Tag Archives: beneficiary

Trust for Trump

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photo by David R. Tribble

US News & World Report quoted me in Here’s What We Know About Donald Trump’s Trust Fund. It opens,

With all the talk about how Donald Trump will be handling his vast business empire as he assumes the presidency, some questions were finally answered this week, and this much is clear: Donald Trump is putting his business assets in a trust.

“Through the trust agreement, he has relinquished leadership and management of the Trump Organization to his sons Don and Eric, and a longtime Trump executive, Alan Weiselberg,” says Sheri Dillon, a lawyer for the president-elect.

But what does that mean?

What is a trust to begin with? A trust is a legal structure with three main parties: The trustor, trustee and beneficiary. The trustor gives another party, the trustee, the right to manage the specified assets for the benefit of its designated beneficiaries.

“According to Trump, his sons, Donald Jr. and Eric, as well as a business associate, would be the trustees. After transferring the assets to the trust, Trump could then be a beneficiary of the trust,” says David Reiss, professor of law at Brooklyn Law School. “The trustees administer the affairs of the trust on behalf of the beneficiaries. The beneficiary receives the income from the trust or the property within the trust.”

Trump has previously said his children will be the primary financial beneficiaries of the trust, but Trump made it clear that he planned on returning to the Trump Organization when his presidency is over. At that point, it’s possible Trump could have a fat check waiting for him, depending on the trust’s structure.

“The trust’s income or property could be doled out on an ongoing basis or deferred to some future point in time, depending on the terms of the trust,” Reiss says.

Court Finds that Defendants Failure to Record all Assignments of the Deed did not Violate ORS 86.735

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The court in deciding Romani v. Northwest Trs. Servs., 2013 U.S. Dist. L (D. Or., 2013) granted the motion for summary judgment in favor of Northwest.

The plaintiff’s complaint asserted four claims. Plaintiff alleged that the non-judicial foreclosure of her property was defective. Plaintiff claimed that: 1) that the designation of MERS as beneficiary was invalid, and 2) that the defendants failed to record all assignments of the deed of trust in violation of ORS 86.735.

Plaintiff argued that MERS could not be the beneficiary under ORS 86.705(2) and that, as a result, MERS purported assignment of the deed of trust to Wells Fargo, as well as all other actions taken by MERS should be deemed void.

Plaintiff argued that the foreclosure sale was invalid because the defendants failed to record every transfer of the deed of trust, as required under the OTDA. Specifically, the plaintiff alleged that the transfers of the deed of trust which occurred when the note were transferred by endorsement were not recorded.

Plaintiff sought a declaratory judgment that 1) the defendants had no legal or equitable rights in the note or the deed of trust and 2) that the defendants lack of legal standing to institute, maintain, or enforce a foreclosure on the property entitled her to seek permanent injunctive relief barring the defendants from seeking to foreclose on the property in the future.

After consideration of the plaintiff’s arguments, the court dismissed them as moot and granted summary judgment in favor of the defendant.

Court Decides that Lower Court Was Correct in Granting Summary Judgment in Favor of Bank of America and ReconTrust on FDCPA Claims

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The court in deciding Brown v. Bank of Am., N.A. (In re Brown), 2013 Bankr. (B.A.P. 9th Cir., 2013) affirmed the lower court’s holding.

The plaintiff in this case alleged alleged that BAC and ReconTrust violated the CPA by promulgating, recording, and relying on documents they should have known were false, in particular: the MERS’ assignment, the successor trustee appointment, and the notice of default. Plaintiffs also alleged that ReconTrust’s issuance and use of the notice of default violated the FDCPA and that ReconTrust’s attempts to dispossess the debtor of her property constituted malicious prosecution.

As to the claim for wrongful foreclosure, the plaintiffs alleged that the defendants violated the Washington Deed of Trust Act when they designated MERS as a beneficiary in the trust deed and MERS subsequently executed the MERS Assignment.

The plaintiffs contended that BAC’s authority to execute the successor trustee appointment and ReconTrust’s authority to execute the Notice of Default derived solely from the invalid MERS Assignment, invalidating both documents. They alleged that these transactions constituted a deception and, therefore, invalid transactions under the Trust Deed Act.

