Saturday, May 29, 2010

Tracking Loans Through a Firm

That Holds Millions: MERS

May 29, 2010 at 11:30 pm

Kevin P. Casey for The New York Times: Darlene and Robert Blendheim of Seattle are struggling to keep their home after their subprime lender went out of business.

Published: April 23, 2009

Judge Walt Logan had seen enough. As a county judge in Florida, he had 28 cases pending in which an entity called MERS wanted to foreclose on homeowners even though it had never lent them any money.

GraphicInto the Mortgage Netherworld

MERS, a tiny data-management company, claimed the right to foreclose, but would not explain how it came to possess the mortgage notes originally issued by banks. Judge Logan summoned a MERS lawyer to the Pinellas County courthouse and insisted that that fundamental question be answered before he permitted the drastic step of seizing someone’s home.

Daniel Rosenbaum for The New York Times R. K. Arnold, MERS president, said the company helped reduce mortgage fraud and imposed order on the industry.

“You don’t think that’s reasonable?” the judge asked.

“I don’t,” the lawyer replied. “And in fact, not only do I think it’s not reasonable, often that’s going to be impossible.”

Judge Logan had entered the murky realm of MERS. Although the average person has never heard of it, MERS — short for Mortgage Electronic Registration Systems — holds 60 million mortgages on American homes, through a legal maneuver that has saved banks more than $1 billion over the last decade but made life maddeningly difficult for some troubled homeowners.

Created by lenders seeking to save millions of dollars on paperwork and public recording fees every time a loan changes hands, MERS is a confidential computer registry for trading mortgage loans. From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.

If MERS began as a convenience, it has, in effect, become a corporate cloak: no matter how many times a mortgage is bundled, sliced up or resold, the public record often begins and ends with MERS. In the last few years, banks have initiated tens of thousands of foreclosures in the name of MERS — about 13,000 in the New York region alone since 2005 — confounding homeowners seeking relief directly from lenders and judges trying to help borrowers untangle loan ownership. What is more, the way MERS obscures loan ownership makes it difficult for communities to identify predatory lenders whose practices led to the high foreclosure rates that have blighted some neighborhoods.

In Brooklyn, an elderly homeowner pursuing fraud claims had to go to court to learn the identity of the bank holding his mortgage note, which was concealed in the MERS system. In distressed neighborhoods of Atlanta, where MERS appeared as the most frequent filer of foreclosures, advocates wanting to engage lenders “face a challenge even finding someone with whom to begin the conversation,” according to a report by NeighborWorks America, a community development group.

To a number of critics, MERS has served to cushion banks from the fallout of their reckless lending practices.

“I’m convinced that part of the scheme here is to exhaust the resources of consumers and their advocates,” said Marie McDonnell, a mortgage analyst in Orleans, Mass., who is a consultant for lawyers suing lenders. “This system removes transparency over what’s happening to these mortgage obligations and sows confusion, which can only benefit the banks.”

A recent visitor to the MERS offices in Reston, Va., found the receptionist answering a telephone call from a befuddled borrower: “I’m sorry, ma’am, we can’t help you with your loan.” MERS officials say they frequently get such calls, and they offer a phone line and Web page where homeowners can look up the actual servicer of their mortgage.

In an interview, the president of MERS, R. K. Arnold, said that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies it brought to the mortgage trade. He said that far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”About 3,000 financial services firms pay annual fees for access to MERS, which has 44 employees and is owned by two dozen of the nation’s largest lenders, including Citigroup, JPMorgan Chase and Wells Fargo. It was the brainchild of the Mortgage Bankers Association, along with Fannie Mae, Freddie Mac and Ginnie Mae, the mortgage finance giants, who produced a white paper in 1993 on the need to modernize the trading of mortgages.

At the time, the secondary market was gaining momentum, and Wall Street banks and institutional investors were making millions of dollars from the creative bundling and reselling of loans. But unlike common stocks, whose ownership has traditionally been hidden, mortgage-backed securities are based on loans whose details were long available in public land records kept by county clerks, who collect fees for each filing. The “tyranny of these forms,” the white paper said, was costing the industry $164 million a year.

“Before MERS,” said John A. Courson, president of the Mortgage Bankers Association, “the problem was that every time those documents or a file changed hands, you had to file a paper assignment, and that becomes terribly debilitating.”

Although several courts have raised questions over the years about the secrecy afforded mortgage owners by MERS, the legality has ultimately been upheld. The issue has surfaced again because so many homeowners facing foreclosure are dealing with MERS.

