“Furthermore, CitiMortgage may not rely on the recorded assignment of the plaintiff’s
mortgage from MERS to CitiMortgage as evidence that the note was transferred to it.  While the
assignment purports to assign both the mortgage and the note, MERS, which is a registry system
that tracks the beneficial ownership and servicing of mortgages, was never the holder of the note,
and therefore lacked the right to assign it.   While MERS was the mortgagee of record, it was
acting only as nominee for Allied, its successors and assigns.  MERS is never the owner of the
obligation secured by the mortgage for which it is the mortgagee of record.”

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In re: KATHLEEN THOMAS | More Mortgage Morass for MERS

But wait, there’s more. Looks like more trouble in paradise…

From the Memorandum…

Entered 02/09/11

In re:  

KATHLEEN THOMAS

Debtor.

KATHLEEN THOMAS,
Plaintiff  

v.

CITIMORTGAGE, INC., FLAGSTAR
BANK, FSB and ALLIED HOME
MORTGAGE CAPITAL CORPORATION,
Defendants.

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MEMORANDUM OF DECISION ON THE MOTION TO COMPEL ARBITRATION OF
ALLIED HOME MORTGAGE CAPITAL CORPORATION, THE MOTION TO
DISMISS OF FLAGSTAR BANK, FSB AND THE MOTION FOR JUDGMENT ON THE
PLEADINGS OF FLAGSTAR BANK, FSB AND CITIMORTGAGE, INC.

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Before me is a motion of defendant Allied Home Mortgage Capital Corporation (“Allied”)  to compel arbitration, a motion of defendant Flagstar Bank, FSB (“Flagstar”) to dismiss this  adversary proceeding pursuant to Fed. R. Civ. P. 12(b)(6), made applicable to this proceeding by  Fed. R. Bankr. P 7012 and a motion of Flagstar and CitiMortgage, Inc. (“CitiMortgage”) for  judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c), made applicable by Fed. R. Bankr. P.  7012.  Because the motions involve the same facts and underlying transaction, I will address them together.

Mortgage Electronic Registration Systems, Inc. (“MERS”), acting solely as a nominee for Allied and its successors and assigns, was named as mortgagee.  The note was subsequently indorsed to defendant Flagstar.  Flagstar and CitiMortgage claim that Flagstar indorsed the note in blank by way of an allonge and sold the plaintiff’s loan to CitiMortgage.  CitiMortgage attached a copy of the note to its motion for judgment on the pleadings to support this claim.

The last page of the note is blank except for the following legend:

PAY TO THE ORDER OF
WITHOUT RECOURSE
FLAGSTAR BANK, FSB

There are two entirely illegible signatures under this legend.  On August 3, 2009, MERS executed an instrument entitled “Assignment of Mortgage” which purported, inter alia, to assign to CitiMortgage the “mortgage and the note and claim secured thereby.”

Allied’s Motion to Compel Arbitration

Allied argues that the arbitration agreement of April 20, 2006 obligates the plaintiff to submit her claims against Allied to binding arbitration and, therefore, seeks dismissal and an order compelling arbitration.

The agreement is signed by the plaintiff only and not by Allied.

The second paragraph of the agreement states that “[t]his Agreement is effective and binding on both you and your heirs, successors and assigns and us when it is signed by both parties.”

While the law in Massachusetts may permit the enforcement of an arbitration agreement that is not signed by both parties, such would not be the case when the express language of the
agreement requires the signature of both parties.

Because Allied did not sign the agreement, it never became binding on the parties and is unenforceable.

Flagstar’s Motion to Dismiss

In its motion, Flagstar seeks dismissal of Count I (violation of Chapter 183C) and Count II (determination of extent of mortgage lien due to Chapter 183C violation) of the plaintiff’s complaint on the grounds that Chapter 183C is preempted by federal law because Flagstar is a federal savings bank.

It is clear, therefore, that federal thrifts are not subject to Chapter 183C with respect to loans they originate.   The calculus changes, however, when a federal thrift does not originate a loan but merely acquires it from a non-federal thrift lender.  If a non-federal thrift lender could “cleanse” a predatory loan by selling it to a federal thrift, a vital component of many states’ consumer protection regimes would be undermined.

So if Flagstar were the originator of the plaintiff’s loan, then federal preemption would dispossess the plaintiff from her Chapter 183C claims against it, but if Flagstar were an assignee who purchased the loan, then the plaintiff’s state law claims against Flagstar survive preemption.

Therefore, Chapter 183C is not preempted with respect to this transaction and I must deny Flagstar’s motion to dismiss Counts I and II of the complaint.

