, 536 (2002). The process begins with a borrower negotiating with a mortgage broker for the terms of the loan. Then, the mortgage broker either originates the loan in its own name or in the name of another entity, which presumably provides the money for the loan. Almost immediately, the broker transfers the loan to the funding entity. “This lender quickly sells the loan to a different financial entity, which pools the loan together with a host of other loans in a mortgage pool.” Id. at 538.

The assignee then transfers the mortgages in the pool to another entity, which in turn transfers the loans to a special purpose vehicle (“SPV”,) whose sole role is to hold the pool of mortgages. Id. at 539. “The transfer to the special purpose trust must constitute a true sale, so that the party transferring the assets reduces its potential liability on the loans and exchanges the fairly illiquid loans for much more liquid cash.” Id. at 542. Next, the SPV issues securities which the assignee sells to investors. Id. at 539.

Once the securities have been sold, the SPV is not actively involved. It “does not directly collect payments from the homeowners whose notes and deeds of trust are held by the SPV.” Id. at 544. Rather, servicers collect the principal and interest payments on behalf of the SPV. Id. Fees are associated with the servicing of loans in the pool. Therefore, GMAC WOULD HAVE  constitutional standing if it is the servicer for the Note and DOT because it would suffer concrete injury by not being able to collect its servicing fees. In re O’Kelley, 420 B.R. 18, 23 (D. Haw. 2009). In this case, however, the evidence does not demonstrate that the Note and DOT were transferred to the Trust, and, without that evidence, there is no demonstration that GMAC is the servicer of the Note.

NOTE:  AFTER DETERMING THERE WAS NO STANDING FOR GMAC TO PURSUE THE MOTION TO LIFT THE BANKRUPTCY STAY, THE COURT ADDRESSED THE DEBTORS ARGUMENT THAT “ONLY THE SECURITIZED LOAN INVESTORS HAVE STANDING TO LIFT THE STAY.” The court, in rejecting this argument stated:

The Debtor argues that, in an asset securitization scheme, only the securities investors have standing to seek stay relief because they are the only parties with a financial interest in the securitized notes. However, because the Debtor executed the Note and received consideration (which he used to purchase the house), the contract is enforceable regardless of who provided the funding. In other words, the fact that the funds for a borrower’s loan are supplied by someone other than the loan originator, does not invalidate the loan or restrict enforcement of the loan contract to the parties who funded the loan. A number of cases and treatises recognize that consideration for a contract, including a promissory note, can be provided by a third party. See, e.g., DCM Ltd. P’ship v. Wang, 555 F. Supp. 2d 808, 817 (E.D. Mich. 2008); Buffalo County v. Richards, 212 Neb. 826, 828-29 (Neb. 1982); 3 WILLISTON ON CONTRACTS  7:20 (Richard A. Lord, 4th ed. 2009); RESTATEMENT (SECOND) OF CONTRACTS  71(4) (2009).

Notes are regularly assigned and the assignment does not change the nature of the contract. The assignee merely steps into the shoes of the assignor. In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007); In re Trejos, 374 B.R. 210, 215 (9th Cir. BAP 2007). No additional consideration is required, as opposed to a novation which creates a new obligation. Id. at 216-17 citing RESTATEMENT (SECOND) OF CONTRACTS 280, cmt. e. Therefore, the Debtor’s argument that the Note is unenforceable because the funder of the Note was not the payee fails. The Note is still valid and can be enforced by the party who has the right to enforce it under applicable Arizona law.

THE COURT ALSO ADDRESSED WHAT TYPE OF PROOF OF NOTE ASSIGNMENT IS REQUIRED TO LIFT THE AUTOMATIC STAY:

A movant for stay relief need only present evidence sufficient to present a colorable claim not every piece of evidence that would be required to prove the right to foreclose under a state law judicial foreclosure proceeding is necessary. In re Emrich, 2009 WL 3816174, at *1 (Bankr. N.D. Cal. 2009). Accordingly, not every movant for relief from stay has to provide a complete chain of a note’s assignment to obtain relief.

Arizona’s deed of trust statute does not require a beneficiary of a deed of trust to produce the underlying note (or its chain of assignment) in order to conduct a Trustee’s Sale. Blau v. Am.’s Serv. Co., 2009 WL 3174823, at *6 (D. Ariz. 2009); Mansour v. Cal-W. Reconveyance Corp., 618 F. Supp. 2d 1178, 1181 (D. Ariz. 2009); Diessner v. Mortg. Elec. Registration Sys., 618 F. Supp. 2d 1184, 1187 (D. Ariz. 2009). It would make no sense to require a creditor to demonstrate more to obtain stay relief than it needs to demonstrate under state law to conduct a judicial or non-judicial foreclosure. Moreover, if a note is endorsed in blank, it is enforceable as a bearer instrument. See In re Hill, 2009 WL 1956174, at *2 (Bankr. D. Ariz. 2009). Therefore, this Court declines to impose a blanket requirement that all movants must offer proof of a note’s entire chain of assignments to have standing to seek relief although there may be circumstances where, in order to establish standing, the movant will have to do so.

Conclusion:

The Weisband Court held that GMAC lacked standing to move for relief of stay (both constitutional and prudential standing – real party in interest).  GMAC’s possession of the original note did not entitle it to enforce the note because the allonge was not properly affixed to the note meaning there was no right to seek payment on the note.  MERS has no financial interest in a deed of trust (because is collects no loan payments and is not injured in the event of foreclosure) so it has no real interest to transfer to the assignee (who stands in the shoes of the assignor) and so the assignment of the deed of trust (security for payment of the loan) is essentially a transfer of no legal interests.  The in re Walker blog we wrote and cited above also lends credence to this position.  Finally, without proof that a note and deed of trust was transferred to the underlying securitized loan trust (at least evidence sufficient to raise a colorable claim of transfer of ownership of the trust), GMAC could not claim standing as a loan servicer (although it is injured in the sense that it loses the right to collect loan payments when a borrower is in default).  The Court did not make exactly clear what kind of proof was required, and indicated a full chain of transfer may not be required, but there may be some cases where it is.  As such, GMAC’s motion was denied, and they could not lift the stay.  What the consequences of that are is anybody’s guess.  Perhaps it is time for the debtor to file an adversary proceeding to challenge the validity of the lien?  Perhaps there is some type of settlement?

(1) You have to love to argue with anybody about anything at anytime. Not “I don’t back down or I love to argue when pushed” but truly day in and day out, you want to argue about everything, from what to movie is the best to watch, to how ths country should be run, etc.

(2) You have love to research and write. This business is all about pushing paper and pushing it fast and often. If you love to write and are good at it then maybe this is the job for you. Lawyers draft briefs, contracts, motions, pleadings, and hundreds of other documents each and every year. Writing is a huge part of practicing law. If you love to write, that is a good sign that you MIGHT make a good lawyer.

(3) You have to be willing to work 15/7 – TYPE A. Some of the best attorneys work seventy or eighty hours PER WEEK. I know that may sound crazy to people who like to take it easy and enjoy a rock concert three times a week, and watch reality TV, and basically just philosophize about life. If you are a workaholic, and enjoy burning the midnight oil, you may want to consider jumping into the legal profession.

(4) You have to be a good listener and strong negotiator. Lawyers negotiate on a daily basis. Whether you are a real estate lawyer helping to negotiate a commercial loan workout, or a personal injury attorney trying to negotiate a settlement, you have to be good at listening, and negotiating both with clients and opposing counsel. That is the game, and you have to be good at it. Too many lawyer like to be research guys that “like to figure things out” and basically sit in the backroom and do nothing but think about things all day long. Real lawyers want to be in the pit negotiating deals that solve problems.

(5) You have to be persuasive when you are argue. This is most essential if you plan to be a litigation attorney. When you litigate, there are motions being filed left and right, especially when big fortune 500 companies are involved. When this happens, you have to be prepared to out-reserch, out-write, and out-argue your opponents. If you are weak in the knees in any of these areas, don’t waste your time or money going to law school to be a litigator.

(6) You have thick skin and not get bent out of shape about everything that does not go your way. Again, opposing counsel are there to disparage your case, eat your lunch, and tell the judge you are basically a moron. Yes, that is the way it goes. Every time you file something some person on the other end, equally trained in the law, is going to tell you, and the judge, that your claim lack merit, makes no sense, etc. This is the nature of litigation. If your feelings get hurt easily, give this profession no more consideration, because you will be eaten alive. Litigation is nasty, litigants are nasty, and even the judge may be nasty toward your position. If water rolls off your back, law may be a good choice for you.

(7) You have to be extremely organized and excel at managing your time. As a lawyer, you will need to balance your time between legal research, marketing, drafting documents, appearing in court, and dealing with demanding clients (yes they pay good money and expect you to communicate constantly). If you cant make it happen, and cant handle the pressure cooker, then don’t waste your time.

(8) You have to be persistent in trying to achieve the desired result. Rome wasn’t built in a day, and settlements normally aren’t achieved overnight. You have to convince the other party that they have more to lose than you do. Or should I say, that their client has more to lose than yours does. This is not always a simple task, and normally requires several hearings and rulings before your opposition may be inclined to see things your way, see the law your way, and eventually talk their clients into giving ground and settling on terms favorable to your client. If you want quick solutions and quick resolutions to problems, don’t waste your time with practicing law, it will be disappointing to you.

(9) You have to be innovative and find innovative solutions to potential complex problems. Sometimes you have to “think out of the box.”

(10) You have to be assertive, not aggressive, but assertive. Law requires advocacy. People are paying you good money to advocate on their behalf. You have to do your legal research, prepare, and then advocate for each client as if it were your own brother, sister, mom or dad. This may sound easy in concept, but requires a lot of effort in reality. Again, if you are the kind of person that just hopes “common sense” prevails, or hopes that other people can read your mind, or read your body language and figure out where you are coming from, you will probably be disappointed in the practice of law.

Anyway, I hope this answers some of the tougher questions as to whether going for a law degree is right for you or not. It is a lot of time, money, and effort to make it all happen, but if law fits like a glove, then this may well be the perfect profession for you. If not, there are other noble causes you can do with your life, and you would be wise to explore those options as well.