Advocates for borrowers complain that the system’s secrecy makes it impossible to seek help from the unidentified investors who own their loans. Avi Shenkar, whose company, the GMA Modification Corporation in North Miami Beach, Fla., helps homeowners renegotiate mortgages, said loan servicers frequently argued that “investor guidelines” prevented them from modifying loan terms.

“But when you ask what those guidelines are, or who the investor is so you can talk to them directly, you can’t find out,” he said.

MERS has considered making information about secondary ownership of mortgages available to borrowers, Mr. Arnold said, but he expressed doubts that it would be useful. Banks appoint a servicer to manage individual mortgages so “investors are not in the business of dealing with borrowers,” he said. “It seems like anything that bypasses the servicer is counterproductive,” he added.

When foreclosures do occur, MERS becomes responsible for initiating them as the mortgage holder of record. But because MERS occupies that role in name only, the bank actually servicing the loan deputizes its employees to act for MERS and has its lawyers file foreclosures in the name of MERS.

The potential for confusion is multiplied when the high-tech MERS system collides with the paper-driven foreclosure process. Banks using MERS to consummate mortgage trades with “electronic handshakes” must later prove their legal standing to foreclose. But without the chain of title that MERS removed from the public record, banks sometimes recreate paper assignments long after the fact or try to replace mortgage notes lost in the securitization process.

This maneuvering has been attacked by judges, who say it reflects a cavalier attitude toward legal safeguards for property owners, and exploited by borrowers hoping to delay foreclosure. Judge Logan in Florida, among the first to raise questions about the role of MERS, stopped accepting MERS foreclosures in 2005 after his colloquy with the company lawyer. MERS appealed and won two years later, although it has asked banks not to foreclose in its name in Florida because of lingering concerns.

Last February, a State Supreme Court justice in Brooklyn, Arthur M. Schack, rejected a foreclosure based on a document in which a Bank of New York executive identified herself as a vice president of MERS. Calling her “a milliner’s delight by virtue of the number of hats she wears,” Judge Schack wondered if the banker was “engaged in a subterfuge.”

In Seattle, Ms. McDonnell has raised similar questions about bankers with dual identities and sloppily prepared documents, helping to delay foreclosure on the home of Darlene and Robert Blendheim, whose subprime lender went out of business and left a confusing paper trail.

“I had never heard of MERS until this happened,” Mrs. Blendheim said. “It became an issue with us, because the bank didn’t have the paperwork to prove they owned the mortgage and basically recreated what they needed.”

The avalanche of foreclosures — three million last year, up 81 percent from 2007 — has also caused unforeseen problems for the people who run MERS, who take obvious pride in their unheralded role as a fulcrum of the American mortgage industry.

In Delaware, MERS is facing a class-action lawsuit by homeowners who contend it should be held accountable for fraudulent fees charged by banks that foreclose in MERS’s name.

Sometimes, banks have held title to foreclosed homes in the name of MERS, rather than their own. When local officials call and complain about vacant properties falling into disrepair, MERS tries to track down the lender for them, and has also created a registry to locate property managers responsible for foreclosed homes.

“But at the end of the day,” said Mr. Arnold, president of MERS, “if that lawn is not getting mowed and we cannot find the party who’s responsible for that, I have to get out there and mow that lawn."


Wells Fargo Wrongful Foreclosures Community
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Citigroup Over Wells Fargo? Every Day of The Week. But then I just think Wells Fargo Stinks. Smells Fargo.

By Dan Freed 05/28/10 - 04:22 PM EDT

4 CommentsLoading Comments...

Add CommentStock quotes in this article: WFC , C , BAC , JPM NEW YORK (TheStreet) -- It was a good week for Citigroup(C) and a bad one for Wells Fargo(WFC) even though not much has changed for either bank.

Citigroup shares gained 5.59% on the week to close at $3.96, while Wells Fargo shares lost 4.71% to finish on Friday at $28.69. Bank of America(BAC) and JPMorgan Chase(JPM), meanwhile, were both down just over 1% on the week.

The initial catalyst was clearly a Goldman Sachs report released before the market opened Monday. Goldman raised Citigroup to buy from neutral, while dropping Wells to neutral from buy.

"There is ultimately a lot of earnings power that can drive the shares higher in the near term," Goldman's analysts wrote of Wells Fargo, "that said, we see more relative value in Bank of America, JPMorgan Chase and Citigroup, and there are near-term risks, including the over-earning of the mortgage servicing business (most pronounced at Wells) and above-peer [non-performing asset] growth."

