Ohio Homeowners may be able to Assert Failure to Comply with PSA

In several  previous posts; April 5, 2013 Failure to Comply with PSA Results in Void Judgment; and
August 2, 2013 Update on Failure to Comply with PSA, I argued that Homeowners facing foreclosure are entitled to assert the failure to comply with the pooling and servicing agreement.  I stated that the failure to comply with the PSA would result in a void transfer of the promissory note or a void assignment of the mortgage.  In a post September 29, 2015 Anh Nguyet Tran vs. Bank of New York Petition for Writ of Certiorari, I asserted that Anh Nguyet Tran highlighted a similar battle being fought in Ohio as Homeowners are prevented from asserting challenges to the validity of the assignment based upon appellate court decisions that rely upon Bank of New York Mellon vs. Unger (Ohio App. 8^th Dist.) 2012-Ohio-1950.  

The argument that I have been making that the federal cases relied upon by Unger were being misinterpreted.  I relied upon the Alexander vs. Deutsche Bank National Trust Co. (N.D. Ohio West Dis.) Case No.: 3:12-CV-02704; and Slorp vs. Lerner Sampson & Rothfuss, 587 Fed.Appx. 249.  According to Alexander and Slorp Ohio Homeowners should be able to challenge the validity of assignments if the challenge would result in a void transaction.

Now the Court of Appeals for the Tenth District has made the same argument in granting a homeowner facing foreclosure the right to challenge an assignment as being void.  

In U.S. Bank Natl. Assn. v. George (Ohio App. 10th Dist.), 2015-Ohio-4957, the Court held:

Because we have reversed the trial court's summary judgment on issues concerning the note and appellants' challenge to appellee's standing to enforce the note, we necessarily overrule our prior holding in LSF6 Mercury REO Invests. Trust Series 2008-1 v. Locke , 10th Dist. No. 11AP-757, 2012-Ohio-4499. In Locke, we held that the makers of notes and mortgages are without standing to challenge the validity of transfers or assignments to which they were not parties.  ***

We believe that at least one of the underlying cases relied on by the court in Locke has been clarified to the point that its premise as we surmised it no longer supports what we previously held in Locke denying standing to non-privity challengers of note and mortgage transfers and assignments. We thus extend our holding in Pasqualone to clarify that standing broadly exists for persons to challenge the validity of the transfer of a note4 or assignment of the mortgage, whether or not in privity with the person entitled to enforce the note or mortgage, regardless of whether or not the note has been negotiated and transferred under R.C. Chapter 13, Ohio's codification of the Uniform Commercial Code.
***

The maker of a note or mortgagor who is facing enforcement at law on the note or enforcement in equity on the mortgage has a personal stake in challenging whether a person claiming to be entitled to enforce such a note or a mortgage has been duly transferred or assigned rights under either or both instruments, regardless of whether or not the challenger is in privity with the person claiming the right to enforce.

The Court in George went on to explain that the cases upon which it relied upon in Locke had been clarified, stating:

Locke's holding is based in part on a line of federal court decisions5 that, even since we decided Pasqualone, has been modified by the Sixth Circuit Court of Appeals. In Slorp v. Lerner, Sampson & Rothfuss, 587 Fed.Appx. 249, 254-56 (6th Cir. 2014), the United States Sixth Circuit Court of Appeals held: [Slorp] attributes his injuries to the improper foreclosure litigation. According to the complaint, [defendant] Bank of America (through LSR) filed a foreclosure action against Slorp despite its lack of interest in the mortgage; the defendants misled the trial court by fraudulently misrepresenting Bank of America's interest in the suit; and Slorp incurred damages when he was compelled to defend his interests. If Bank of America had no right to file the foreclosure action, it makes no difference whether Slorp previously had defaulted on his mortgage. * * * [T]he district court erred when it held otherwise. * * * Much of the district court's analysis was taken from Livonia Properties Holdings, LLC v. 12840-12976 Farmington Road Holdings, LLC, [717 F.Supp.2d 724 (E.D.Mich.2010), aff'd, 399 Fed.Appx. 97 (6th Cir.2010)] where we held that a homeowner did not have standing to challenge the validity of a home-loan assignment in an action contesting a foreclosure. 399 Fed.Appx. 97, 102 (6th Cir.2010). We analyze the district court's holding in more detail than might ordinarily be necessary because our Livonia Properties opinion has confounded some courts and litigants, see, e.g., Etts v. Deutsche Bank Nat'l Trust Co., No. 13-11588, 2014 WL 645358, at *4 (E.D.Mich. Feb. 19, 2014) * * *. 5 See, e.g., Livonia Properties Holdings, L.L.C. v. 12840-12976 Farmington Rd. Holdings, L.L.C., 717 F.Supp.2d 724 (E.D.Mich.2010), aff'd, 399 Fed.Appx. 97 (6th Cir.2010). No. 14AP-817 14 The district court held, and the defendants now maintain, that Slorp lacked standing to assert his claims because an individual who is not a party to an assignment may not attack the assignment's validity. We differ with this interpretation of Livonia Properties. The sweeping rule that the district court extrapolated from Livonia Properties dwarfs our actual holding in that case. (Footnote deleted.) On summary judgment or otherwise, it is the movant's burden to establish the chain of transfers and assignments, if it is not the original mortgagee, and this is well-established in the law. Seimer at ¶ 19. That the mortgagor may not be a party or in privity to a party to an assignment contract should not operate to diminish in any way that burden. See Slorp at 255 ("a non-party homeowner may challenge the validity of an assignment to establish the assignee's lack of title, among other defects"). Thus, we clarify governing case law and overrule our previous holding in Locke, fully restoring the burden placed on the person asserting entitlement to enforce the note or mortgage. Accordingly, the maker of the note or mortgage has standing to challenge their enforcement against the maker, even if not a party in privity to the particular transfer or assignment challenged.