TIL is a remedial statute to be broadly construed to further the Congressional purpose of meaningful disclosure of credit terms. Rachbach v. Cogswell, 547 F.2d 502, 505 (10th Cir. 1976). Whether a transaction is primarily consumer or commercial in nature so as to be subject to this subchapter is a factual issue to be resolved by trier of fact by looking to transaction as a whole and purpose for which credit was extended. Gallegos v. Stokes, C.A.10 (N.M.) 1979, 593 F.2d 37. In a loan transaction in which the borrower uses his principal dwelling to secure the loan from the creditor, the Truth in Lending Act (TILA) provides the borrower with a right to rescind the transaction. Truth inLending Act, § 125(a), as amended, 15 U.S.C.A. § 1635(a). In re Webster, 300 B.R. 787 (Bankr. W.D. Okla. 2003).

15 U.S.C. § 1635(a) (emphasis added). The plain statutory text of § 1635 provides that a debtor’s right to rescind arises only when the loan transaction is secured by the debtor’s “principal dwelling.” Although TILA itself does not define a “principal dwelling,” Title 12 of the Code of Federal Regulations implementing TILA, known as Regulation Z, provides some guidance. *471 First, Regulation Z defines a “dwelling” as “a residential structure that contains 1 to 4 units, whether or not that structure is attached to real property.” 12 C.F.R. § 226.2(a)(19) (2007). Second, it provides that “[a] consumer can only have one principal dwelling at a time. Thus, a vacation or other second home would not be a principal dwelling.” 12 C.F.R. § 226 Supp. I, Section 226.2(a)(24)(3) (2007) (emphasis in original); see also Scott v. Wells Fargo Home Mortgage, Inc., 326 F.Supp.2d 709, 715 (quoting Scott v. Long Island Sav. Bank, 937 F.2d 738, 741 (2d Cir.1991)).

FORECLOSURECOLLEGE.NET “BOOTCAMP” – Helping Lawyers Fight and Win the War on Foreclosure!

TWO DAY SEMINAR – NEWPORT BEACH, CALIFORNIA – SEPTEMBER 2010 (Date to be announced)

For Information on Foreclosure College Dates please visit http://www.ForeclosureCollege.net

__________________________________________________________________________________________

Introduction: Foreclosures and bankruptcies do not appear to be ending anytime soon. The lenders, loan servicers and investors of securitzed loans are making things more difficult than ever on desparate homeowners. SB94 passed in October 11, 2009 literally forcing brokers and attorneys out of the loss mitigation business and left California homeowners grasping for information about how to best take on these 5000 pound gorrillas. Is there anything a conscientious lawyer can do to legally and ethically help these homeowners in financial distress and trying to save their homes from foreclosure? YES THERE IS! There are still a certain class of lawsuits that can and should be filed against financial institutions that willingly violate the state and federal rights of homeowners. It is literally shocking to see the amount of abuses that go on, and if not identified, go unnoticed and unchallenged. For example, foreclosure laws that are not followed, invalid substitution of trustees, selling homes while a modification was in effect, TILA rescission letters ignored, RESPA QWR’s ignored, demands to identify the holder of the loan ignored, demands to agree to unwarranted deficiency judgments as part of the loss mitigation process, etc. These are but a few of the things that are becoming somewhat typical in the foreclosure marketplace. This foreclosure seminar will help the legal practitioner identify, assert, and stand up for the legal rights of their clients through civil lawsuits and bankruptcy actions.

IF YOU ARE A CALIFORNIA LAWYER LOOKING TO GET INTO THE FORECLOSURE DEFENSE BUSINESS, (OR A PRACTICING REAL ESTATE OR BANKRUPTCY LAWYER ALREADY HANDLING CASES IN THIS AREA), THIS SEMINAR SHOULD BE OF SIGNIFICANT VALUE TO YOU. LEARN THE INSIGHTS ATTORNEY STEVE VONDRAN HAS LEARNED IN HIS TWO YEARS FIGHTING THE FORECLOSURE BATTLE. LEARN THE TIPS, TRICKS, AND INSIGHTS STEVE VONDRAN HAS LEARNED, AND OBTAIN COPIES OF THE FORECLOSURE MATERIALS HE USES IN HIS DAILY BATTLE AGAINST THE LENDERS AND LOAN SERVICERS.
THE GOAL OF FORECLOSURE COLLEGE IS TO HELP YOU BETTER UNDERSTAND THE LEGAL ISSUES FACING YOUR CLIENTS, AND HELP YOU MORE EFFECTIVELY ADVOCATE ON THEIR BEHALF BY LEARNING TO SEPARATE THE FACT FROM THE FICTION, AND GOOD CASES FROM BAD.

ABOUT STEVE VONDRAN, ATTORNEY

Attorney Steve Vondran will be giving the seminar. He has been a real estate attorney for about 6 years and prior to becoming an attorney was a mortgage loan officer at American Home Equity in Irvine, California. He has also sold residential and commercial real estate, the later with DAUM commercial real estate. When the loss mitigation business blossomed over two years ago, Mr. Vondran was one of the first attorneys that starting focusing his practice on helping homeowners with their foreclosure issues. He was responsible for helping over 50 California Real Estate Brokers legally operate in the loan modification business by having them set-up to do business through the California Department of Real Estate (DRE) with approved advance fee agreements and verified accountings. He has also represented California clients in loan modification process – pre-SB94, and has filed predatory lending lawsuits seeking TRO’s, injunctions, and money damages against major lenders such as Wachovia, Wells Fargo, Indymac, Bank of America, SPS, Cal-Western Reconveyance, Executive Trustee Services, and more. He has also represented Clients in Chapter 7 bankruptcy actions, including filing oppositions to motions to lift the automatic stay in bankruptcy and filing adversary proceedings in bankrupty Court. Mr. Vondran is a member of the State Bar for both Arizona and California, and is a licensed real estate broker in both jurisdictions. He is admitted to practice law in most state and federal courts in California and Arizona and is a member of the Orange County Trial Lawyers Association.

DOES FORECLOSURE COLLEGE QUALIFY FOR DRE MCLE CONTINUING EDUCATION UNITS?

We plan to file an application with the California State Bar to provide continuing education (MCLE) units for this Foreclosure Seminar. AT THIS TIME THERE IS NO MCLE UNITS.

WHO SHOULD ATTEND FORECLOSURE COLLEGE?

(1) California Attorneys looking to make a lateral move into foreclosure defense/bankruptcy
(2) Current California Attorneys looking for tips, tricks, strategies, and insights that may help in providing more effective advocacy and representation
(3) Other Interested Professionals

WHAT TOPICS WILL BE ADDRESSED AT FORECLOSURE COLLEGE?

(1) The Battlefield: understanding the loss mitigation landscape / MERS & securitized loans (who owns my loan?) / Chain of Title
(2) Know thy enemy: understanding the nature of the beast (the lenders and loan servicers and their attorneys)
(3) Overview of available Loss Mitigation Options (short sale / deed in lieu / bankruptcy / modification) / SB94
(4) The law of short sales / short sale considerations / deficiency judgments
(5) Loss mitigation without Litigation (mortgage mediation) / HAMP & other loss mitigation programs / mathematics of modification / Trial Plan Fraud
(6) Understanding Forensic Loan Audits / Predatory Lending / Holder in Due Course
(7) Truth in Lending Rescission / Recoupment – Your Most Powerful Weapon?
(8) Setting a case up for litigation (QWR’s / Debt Validation / Beneficiary statements / Chain of title)
(9) Suing your broker: option arm loans and fiduciary duties / RESPA & YSP
(10) Foreclosure process: foreclosure laws and common violations / California one action “security first” rule
(11) What to expect when litigating your loan / causes of action / removal / TRO & Injunction / Fee Models
(12) What is lis pendens in California and how to use it?
(13) What is quiet title in California and when to use it?
(14) What is produce the note theory?
(15) The Indymac / FDIC / OneWest bank phenomena
(16) All roads lead to bankruptcy: “prove you are my creditor” strategy
(17) Bankruptcy adversary proceedings & challenging proof of claim
(18) Bankruptcy fighting lender / servicer lift-stay motions
(19) Understanding Foreclosure Scams / Law Centers / Homeowner recourse
(20) Attorney Ethics issues that may arise in Foreclosure Defense

WHAT MATERIALS YOU WILL RECEIVE AT FORECLOSURE COLLEGE?

FORECLOSURE COLLEGE ATTENDEES WILL RECEIVE A THREE THREE RING BINDER INCLUDING THE FOLLOWING VALUABLE MATERIALS:

(Some Documents will be provided on a Removable disc)

(1) COPY OF QUALIFIED WRITTEN REQUEST LETTER
(2) COPY OF DEMAND TO IDENTIFY HOLDER OF THE LOAN LETTER UNDER 15 USC 1641
(3) COPY OF TRIAL PLAN FRAUD / BREACH OF CONTRACT LETTER
(4) COPY OF LOAN MOD SCAM LETTER
(5) COPY OF TILA RESCISSION LETTER
(6) SAMPLE OF ATTORNEY LOAN AUDIT / PREDATORY LENDING CHECKLIST
(7) TRO / PRELIMINARY INJUNCTION CHECKLIST

WHAT IS THE COST OF FORECLOSURE COLLEGE?

$2,500 (INCLUDES REFRESHMENTS DURING SEMINAR / THERE WILL BE SPECIAL PRICING ON HOTEL ROOMS)

WHERE WILL THE FORECLOSURE SEMINAR COLLEGE TAKE PLACE?

The Seminar will be held in September (TBA) in Newport Beach, California. Starting time is 8:30 am – 5:00 pm. Exact location will be announced as soon as ascertained. A minimum of 7 attendees is required in order for the event to take place. If the event does not take place, a full refund will be immediately provided. TO BOOK YOUR SEAT CALL (877) 276-5084

• Fraud
• Misrepresentation
• Deceit
• Elder Abuse
• Truth in Lending Violation (Rescission, etc.)
• RESPA
• Civil Conspiracy
• Breach of contract
• Unjust enrichment
• etc.

You are all reved up because you just filed a lawsuit against the lender, and maybe even te loan servicer (sometimes people sue the loan servicer by accident because they are think, or are lead to believe the servicer owns the loan).  Anyway, that is another story.  So you file the lawsuit, and then a few weeks later you get notice that the DEFENDANTS ARESEEKING TO REMOVE THE CaSE FROM STATE COURT TO FEDERAL COURT.