CitiMortgage and Flagstar’s Motion for Judgment on the Pleadings

Chapter 183C, §§ 2 and 3 categorize certain consumer home mortgage loans as high cost home mortgage loans (“high cost loans”) and render them unenforceable unless an approved housing agency certifies to the lender or broker that the borrower received pre-closing counseling on the advisability of the transaction.  The plaintiff alleges that her loan is unenforceable because it is a high cost loan made in the absence of the required counseling.

The plaintiff argues that her mortgage loan meets the definition of a high cost loan because the “points and fees” associated with the loan,as defined by Chapter 183C, § 2, net of up to two bona fide discount points, exceeded five percent of the total loan amount.  To support this allegation, the plaintiff included in her complaint a list of charges from the loan settlement statement that she argues qualify as points and fees.  The total of these charges is $10,446.44, which exceeds five percent of the $153,000 loan.  CitiMortgage and Flagstar argue that many of these charges do not qualify as points and fees, and the ones that do total significantly less than $7650, which is five percent of the loan amount.

The sum of the loan discount charge, the attorney’s fees and lien certificate recording fee is $2780.22.  Adding this to the undisputed charges of $4879 brings the total points and fees to $7659.22, which is more than five percent of the total loan amount.

The plaintiff has stated a prima facie claim that her loan is a high cost loan made in violation of Chapter 183C, and, therefore, I must deny the motion for judgment on the pleadings with respect to Counts I and II of the complaint.

Count III of the Complaint

In Count III of the complaint, the plaintiff alleges that her promissory note payable to Allied was never properly transferred to CitiMortgage, and as a result, CitiMortgage has no valid secured claim against her bankruptcy estate.  The allegation is based on the fact that the copy of the note attached to CitiMortgage’s motion for relief from stay in the main bankruptcy case includes no indorsement transferring the note CitiMortgage.  CitiMortgage attached a different version of the note to its motion for judgment on the pleadings, which includes an additional page containing the “pay to the order” language quoted at the outset of this memorandum.  CitiMortgage and Flagstar claim that the last page is an “allonge” by which Flagstar indorsed the note in blank and then transferred the note to CitiMortgage, giving CitiMortgage the right to enforce it.  The Plaintiff argues that the existence of this second copy of the note raises thequestion as to whether the allonge effectively transferred Flagstar’s rights in the note to CitiMortgage.

Given that CitiMortgage has produced two different copies of the note—one with and one without the purported allonge—the plaintiff argues that there is a question of fact as to whether the allonge is affixed to the note, and therefore whether CitiMortgage has a valid claim in her bankruptcy case.   Even if it is not the “holder” of the note, however, CitiMortgage may be entitled to enforce the note.  UCC § 3-203(2) provides that the transfer of a negotiable instrument, “whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument.”  The official commentary to this section explains that while the transferee of an instrument may enforce the instrument without being its holder, the transferee, unlike a holder, is not entitled to the presumption of the right of enforcement, and must prove the transaction through which the instrument was acquired.  UCC § 3-203, § 2, cmt. 1 (1999).

In its answer, CitiMortgage asserts that it has physical possession of the note indorsed in blank by Flagstar.  If the allonge is not effective because it was not affixed to the note, CitiMortgage must then prove the transaction through which it acquired the note from Flagstar.  It did not plead any facts about this transaction in its answer, however.  With no allegation in the pleadings to support how CitiMortgage acquired the note, I must rely on the plaintiff’s well-pleaded allegations that the note was not properly transferred to CitiMortgage.

Furthermore, CitiMortgage may not rely on the recorded assignment of the plaintiff’s mortgage from MERS to CitiMortgage as evidence that the note was transferred to it.  While the assignment purports to assign both the mortgage and the note, MERS, which is a registry system that tracks the beneficial ownership and servicing of mortgages, was never the holder of the note, and therefore lacked the right to assign it.   While MERS was the mortgagee of record, it was acting only as nominee for Allied, its successors and assigns.  MERS is never the owner of the obligation secured by the mortgage for which it is the mortgagee of record.   See, e.g., Landmark Nat. Bank v. Kesler, 289 Kan. 528, 536, 216 P.3d 158, 164 (2009) (providing a profile of MERS).  The plaintiff’s claim that CitiMortgage lacks a valid secured claim, therefore, survives the motion for judgment on the pleadings.

All case files below…

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4closureFraud.org

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In Re Thomas MA BK Court

In RE Thomas Supplemental Memo of Plaintiff

In Re Thomas Supplemental Memorandum of Defendant

In Re Thomas Memorandum for SJ of CitiMortgage

In RE Thomas Allied Memo and Arbitration

In Re Thomas Affidavit of Flagstar and Table Funding and Allied Mortgage

In RE Thomas Scott Scheiner Citimortgage Assignment