ReconTrust, Bank of America, N.A., as successor by merger to BAC, and MERS jointly brought a motion to dismiss the SAC pursuant to Civil Rule 12(b)(6). The defendants argued that the plaintiffs failed to adequately plead the identified claims and, in addition, that the plaintiffs should be collaterally estopped from contending that BofA could not initiate foreclosure proceedings, based on the order entered by the bankruptcy court on the uncontested relief from stay motion.

California Court Denies Claims that Deficiencies Rendered any Security Interest in the Deed of Trust Invalid

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The court in deciding Sollenne v. United States Bank Nat’l Ass’n, 2013 U.S. Dist. (S.D. Cal., 2013) ultimately found that the plaintiffs’ claims premised upon the securitization of the loan and violations of the PSA were to be dismissed. The court also found that the plaintiffs could not require the defendants to take any actions to prove their authority unless such factual allegations are presented.

Plaintiffs alleged three causes of action: 1) quiet title; 2) declaratory relief to determine the validity of the deed of trust on the date the note was assigned and to determine if any defendant has authority to foreclose; and 3) injunctive relief to stop further collection activity, including the sale of the property. Plaintiffs’ desired remedies also included a request for an order compelling the defendants to transfer or release legal title and any alleged encumbrances, and possession of the property to plaintiffs.

Plaintiffs also alleged that the procedures in the pooling and services agreement (PSA) for the trust had not been followed. They alleged that the note and the mortgage, the debt or obligation evidenced by the note and deed of trust were not properly assigned and transferred from CMG (the originator) to USBNA (the trustee of the Trust) in accordance with the PSA. Plaintiffs claimed the PSA was violated by a failure to complete the assignment before the closing date, and a failure to provide a complete and unbroken chain of transfers and assignments. Plaintiffs claimed that no perfected chain of title exists transferring the mortgage loan from CMG to the Trust.

In the alternative, Plaintiffs claimed that Nationstar alleged to be the holder and owner of the note and beneficiary of the deed of trust, but that the note identified the originator as the holder, and there is no perfected chain of title between CMG and Nationstar. Plaintiffs claimed that no documents or records have been produced to demonstrate the note or deed of trust was properly transferred prior to the closing date, and that any documents  transferring it after the closing date are void under the PSA.

Plaintiffs listed the following deficiencies which they contended render invalid any security interest in the deed of trust: 1) the separation of title, ownership and interest in the note and deed of trust; 2) the lack of assignments to or from the intervening entities when the loan was sold; 3) the failure to assign and transfer the beneficial interest in the DOT to Defendants in accordance with the PSA; 4) the failure to endorse, assign, and transfer the note to USBNA in accordance with the PSA and California law; 5) that there were no assignments of beneficiary or endorsements of the note to each intervening entity; and 6) Defendants violated terms of the PSA.

Ultimately, the court determined that the plaintiffs’ claims premised upon the securitization of the loan and violations of the PSA were to be dismissed. The court also found that the plaintiffs could not require the defendants to take any actions to prove their authority unless such factual allegations were presented.

California Court Rejects Improper Pooling and Servicing Agreement Argument Brought by Plaintiffs

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The court in deciding Sollenne v. United States Bank Nat’l Ass’n, 2013 U.S. Dist., (S.D. Cal., 2013) dismissed the plaintiffs’ claims.

Plaintiffs alleged three causes of action: 1) quiet title; 2) declaratory relief to determine the validity of the deed of trust on the date the note was assigned and to determine if any defendant has authority to foreclose; and 3) injunctive relief to stop further collection activity, including the sale of the property.

Plaintiffs’ desired remedies also include a request for an order compelling the defendants to transfer or release legal title and any alleged encumbrances, and possession of the property to plaintiffs.

The plaintiffs listed the following deficiencies which they contended rendered invalid any security interest in the deed of trust: 1) the separation of title, ownership and interest in the note and deed of trust; 2) the lack of assignments to or from the intervening entities when the loan was sold; 3) the failure to assign and transfer the beneficial interest in the DOT to Defendants in accordance with the PSA; 4) the failure to endorse, assign, and transfer the note to USBNA in accordance with the PSA and California law; 5) that there were no assignments of beneficiary or endorsements of the note to each intervening entity; and 6) Defendants violated terms of the PSA.

After considering the plaintiffs’ arguments, this court dismissed the claims premised upon the securitization of the loan and violations of the PSA as well as the plaintiffs’ remaining claims.