I recently had this happen in a trial plan fraud / breach of contract case.  Now, there are two ways to get to federal court:

(1) One of your causes of action raises a “federal question” (ex. the TILA and RESPA claim in the above example wouldraise federal questions) and;

(2) There is “diversity of citizenship” among the defendants (meaning essentially you and each of the defendants are from different states), AND the lawsuit must be seeking more than $75,000 in damages.

Now there are alot of little nuances to these two requirements, but suffice to say meeting either test will allow them to remove your case to federal courts.  Federal courts, at least in my opinion, are harder to win in for homeowners based on the research I have done in other cases.  To me, federal court is where “predatory lending claims go to die.”  Now this is just one mans opinion, based on alot fo the cases I have read.

Anyway, in this case I informed the other attorney that there were no grounds to take the case to federal court, but that did not stop them.  I immediately filed a motion for remand and cited extensively the cases supporting my position.  At the end of the day, we won, and the case was remanded back to federal court where it should have been in the first place.  There are some things you can do to make it less likely that they lender will remove the case, but that is why you might want to hire a lawyer rather than go in pro per.

At any rate, the lesson here is to be careful what claims you are bringing in your predatory lending lawsuit.  Federal claims will probably land you in federal court where the costs might be higher, the procedural rules may trip you, etc.  Do not let the lenders have thier way.

This article is general legal information only and not intended to serve as legal advice or a substitute for legal advice.  As law is constantly changing and evolving, the information may not be 100% complete, accurate or up-to-date.  For specific questions about your legal liability in regard to junior loans, please contact a skilled and experienced real estate or foreclosure defense lawyer.

Steve Vondran is a California Real Estate Lawyer who is licensed to practice law in California and Arizona.  He also holds a real estate broker’s license in California and Arizona and has a background in mortgage brokering and commercial real estate.  HE can be reached at steve@vondranlaw.com or (877) 276-5084.

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First, let’s get some general rules on the table that lenders and their attorneys will rely on when seeking to foreclose on your property:

(1)  There is no obligation to produce the original note if a lender seeks to  conduct a private trustee sale (i.e. a non-judicial foreclosure that relies on the power of sale contained in the deed of trust).  In other words, do not try to file for an injunction in a court of law to fight the lender and challenge whether or not they own the loan, because you have no right to ask who is foreclosing on you in a private sale.  Sad yes, but such is the law.  Therefore, in a non-judicial foreclosure setting, there is no way to force them to prove they are in fact your creditor with the right to foreclose.  Their mere allegation that they have the note is all they need if you challenge them at this stage, and do not expect the judge to rule otherwise.

See our Blog posting on this page for more details: http://www.foreclosuredefenseresourcecenter.com/2010/03/can-a-california-homeowner-demand-that-the-lender-or-loan-servicer-produce-the-note-as-a-foreclosure-defense-strategy/.

(2)  In support of their right to foreclose non-judicially, lenders like to use the “security follows the note” argument  and line of cases to support their position that if they merely allege that they have the note, then that must also mean they have the security interest (i.e. the deed of trust or mortgage) whether or not the security interest is/was specifically assigned to them – normally by MERS who originally records the security interest in as many as 60 million mortgages across the United States.  For this proposition they usually cite two cases: (a) Carpenter v. Longan, 83 U.S. 271, 275 (1873); and (b) Restatement Third of Property (Mortgages) Section 5.4 (1997).  Note that these pre-date most loan securitization.

LONGAN: In Longan the United States Supreme Court held: “The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”  Note, this case says only that assigning the note also assigns the security (i.e. the right to foreclose).  The case does NOT say that the POWER OF SALE is also assigned when a note is assigned.  This is important, because without the power of sale, a lender should be relegated to conducting a JUDICIAL FORECLOSURE SALE AND NOT A PRIVATE TRUSTEE SALE USING THE POWER OF SALE.

RESTATMENT: It appears to be the general rule in California that the transfer of a mortgage note transfers with it the related mortgage – “the mortgage follows the note” as they say.  The RESTATEMENT (THIRD) OF
PROPERTY (MORTGAGES) § 5.4 (1997), relied on by many lenders in their briefs, states: “a transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise.” The rationale is to avoid economic waste to the lender and avoid a windfall to the borrower if the note and mortgage are split – rendering the mortgage note unsecured. The Restatement also cites the case of Carpenter v. Longan, 83 U.S. 271 (1827) “all the authorities agree that the debt is the principal thing and the mortgage an accessory.”

These cases seem to give the lenders wide latitude to just merely claim they own the note (they never want to show it) and have the Court agree that the security naturally follows (whether or not the deed of trust was assigned, acknowledged, and recorded) and that the lender therefore has standing to lift a stay in bankruptcy court.  If the lender can show proof of the original promissory note in the BK lift-stay motion, I would say I might agree.  But again, they will not want to show the note, and it is up to the BK judge to demand they show this critical piece of evidence before they allow a creditor to lift the automatic stay.  If you want legal authority take a look at In re Hwang, 396 B.R. 757 (C.D. California 2008.  I have attached a link to my case brief on this important case: http://www.producethenoteattorney.com/2010/05/in-re-hwang-an-overview-of-motion-for-relief-from-automatic-stay-real-party-in-interest-and-constitutional-standing-requirements-in-a-california-bankruptcy-court/

But is the same true if a homeowner files for an injunction trying to prevent a lender from conducting a non-judicial foreclosure sale where there is simply no proof the lender has physical possession of the note and the chain of title does not indicate any assignment or recording of the deed of trust (i.e. the power of private sale never conveyed per 2932.5)?

Applying Constitutional law standards, States are always free to grant more rights and freedoms that the United States Supreme Court may grant, but states cannot provide less.  I would argue that is what California did when it enacted Civil Code Section 2932.5 by requiring an actual assignment and recording of the deed of trust if the lender/mortgagee wants to exercise the power of sale and conduct a private trustee sale – Notice of Default / Notice of Sale – outside the watchful eye of the Court (as would be required in a judicial sale).  In other words, if a lender wants to foreclose in a non-judicial private trustee sale fashion, it would seem they need both the endorsed note and physical possession of such – or, physical possession of the note endorsed in blank – AND the assignment of the deed of trust duly acknowledged and recorded as required under California Civil Code Section 2932.5.  Without both, I would argue a lender is relegated to a judicial foreclosure sale only, and the Court should enjoin the attempted and threatened private trustee sale.  At least that is my honest opinion and it would be great if it worked out that way.  There is not a lot of case law on this curious code section.

Let’s take a look at 2932.5 and tell me if you agree.   First off, here is a link to the law I am talking about so we can all take a look at it.  It is short and sweet so do not be intimidated. http://law.onecle.com/california/civil/2932.5.html I have pasted the law below if you are the type of person who hates opening up links:

“Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.”

Looks to me like the power of sale (i.e. the right to pursue a private judicial foreclosure sale) requires an assignment of the deed of trust and recording of such in the County recorder’s office.  If that is not what this law means, then what does it mean?  In other words, if a lender conducts a private trustee sale and the chain of title reflects that there has been no assignment or recording of the deed by that lender or its agent, wouldn’t that make the private sale voidable and subject to set aside?  See our blog piece on the “lender please don’t make me tender” rule before you get excited.  Here is a link to that post.

http://www.foreclosuredefenseresourcecenter.com/2010/03/phoenix-foreclosure-lawyer/

Bolstering this position that the deed of trust must be assigned, acknowledged, and recorded before exercising the private power of sale in California is the case of Strike v. Transwest Discount Corp, 92 CA3d, 735 (1979).  In this case the court held:

“A recorded assignment of note and deed of trust vests in the assignee all of the rights, interests of the beneficiary (Musgrave v. Renkin, 180 Cal. 785 [183 P. 145]) including authority to exercise any power of sale given the beneficiary (Civ. Code, § 858)…… The power of sale here derived from the instrument itself. (Civ. Code, § 2932; McDonald v. Smoke Creek Live Stock, 209 Cal. 231).”

Therefore, I would think you have at least a fair argument that a lender seeking to foreclose non-judicially, outside the Courts presence (as in a judicial foreclosure), that they would need to be able to establish that the deed of trust was properly assigned and recorded in addition to owning the note, although as discussed above they don’t have to show the note.  If there is no proof of recorded assignment of the security in the County Recorder’s office, I would argue the lender has only the right to foreclose judicially (subject to a four year statute of limitations**), and by filing the Notice of Sale and Notice of Default, the lender has indicated that they are not willing to go that route.  The problem is, if you filed for an injunction, they would probably just quickly assign and record the deed of trust killing the argument altogether.  If any one else has any other opinions or interpretations, or even case law, I would love to see/hear it.

** There are time limits to file a judicial foreclosure as stated in the case of Aviel v. Ng, 161 Cal.App.4th 809, (2008) where the Court held: “The running of the statute of limitations on an obligation underlying a mortgage or deed of trust bars judicial foreclosure of the mortgage as well as an action to enforce the obligation. Cal.Civ.Code § 2911(1).”

For now, suffice it to say, this might be something to look into or argue if you are going all out and trying to save your home from foreclosure.  Before filing any civil lawsuit, you should consult with a real estate or foreclosure lawyer to determine whether you have proper legal grounds to file a lawsuit.

One way this popped up in a bankruptcy case was the lender sought to record the assignment of the deed of trust while the borrower was in bankruptcy court and protected by the automatic stay.  We are arguing that this is an attempt to perfect its right to non-judicially foreclose (i.e. they are trying to comply with 2932.5 to get the right to foreclose non-judicially) and that such action to perfect its interest violates Bankruptcy Code Section 362 which prohibits the following:

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;

(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;

Again, just trying to give you some things to think about as you fight to save your home from foreclosure.  Although the security may follow the note and that may be fine to judicially foreclose, perhaps that security interest must be assigned, acknowledged and recorded in order to preserve the right to conduct the private non-judicial trustee sale under the power of sale contained in the security.  The deed of trust itself may also have some language you need to look at that that may dictate other rights.

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NOTICE:  The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice.  If you have specific legal questions about your foreclosure case  you should seek out the advice of a real estate attorney.  In addition, the information posted above may not be 100% complete, accurate or up-to-date.  Law is always changing. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona.  He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules.  Please do not send us private or confidential information through any of our above-listed websites.   Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).  Copyright 2010 – Law Offices of Steven C. Vondran – All Rights Reserved.

