Failure to Follow PSA may defeat Bank's Standing
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. 8th 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, approves of this defense. As does Culhane, V. Aurora Loan Services of Nebraska, (C.A. 1st Cir., 2013), 708 F.3d 282.
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).
Other Courts are starting to agree with the concept.
Alexander vs. Deutsche Bank National Trust Co.(N.D. Ohio West Dis.)
Case No.: 3:12-CV-02704;
BAC Home Loan Serv. v. McFerren(Ohio App. 9th Dist.), 2013-Ohio-3228;
Wells Fargo Bank, N.A. v. Erobobo, et al., 2013 WL 1831799
(N.Y. Sup. Ct. April 29, 2013); and
In Re Saldivar (June 5, 2013), United States District Court,
Southern District of Texas, case No. 11-10689.
The United States District Court, Bankruptcy Court for the Northern District of Ohio, decision in Alexander vs. Deutsche Bank National Trust Co.(N.D. Ohio West Dis.) Case No.: 3:12-CV-02704, stated:
A number of Ohio appellate courts have applied the general principal that a debtor may not
challenge an assignment between an assignor and an assignee and concluded that, under Ohio law, a mortgagor does not have standing to challenge an assignment of a mortgage.
The Alexander Court then discusses the cases typically relied upon to challenge the Homeowners ability to raise the failure to comply with the PSA: Bank of New York Mellon Trust Co. v. Unger; LSF6 Mercury REO Invests. Trust Series 2008-1 v. Locke; and Deutsche Bank Nat’l Trust Co. v. Rudolph. These cases are then discussed in light of Fed. Home Loan Mortg. Corp. v. Schwartzwald.
“ It does not follow, however, that Alexander is wholly barred from challenging the assignment. The Supreme Court of Ohio acknowledged the general principle “that standing is a ‘jurisdictional requirement’" that, if not present, subjects the complaint to dismissal. Schwartzwald, 979 N.E.2d at 1219. The court also stated “[w]here [a] party does not rely on any specific statute authorizing invocation of the judicial process, the question of standing depends on whether the party has alleged . . . a ‘personal stake in the outcome of the controversy.’" Id. (quoting Cleveland v. Shaker Heights, 507 N.E.2d 323, 325 (Ohio 1987)). As the Sixth Circuit has noted, “[a]n obligor ‘may assert as a defense any matter which renders the assignment absolutely invalid or ineffective, or void.’ . . . Obligors have standing to raise these claims because they cannot otherwise protect themselves from having to pay the same debt twice." LivoniaProp. Holdings, L.L.C. v. 12840-12976 Farmington Road Holdings, L.L.C., 399 F. App’x 97, 102 (6th Cir. 2010) (citing 6A C.J.S. Assignments§ 132 (2010)).
BAC Home Loan Serv. v. McFerren(Ohio App. 9th Dist.), 2013-Ohio-3228. While the McFerren Court did not address the issue, at footnote 4, the Court stated:
We note that it is unclear why a foreclosure defendant would lack “standing" to raise issues concerning the legal effect of prior assignments or other transactions in defending the foreclosure action. In that context, the defendant may raise legally relevant defenses as such would relate to the character of the obligation (i.e. secured or not secured) and to whom the obligation is actually owed (in cases of multiple assignments, to avoid the risk that multiple parties claim the right to collect). Bank of America relies upon LivoniaProps. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings, LLC, 399 Fed.Appx. 97 (6th Cir.2010), and Bridge v. Aames Capital Corp., N.D.Ohio No. 1:09 CV 2947, 2010 WL 3834059 (Sept. 29, 2010), in support. However, the procedural posture and substantive issues addressed in those cases are distinct from the instant matter and those cases do not stand for the blanket proposition that in all contexts an obligor may not raise defenses concerning the assignment of the obligation. Bridge is readily distinguishable because the mortgagor was a plaintiff seeking a declaratory judgment and the court addressed standing in the context of Ohio’s declaratory judgment statute. Livonia addressed the question of the meaning of “record chain of title" under Michigan’s foreclosure by advertisement statute. See id. at 99.
Both Wells Fargo Bank, N.A. v. Erobobo, et al., 2013 WL 1831799 (N.Y. Sup. Ct. April 29, 2013); and In Re Saldivar (June 5, 2013), United States District Court, Southern District of Texas, case No. 11-10689, find that the failure to comply with the Pooling and Servicing Agreement results in the transactions being void.
Hopefully, the above information will be helpful. Should any Homeowner or Attorney representing Homeowners need additional assistance, please contact my office.