Tennessee Court Rejected MERS’ Argument that Sale of Property Should be Invalidated

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The court in deciding Mortgage Elec. Registration Sys. v. Ditto, 2014 Tenn. App. (Tenn. Ct. App., 2014) affirmed the judgment of the lower court.

This appeal involved the purchase of property at a tax sale. MERS filed suit against purchaser to invalidate his purchase of property because it had not received notice of the sale even though it was listed as a beneficiary or nominee on the deed of trust.

Purchaser claimed that MERS was not entitled to notice because MERS did not have an interest in the property. Purchaser also alleged that MERS failed to properly commence its lawsuit because it did not remit the proper funds pursuant to Tennessee Code Annotated section 67-5-2504(c).

The trial court refused to set aside the tax sale, holding that the applicable notice requirements were met and that the purchaser was the holder of legal title to the property. MERS appealed the lower court’s decision, however this court affirmed the decision of the lower court.

Since appellant was never given an independent interest in the property, and it did not suffer an injury by the sale of the property at issue, and the only injury suffered by appellant related to the future effect the case could have on its business model, which was not a distinct and palpable injury capable of being redressed by the court, the trial court’s grant of the purchaser’s motion for judgment on the pleadings was properly granted as appellant did not have standing to file suit to set aside the tax sale of the property for lack of notice under Tenn. Code Ann. § 67-5-2502(c) and the Due Process Clause of the Fourteenth Amendment.

The court found that the failure to tender the appropriate funds when filing the petition to set aside the sale under Tenn. Code Ann. § 67-5-2504(c) was not a prerequisite for relief.

Arizona’s “Unholy” Foreclosure Mess

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Professor Dale Whitman posted a commentary about Steinberger v. McVey ex rel. County of Maricopa, 2014 WL 333575 (Ariz. Court of Appeals, Jan. 30, 2014) on the Dirt listserv:

A defaulting borrower may defend against foreclosure on ground that the chain of assignments of the deed of trust is defective, and also on a variety of other theories.

The residential mortgage loan in this case was originally made in 2005 to Steinberger’s 87-year-old father, who died two years later, leaving her the property. By 2008, she was having difficulty making the payments, and asked IndyMac FSB to consider a loan modification. She was advised that she must first default, and she did so. There followed a period of more than two years during which she was “jerked around” by IndyMac, with successive promises to consider a loan modification, the setting of (and then vacating of) foreclosure dates, and assertions by IndyMac that she had not properly submitted all of the paperwork required for a modification.

In November 2010 she filed an action seeking a declaratory judgment that IndyMac had no authority to foreclose on the house, and upon filing a $7,000 bond, she obtained a TRO against foreclosure. The following summarizes the theories on which she obtained a favorable result.

1. Lack of a proper chain of title to the deed of trust. The Court of Appeals seems to have assumed that no foreclosure would be permissible without the foreclosing party having a chain of assignments from the originator of the loan. If one accepts this assumption, IndyMac was in trouble. The first assignment, made in 2009, was from MERS, acting as nominee of IndyMac Bank, to IndyMac Federal FSB, but it was made before IndyMac Federal FSB even existed!

A second assignment was made in 2010 by IndyMac Federal FSB to DBNTC, the trustee of a securitized trust. But Steinberger alleged that by this date, IndyMac Federal FSB no longer existed, so this assignment was void as well. She also made the familiar allegation that this assignment was too late to comply with the 90-day transfer period required by the trust’s Pooling and Servicing Agreement, but the court did not pursue this theory.

The court’s opinion is significant for its treatment of Hogan v. Wash. Mut. Sav. Bank, the 2012 case in which the Arizona Supreme Court held that “Arizona’s non-judicial foreclosure statutes do not require the beneficiary [of a deed of trust] to prove its authority.² The Court of Appeals, in Steinberger, read this statement to mean that the beneficiary need not prove its authority unless the borrower alleges a lack of authority in her complaint. There was no such allegation in Hogan, but there was in Steinberger. Hence, the Court of Appeals concluded that Steinberger could contest IndyMac’s right to foreclose. And it felt that Steinberger’s allegations about the defects in the chain of title to the deed of trust, if proven, could constitute a successful attack on IndyMac’s authority to foreclose.

It’s important to realize what the Court of Appeals did not do. It did not disagree with Hogan’s holding that the beneficiary need not show possession of the promissory note in order to foreclose. Several commentators (including me) have criticized Hogan for this holding, but the Steinberger opinion leaves it intact. Indeed, in Steinberger, the borrower raised no issue as to whether IndyMac had the note, and seems to have conceded that it did. The discussion focuses on the legitimacy of the chain of title to the deed of trust, not on possession of the note.