We have been getting many calls lately from California homeowners (and even some commercial business owners) asking us if their lender can hold them liable for their second mortgage in California.  And if so, can they sue them on the note without first seeking the foreclosure route.  This article will attempt to provide some illumination to these issues and will relate to owner occupied single-family residences in California who have second mortgages that are in default or at risk of going into default.  At issue is the One Action / Security First Rule of California Code of Civil Procedure Section 726(a).

 This article is general legal information only and not intended to serve as legal advice or a substitute for legal advice.  As law is constantly changing and evolving, the information may not be 100% complete, accurate or up-to-date.  For specific questions about your legal liability in regard to junior loans, please contact a skilled and experienced real estate or foreclosure defense lawyer.

 Steve Vondran is a California Real Estate Lawyer who is licensed to practice law in California and Arizona.  He also holds a real estate broker’s license in California and Arizona and has a background in mortgage brokering and commercial real estate.  He can be reached at steve@vondranlaw.com or (877) 276-5084.  More foreclosure defense resources can be found at http://www.ForeclosureDefenseResoureCecenter.com or http://www.CaliforniaShortSaleLawyer.com  

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 The common second mortgage default scenario: 

 You own a home and have a first and second mortgage, both secured by a deed of trust on your primary residence.  The first mortgage is 500k and the second mortgage is 100k.  You are paying the first mortgage but are delinquent on the second mortgage.  The second mortgagee is threatening to sue you on the note or otherwise hold you liable for your default on the second mortgage.  You are concerned and don’t know whether or not they can sue you or not or whether you should try to workout a deal with them.

 The general rule regarding a lenders rights when you are in default of your promissory note, and assuming the deed of trust has a “power of sale clause,” is the ONE ACTION RULE:

 A secured lender has the option of “electing its remedies” when a deed of trust and note and not being paid as agreed.  They can either pursue judicial foreclosure (which means they file a lawsuit against you seeking a court order to sell your real property, and to seek a deficiency judgment if the loan is not subject to California’s anti-deficiency laws under section 580 of the Civil Code) or, they can seek to pursue a non-judicial foreclosure sale (which allows them to sell your property after sending you a notice of default, deed of trust, and complying with other provisions of California Civil Code Section 2924 et seq – the California Foreclosure Laws.

 What this means then is a secured lender must either seek to go to court to foreclose on your judicially, or then can seek to perform a non-judicial foreclosure sale.  The COMPLETION of either one constitutes an “action.”

 Now, in most cases, a junior lien holder (i.e. a second mortgagee) is not going to foreclose on you either judicially or non-judicially.  Why is that?  Because in order for them to get paid, they first mortgage holder (the senior lien holder) would have to get paid first following the trustee sale (in the case of a non-judicial foreclosure sale) or following the Court ordered sale of the property in a judicial foreclosure.  In these times when property values are declining faster than temperatures at the north pole, second mortgage holders are not often left holding a lot of “security” for the loans they gave to borrowers.  This raises a problem.  Many of the junior lien holders have no security and no interest in foreclosing.  What these junior note holders might want to do is to waive the security and “sue you on the note.”  The question is, whether they have the legal right to do this in California?

 Enter the California “One Action Rule.”  What does the one action rule state?  Well, lets start by getting the statutory law on the table – California Code of Civil Procedure Section 726, the (“Security First”) One Action Rule

 (a) There can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property or an estate for years therein, which action shall be in accordance with the provisions of this chapter. In the action the court may, by its judgment, direct the sale of the encumbered real property or estate for years therein (or so much of the real property or estate for years as may be necessary), and the application of the proceeds of the sale to the payment of the costs of court, the expenses of levy and sale, and the amount due plaintiff, including, where the mortgage provides for the payment of attorney’s fees, the sum for attorney’s fees as the court shall find reasonable, not exceeding the amount named in the mortgage.

 (b) The decree for the foreclosure of a mortgage or deed of trust secured by real property or estate for years therein shall declare the amount of the indebtedness or right so secured and, unless judgment for any deficiency there may be between the sale price and the amount due with costs is waived by the judgment creditor or a deficiency judgment is prohibited by Section 580b, shall determine

the personal liability of any defendant for the payment of the debt secured by the mortgage or deed of trust and shall name the defendants against whom a deficiency judgment may be ordered following the proceedings prescribed in this section. In the event of waiver, or if the prohibition of Section 580b is applicable, the decree shall so declare and there shall be no judgment for a deficiency. In the event that a deficiency is not waived or prohibited and it is decreed that any defendant is personally liable for the debt, then upon application of the plaintiff filed at any time within three months of the date of the foreclosure sale and after a hearing thereon at which the court shall take evidence and at which hearing either party may present evidence as to the fair value of the real property or estate for years therein sold as of the date of sale, the court shall render a money judgment against the defendant or defendants for the amount by which the amount of the indebtedness with interest and costs of levy and sale and of action exceeds the fair value of the real property or estate for years therein sold as of the date of sale. In no event shall the amount of the judgment, exclusive of interest from the date of sale and of costs exceed the difference between the amount for which the real property or estate for years therein was sold and the entire amount of the indebtedness secured by the mortgage or deed of trust. Notice of the hearing shall be served upon all defendants who have appeared in the action and against whom a deficiency judgment is sought, or upon their attorneys of record, at least 15 days before the date set for the hearing. Upon application of any party made at least 10 days before the date set for the hearing the court shall, and upon its own motion the court at any time may, appoint one of the probate referees provided for by law to appraise the real property or estate for years therein sold as of the time of sale. The probate referee shall file the appraisal with the clerk and the appraisal is admissible in evidence. The probate referee shall take and subscribe an oath to be attached to the appraisal that the referee has truly, honestly and impartially appraised the real property or estate for years therein to the best of the referee’s knowledge and ability. Any probate referee so appointed may be called and examined as a witness by any party or by the court itself. The court shall fix the compensation, in an amount as determined by the court to be reasonable, but the fees shall not exceed similar fees for similar services in the community where the services are rendered, which may be taxed and allowed in like manner as other costs.

 (c) No person holding a conveyance from or under the mortgagor of real property or estate for years therein, or having a lien thereon, which conveyance or lien does not appear of record in the proper office at the time of the commencement of the action need be made a party to the action, and the judgment therein rendered, and the proceedings therein had, are as conclusive against the person holding the unrecorded conveyance or lien as if the person had been a party to the action. Notwithstanding Section 701.630, the sale of the encumbered real property or estate for years therein does not affect the interest of a person who holds a conveyance from or under the mortgagor of the real property or estate for years therein mortgaged, or has a lien thereon, if the conveyance or lien appears of record in the proper office at the time of the commencement of the action and the person holding the recorded conveyance or lien is not made a party to the action.

(d) If the real property or estate for years therein mortgaged consists of a single parcel, or two or more parcels, situated in two or more counties, the court may, in its judgment, direct the whole thereof to be sold in one of the counties, and upon these proceedings, and with like effect, as if the whole of the property were situated in that county.

 (e) If a deficiency judgment is waived or prohibited, the real property or estate for years therein shall be sold as provided in Section 716.020. If a deficiency judgment is not waived or prohibited, the real property or estate for years therein shall be sold subject to the right of redemption as provided in Sections 729.010 to 729.090, inclusive.

 (f) Notwithstanding this section or any other provision of law to the contrary, any person authorized by this state to make or arrange loans secured by real property or any successor in interest thereto, that originates, acquires, or purchases, in whole or in part, any loan secured directly or collaterally, in whole or in part, by a mortgage or deed of trust on real property or an estate for years therein, may bring an action for recovery of damages, including exemplary damages not to exceed 50 percent of the actual damages, against a borrower where the action is based on fraud under Section 1572 of the Civil Code and the fraudulent conduct by the borrower induced the original lender to make that loan.

  (g) Subdivision (f) does not apply to loans secured by single-family, owner-occupied residential real property, when the property is actually occupied by the borrower as represented to the lender in order to obtain the loan and the loan is for an amount of one hundred fifty thousand dollars ($150,000) or less, as adjusted annually, commencing on January 1, 1987, to the Consumer Price Index as published by the United States Department of Labor.

 (h) Any action maintained pursuant to subdivision (f) for damages shall not constitute a money judgment for deficiency, or a deficiency judgment within the meaning of Section 580a, 580b, or 580d of the Code of Civil Procedure.

 Wow, that is a mouthful.  What does it all mean?  Well there are many cases in California that attempt to ascertain what this section really means.  Without going into great detail, here are a few general observations that appear to be well accepted in regard to California’s one action rule (aka single action rule):

 (1) Secured Lender’s have the right to choose or elect how they want to foreclose on you.  They can go the judicial foreclosure route (i.e. file a lawsuit and potentially seek a deficiency judgment) or they can seek to go the non-judicial foreclosure route.  The non-judicial foreclosure route is NOT technically considered to be an “action” because such is done privately and does not involve use of the Courts (except the small little often unmentioned fact that foreclosure trustee sales are normally carried out of the courthouse steps).  The “action” part of the ONE ACTION RULE seems to refer to resorting to a judicial foreclosure and the court process.  That being said, a secured lender may elect to “double track” or “dual track” by filing both a non-judicial foreclosure action AND seeking to pursue a non-judicial foreclosure at the same time.  Why would they do this?  Well following a completed non-judicial foreclosure sale there is no way to seek a deficiency judgment in most cases and by filing the judicial foreclosure lawsuit, the lender may be able to keep you sweating with the threat of a deficiency judgment (assuming your loan is not protected purchase money under 580).  But again, once one action is completed, that should be the end of the road for the lender under the ONE ACTION RULE.

 Keep in mind, a “secured creditor” can be any creditor of any type of loan or judgment that has a security interest on your real property.  This includes for example the case where one party got a divorce judgment for 100k against the other forcing them into bankruptcy when the creditor tried to enforce the note without first foreclosing.  See DiSalvo v. DiSalvo (in re DiSalvo) (BAP 9^th Cir. 1998) 221 B.R. 769.  In that case, the Court held that the 726(a) rule applied and since the creditor forced the debtor into bankruptcy court without first filing for foreclosure, that sanctions were appropriate against the creditor (at first the judge wiped out the debt completely, which I believe was reversed on appeal).  At any rate, sanctions for the 726 violation was appropriate even though the case did not involve a bank dealing with a defaulting borrower under a promissory note and deed of trust.

