Commonwealth Property Advocates, LLC v. Mortgage Electronic Registration Systems, Inc.

Summarized by Brandon Bickle , Gable & Gotwals, PC
14 years 2 months ago

Citation:

Case Nos. 10-4182, 10-4193, 10-4215

Tag(s):

Ruling:

The District Court orders granting the Defendants' 12(b)(6) motions were affirmed. Initially, the 10th Circuit address two procedural arguments raised by the Defendants. In one of the cases, the Defendants claimed the appeal was based on Fed. R. Civ. P. 60, because the order Plaintiff appealed was one denying a request for reconsideration of the dismissal, which would have prevented the Court from considering the merits of the dismissal. The Court determined that the Plaintiff's motion was a timely motion under Rule 59(e), rather than Rule 60, which permitted the Court to reach the merits of the district court's dismissal. Second, the Defendants challenged the Plaintiff's standing to sue, claiming that the Plaintiff, who was not a contracting party under the loan documents in question, was seeking to enforce the rights of the borrower. The Court determined that the Plaintiff had standing to sue on the basis that the Plaintiff owned the real property that was the subject of the allegedly unauthorized foreclosure, and thus was threatened by a direct injury resulting from the foreclosure. On the merits, the Court viewed the appeal as involving only one substantive legal issue: whether "securitization of a note renders the holder of the underlying trust deed and its nominees unable to foreclose absent authorization by every investor holding an interest in the securitized note." The Court construed the cause of action as "an action for wrongful foreclosure," and ruled against the Plaintiff, affirming the dismissals. The deeds of trust at issue expressly gave MERS the authority to foreclose on behalf of the original lender and its successors, and two recent decisions from the Utah Court of Appeals confirmed that such express authority is enforceable under Utah law. In other words, the "further agreement" the Plaintiff claimed was lacking did exist - as an express term in the deeds of trust.

Procedural context:

Consolidated appeal of orders granting motions to dismiss in favor of Defendants in three separate U.S. District Court (Utah) cases. Plaintiff sued in federal court on the basis of diversity. Plaintiff's claims were based on Utah state law.

Facts:

In each of the three cases under review, a borrower obtained a loan from a bank, secured by real property in Utah. In each case, MERS (Mortgage Electronic Registration Systems) was named as a beneficiary and "nominee" for the lender, to hold legal title to the security interest so that that the notes could be easily securitized (pooled and sold to investors on the open market). In two of the cases, a substitute trustee was later named. In each case, the borrower defaulted on the loan, and subsequently transferred its interest in the propery to a third party - the Plaintiff. In each case, the Plaintiff alleged similar (to some extent, incomprehensible) "causes of action" (which, as the Court noted, were really forms of relief) seeking, in essence, to prevent the Defendants from asserting rights under the note and/or security instruments due to the "split" (or separate ownership) of the note and mortgage. Because each of the Defendants seeking to foreclose did not "own" the note corresponding to its deed of trust, Plaintiff claimed, under various theories (most of which were not properly preserved on appeal), that Utah law rendered the mortgages unenforceable and the real property unsecured, absent some "further agreement with the new owner of the debt" (which, in this case, would have been investors who purchased interests in the securitized debt). The District Court granted motions to dismiss filed by the Defendants in all three cases, on the basis that the Plaintiff had failed to state a claim upon which relief could be granted. Fed. R. Civ. P. 12(b)(6). The Plaintiff appealed.

Judge(s):

Before Lucero, Baldock, and Hartz, Circuit Judges

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