If U.S. Bank Natl. Assn. v. George allows the Homeowner to challenge the validity of an assignment then homeowners throughout the State of Ohio should be making this argument.

Anh Nguyet Tran vs. Bank of New York Petition for Writ of Certiorari

An amended complaint asserting a RICO action against REMIC trusts was dismissed on the grounds that Plaintiffs lacked standing to assert the failure to comply with the Trust's pooling and servicing agreement.  The writ asserts that a split exists within the U.S. Circuits on the issue of Plaintiffs' standing.  The Second Circuit held that Plaintiffs lacked standing to challenge the validity of the assignment.  The First Circuit in Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir.2013) held that Plaintiffs have standing to challenge the validity of the assignment.

Both Anh Nguyet Tran and Culhane address the issue of whether Plaintiffs have standing to challenge the validity of an assignment.  However, rather than determining only the threshold issue that Plaintiffs have standing to challenge the validity of the assignment as in Culhane, the Court in Anh Nguyet Tran addressed the merits of the challenge to the validity of the assignment.  In Culhane, the Court determined that if the Plaintiff's challenge was correct the foreclosure would be void.  As such, Culhane found the Plaintiffs had standing, but then determined that the Plaintiffs' challenge to MERS involvement in the transaction did not render the assignment void.  In Anh Nguyet Tran, the Court determined that Plaintiffs' lacked standing to challenge the validity of the assignment based upon the Court's determination of the merits.  In Anh Nguyet Tran, the Court determined that the challenge to the validity of the assignment would not succeed and therefore determined that Plaintiffs lacked standing.

One of the main issues is whether the failure to comply with the Trust's governing documents renders the transaction void or merely voidable.  If the promissory note and mortgage are transferred after the closing date, and in a manner not described by the Pooling and Servicing Agreement, then the terms of the Pooling and Servicing agreement are violated.  The majority of these trusts are governed by New York Law. 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.

The Second Circuit relied upon standard Trust Law and determined that the beneficiaries could ratify invalid acts of the Trustee.  If the invalid acts could be ratified, then these transactions were merely voidable, not void.  A voidable transaction does not give Plaintiff mortgagors standing to challenge the validity of the assignment.

The problem in Anh Nguyet Tran is that the Court addresses the merits of the case upon a motion to dismiss based upon the threshold issue of standing.  There has been no discovery and no argument presented on the issue upon which the Court ultimately determined the case; whether the beneficiaries could ratify the invalid act of the Trustee.  Generally speaking, it is true that beneficiaries can ratify the invalid acts of the Trustee.  However, in mortgage securitization the Courts are dealing with REMIC Trusts, and these Trusts have provisions which prevent the Trustee from taking any action that would render the REMIC election invalid.  The invalid acts of a Trustee of a REMIC Trust cannot be ratified.  As such, these invalid transactions are void not merely voidable.

A similar battle is being fought in Ohio.  Homeowners are prevented from asserting challenges to the validity of the assignment based upon appellate court decisions that rely upon Bank of New York Mellon vs. Unger (Ohio App. 8^th Dist.) 2012-Ohio-1950.  However, the Sixth Circuit has expressly stated that the federal cases relied upon by Unger are too broadly interpreted.  See, Alexander vs. Deutsche Bank National Trust Co. (N.D. Ohio West Dis.) Case No.: 3:12-CV-02704; and Slorp vs. Lerner Sampson & Rothfuss,
587 Fed.Appx. 249.  According to Alexander and Slorp Ohio Homeowners should be able to challenge the validity of assignments if the challenge would result in a void transaction.