 Now TWO QUICK POINTS: you may be wondering what the rationale is for having the SINGLE ACTION rule in California.  The stated rationale you will often hear is to protect the debtor against multiple actions that affect the debt.  It is not clear how allowing dual tracking serves that purpose but sa la vie.

 Next, you may be asking, what would a lender prefer to do to enforce their debt?  File a non-judicial foreclosure sale or seek a judicial (court) foreclosure? Here are some quick pros and cons about each to keep in mind:

 NON-JUDICAL FORECLOSURE v. JUDICAL (COURT / LAWSUIT) FORECLOSURE – PROS AND CONS

 Non Judicial Foreclosure is probably the preferred route for most lenders.  It is quicker and cheaper and does not involve attorney fees to the extent litigation does.  Judical foreclosure involves filing a lawsuit, service of process, discovery, potential for lender counterclaims (such as TILA recoupment claims – discussed in other blogs).

 In a private trustee sale, there is no judicial oversight, and the lenders would prefer this sort of freedom.  In one particular regard being that of the “produce the note theory.”  This is where a lender would be asked to show it holds an original copy of the promissory note to prove it has the right to enforce the debt.  If the lender files a suit in a court of law, this is something they may be required to show to prove their STANDING to file the lawsuit and to prove they are the REAL PARTY IN INTEREST TO BRING THE LAWSUIT.  Given the nature of MERS loans, securitized loans, and the secondary loan market, they don’t want to be bothered with these “technicalities” as they seem to believe it is.  In a private sale, anyone could essentially foreclose on you, at least in my opinion.  There is no judicial oversight of any of these types of issues.

 There is no right of redemption following a private trustee sale as there is in a judicial foreclosure sale.  What this normally translates to is more money for the lender at the foreclosure auction.  Why?  If you were bidding on property at a judicially ordered sale, and if you knew the defaulting borrower would have one full year to redeem the property and get it back, you probably would pay less, and the bids would come in less to take into account this potential contingency.

 In a Court of law, there are statutes of limitations that don’t apply to the same extent in a non-judicial foreclosure setting.  The statute of limitations in a California written breach of contract case is 4 years.  Another reason why non-judicial foreclosure sales are often preferred, sometimes out of necessity.

 Now back to the ONE ACTION RULE in California.  What the above amounts to is that the lender must chose what it wants to do and how to foreclose on their security instrument (the mortgage or deed of trust), but regardless of which route a secured lender chooses, under Section 726, they must FIRST SEEK TO GET THEIR MONEY OUT OF THE SECURITY THEY HOLD ON YOUR PROPERTY BEFORE THEY CAN EVER SEEK TO WAIVE THE SECURITY AND JUST GO AND SUE YOU ON THE NOTE (SUE FOR BREACH OF CONTRACT AND TRY TO GET A JUDGMENT AGAINST YOU).

 That means, a second mortgage holder holding a secured junior lien cannot just try to take you to court and sue on the note.  They must wait for the first mortgage holder to foreclose on you and take what they can get.  Or, they must initiate the foreclosure, see what proceeds are derived, see that the senior lien-holder gets paid all that they are owed and then take whatever peanuts are left after that as their proceeds.  In this declining real estate market where so many people are “upside-down” this often is not a very attempting proposition for second mortgage holders / loan servicers such as Wachovia, Wells Fargo, Chase, WAMU, Bank of America, Countrywide, Deutsche, SPS, OCWEN, U.S. Bank, Citimortgage, etc.  If one of these lenders who are secured, partially secured etc., try to sue you without first foreclosing then you will want to either make sure you raise the 726 defense, or else seek sanctions against them for failing to comply with the California One-Action Rule.  If you don’t raise the defense, you waive it and shoot yourself in the foot.  Again, the creditor must proceed against the security initially to be in compliance with the law.

 But note that there appear to be at least a few circumstances where a junior lien holder can legally get around the 726 one action rule and sue directly on the obligation, namely where their security has become “LEGALLY WORTHLESS” (but be sure to contrast that with “ECONOMICALLY WORTHLESS” which is not subject to a 726 workaround).

 SITUATIONS WHERE A JUNIOR LIEN (SECOND MORTGAGE) MAY BECOME LEGALLY WORTHLESS ENTITLING THE HOLDER OF THE LOAN TO SUE YOU DIRECTLY WITHOUT FORECLOSING:

 (1)  When the real property doesn’t exist – See  Dyer Law & Collection Co. v. Abbott, 52 CA 545, (1921).

(2)  Where the security is destroyed: See Cohen v. Marshall, 197 Cal, 117 (1925) wherein the Court stated: “There can be but one action for the recovery of any debt, or the enforcement of any right secured by mortgage upon real or personal property, which action must be in accordance with the provisions of this chapter.” It is the settled law, however, that in case of a failure or destruction of the security, without the fault of the mortgagee, the mortgagee will not be restricted to a procedure which manifestly must prove to be vain and idle.”

(3)  When the real property is not owned by the borrower – See Otto v. Long, 127 C 471 (1900).  The Court set forth some rationale for the one action rule: “1. To confine the mortgagee to one action; 2. To make the security the primary fund from which satisfaction is to be made; and 3. To give plaintiff a judgment for the deficiency, if any, remaining after exhausting the security.”

(4)  Where a senior lien holder forecloses (“sold out junior”) and the junior is left POSITIVELY holding nothing but a bag of foreclosure dust, then for all practical purposes their lien/security is deemed legally worthless and they are entitled to sue on the note to try to collect something off their debt.  See Roseleaf Corporation v. Willy F. Chierghino, 59 Cal.2d 35, (1963) wherein the Court held: “the one form of action rule of section 726 does not apply to a sold out junior lienor…….there is no reason to compel a junior lienor to go through foreclosure when there is nothing left to sell…….their security has been rendered valueless by a senior sale.”  A senior foreclosure sale conveys the property to the purchaser free of all junior liens and the junior can then sue on the note and seek a deficiency subject to 580 anti-deficiency protections (which may be reduced in an action on the note) and any other “non-recourse” provision that may have been provided for.  NOTE:  in these circumstances, the borrower may be subject to both the foreclosure of the first mortgage and a suit for breach of the note on the second (i.e. multiple actions that 726(a) was seeking to avoid).

(5)  Where the mortgage (security) not properly perfected: “A simple action on a note has been permitted where the mortgage was void for the reason that it lacked the signature of the mortgagor’s wife (Powell v. Patison, 100 Cal. 236.  See Giandeini v. Ramirez, 11 Cal.App.2d 469 (1936).

 These are but a few examples where the junior lender may get around the security-first rule.  Again, if you are dealing with a second mortgage holder who merely BELIEVES that the real estate market has declined to the point where the security is ECONOMICALLY WORTHLESS, (ex. market dropped) this should not allow them to waive the security and try to sue you for breach of contract.  See Barbieri v. Ramelli, 84 C 154, (1890) and Giandeini v. Ramirez, 11 CA2d 469, (1936). Be on the lookout for this and raise the 726(a) “security first defense” and seek monetary sanctions.  In these cases, the law in California is to force the second mortgage holder to foreclose on the property judicially and let the market place decide if they are right.  See Security-First National Bank v. Chapman, 31 CA2d 182 (1939).  If after the first is paid, there are insufficient funds, then the junior creditor should seek the deficiency judgment within three months, if available.

 Another thing to look out for, if a Creditor takes security for an obligation, and the security is worthless at the time the creditor takes the mortgage or deed of trust to secure the obligation, the one action rule should still apply, and the creditor should be forced to foreclose on the security first.  This happened in the case of In re DiSalvo, 221 B.R. 769, 9^th Cir. 1998).  In this case the Court stated: “there was evidence in this case that the security was without value at the time the trust deed was executed…….a creditor does not have the right to accept worthless security and then waive it, thereby converting the obligation into a personal one……where, as in this case, the mortgage on its face purports to be a security for a debt, a foreclosure and sale is the proper mode for determining whether the security is in fact valueless.”  (Citing the Security-First Case above).

 The same rationale holds that foreclosure should be pursued rather than an action on the note for attachment if your second mortgage is even PARTIALLY SECURED.   Again, it is up to the marketplace to make the determination as to value, not a lender. 

 So, in most cases, your second mortgage will probably be either under-secured (partially secured) or not secured at all.  But the lender should follow the one action rule and choose a foreclosure path (either judicial or non-judicial) and seek to foreclose on the “security first” and recover a deficiency judgment only if not barred by the section 580 California anti-deficiency judgment statute (which basically protects purchase money – also the subject of another blog). Again, these are fact-intensive inquiries and if you have a question about potential liability in regard to your second, or first mortgage, contact a foreclosure or real estate lawyer.  In the words of Forrest Gump, “that’s all I got to say about that.”

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 KEYWORDS:  CALIFORNIA ONE ACTION RULE / CALIFORNIA SECURITY-FRIST RULE / CALIFORNIA FORECLOSURE DEFENSE LAWYER / CALIFORNIA FORECLOSURE DEFENSE ATTORNEY / CALIFORNIA CHAPTER 7 BANKRUPTCY / DEFICIENCY JUDGMENT LIABILITY / CAN SECOND MORTGAGEE SUE ON THE NOTE? / JUNIOR LIEN HOLDER FORECLOSURE OPTIONS / NEWPORT BEACH FORECLOSURE LAWYER / NON-JUDICICAL FORECLOSURE SALE V. JUDICIAL FORECLOSURE SALE.

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 Because most of our foreclosure defense and bankruptcy work is done by phone fax and email between we are able to serve our California clients in the following California Counties and Cities: 

Alameda
Albany
Berkeley
Dublin
Emeryville
Fremont
Hayward
Livermore
Newark
Oakland
Piedmont
Pleasanton
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Marysville
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  NOTICE:  The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice.  If you have specific legal questions about your foreclosure case  you should seek out the advice of a real estate attorney.  In addition, the information posted above may not be 100% complete, accurate or up-to-date.  Law is always changing. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona.  He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules.  Please do not send us private or confidential information through any of our above-listed websites.   Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).  Copyright 2010 – All Rights Reserved

We have been getting a lot of questions lately on lis pendens and quiet title law in Arizona.  Some people confuse these two important foreclosure defense topics.  Basically, after you file a lawsuit, and if your lawsuit involves title to real property (be careful there are penalties for wrongfully filing a lis pendens), then you may will want to file a lis pendens that puts potential buyers of your home (ex. at a foreclosure auction) on “constructive notice” of your lawsuit.  A lis pendens (which means notice of pending litigation in latin) normally serves to cloud the title and prevents third parties from wanting to purchase your property (hard to get title insurance if there is a lis pendens on your property).