That hardly sounds like a slam of Wells. What's more, mortgage servicing ought to "over-earn" for some time, as lenders will likely struggle to collect on mortgage payments for quite a while. When that slows down, it will mean the economy is healing, which means other Wells Fargo businesses will benefit.

As for non-performing assets, that likely refers to bad loans left over from Wells Fargo's acquisition of Wachovia. Wells is a management team that knows what it's doing, and will do a better job at addressing those loans than most banks would.

When the Goldman analysts held a conference call with investors on Monday to discuss their outlook for financials, they were asked about the Wells downgrade and sounded even less negative on Wells than they did in their report.

More on Citi

Jim Cramer: Thoughts on Citi

"The main reason for the downgrade was to make room for the upgrade of Citigroup," said Goldman's Richard Ramsden.

Citigroup also benefitted from the U.S. Treasury selling part of its stake and from the disclosure by hedge fund wizard Bill Ackman that he bought 150,000 shares. Even analyst Christopher Whalen of Institutional Risk Analytics, a longtime Citigroup critic, has found some nice words to say about the bank , though he seems to give most of the credit for Citigroup's turnaround to Treasury Secretary Tim Geithner.

Even after this week's action, there is undoubtedly more juice in Citigroup than Wells Fargo if we have a strong recovery. If the economy struggles, however, Wells Fargo's management team is probably a better bet to steer its company through the storm.

-- Written by Dan Freed in New York.

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In re: MARY BRIGID, Chapter 7, Debtor.

MARY ANN RABIN, Plaintiff,


MARY BRIGID, et al., Defendants.

Case No. 08-18750.

Adversary Proceeding No. 09-1062.

United States Bankruptcy Court, N.D. Ohio.

May 21, 2010.


ARTHUR I. HARRIS, Bankruptcy Judge

This matter is currently before the Court on the cross-motions for summary judgment of the plaintiff-trustee, Mary Ann Rabin, and defendant RBC Mortgage Company. At issue is whether the trustee is entitled to avoid a mortgage because the notary's certificate of acknowledgment failed to recite the name of the party whose signature was acknowledged, notwithstanding a postpetition attempt to correct this omission. For the reasons that follow, the Court holds that the mortgage was not executed in accordance with Ohio's statutory requirements and can be avoided by the trustee as it relates to the undivided half interest of the debtor Mary Brigid. Accordingly, the trustee's motion for summary judgment is granted, and RBC Mortgage's motion for summary judgment is denied.


Unless otherwise indicated, the following facts are not in dispute. The debtor Mary Brigid and non-debtor Susan Radbourne are joint owners of the real property located at 3000 Yorkshire Road, Cleveland Heights Ohio, 44118. The deed was recorded on September 10, 1999, and provides "Mary Brigid, unmarried and Susan M. Radbourne, unmarried remainder to the survivor of them." On July 9, 2003, RBC Mortgage extended a loan to Radbourne. The loan was secured by a mortgage of the real property, which was recorded in the Cuyahoga County Recorder's office, Instrument No. 20030110552 on July 11, 2003.

Page 26 of the mortgage (Docket # 38 Ex. D ) provides in pertinent part:

BY SIGNING BELOW, Borrower accepts and agrees to the terms and

covenants contained in this Security Instrument and in any riders
executed by Borrower and recorded with it.


X/s/ Brent A. White /s/ Susan M. Radbourne

Brent A. White Susan M. Radbourne — Borrower

/s/ Mary Brigid

— Borrower


COUNTY OF Cuyahoga

On this 9 day of July 2003 , before me, a Notary Public in and for

said County and State, personally appeared

Susan M. Radbourne



the individual(s) who executed the foregoing instrument and

acknowledged that he/she/they did examine and read the same and

did sign the foregoing instrument, and that the same is

his/her/their free act and deed.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

/s/ Brent A. White

Notary Public


* * *

On November 7, 2008, the debtor filed a petition under Chapter 7 of the Bankruptcy Code (case # 08-18750). On February 5, 2009, the trustee of the Chapter 7 estate initiated this adversary proceeding seeking to avoid the mortgage of RBC Mortgage as it relates to the debtor's half interest pursuant to section 544 of the Bankruptcy Code and to determine the interests of all parties in the property.

