Failure to Comply with PSA Results in Void Judgment

I have raised the issue of the Plaintiff's failure to comply with the Pooling and Servicing Agreement in a number of different procedural settings.  In Ashtabula County, the trial court has allowed discovery to be conducted over Plaintiff's objection in order to inquire into the securitization process.  In Perry County, the trial court granted relief from judgment and required Plaintiff to demonstrate its interest in the note and mortgage or suffer dismissal.  In Columbiana County, the trial court found that failure to comply with the PSA was a meritorious defense, but denied relief from judgment based upon Defendants' failure to establish "excusable neglect".  (The Seventh District Court of Appeals reversed and remanded.).

In different cases, in various procedural settings, regardless of the law firm representing the foreclosure Plaintiffs, they all assert the same case against the use of the failure to comply with the PSA by the Mortgagor (Homeowner); Bank of New York Mellon vs. Unger (Ohio App. 8^th Dist.) 2012-Ohio-1950. 

 

The Ohio Supreme Court's decision in Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, would render a judgment void if the failure to comply with the PSA results in the Plaintiff not possessing an interest in the promissory note or mortgage.   Rather than write separately about the topic, I thought it would be helpful to post part of the argument that I have recently filed in support of such motions.

Law and Argument Portion of Motion to Vacate

The New York Law of Estates, Powers and Trusts, N.Y. EPT. LAW § 7-2.4, states:

If the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.

            New York law provides that any transfers beyond the stated powers of the trust are void. “If the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance, or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.” McKinney's Consolidated Law of New York Annotated, Estates Powers and Trust Laws, section 7-2.4 (2003); see Allison & Ver Valen Co. v. McNee, 9 N.Y.S. 2D 708 (N.Y. Sur. 1939); see also Dye v. Lewis (New York, Sup. Crt., 1971) 67 Misc.2d 426, 324 N.Y.S.2d 172. (The authority of the trustee is subject to any limitations imposed by the trust instrument [EPTL, s 11—1.1, subd. (b)(8)], and every act in contravention of the Trust is void. [EPT, s 7—2.4]).  As the promissory note and the mortgage were not properly transferred to the Trust, the assignment was void.  Plaintiff did not have an interest in the mortgage at the time Plaintiff filed the complaint.  Plaintiff’s lack of standing renders the resulting judgment void.

            In Hendricks vs. US Bank National Association, State of Michigan, Washtenaw County Trial Court Case No. 10-849-CH, the trial court granted injunctive relief preventing and precluding Defendant acting as a purported Trustee from foreclosing upon a mortgage, based upon the failure to transfer the promissory note and mortgage pursuant to the Pooling and Servicing Agreement.  See, also, Horace vs. LaSalle Bank National Association Alabama Circuit Court of Russell County Case No.: 57-CV-2008-000362.00.

            In addition, the US District Court for the District of Hawaii in Deutsche Bank National Trust Co. vs. Williams (March 29, 2012), Case No.: 1:11-cv-00682, states:

In this action, the proverbial shoe is on the other foot -- Deutsche Bank asserts affirmative claims against the Williamses seeking to enforce the Mortgage and Note, and therefore must establish its legal right (i.e., standing) to do so. See, e.g., IndyMac Bank v. Miguel, 117 Haw. 506, 513, 184 P.3d 821, 828 (Haw. App. 2008) (explaining that for standing, a mortgagee must have “a

sufficient interest in the Mortgage to have suffered an injury from [the mortgagor’s] default”). As explained above, Deutsche Bank has failed to do so. The court therefore GRANTS the Williamses’ Motion to Dismiss.

Deutsche Bank National Trust Co. vs. Williams, at p. 12 of the opinion.

            Culhane, V. Aurora Loan Services of Nebraska, (C.A. 1^st Cir., 2013), 708 F.3d 282, recently held:

Whether a mortgagor has standing to challenge the assignment of her mortgage—an assignment to which she is not a party and of which she is not a third-party beneficiary—is a matter of first impression for this court. The nisi prius courts within the circuit have expressed divergent views. Compare, e.g., Butler v. Deutsche Bank Trust Co., No. 12–10337, 2012 WL 3518560, at *6–7 (D.Mass. Aug. 14, 2012) (holding that mortgagor has limited standing), with, e.g., Oum v. Wells Fargo, 842 F.Supp.2d 407, 415 (D.Mass.2012) (holding that mortgagor lacks standing), with, e.g., Rosa v. Mortg. Elec. Sys., Inc., 821 F.Supp.2d 423, 429 n. 5 (D.Mass.2011) (holding that mortgagors “appear to have standing”). We conclude that a nonparty mortgagor, like the plaintiff, has standing to raise certain challenges to the assignment of her mortgage.