HERE IS A LINK TO THE ARIZONA LIS PENDENS STATUTE IN ARIZONA:

http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/12/01191.htm&Title=12&DocType=ARS

HERE IS WHAT THE ARIZONA LIS PENDENS LAW SAYS:

12-1191. Notice of pendency of action affecting title to real property; filing; constructive notice to purchaser or encumbrancer; release of notice of pendency of action; failure to issue release; liability

A. In an action affecting title to real property, the plaintiff at the time of filing the complaint, or thereafter, and the defendant at the time of filing the defendant’s pleading when affirmative relief is claimed in such pleading, or thereafter, may file in the office of the recorder of the county in which the property is situated a notice of the pendency of the action or defense. In any action to foreclose a mechanics’ or materialmen’s lien pursuant to title 33, chapter 7, article 6, the lien claimant shall file a notice of pendency of action as prescribed by section 33-998 within five days of filing the action or raising the defense. The notice shall contain the names of the parties, the object of the action or affirmative defense, the relief demanded and a description of the property affected.

B. The recorder shall file the notice and record and index it in the names of the parties to the action, and thereafter a purchaser or encumbrancer of the property affected shall be held to have constructive notice of the pendency of the action and the claims therein made except as prescribed in subsection D of this section.

C. If a notice of pendency of action has been recorded pursuant to this section and the action is dismissed without prejudice for lack of prosecution, the plaintiff or plaintiffs of the action, within thirty days after such dismissal, shall issue to the defendant of the action a release of the notice of pendency of action. Such release shall be in the form of a recordable document. Failure to grant such release shall subject the person filing the notice of action or defense to liability in the amount of one thousand dollars and also to liability for actual damages.

D. After the withdrawal or release of a notice of pendency of action or recordation of a certified copy of an order expunging a notice of pendency of action and before the recordation of a certified copy of the judgment or decree in the action, the following apply:

1. The notice of pendency of action and any of the information derived from the notice does not constitute actual or constructive notice of any of the matters contained in the notice or any matters related to the action.

2. The notice of pendency of action and any of the information derived from the notice does not create a duty of inquiry in any person dealing thereafter with the affected property.

3. Except for a person who is a nonfictitious party to the action at the time of recording the notice of withdrawal, the release of the notice of pendency of action or the order expunging the notice of pendency of action, a person shall not be deemed to have actual knowledge of the action, any of the matters contained in the notice or any matters related to the action, if both of the following apply:

(a) That person for valuable consideration becomes a purchaser, transferee, mortgagee or other encumbrancer of any interest in the real property that is subject to the action.

(b) That person acquires that interest by a conveyance that is recorded after the notice of withdrawal or release or order of expungement and before the recording of a certified copy of a judgment or decree issued in the action.

1. A person described in paragraph 3 shall not be deemed to have notice of the action or notice of any matters related to the action even if the person has actual knowledge of the action or matter and regardless of when or how that knowledge was acquired.

HERE IS THE ARIZONA LIS PENDENS SECTION SECTION 33-998 DESCRIBED ABOVE:

http://www.azleg.state.az.us/ars/33/00998.htm

33-998. Limitation of action to foreclose lien; attorney fees

A. A lien granted under the provisions of this article shall not continue for a longer period than six months after it is recorded, unless action is brought within that period to enforce the lien and a notice of pendency of action is recorded pursuant to section 12-1191 in the office of the county recorder in the county where the property is located. If a lien claimant is made a party defendant to an action brought by another lien claimant, the filing within such period of six months of an answer or cross-claim asserting the lien shall be deemed the commencement of an action within the meaning of this section.

B. In any action to enforce a lien granted under this article, the court may award the successful party reasonable attorney fees.

GENERAL OVERVIEW OF ARIZONA LIS PENDENS LAW:

1. FILE YOUR LAWSUIT, IF IT AFFECTS TITLE TO REAL PROPERTY YOU MAY ALSO FILE A LIS PENDENS WITH THE COUNTY RECORDER AFTER THE LAWSUIT IS FILED.
2. I GENERALLY PROVIDE WRITTEN NOTICE TO ANY AND ALL ADVERSE PARTIES BY CERTIFIED MAIL BEFORE I FILE THE LIS PENDENS
3. FILE THE LIS PENDENS PROMPTLY AFTER FILING THE LAWSUIT, THIS WILL PUT POTENTIAL PURCAHSERS OF YOUR PROPERTY ON “CONSTRUCTIVE NOTICE THAT A LAWSUIT AFFECTING TITLE TO REAL PROPERTY IS PENDING
4. SOME PEOPLE CONFUSE LIS PENDENS WITH QUIET TITLE. SEE OUR OTHER BLOGS WHICH DISCUSS QUIET TITLE. GOOGLE “VONDRAN QUIET TITLE.”

Here is the situation, in this age of securitized loans, (where loan servicers try to intentionally hide the identity of the true creditor of the loan, or where there simply is no way to tell for sure who owns the loan) it is usually very difficult to determine who owns your loan.  The loan servicer will pretend to be the agent for the owner of the loan, and you are supposed to take this at face value, no questions asked.  Why?  because they are Fortune 500 Banks and you are a tiny helpless peon.  OK, I am be facietious.

At any rate, if you send a qualified written request; demand to identify the holder of the loan, and debt validation letter to your so called “lender” or loan servicer and you do not get a worthwhile answer as to who the owner of your loan is (expect a mediocre response rate to these letters, and don’t think you will always get a straight answer), but if these large financials institutions cannot prove who owns your loan, let me ask you an important question, SHOULD THESE PRETENDER LENDERS AND THEIR AGENTS BE PERMITTED TO REPORT NEGATIVE CREDIT TO THE THREE CREDIT BUREAUS (EXPERIAN, TRANS UNION, AND EQUIFAX) WHERE THEY CANNOT, AND WILL NOT PROVE THEY ARE THE TRUE CREDITOR OF YOUR LOAN?

SHOULD THE BE ALLOWED TO REPORT A FORECLOSURE, OR REPORT LATE PAYMENTS ALLEGEDLY OWED TO THEM BUT NOT PAID ON A TIMELY BASIS?  CAN THIS BE CHALLENGED LEGALLY?  THIS IS A VERY IMPORTANT QUESTION THAT MAY BE WORTH EXPLORING.

Interesting idea.  I found this article as a starting point.  Not sure how the credit bureaus would respond to such a challenge.  Would they make them produce the note to prove they are a “real creditor” of your loan and able to report negative credit against you?  Fair question.

http://creditrepairconcepts.com/2007/08/making-sense-of-the-the-fair-credit-reporting-act-fcra-and-your-credit/

At any rate, if you want to raise such a challenge, which would appear to be a legitimate credit challenge, give us a call to discuss (877) 276-5084.

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The foregoing is just my personal interpretation/opinion of the case and is not intended to be construed as legal advice or a substitute for legal advice.  For specific questions consult a foreclosure and/or bankruptcy lawyer.  Attorney Steve Vondran is licensed to practice law in California and Arizona.  He is also a real estate broker in each state, and is on Neil Garfield’s Living Lies Websites under “lawyers who get it.”

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Arkansas MERS Case: MERS v. Southwest Homes of Arkansas

LINK:  Here is a link to the Case: http://courts.arkansas.gov/court_opinions/sc/2009a/20090319/published/08-1299.pdf

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I. Key Facts

This case involved a foreclosure action that MERS sought to set aside.  Basically MERS was arguing that it should have been a party to a foreclosure action, and since it did not receive any notice of the foreclosure action, the foreclosure should be set aside.  MERS was essentially claiming to have all the rights as would the true owner of the loan, they claimed to hold title to the property, and argued they were a “necessary party to the foreclosure action” that proceeded without notice to MERS.  Pulaski Mortgage was the alleged “lender” under the Deed of Trust.

According to MERS, MERS members contractually agree to appoint MERS as their common agent for all security instruments registered with MERS. MERS asserts that it holds the authority to exercise the rights of the lender, and for that purpose, it holds bare legal title. Thus, it is alleged that a principal-agent relationship existed between MERS and Pulaski Mortgage under the contract terms of the deed of trust. Thus, MERS, by the terms of the deed of trust, and its own stated purposes, was the lender’s agent, including not only Pulaski Mortgage but also any successors and assigns.

MERS asserts authority to act, arguing that once it becomes the agent on a security instrument, it remains so for every MERS member lender who acquires ownership. This authority is alleged to arise from the contractual relationship between MERS and MERS members. Thus, MERS argues it may act to preserve the rights of the lender regardless of who the lender may be under the MERS electronic registration.

II.  Legal Issue

Is MERS a beneficiary under a Deed of Trust (or do they hold legal title to a mortgage) based upon the mere fact that a borrower signs a deed of trust naming MERS as the beneficiary and nominee of the lender and its successors and assigns such that no foreclosure action should proceed without MERS as a necessary party to the action?

III.  Courts Holding: NO, MERS is at best an agent of the beneficiary and not an owner of the loan despite language in the deed of trust.  MERS was not a necessary party to the foreclosure sale as the lender (Pulaski Mortgage – the party entitled to payment – the beneficiary) was provided notice of the foreclosure action.  MERS had no rights to act as the true owner of the loan.

IV.   Rational

(1) The deed of trust indicates that MERS holds legal title and is the beneficiary, as well as the nominee of the lender. It further purports by contractual agreement with the borrower to grant MERS the power to “exercise any and all rights” of the lender, including the right of foreclosure. However the deed of trust provides that all payments are to be made to the lender, that the lender makes decisions on late payments, and that all rights to foreclosure are held by the lender.

