Mortgages

Mortgage of joint tenancy interest does not encumber interests of joint tenants who do not join the deal

/ Estates and Future Interests, Mortgages, Real Estate Transactions, Statute of Frauds

In Bac Home Loans Servicing, L.P. v. Savankham, 2016 Mass. LCR LEXIS 86 (Mass. Land Ct. 2016), a mother gave a bank a mortgage on her joint tenancy interest in property she shared with her two children. The children did not know about or participate in the transaction. Apparently, the bank thought it was getting a mortgage on the whole property rather than just the joint tenancy interest of one joint tenant and sought to reform the documents to reflect that understanding. However, because there was no proof that all parties understood the transaction this way, it was a unilateral mistake of the bank rather than a mutual mistake of all owners and the lender. The court refused to reform the documents to reflect the arrangement the bank wanted or thought it was getting. A word to the wise, I suppose. You really need to do a title search to make sure …

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Washington state law bans mortgage lender from changing locks and barring the borrower from her home after default but before foreclosure

/ Mortgages, Real Estate Transactions, Trespass

Many mortgage agreements allow the lender to change the locks on the door and take over the property when a borrower-mortgagor defaults or abandons the property; this is intended to prevent the property from becoming dilapidated or taken over by squatters. However, some banks have locked owners out of their homes after they default even if they are still living there and there is no evidence of abandonment or harm to the premises. The Washington Supreme Court outlawed this practice in  Jordan v. Nationstar Mortg., LLC, 2016 WL 3748978 (Wash. 2016), interpreting a state statute that denies the “owner of the mortgage” the power to “recover possession of the real property, without a foreclosure and sale according to law,” Rev. Code Wash. §7.28.230(1).  The court emphasized that Washington is a lien theory state that leaves title with the homeowner and gives the lender a lien on the property unlike title theory …

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Banks that foreclose without legal authority to do so commit the tort of wrongful foreclosure

/ Consumer Protection, Estates and Future Interests, Mortgages, Real Estate Transactions, Title Issues

The California Supreme Court held in Yvanova v.  New Century Mortgage Corp.,, 365 P.3d 845 (Cal. 2016), that a borrower has standing to prove that a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing entity purportedly took a beneficial interest was void, thereby depriving the foreclosing party of any authority to foreclose through a trustee’s sale.  In a follow up case, Sciarratta v. U.S. Bank Nat’l Ass’n, 2016 Cal. App. LEXIS 399 (2016), the Court of Appeals held that foreclosure by an entity with no power to foreclose is, by itself, the tort of wrongful foreclosure. Even if the borrower is in default, and someone has the right to foreclose, that does not mean that any person with a claim can bring the foreclosure. Only a party with a better claim to title — someone with the legal authority to foreclose — can oust a peaceable possessor from their home. …

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No statute of limitations bars a claim to set aside a forged deed and subsequent mortgage

/ Adverse Possession, Consumer Protection, Mortgages, Real Estate Transactions, Statute of Frauds, Title Issues

The New York Court of Appeals had reaffirmed the traditional rule that forged deeds do not convey title. It has clarified that no statute of limitations bars a challenge to a forged deed even if the purported owner has subsequently transferred interests in the land to a subsequent mortgagee who had no notice of the forgery. Faison v. Lewis, 32 N.E.3d 400 (N.Y. 2015). The Court ruled that the third party purchaser is not a “bona fide” purchaser protected by the recording act because a forged deed can never be the basis of a valid transfer even if the third party did not know and could not have known about the forgery. To do otherwise would allow the forger to “steal” property and get away with it.

Mortgagor cannot challenge foreclosure because of lack of evidence of valid mortgage assignments

/ Mortgages, Real Estate Transactions

The Nebraska Supreme Court has joined other courts that have held that a bank that holds the mortgage note may foreclose on the property even if there is no evidence of a valid chain of mortgage assignments and some doubt about whether the foreclosing party has the right to foreclose. Marcuzzo v. Bank of the West, 862 N.W.2d 281 (Neb. 2015). The theory is that the holder of the note generally is a person entitled to enforce the note and that, assuming the mortgage note is a negotiable instrument under the Uniform Commercial Code, the holder of the note has the power to enforce it through foreclosure. If the wrong party is foreclosing, the correct party can sue the foreclosing party to recover its money. The homeowner is arguably not harmed because it defaulted on the mortgage and thus lost the right to keep the home. If the only issue is who …

