Author Archives: Orly Graeber

Michigan District Court Dismisses Borrower’s Complaint After Failure to Redeem Property within Statutory Period

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In Vollmar v. Federal National Mortgage Association, (12-cv-1119, E.D. Mich. 2012), the U.S. District Court for the Eastern District of Michigan, granted the defendant’s motion to dismiss each of the plaintiff’s complaints that sought to invalidate the foreclosure sale of his property and to quiet title. The judge ruled that the plaintiff lacked standing after failing to redeem the property within the allotted period.

In the case at hand, the plaintiff took out a $128,000 mortgage on his property with Countrywide Home Loans, Inc., with Mortgage Electronic Registration Systems, Inc. (“MERS”) as the mortgagee. MERS assigned its interests to BAC Home Loan Servicing, L.P. (“BACHLS”) in a recorded deed on July 23, 2010. The plaintiff defaulted on his payments and BACHLS instituted foreclosure proceedings in March 2011. The property was purchased in a sheriff sale by Bank of America, N.A. (“BANA”), the successor by merger to BACHLS.

The Court addressed the plaintiff’s claims in conjunction with the defendant’s motion to dismiss.

1. The Court held that the plaintiff lacked standing to challenge the sheriff’s sale due to his failure to redeem the property within Michigan’s 6-month statutory redemption period. At the close of the statutory period, title is vested with the purchaser and the mortgagor loses standing to challenge the sale. Rather than preserving his right to challenge the foreclosure sale by remaining in the home, as the plaintiff argued, the Court held that the ownership interest “terminated at the conclusion of the sheriff’s sale,” and the plaintiff was merely an “illegal holdover.”

2. Defendant claimed that the plaintiff’s amended complaint does not contain allegations of “fraud or irregularity” that are sufficient to annul the foreclosure sale under a breach of contract claim. The plaintiff alleged that the defendants were required to demonstrate by whom the foreclosure proceedings were initiated and failed to produce evidence that BANA acquired BACHLS interest in the mortgage. The Court dismissed the plaintiff’s allegations, noting that the Defendant’s motion papers, foreclosure advertisements, and the initial collection letter to the plaintiff each established that BACHLS both received the mortgage interest from MERS and initiated the foreclosure proceedings. In regards to BANA’s role, the Court referenced Texas Business Organization Codes (Tex. Bus. Orgs. Code §10.008(a)(2)(C)), under which BACHLS and BANA merged on July 1, 2011), which established that after the merger of the two companies, BANA acquired all of BACHLS rights, titles, and interests without the need for “any transfer or assignment.”

3. The Court addressed the plaintiff’s slander of title and quiet title claims even though they were abandoned for failure to address them in the response brief. Because slander of title and quiet title “presuppose that plaintiff possesses the ability to establish title” and the Court has already established that the plaintiff’s rights to the property were extinguished at the end of the statutory period, both claims were dismissed.

4. Since the plaintiff failed to allege that the contract left the manner of performance open to the defendant’s discretion, and that the “manner of performance” of the mortgage rested in the defendants hands, an element required to raise a breach of implied covenant of good faith and fair dealing claim, the Court refused to accept the cause of action, citing Meyer v. CitiMortgage, Inc. 11-13432, 2012 WL 511995 (E.D. Mich. Feb. 16, 2012) which stated that Michigan law does not recognize an independent action for breach of the implied covenant of good faith and fair dealing when the contract cannot be construed to imply such a covenant by having left the manner of performance open to the defendant’s discretion.

5. Finally, the Court addressed the plaintiffs “seemingly abandoned” claim of intentional infliction of emotional distress to reassert that “emotional damages are not available for breach of contract” claims. Citing Kevelighan v. Orlans  Assocs., P.C., 498 F. App’x 469, 472 (6th Cir. 2012) which upheld the dismissal of an emotional distress claim in a breach of mortgage contract suit.