(2) No payments on the underlying debt were ever made to MERS. MERS did not service the loan in any way. It did not oversee payments, delinquency of payments, or administration of the loan in any way. Instead, MERS asserts to be a corporation providing electronic tracking of ownership interests in residential real property security instruments. See In re MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 861 N.E.2d 81 (2006). According to MERS, it was developed by the “real estate finance industry” and was designed to facilitate the sale and resale of instruments in “the secondary mortgage market, which include one of the government sponsored entities.” MERS contracts with lenders to track security instruments in return for an annual fee.

(3) MERS is listed as a nominee on the deed of trust. A nominee is “a person designated to act on behalf of another, usually in a very limited way.” Black’s Law Dictionary 1076 (8th ed. 2004). A nominee is also a “person who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Id. As discussed above, MERS was not designated to act on behalf of another under the facts of this case. Further, it held no title in this case where title vested in the trustee, and finally, it received and distributed no funds for the benefit of others. An agent is a person who, by agreement with another called the principal, acts for the principal and is subject to his control.” Taylor v. Gill, 326 Ark. 1040, 1044, 934 S.W.2d 919, 922 (1996) (quoting AMI 3d 701 (1989).

(4) In regard to MERS argument that it is the agent for every “lender” who may later acquire a loan on the secondary loan market, the Court stated: “We specifically reject the notion that MERS may act on its own, independent of the direction of the specific lender who holds the repayment interest in the security instrument at the time MERS purports to act. “[A]n agent is authorized to do, and to do only, what it is reasonable for him to infer that the principal desires him to do in the light of the principal’s manifestation and the facts as he knows or should know them at the time he acts.” Hot Stuff, Inc. v. Kinko’s Graphic Corp., 50 Ark. App. 56, 59, 901 S.W.2d 854, 856 (1995) (citing Restatement (Second) of Agency § 33 (1958)). Nothing in the record shows that MERS had authority to act.

(5) However, MERS also argues that it holds a property interest through holding legal title. Specifically, it purports to hold legal title with respect to the rights conveyed by the borrower to the lender. The court disagreed. (Note how in MERS responses to my Blog it acts like it can do whatever it wants because of the borrower agreed to this when they signed the Deed of Trust.  Note that the Court in this case doesn’t see things that way).

(6) Further, MERS is not the beneficiary, even though it is so designated in the deed of trust. Pulaski Mortgage, as the lender on the deed of trust, was the beneficiary. It receives the payments on the debt. The cases cited by MERS only confirm that MERS could not obtain legal title under

the deed of trust. Finally, we are cited to Beloate v. New England Securities Co., 165 Ark. 571, 575, 265 S.W. 83 (1924), where this court stated that the real owner of the debt, as well as the trustee in the mortgage, are necessary parties in the action to recover the debt and foreclose the mortgage. Again, this case supports the conclusion that East was a necessary party and MERS was not.

(7) Finally, we note that Arkansas is a recording state. Notice of transactions in real property is provided by recording. See Ark. Code Ann. § 14-15-404 (Supp. 2007). Southwest is entitled to rely upon what is filed of record. In the present case, MERS was at best the agent of the lender. The only recorded document provides notice that Pulaski Mortgage is the lender and, therefore, MERS’s principal. MERS asserts Pulaski Mortgage is not its principal. Yet no other lender recorded its interest as an assignee of Pulaski Mortgage. Permitting an agent such as MERS purports to be to step in and act without a recorded lender directing its action would wreak havoc on notice in this state.

What principles of law might derive from this case?

(1) MERS CANNOT CLAIM IT IS THE OWNER OF YOUR LOAN JUST BECAUSE THE DEED OF TRUST INDICATES IT IS A “BENEFICIARY OF A LOAN”  Why?  MERS lends no money, and is not entitled to repayment (the Court is looking to the actual function of a “lender” rather than some “paper authority” (emphasis added) that supports its right to act as a lender or beneficiary of a loan.  Note that this is consistent with what the Kansas Supreme Court stated in its landmark holding against MERS which we also briefed on our blogs: http://www.foreclosuredefenseresourcecenter.com/author/admin/

(2) MERS role as “nominee” of the lender (i.e. the initial lender) and “its successors and assigns” – the subsequent lenders who trade loans in the secondary market also does not appear as strong as MERS would like.  Again, the phrase “nominee of lender its successors and assigns” is just another piece of paper authority stated in the deed of trust that MERS relies on for its power and authority.  As the Court stated, “at best” MERS is a “agent of lender.”  But as stated above, the Court did not cave in to MERS argument that MEMBER Banks under the MERS contracts appoint MERS as agent.  The Court seemed to suggest that there should be some appointment or direction by the principal (the lender) for the agent who will control the direction and activities of MERS.  My knowledge of MERS shows they do not like to act at anyone’s authority or direction as they feel they are basically empowered to do whatever they want.

As was stated in the Kansas case the role as MERS as “nominee” (agent for principal, the lender) is not clear.  They could be nothing more than a straw man according to the judge.  Therefore, when MERS acts in any capacity, their acts should be closely scrutinized.  Perhaps this makes sense why MERS is signing loan modification agreements, but are they singing on behalf of a principal (lender) who has specifically authorized their acts?  What are they attempting to accomplish? Make sure they are being clearly “authorized” by a principal to act on their behalf.

If you are having issues trying to determine who owns your loan, who the beneficiary is, who has the right to foreclose, and if you are thinking of filing bankruptcy, have a foreclosure defense lawyer review your notice of default, notice of sale, chain of title, deed of trust, and other critical documents to see who the true lender might be.  There may be legal challenges you can raise in “stay litigation (motions for relief from automatic stay), challenges to proofs of claims filed in bankruptcy court, and in adversary proceedings challenging the validity of an alleged lien.  Just who your true creditor is, and who their truly authorized agents are is becoming an interesting issue in the age of loan securitization.

ABOUT US:

The Law Offices of Steve Vondran in licensed to practice law in California and Arizona.  Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona.

He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084

Offices:

Arizona Office (Esplanade): 2415 E. Camelback Road, Suite 700, Phoenix, AZ, 85020.

California Office (Fashion Island): 620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660

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Our Real Estate Law Services:

1.     Loan Modifications / Loan Workouts (Arizona Clients Only)

2.     Commercial Lease Modifications

3.     DRE audits, hearings and investigations

4.     Real Estate Broker admissions cases

5.     Foreclosure Defense

6.     Mortgage Law & Predatory Law

7.     Phoenix Real Estate Zoning Attorney – Greater Phoenix (Scottsdale, Goodyear, Buckeye, Casa Grande etc.)

8.     Phoenix Eminent Domain Attorney / Inverse Condemnation / Prop 207 (Greater Phoenix)

9.     Real Estate Arbitration, Litigation and Mediation

10.   Foreclosure Consultant Contracts / Loan Modification Contracts

11.   Real Estate LLC’s & Incorporations

12.   Real Estate Partnership Law

13.   Quiet Title Actions

14.   Forensic Loan Audits – Greater Phoenix (Truth in Lending (TILA), RESPA, HOEPA, Fraud, etc.)

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KEYWORDS: ARIZONA FORECLOSURE DEFENSE ATTORNEY / CALIFORNIA FORECLOSURE DEFENSE ATTORNEY / PHOENIX FORECLOSURE DEFENSE ATTORNEY / PHOENIX FORECLOSURE DEFENSE LAWYER / SCOTTSDALE FORECLOSURE DEFENSE ATTORNEY / SCOTTSDALE FORECLOSURE DEFENSE LAWYER / ORANGE COUNTY PREDATORY LENDING LAWYER / ORANGE COUNTY FORECLOSURE DEFENSE ATTORNEY / ORANGE COUNTY FORECLOSURE DEFENSE LAYWER /  TRUTH IN LENDING LAWYER / TRUTH IN LENDING ATTORNEY / SOUTHER CALIFORNIA MORTGAGE LAW ATTORNEY / MORTGAGE LAWYER / RIVERSIDE FORECLOSURE ATTORNEY / RIVERSIDE FORECLOSURE LAWYER / RESPA LAWYER / RESPA ATTORNEY / FORECLOSURE DEFENSE LAW / PHOENIX LOAN MODIFICATION ATTORNEY / PHOENIX FORECLOSURE DEFENSE LAWYER / ORANGE COUNTY REAL ESTATE LAWYER / ORANGE COUNTY PREDATORY LENDING AND MORTGAGE LITIGATION ATTORNEY / NEWPORT BEACH FORECLOSURE DEFENSE LAWYER / NEWPORT BEACH FORECLOSURE DEFENSE ATTORNEY / CALIFORNIA FORECLOSURE DEFENSE LAWYER / PREDATORY LENDING LAWYER / LOAN RESCISSION ATTORNEY / TILA RESCISSION LAWYER / WACHOVIA OPTION ARM LOAN / WORLD SAVINGS OPTION ARM LOAN / RESCIND MY LOAN /

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HELPFUL FORECLOSURE DEFENSE LINKS:

To see some of other other websites dealing with the financial crisis please review the following websites:

(1) www.OptionArmLawyer.com (potential attacks against the predatory option arm loan – aka “Pick-a-Prey”)

(2) www.TrialPlanFraud.com (tackling issues involved with what we call trial-plan shennanigans)

(3) www.BKAttorneyS.net (BK Attorney Steve – Chapter 7 Bankruptcy information for Arizona and California Homeowners)

(4) www.RescindMyLoan.net (website that discusses Truth in Lending Rescission information)

(5) www.LoanModRadio.com (site which features foreclosure defense issues in streaming audio)

(6) www.ProduceTheNoteAttorney.com (general information on the “Produce the Note” foreclosure defense strategy that is running rampant on the Internet)

(7) www.ArizonaBankruptcyResourceCenter.com

(8) www.FoclosureDefenseResourceCenter.com

(9) www.PhonixBKLawyer.com

(10) www.AdversaryProceeding.com

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Some legal cases we are able to accept in a contingency fee basis.  Certain select cases are listed on www.ContingencyCase.com an online legal directory for lawyers who will consider taking cases on a contingency fee basis in a variety of legal areas.  There is no guarantee we will be able to take your case on contingency fee.