The complaint named as defendants Mary Brigid, Susan Radbourne, Mortgage Electronic Registration System, RBC Mortgage Company, Chase Home Finance, Huntington National Bank, the Cuyahoga County Treasurer, and the City of Cleveland Heights. The treasurer, City of Cleveland Heights, Mary Brigid, Susan Radbourne, and RBC Mortgage filed answers to the complaint. In its answer, the City of Cleveland Heights asserted a judgment lien in the amount of $1,316.80 at the rate of 5% interest from February 26, 2009, No. JL06258471. Radbourne asserted an undivided half interest in the property in question. She also brought a cross-claim for negligence against RBC Mortgage and requested a reservation of her right to purchase the real estate pursuant to Section 363(i). In its answer, RBC Mortgage asserted that the debtor held only bare legal title and that the trustee had constructive notice.

On June 4, 2009, all parties stipulated that the Cuyahoga County Treasurer has the first and best lien on the subject property for taxes and assessments. On December 27, 2009, the debtor's deposition was taken, at which the debtor acknowledged signing the mortgage outlined above. On January 13, 2010, attorney David A. Freeburg filed an affidavit of facts regarding the acknowledgment of the mortgage by Mary Brigid. On January 14, 2010, the trustee filed a motion for summary judgment seeking to avoid the mortgage held by RBC Mortgage. On January 21, 2010, RBC Mortgage filed a cross-motion for summary judgment and a response. Briefing on the cross-motions for summary judgment is complete, and the Court is ready to rule.


Determinations of the validity, extent, or priority of liens are core proceedings under 28 U.S.C. section 157(b)(2)(K). The Court has jurisdiction over core proceedings under 28 U.S.C. sections 1334 and 157(a) and Local General Order No. 84, entered on July 16, 1984, by the United States District Court for the Northern District of Ohio.


Federal Rule of Civil Procedure 56(c), as made applicable to bankruptcy proceedings by Bankruptcy Rule 7056, provides that a court shall render summary judgment, if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.

The moving party bears the burden of showing that "there is no genuine issue as to any material fact and that [the moving party] is entitled to judgment as a matter of law." Jones v. Union County, 296 F.3d 417, 423 (6th Cir. 2002). See generally Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party meets that burden, the nonmoving party "must identify specific facts supported by affidavits, or by depositions, answers to interrogatories, and admissions on file that show there is a genuine issue for trial." Hall v. Tollett, 128 F.3d 418, 422 (6th Cir. 1997). See, e.g., Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986) ("The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff."). The Court shall view all evidence in a light most favorable to the nonmoving party when determining the existence or nonexistence of a material fact. See Tenn. Dep't of Mental Health & Mental Retardation v. Paul B., 88 F.3d 1466, 1472 (6th Cir. 1996).


Under the "strong arm" clause of the Bankruptcy Code, the bankruptcy trustee has the power to avoid transfers that would be avoidable by certain hypothetical parties. See 11 U.S.C. § 544(a). Section 544 provides in pertinent part:

(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by —

Page 7

. . . .

(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.

11 U.S.C. §544. Any transfer under section 544 is preserved for the benefit of the estate. See 11 U.S.C. § 551.

The mortgage provides that federal law and the law of the jurisdiction in which the property is located will control. Because the real property in question is located in Ohio, the Court will apply Ohio law to determine whether the trustee can avoid the mortgages using the "strong arm" clause. See Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 1020, 1024 (6th Cir. 2001) (applicable state law governs determination whether hypothetical bona fide purchaser can avoid mortgage).

Under Ohio law, a bona fide purchaser is a purchaser who "`takes in good faith, for value, and without actual or constructive knowledge of any defect.'" Stubbins v. Am. Gen. Fin. Serv., Inc. (In re Easter), 367 B.R. 608, 612 (Bankr. S.D. Ohio 2007), quoting Terlecky v. Beneficial Ohio, Inc. (In re Key), 292 B.R. 879, 883 (Bankr. S.D. Ohio 2003); see also Shaker Corlett Land Co. v. Cleveland, 139 Ohio St. 536 (1942). The Bankruptcy

Code expressly provides that a bankruptcy trustee is a bona fide purchaser regardless of actual knowledge. See In re Zaptocky, 25,0 F.3d at 1027 ("actual knowledge does not undermine [trustee's] right to avoid a prior defectively executed mortgage."). Because actual knowledge does not affect the trustee's strong-arm power, the Court need only determine whether the trustee had constructive knowledge of the prior interests held by the defendant RBC Mortgage.