Ohio Bankruptcy Court Rules in Favor of Wells Fargo: Failure to Properly Record Mortgage Assignment Does Not Invalidate Mortgage

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In In re Williams, 395 B.R. 33 (Bankr. S.D. Ohio 2008), the Ohio Bankruptcy Court granted the defendant, Wells Fargo Bank, N.A.’s motion to dismiss the Plaintiff’s complaint, holding that mortgage assignments must be recorded under Ohio law, but that failure to do so does not terminate the underlying mortgage. Additionally, the Trustee could not be a bona fide purchaser and avoid the mortgage since he possessed constructive knowledge of this mortgage.

On May 2, 2005, Earl and Belinda Williams (the Debtors) executed a promissory note in the amount of $137,730 to United Wholesale Mortgage (UWM), secured by Debtors real property, and named MERS as a “nominee for UWM, its successors and assigns.” In November 2007, the Debtors filed a petition for relief under Chapter 7 of Title 11, under the US Bankruptcy Code. Plaintiff Thomas Nolan was appointed Chapter 7 Trustee. In February 2008, Mortgage Electronic Registration Systems, Inc. (MERS) filed a motion for relief from the automatic stay on the Property, and subsequently the Trustee initiated an adversarial proceeding to avoid the mortgage lien filed in the name of  MERS and alleged that under Ohio law, the assignment of the mortgage must be recorded on behalf of the holder of the note.

The plaintiff brought suit on two accounts. First, under the Trustee’s strong arm powers granted by the Bankruptcy Code § 544,  he alleged that “as a bona fide purchaser for value, he may avoid the mortgage held by Wells Fargo on account of the failure to record an assignment of the Mortgage.” The court elucidates that the Bankruptcy Code gives the Trustee power of a bona fide purchase for value if a hypothetical purchaser could have obtained that bona fide status. Under Ohio law, the assignment of a mortgage must be “recorded to protect those lien interests from avoidance by a bona fide purchaser of real property.” The parties disagree whether mortgages must be recorded under the terms of the Bankruptcy Code, and the Court ultimately determined that the Bankruptcy Code did include mortgages under the requirement to record “instruments of writing properly executed for the conveyance or unencumbrance of lands. . . . ” but that the failure to record the assignment of the mortgage did not terminate “the underlying mortgage and the lien of the underlying mortgage.” Since the Trustee had constructive knowledge of the mortgage, he could not then avoid and acquire bona fide purchaser status due to Wells Fargo’s failure to record its assignment. The Court then dismissed the first cause of action.

Second, the Trustee argued for the Disallowance of Wells Fargo’s claim on based his ability to avoid the mortgage (as argued above). The Trustee’s claim falls under § 502(b) of the Bankruptcy Code, which establishes “grounds upon which a claim that has been objected to by a party in interest may be disallowed.” The Court relied upon subsection 1 which permits disallowance of a claim that is “unenforceable against the debtor or property of the debtor.” The claim was then dismissed “without prejudice to the Trustee’s ability to object under Code § 502 and the Bankruptcy Rules of Procedure to any proof of claim filed by Wells Fargo or any other party claiming to be a creditor of the Debtors in connection with the Note on grounds not determined through this adversary proceeding.”

Oregon District Court Dismisses Borrower’s Suit to Invalidate Foreclosure in Favor of BOA and MERS, Stating Lack of Merit

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In Moreno v. Bank of America., N.A., 3:11-CV-1265-HZ, (D. Or. Apr. 27, 2012) the U.S. District Court of Oregon, granted the defendant’s motion to dismiss for failure to state a claim. Plaintiff had alleged violations under several federal and state Acts, each of which the Judge rejected based on lack of merit.

