MERS and several banks who were sued by New York’s attorney general for allegedly initiating faulty foreclosure actions have struck back in the high-profile litigation by strongly defending their practices and discounting the office’s assertions as factually and legally deficient.
In February, Attorney General Eric Schneiderman sued MERS—Mortgage Electronic Registration Systems—and several major banks and mortgage servicers, including JPMorgan Chase, Bank of America and Wells Fargo. The action contended the defendants’ use of the MERS system resulted “in the filing of improper New York foreclosure proceedings, undermined the integrity of the judicial process, created confusion and uncertainty concerning property ownership interests, and potentially created clouds of title on properties” across the state (NYLJ, Feb. 6).
Defendants fired back on April 20, seeking dismissal of the suit and claiming that their practices—such as having MERS commence a foreclosure or using a private registry to track loan ownership rights—were not deceptive and stressed that the attorney general never pointed to a single case where an action was initiated against a homeowner who was not in default.
Defendants argued the attorney general’s claims fell outside the scope of General Business Law §349(b), the statute outlawing deceptive business practices, and Executive Law §63(12), the law empowering the office to take action against “repeated fraudulent or illegal acts” in business.
Furthermore, the defendants said, the office’s claims were barred by the separation of powers and res judicata doctrines, along with the absolute privilege for statements made in litigation.
“In disregard of settled law, the Attorney General seeks to recast lawful, privileged conduct of a party to litigation, in the course of litigation, as fraudulent and deceptive trade practices,” MERS wrote in People v. JPMorgan Chase, 2768-2012.
MERS and the servicer defendants made many of the same arguments in their respective court papers but joined each other on any arguments not made in their own briefs.
The case has been assigned to Brooklyn Supreme Court Justice David Schmidt (See Profile) and the attorney general’s response is due June 22.
Last month, JPMorgan Chase, Bank of America and Wells Fargo, along with other entities who are not defendants in the state’s suit, reached a settlement with the attorney general’s office in which they agreed to pay a combined $25 million in relation to foreclosure practices. But the agreement preserved the attorney general’s claims for injunctive relief and his effort to recover for damages sustained by New York homeowners in allegedly faulty foreclosures. The banks neither admitted nor denied deceptive practices through their use of MERS. (NYLJ, March 15)
The state’s suit focuses on the use of MERS in foreclosure actions. MERS, created by firms and entities in the real estate mortgage industry, operates a private registry that monitors ownership of mortgage loans and servicing rights.
Acting as the mortgagee of record, the registry allows members to bypass recording fees when mortgages change hands because MERS remains the mortgagee of record.
MERS has filed more than 13,000 foreclosures against New York homeowners, naming itself as the foreclosing party, though the company stopped the practice last summer.
The company appoints certifying officers among the employees of its member companies to execute paperwork for foreclosures and mortgage assignments, among other tasks.
The attorney general’s suit contends that MERS lacked standing to bring many foreclosure actions because it did not have the promissory note.
The suit claims that MERS’ own rules required the note to be endorsed and held by a certifying officer, but that those rules were not followed.
MERS in its court filings countered that the attorney general could not point to one example of a foreclosure action initiated by MERS where it did not have standing to sue. The defendants said that even in “some unspecified instances” where MERS was not the note-holder when it started the foreclosure, it was “at a minimum, an authorized agent of the holder and had the authority to foreclose.”
The attorney general took aim at MERS mortgage assignments to the foreclosing party that it claimed had “numerous defects, including affirmative misrepresentations of fact, which render them false, deceptive, and/or invalid.”
The lawsuit claims mortgage assignments and requisite affidavits of merit were submitted to courts without review for accuracy and notarized outside the presence of a notary. MERS certifying officers also “repeatedly” executed retroactive mortgage assignments filed after the foreclosure commenced, the suit said.
“The Attorney General alleges no authority for the proposition that a mortgage assignment must conform to any of these requirements, and there is none,” MERS replied, adding that the attorney general did not plead facts that the claimed robosigning was unlawful or fraudulent.
The attorney general contended that through its private database tracking ownership interests, MERS “effectively eliminated the homeowner’s and the public ability to track property interest transfers through the traditional public records system.”
But the defendants stress in their response that the purpose of the state recording law was to protect purchasers by revealing prior encumbrances.
“To the extent that the Attorney General’s claim is premised on the need for transparency with respect to the ownership of a note, the land records do not provide (and have never provided) information to a borrower (or anyone else) regarding the holder of the note. A note does not represent an interest in real property—rather, it evidences debt that may be secured by a mortgage—and therefore does not fall within the scope of the Recording Act at all,” the servicer defendants wrote.
MERS is represented by partners Joanna Hendon and Robert Brochin of Morgan, Lewis & Bockius, along with associates David Snider and Benjamin Weinberg.
Debevoise & Plimpton partners Andrew Ceresney, Mary Beth Hogan and associate Philip Fortino appeared for JPMorgan Chase.
Hogan Lovells partners David Dunn and Ira Feinberg are counsel to Wells Fargo.
Bank of America is represented by partners Richard Strassberg and Joseph Yenouskas, and associate Maryana Zubok, of Goodwin Procter.
A MERS spokesman and a Wells Fargo spokeswoman declined to comment.
JP Morgan Chase and Bank of America did not immediately respond to a request for comment.
An spokesman for the attorney general said the office is reviewing the briefs, but declined to comment further.
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