            Additional support for the proposition that Plaintiff lacks standing based upon its failure to comply with the Pooling and Servicing Agreement can be found in  HSBC Bank USA, NA as Trustee vs. Young (October 16, 2012), Michigan, Washtenaw County Circuit Court Case No. 11-693 AV, (Homeowner demonstrated violation of PSA, complaint dismissed); and Jua´rez vs. Select Portfolio Servicing, Inc. (February 12, 2013), United States Court of Appeals for the First Circuit, Case No. 11-2431 (Homeowner may have standing to bring wrongful foreclosure claim raising issue of whether assignment under PSA took place prior to foreclosure action was filed.)

            Ohio Courts have also begun to allow Mortgagors to challenge foreclosures based upon non-compliance with Pooling and Servicing Agreements.  Wells Fargo Bank, NA, vs. Freed, 2012-Ohio-5941 (Homeowner allowed to argue violation of PSA); The Bank of New York Mellon vs. Baird, 2012-Ohio-4975 (Homeowner allowed to argue violation of PSA, but Court found no violation); The Bank of New York vs. Blanton, 2012-Ohio-1597 (Homeowner’s allegation of violation of PSA might be meritorious defense, but prongs 2 and 3 under GTE fail).

            Plaintiff will undoubtedly rely upon Bank of New York Mellon vs. Unger (Ohio App. 8^th Dist.) 2012-Ohio-1950; Chase Home Fin., LLC vs. Heft (Ohio App. Dist. 3^rd.), 2012-Ohio-876, and Deutsche Bank National Trust Company vs. Randolph (Ohio App. 8^th Dist) 2012-Ohio-6141, for the proposition that Defendants lack standing to challenge the validity of any transfer, assignment, or securitization of the promissory note and mortgage.  However, these cases only reject a mortgagor’s cause of action based upon an invalid assignment, or a mortgagor’s right to use an invalid assignment offensively.  Bank of New York Mellon vs. Unger (Ohio App. 8^th Dist.) 2012-Ohio-1950, the complaint had been dismissed and the only issue that remained pending was the Homeowner’s offensive claim which attempted to void the mortgage due to the assignment being executed after the Lander was dissolved.   The Unger Court, at ¶21, stated:

The second count is to quiet title and to void both the mortgage assignment and the mortgage. The Ungers are not parties to the assignment of mortgage. They are also not parties to the Pooling and Servicing Agreement (PSA). They do not have the ability to assert the rights of the actual parties to a contract. Bridge v. AAMES Capital Corp. (2010) No. 1:09 CV 29473834059.

            The Bridge Court cited by Bank of New York Mellon vs. Unger, stated at page 4 of the opinion, the following:

In this litigation, Plaintiffs do not request that the Court adjudicate their default or the amount

they owe. Instead, they seek to challenge the transfer of ownership of the Loan from the loan

originator to Deutsche Bank. In other words, Plaintiffs seek to set aside the assignment of the

Loan from Aames to Deutsche Bank.  The Sixth Circuit recently considered this sort of claim in the bankruptcy context, and determined that the bankruptcy trustee—who, under bankruptcy law, stands in the shoes of the debtor and can have no greater right than a debtor himself—lacked standing to challenge a transfer and assignment of mortgage.

            The Bridge Court relied upon In Re Cook 457 F.3d 561(CA 6, 2006).  In Bridge, the plaintiff sought to void the mortgage and declare it unenforceable due to an assignment of mortgage not conforming to Ohio law.  In In Re Cook, the Bankruptcy Trustee was attempting to void the mortgage lien pursuant to 11U.S.C. §544. These cases do not support the position that mortgagors can not raise the failure to comply with the PSA or any other defect in transfer as a defense.

            Further, the procedural posture of Chase Home Fin., LLC vs. Heft renders this case virtually useless as authority.  Defendant Heft conducted the litigation pro se and alleged that there was some indication of “robo-signing” which was not raised until Heft’s second motion for relief from judgment.  Heft asserted that the “robo-signing” may have affected Plaintiff’s standing and the trial court’s “jurisdiction”.  Finally, the trial court found that “robo-signing” was not alleged to have occurred in Heft’s case, and that the only evidence supporting Heft’s claim was a newspaper article discussing the practice of “robo-signing”.  In setting forth all of the above, the Heft Court added Heft lacked standing to challenge the validity of the assignment.

            In Deutsche Bank National Trust Company vs. Randolph (Ohio App. 8^th Dist) 2012-Ohio-6141, the Court of Appeals states that the identical argument was previously rejected by the Eighth District and rotely cites its previous decision in Bank of New York Mellon vs. Unger.

Hopefully, you found this helpful.