The plaintiff brought action to invalidate a foreclosure sale, which, although dated earlier than the filed complaint, had not yet occurred. On March 29th, 2007, Moreno borrowed $220,000 from Aegis Wholesale Corporation. A promissory note in favor of Aegis was secured by a Deed of Trust (DOT) against the plaintiff’s real property and identified Fidelity National Title Insurance Company of Oregon (Fidelity) as trustee, and Mortgage Electronic Registration Systems, Inc. (MERS) as the “beneficiary under this Security Instrument.” MERS later assigned the DOT to BAC Home Loans Servicing (BACHLS) in June of 2010. On the same day, BACHLS appointed ReconTrust Co. as successor trustee to Fidelity. Fidelity filed a Notice of Default and Election to Sell (NODES), initiating foreclosure proceedings against Moreno, who had been in default since July, 2009.

The Court dismissed each of the plaintiff’s complaints in turn, starting with his first two claims of relief based on violations of the Oregon Trust Deed Act (OTDA). The plaintiff claimed that under the DOT, MERS lacked authority to assign beneficial interests to BACHLS, who in turn, lacked power to appoint ReconTrust as successor trustee. The Judge, Marco A. Hernandez, stated that he had previously held that “naming MERS as a beneficiary in a DOT does not violate the OTDA,” and while other judges in the district have found otherwise, he would continue to uphold this ruling. The plaintiff alleged that a 3-year gap between the execution of the DOT and MERS’s assignment to BACHLS  showed there “must have” been unrecorded assignments (in violation of ORS 86.735(1)). The Court found that allegation was both speculative and based on an erroneous assertion of fact (the Complaint mistakenly names Bank of America as the original lender, whereas the DOT names Aegis, and subsequent documents state Bank of America was assigned interest only in 2010). The second OTDA based claim was that the defective notice was invalid for failure to include a correct statement of the amount in default. The Court dismissed it because the plaintiff had not “plead his ability to cure the default, that his damages resulted from the lost opportunity to cure the default, and that he requested information from the trustee under O.R.S. § 86.757 and O.R.S. § 86.759.”

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Next, the Court dismissed the plaintiff’s claim brought under the Truth in Lending Act (TILA) for both the failure to meet the 1-year statute of limitations and for having incorrectly brought the action against Bank of America rather than Aegis, the original lender. Under TILA a claim may only be brought against the Creditor, who is the person who “regularly extends… consumer credit” and “to whom the debt arising from the consumer credit transaction is initially payable.” 15 U.S.C. Sect. 1602(g). The plaintiff further argued that he is Hispanic and “as a result” did not understand the nature of the loan documents. He therefore requested equitable tolling, which suspends the “limitation period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosure that form the basis of the TILA action,” which he stated was in 2011 after having spoken to a translator who explained his loan audit. The Court found this unconvincing on several accounts. First, since the complaint brought no allegations in support of equitable tolling, it failed to state a TILA violation. Second, the plaintiff never alleged he did not speak English. Third, equitable tolling is applied when the 1-year period would be “unjust” or “frustrate the purpose” of the TILA. Fourth,  the plaintiff must bring allegations “that the defendant had fraudulently concealed information that would have allowed plaintiff to discover his claim,” engaged in action to prevent plaintiff from discovering a claim, or encountered “some other extraordinary circumstance would have made it reasonable for Plaintiff not to discover his claim within the limitations period.” Garcia v Wachovia Mortg. Corp. 676 F. Supp.2d 895, 905 (C.D. Cal. 2009).

The Court dismissed the plaintiff’s claim under the Real Estate Settlement Procedures Act (RESPA) for failure to meet the statute of limitations since his claim arose out of the origination of the loan in 2007, and his arguments for equitable tolling “are unavailing.”  Plaintiff also failed to allege that a RESPA violation resulted in actual damage, a requirement of a RESPA claim.

The plaintiff’s claim under Oregon’s Unfair Trade Practices Act (UTPA) was dismissed because at the time of the loan, in 2007, UTPA had not yet been amended to include “loans and extensions of credit,” O.R.S. 646.605(6) (2010), therefore plaintiff’s loan was not covered by the Act. Additionally, UTPA claims must be brought within a year from the discovery of the “unlawful method, act or practice,” but the plaintiff failed to assert that the discovery of a UTPA violation could not have been made at the time of the loan