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KEYWORDS: ARIZONA FORECLOSURE DEFENSE / CALIFORNIA FORECLOSURE DEFENSE / SUING ON A OPTION ARM LOAN / PREDATORY LENDING LAWSUIT / INJUNCTION AGAINST FORECLOSURE / STOPPING A FORECLOSURE SALE / FORENSIC LOAN AUDIT / PHOENIX FORECLOSURE LAWYER / PHOENIX FORECLOSURE ATTORNEY / ORANGE COUNTY FORECLOSURE ATTORNEY / ORANGE COUNTY FORECLOSURE LAWYER / LIS PENDENS / QUALIFIED WRITTEN REQUEST / DEBT VALIDATION LETTER / TRUTH IN LENDING LAWYER / TILA LAWYER / FORENSIC LOAN AUDIT / SECURITIZED LOAN / MERS LOAN / RESCIND MY LOAN IN BANKRUPTCY / PHOENIX CHAPTER 7 BANKRUPTCY LAWYER / CHAPTER 13 BANKRUPTCY / STANDING / REAL PARTY IN INTEREST / NEWPORT BEACH FORECLOSURE LAWYER / SHORT SALE / QWR / RESPA

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Because most of our foreclosure defense work is done by phone fax and email between we are able to serve our California clients in the following California Counties and Cities

Alameda
Albany
Berkeley
Dublin
Emeryville
Fremont
Hayward
Livermore
Newark
Oakland
Piedmont
Pleasanton
San Leandro
Union City
Amador
Amador City
Ione
Jackson
Plymouth
Sutter Creek
Chico
Gridley
Oroville
Paradise
Angels Camp
Colusa
Colusa
Williams
Antioch
Brentwood
Clayton
Concord
Danville
El Cerrito
Hercules
Lafayette
Martinez
Moraga
Orinda
Pinole
Pittsburg
Pleasant Hill
Richmond
San Pablo
San Ramon
Walnut Creek
Crescent City
Placerville
South Lake Tahoe
Clovis
Coalinga
Firebaugh
Fowler
Fresno
Huron
Kerman
Kingsburg
Mendota
Orange Cove
Parlier
Reedley
San Joaquin
Sanger
Selma
Orland
Willows
Humboldt
Arcata
Blue Lake
Eureka
Ferndale
Fortuna
Rio Dell
Trinidad
Imperial
Brawley
Calexico
Calipatria
El Centro
Holtville
Westmorland
Inyo
Bishop
Kern
Arvin
Bakersfield
California City
Delano
Kern County
Maricopa
McFarland
Ridgecrest
Shafter
Taft
Tehachapi
Wasco
Avenal
Corcoran
Hanford
Lemoore
Lake
Clearlake
Lakeport
Susanville
Los Angeles
Agoura Hills
Alhambra
Arcadia
Artesia
Azusa
Baldwin Park
Bell
Bell Gardens
Bellflower
Beverly Hills
Bradbury
Burbank
CalabasCarson
Cerritos
Claremont
Commerce
Compton
Covina
Cudahy
Culver City
Diamond Bar
Downey
Duarte
El Monte
El Segundo
Gardena
Glendale
Glendora
Hawaiian Gardens
Hawthorne
Hermosa Beach
Hidden Hills
Huntington Park
Industry
Inglewood
Irwindale
La Canada-Flintridge
La Habra Heights
La Mirada
La Puente
La Verne
Lakewood
Lancaster
Lawndale
Lomita
Long Beach
Lynwood
Malibu
Manhattan Beach
Maywood
Monrovia
Montebello
Monterey Park
Norwalk
Palmdale
Palos Verdes Estates
Paramount
Pasadena
Pico Rivera
Pomona
Rancho Palos Verdes
Redondo Beach
Rolling Hills
Rolling Hills Estates
Rosemead
San Dimas
San Fernando
San Gabriel
San Marino
Santa Clarita
Santa Fe Springs
Santa Monica
Sierra Madre
Signal Hill
South El Monte
South Gate
South Pasadena
Temple City
Torrance
Vernon
Walnut
West Covina
West Hollywood
Westlake Village
Whittier
Chowchilla
Madera
Marin
Belvedere
Corte Madera
Fairfax
Larkspur
Mill Valley
Novato
Ross
San Anselmo
San Rafael
Sausalito
Tiburon
Mariposa
Mendocino
Fort Bragg
Point Arena
Ukiah
Willits
Merced
Atwater
Dos Palos
Gustine
Livingston
Los Banos
Merced
Modoc
Alturas
Mono
Mammoth Lakes
Monterey
Carmel
Del Rey Oaks
Gonzales
Greenfield
King City
Marina
Monterey
Pacific Grove
Salinas
Sand City
Seaside
Soledad
Napa
American Canyon
Calistoga
Napa
St. Helena
Yountville
Nevada
Grass Valley
Nevada City
Truckee
Orange
Anaheim
Brea
Buena Park
Costa Mesa
Cypress
Dana Point
Fountain Valley
Fullerton
Garden Grove
Huntington Beach
Irvine
La Habra
La Palma
Laguna Beach
Laguna Hills
Laguna Niguel
Lake Forest
Los Alamitos
Mission Viejo
Newport Beach
Orange
Placentia
San Clemente
San Juan Capistrano
Santa Ana
Seal Beach
Stanton
Tustin
Villa Park
Westminster
Yorba Linda
Placer
Auburn
Colfax
Lincoln
Loomis
Rocklin
Roseville
Plumas
Portola
Riverside
Banning
Beaumont
Blythe
Calimesa
Canyon Lake
Cathedral City
Coachella
Corona
Desert Hot Springs
Hemet
Indian Wells
Indio
La Quinta
Lake Elsinore
Moreno Valley
Murrieta
Norco
Palm Desert
Palm Springs
Perris
Rancho Mirage
Riversi
San Jacinto
Temecula
Folsom
Galt
Isleton
Sacramento
San Benito
Hollister
San Juan Bautista
San Bernardino
Adelanto
Apple Valley
Barstow
Big Bear Lake
Chino
Chino Hills
Colton
Fontana
Grand Terrace
Hesperia
Highland
Loma Linda
Montclair
Needles
Ontario
Rancho Cucamonga
Redlands
Rialto
Twentynine Palms
Upland
Victorville
Yucaipa
Yucca Valley
San Diego
Carlsbad
Chula Vista
Coronado
Del Mar
El Cajon
Encinitas
Escondido
Imperial Beach
La Mesa
Lemon Grove
National City
Oceanside
Poway
San Marcos
Santee
Solana Beach
Vista
San Francisco
San Joaquin
Escalon
Lathrop
Lodi
Manteca
Ripon
Stockton
Tracy
Arroyo Grande
Atascadero
Grover Beach
Morro Bay
Paso Robles
Pismo Beach
San Luis Obispo
San Mateo
Atherton
Belmont
Brisbane
Burlingame
Colma
Daly City
East Palo Alto
Foster City
Half Moon Bay
Hillsborough
Menlo Park
Millbrae
Pacifica
Portola Valley
Redwood City
San Bruno
San Carlos
San Mateo
South San Francisco
Woodside
Santa Barbara
Buellton
Carpinteria
Guadalupe
Lompoc
Santa Barbara
Santa Maria
Solvang
Santa Clara
Campbell
Cupertino
Gilroy
Los Altos
Los Altos Hills
Los Gatos
Milpitas
Monte Sereno
Morgan Hill
Mountain View
Palo Alto
San Jose
Santa Clara
Saratoga
Sunnyvale
Santa Cruz
Capitola
Santa Cruz
Scotts Valley
Watsonville
Shasta
Anderson
Redding
Shasta Lak
Sierra
Loyalton
Siskiyou
Dorris
Dunsmuir
Etna
Fort Jones
Montague
Mount Shasta
Tulelake
Weed
Yreka
Solano
Benicia
Dixon
Fairfield
Rio Vista
Suisun City
Vacaville
Vallejo
Sonoma
Cloverdale
Cotati
Healdsburg
Petaluma
Rohnert Park
Santa Rosa
Sebastopol
Sonoma
Windsor
Stanislaus
Ceres
Hughson
Modesto
Newman
Oakdale
Patterson
Riverbank
Turlock
Waterford
Sutter
Live Oak
Yuba City
Tehama
Corning
Red Bluff
Tehama
Trinity
Tulare
Dinuba
Exeter
Farmersville
Lindsay
Porterville
Tulare
Tulare
Visalia
Woodlake
Tuolumne
Sonora
Ventura
Camarillo
Fillmore
MoorpaOjai
Oxnard
Port Hueneme
Santa Paula
Simi Valley
Thousand Oaks
Ventura
Yolo
Davis
West Sacramento
Winters
Woodland
Yuba
Marysville
Wheatland

Note: Our Foreclosure Defense work is primarily driven by phone, fax and email with you and the lenders.

As a consequence we are able to serve Arizona loan modification and foreclosure clients in the following Arizona cities:

Mesa
Glendale
Chandler
Scottsdale
Gilbert
Tempe
Peoria
Yuma
Surprise
Avondale
Flagstaff
Lake Havasu City
Goodyear
Sierra Vista
Prescott
Oro Valley
Bullhead City
Apache Junction
Prescott Valley
Casa Grande
El Mirage
Marana
Kingman
Buckeye
Fountain Hills
San Luis
Nogales
Florence
Douglas
Queen Creek
Maricopa
Payson
Sahuarita
Paradise Valley
Chino Valley
Eloy
Sedona
Cottonwood
Camp Verde
Show Low
Winslow
Somerton
Safford
Coolidge
Globe
Page
Bisbee
Tolleson
Youngtown
Wickenburg
South Tucson
Guadalupe
Holbrook
Snowflake
Cave Creek
Benson
Thatcher
Litchfield Park
Eagar
Pinetop-Lakeside
Taylor
Colorado City
Dewey-Humboldt
Willcox
St. Johns
Carefree
Clarkdale
Quartzsite
Parker
Superior
Williams
Clifton
Kear
Pima
Springerville
Star Valley
Gila Bend
Wellton
Miami
Huachuca City
Mammoth
Tombstone
Fredonia
Patagoni
Hayden
Dunca
Winkelman
Jerome

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NOTICE:

The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice.  If you have specific legal questions about your foreclosure case  you should seek out the advice of a real estate attorney.  In addition, the information posted above may not be 100% complete, accurate or up-to-date.  Law is always changing. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona.  He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules.  Please do not send us private or confidential information through any of our above-listed websites.   Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).