Is the court correct that a valid chain of title to the deed of trust is necessary to foreclose under Arizona law? As a general proposition, one would think not. Arizona not only has adopted the common law rule that the mortgage follows the note, but even has a statute saying so: Ariz. Rev. Stat.§ 33 817:  “The transfer of any contract or contracts secured by a trust deed shall operate as a transfer of the security for such contract or contracts.” So if the note is transferred, no separate assignment of the deed of trust would be needed at all. And a recent unreported Court of Appeals case, Varbel v. Bank of America Nat. Ass’n, 2013 WL 817290 (Ariz. App. 2013), quotes the Bankruptcy Court as reaching the same conclusion: In re Weisband, 427 B.R. 13, 22 (Bankr. D. Ariz. 2010) (“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.”).

By the way, that’s the rule with respect to mortgages in virtually every state. A chain of assignments, recorded or not, is completely unnecessary to proof of the right to foreclose. The power to foreclose comes from having the right to enforce the note, not from having a chain of assignments of the mortgage or deed of trust.

However, since Hogan has told us that no showing of holding the note is necessary in order to foreclose, what is necessary? It defies common sense to suppose that a party can foreclose a deed of trust in Arizona without at least alleging some connection to the original loan documents. If that allegation is not that one holds the note, perhaps it must be the allegation that one has a chain of assignments of the deed of trust. If this is true, then the opinion in Steinberger, written on the assumption that the assignments must be valid ones, makes sense.

The ultimate problem here is the weakness of the foreclosure statute itself. Ariz. Stat. 33-807 provides, “The beneficiary or trustee shall constitute the proper and complete party plaintiff in any action to foreclose a deed of trust.” Fine, but when the loan has been sold on the secondary market, who is the “beneficiary?” The statute simply doesn’t say. The normal answer would be the party to whom the right to enforce the note has been transferred, but Hogan seems to have deprived us of that answer. An alternative answer (though one that forces us to disregard the theory that the mortgage follows the note) is to say that the “beneficiary” is now the party to whom the deed of trust has been assigned. But the Arizona courts don’t seem to be willing to come out and say that forthrightly, either. Instead, as in the Steinberger opinion, it’s an unstated assumption.

As Wilson Freyermuth put it, after graciously reading an earlier version of this comment, “The Steinberger court couldn’t accept the fact that a lender could literally foreclose with no connection to the loan documents — so if Hogan says the note is irrelevant, well then it has to be the deed of trust (which would presumably then require proof of a chain of assignments).  It’s totally backwards — right through the looking glass.  And totally inconsistent with Ariz. Stat. 33-817.”

To say that this is an unsatisfactory situation is an understatement; it’s an unholy mess. The statute was written with no recognition that any such thing as the secondary mortgage market exists, and the Arizona courts have utterly failed to reinterpret the statute in a way that makes sense. It’s sad, indeed.

There are a number of other theories in the Steinberger opinion on which the borrower prevailed. Some of these are quite striking, and should give a good deal of comfort to foreclosure defense counsel. In quick summary form, they are:

2. The tort of negligent performance of an undertaking (the “Good Samaritan” tort). This applies, apparently, to IndyMac’s incompetent and vacillating administration of its loan modification program.

3. Negligence per se, in IndyMac’s recording of defective assignments of the deed of trust in violation of the Arizona statute criminalizing the recording of a false or forged legal instrument.

4. Breach of contract, in IndyMac’s failure to follow the procedures set out in the deed of trust in pursuing its foreclosure.

5. Procedural unconscionability, in IndyMac’s making the original loan to her elderly father without explaining its unusual and onerous terms, particularly in light of his failing mental health.

6. Substantive unconscionability, based on the terms of the loan itself. It was an ARM with an initial interest rate of 1%, but which could be (and apparently was) adjusted upward in each succeeding month. This resulted in an initial period of negative amortization, and once the amortization cap was reached, a large and rapid increase in monthly payments. At the same time, some of Steinberger’s other theories were rejected, including an argument that, because IndyMac had intentionally destroyed the note, it had cancelled the debt. The court concluded that, in the absence of proof of intent to cancel the debt, it remained collectible.