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Third Circuit supports MERS, holds that Pa. law does not require mortgage transfers to be recorded to be valid

/ Mortgages, Real Estate Transactions, Statute of Frauds, Title Issues

Pennsylvania statutes have language that might have been interpreted to require transfers of interests in land (through deeds or mortgages) to be recorded to be valid. If true, that would have undermined the MERS system of mortgage registration. But the Third Circuit gave MERS a win and interpreted Pennsylvania law to recognize mortgage transfers at the moment they are signed; recording is not required for the transfer of the property interest to be valid but is simply for the convenience of the parties and subsequent conveyees. The case, Montgomery Cty. v. MERSCORP, Inc, 2015 U.S. App. LEXIS 13482 (3d Cir. 2015), is another win for MERS among the federal Circuit Courts in a series of cases that challenged its business model. The result of the case, as with other MERS-registered mortgages, is that there is no longer a public record of mortgage transfers since those records appear, if at all, on the …

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Postforeclosure judicial process satisfies due process clause

/ Consumer Protection, Due Process, Mortgages, Real Estate Transactions, Title Issues

The Sixth Circuit has ruled that nonjudicial foreclosure satisfies constitutional due process requirements because the homeowner/borrower was given notice of the foreclosure and notice of who to cure the default or seek a loan modification and how to redeem the property (get it back) after the foreclosure sale during a six-month redemption period. Garcia v. Fed. Nat’l Mortg. Ass’n,  782 F.3d 736 (6th Cir. 2015). These statutory procedures satisfied the constitutional right to notice and an opportunity to be heard before being deprived of a property right.

Foreclosure complaint can subject law firm & bank to a claim for violating the Fair Debt Collection Practices Act (FDCPA)

/ Consumer Protection, Mortgages, Real Estate Transactions

The Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., regulates the processes by which debts are collected. The Third Circuit has agreed with other courts in holding that the filing of a foreclosure complaint can subject both the plaintiff bank and the lawyers filing the complaint to liability under the FDCPA. In the case of Kaymark v. Bank of America, N.A., 783 F.3d 168 (3d Cir. 2015), the allegation was that the complaint sought payments that were not yet due — a demand that violated the FDCPA. The Court applied the holding of the Supreme Court case of Heinz v. Jenkins, 514 U.S. 291 (1995) that had established that lawyers are “engage[d] in consumer-debt-collection activity” when they file lawsuits.

Robo-signing mortgage servicer may have violated state false document statute

/ Consumer Protection, Mortgages, Real Estate Transactions, Statute of Frauds, Title Issues

The Ninth Circuit held that a mortgage servicer that allegedly engaged in robo-signing may well have violated an Arizona statute, Ariz. Rev. Stat. § 33-420, that criminalizes filing false property title documents with the state recording offices. In re Mortg. Electronic Registrations Systems, Inc (Robinson v. Am. Home Mortg. Serv. Inc.), 2014 WL 2611314, 2 014 U.S. App. LEXIS 10934 (9th Cir. 2014). There was  evidence that trustee’s sale documents were notarized in blank and signed later by a person other than the one who was supposed to sign the document. Such signings were also done in bulk (robo-signing) and because not signed by the correct person were forged. In addition, notaries are supposed to witness the signature not notarize a blank document before any signature appears. The case is notable because the servicer was MERS (Mortgage Electronic Registration Systems, Inc.). Judge William Fletcher engaged in a detailed discussion about the advantages …

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Mortgage can be equitably reformed because of mutual mistake

/ Mortgages, Real Estate Transactions, Statute of Frauds

In a classic application of a traditional doctrine of contract law, the Massachusetts Land Court allowed a mortgage document to be reformed because of mutual mistake. Citibank, N.A. v. Heywood, 2014 WL 2158409 (Mass. Land Ct. 2014). While courts are very reluctant to amend written property documents or contracts because of unilateral mistake, it is standard practice to ignore the written terms of the agreement, despite the statute of frauds, when the evidence shows that it does not reflect the intent of both parties. The court noted that [A] court acting under general principles of equity jurisprudence has broad power to reform, rescind, or cancel written instruments, including mortgages, on grounds such as fraud, mistake, accident, or illegality” as long as the mistake was mutual.

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