CLIENT RECEIVES HELP FROM EXPERT WITNESS

I previously represented a client in a foreclosure case.  The client decided he no longer wanted to contest his foreclosure, and asked me to cease any further efforts.  Recently, the client contacted my office stating that he had a federal criminal matter in which the potential sentence was being greatly increased due to the Lender significantly increasing the amount it allegedly lost on a mortgage it foreclosed upon.  Through Attorney Jeff Barnes' network of attorneys and experts I was able to put my client in contact with Richard Kahn of FPG-USA.  Mr. Kahn worked on my client's report while away from his office on a previously scheduled trip; had the report to my client's criminal defense attorneys, and Mr. Kahn's report made a dramatic change in the outcome of the sentence.
See, the testimonial at the link below.

 http://www.fpg-usa.com

http://www.fpg-usa.com/#!testimonials/c1yws

Evidence of Ratification

The New York law of Trusts states expressly that transactions in violation of the Trust governing documents are void.  Most Courts do not analyze the  the trust documents and simply say that the mortgagor is not a party tovthe PSA and therefore cannot enforce the terms of the PSA.  Those Courts that do lookvfurther into the issue, eventually say that the beneficiaries can ratify the conduct of the Trustee and therefore the failure to comply with yhe PSA renders the transactions merely voidable.  However if one reads the PSA the PSA expressly prohibits the trust from taking any action that would render the trust subject to a tax or invalidate the REMiC.  As such yhe beneficiaries can not ratify these acts or transactions.  In yhe alternative,  shouldn't the Platiff trust be required ro demonstrate thst the beneficiaries actually ratified the act or transaction.

Rolling Stones Article on JPMorgan Chase

http://www.rollingstone.com/politics/news/the-9-billion-witness-20141106 I normally do not repost articles, but the above article gives some in depth information about the information that JPMorgan Chase's management was telling Congress. While the article has little to do with Homeowners Facing Foreclosure, it does demonstrate the depth to which Lenders will go to seek profits. JPMorgan Chase's management was also before a Congressional hearing discussing loan modifications and the moral hazard of principle reductions. First, how "moral" does this guy appear now? Second, the "principle" that would have been reduced is simply recapitalized late fees, interest, legal fees, inspection fees, forced placed insurance fees. Suddenly, the "moral" hazard disappeared when JPMorgan Chase could use these accounting gimmics of "consumer assistance" to obtain huge credits towards the fines that were imposed.

Home Owners Facing Foreclosure do not be discouraged by Bank of America vs. Kuchta

Again I have not read the entire opinion of Bank of America vs. Kuchta. My first blush gut reaction was to be somewhat discouraged, but this decision does not in any way signal the end of Home Owners Facing Foreclosure's ability to defend the action. It should signal thosecin litigation to seek professional assistance early. In many of the recent appellate decisions, the Courts are paying closercattntion to the finer points. Was the affidavit proper? Did the lender comply with the conditions precedent? In addition, I have noticed more Homeowners receiving better loan modifications regardless of the stage of the litigation. In addition, new guidelines regarding the prevention of a sale or proceeding to judgment while a loan modification is pending are being given more weight, at least by the Lenders. TrialmCourts were less almost hostile to a stay as a result of HAMP. The Magistrates would comment that HAMP only had guidelines bug no Federal Regulations. Being able to point to new fede regulations appears to have cauht the attention of the trial courts. do not be discouraged by the Kuchta decision. Yes, the financial industry will not be toppled by the gridlock causedby void foreclosures. Therecwill be no rrevolution. However, courts are beginning tk treat foreclosures as something more than a nuisance clogging the docket. In addition, banks are apparently growing weary of the fight. Banks are more apt to modify a loan than to draw an unreasonable line in the sand.

Ohio Supreme Court Issues Decision in Bank of America vs. Kuchta

I only recently received a copy of the slip opinion in Bank of America vs. Kuchta 2014-OHIO-4275, so I do not intend this to be an in depth analysis of the decision or its ramifications. I am writing to tell all Home Owners Facing Foreclosure that this decision will limit what an attorney can do for you after judgment has been rendered. Prior to the decision there was at least an issue as to whether a motion for relief judgment under Civil Rule 60(B) could be used to argue that the plaintiff lacked standing. In fact, prior to the decision, an argument could be made that a common law motion to vacate a void judgment could be made well after the judgment was rendered. The arguments centered upon whether the lack of standing resulted in a void judgment or merely a voidable judgment. At a glance, the decision appears to render lack of standing to be nothing more than a defense which must be asserted or it is waived. Again, I stated that I had not read the decision, so I do not want to try to analyze it here. However, this should be a WARNING to all Home Owners Facing Foreclosure, if you attempt to defend the foreclosure on your own an attorney attempting to asist you after judgment will be limited. Standing can only be challenged by a direct appeal. On appeal the attorney will be limited to the arguments and the evidence that were before the trial court. While there are still arguments available pursuant to Civil Rule 60(B), standing is no longer one of those arguments. In addition, many homeowners do not seek out an attorney until the Notice of Sheriff's Sale arrives. Plaintiffs are required to provide notice of Sheriff's Sale only a short period of time before the Sheriff's Sale. Plaintiff's have been delaying their request for an order of sale, and as a result, by the time many Home Owners Facing Foreclosure seek out the assistance of an attorney many of the grounds for relief under Civil Rule 60(B) are no longer available. Grounds under Civil Rule 60(B)(1)-(3) must be asserted within a reasonable period of time, and not beyond one year after judgment. As I have consistently stated, Home Owners Facing Foreclosure need to retain counsel early and defend the foreclosure in order to level the playing field in the loan modification process.