Ohio law provides that "an improperly executed mortgage does not put a subsequent bona fide purchaser on constructive notice." Zaptocky, 250 F.3d at 1028. Ohio courts have refused to allow a recorded mortgage to give constructive notice when the mortgage has been executed in violation of a statute. See In re Nowak, 10,4 Ohio St. 3d 466 (2004) (listing cases). The first question, then, is whether the mortgage was executed in compliance with, or substantially conforms to applicable statutory law. A second question, if the mortgage was not executed in compliance, is whether the December 27, 2009, acknowledgment by Mary Brigid and the January 13, 2010, affidavit filed by attorney Freeburg corrected the defect. A third question, if the lien remains defective, is what interest the trustee is entitled to avoid.

The Mortgage Was Not Properly Executed in Accordance with Ohio Revised Code § 5301.01

Ohio Revised Code § 5301.01 requires four separate acts to properly execute a mortgage: (1) the mortgage shall be signed by the mortgagor; (2) the mortgagor shall acknowledge his signing in front of a notary public, or other qualified official; (3) the official shall certify the acknowledgment; and (4) the official shall subscribe his name to the certificate of acknowledgment. OHIO REV. CODE ANN. § 5301.01(A) (2004); see Drown v. GreenPoint Mortgage Funding, Inc. (In re Leahy), 376 B.R. 826, 832 (Bankr. S.D. Ohio 2007) (listing four requirements provided by Ohio Rev. Code. § 5301.01).2 At issue in this case is whether the certificate of acknowledgment, which omitted the name of Mary Brigid, satisfies the third requirement to proper execution of a mortgage.

Certification of an acknowledgment is governed by Ohio Revised Code sections 147.53-147.58. Ohio Revised Code section 147.53 provides:

The person taking an acknowledgment shall certify that:

(A) The person acknowledging appeared before him and acknowledged he executed the instrument;

(B) The person acknowledging was known to the person taking the acknowledgment, or that the person taking the acknowledgment had satisfactory evidence that the person acknowledging was the person described in and who executed the instrument.

The Ohio Revised Code further provides that a certificate of acknowledgment is acceptable in Ohio if it is in a form prescribed by the laws or regulations of Ohio or contains the words "acknowledged before me," or their substantial equivalent. OHIO REV. CODE § 147.54. Ohio's statutory short form acknowledgment for an individual is as follows:

State of ________

County of ________

The foregoing instrument was acknowledged before me this (date) by

(name of person acknowledged.)

(Signature of person taking acknowledgment)

(Title or rank) (Serial number, if any)

OHIO REV. CODE § 147.55(A).

The trustee argues that the mortgage was improperly recorded because the certification of acknowledgment does not conform to section 5301.01 of the Ohio Revised Code with respect to the debtor. Specifically, the trustee asserts that the clause fails to identify the name of the debtor. The Court agrees. Recent case law, including a 2008 decision from the Sixth Circuit BAP, supports the trustee's position that an acknowledgment is defective if it fails to identify the person whose signature is being acknowledged. See In re Nolan, 38,3 B.R. 391 (6th Cir. B.A.P. 2008); In re Sauer, 41,7 B.R. 523 (Bankr. S.D. Ohio 2009); Daneman v. Nat'l City Mortg. Co. (In re Cornelius), 408 B.R. 704, 708 (Bankr. S.D. Ohio 2009) ("The absence of the name of the mortgagee acknowledging election is the functional equivalent of no certificate of acknowledgment and renders an acknowledgment insufficient."); Drown v. Countrywide Home Loans, Inc. (In re Peed), 403 B.R. 525, 531 (Bankr. S.D. Ohio 2009) affirmed at No. 2:09cv347 (S.D. Ohio Feb. 18, 2010); Terlecky v. Countrywide Home Loans, Inc. (In re Baruch), No. 07-57212, Adv. No. 08-2069, 2009 Bankr. Lexis 608 at *22 (Bankr. S.D. Ohio Feb. 23, 2009) ("An acknowledgment clause containing nothing relative to the mortgagor's identity is insufficient; rather, an acknowledgment clause must either identify the mortgagor by name or contain information that permits the mortgagor to be identified by reference to the mortgage."); In re Leahy, 37,6 B.R. at 832. See also Smith's Lessee v. Hunt, 13 Ohio 260, 269 (1844) (holding that court was unable to infer name of grantor when acknowledgment was blank as to the grantor and, thus, the mortgage was defective and did not convey title).

The holdings in Nolan, Smith's Lessee, and similar cases are also supported by case law interpreting almost identical statutory provisions for acknowledgment clauses in Kentucky and Tennessee. See, e.g., Gregory v. Ocwen Fed. Bank (In re Biggs), 377 F.3d 515 (6th Cir. 2004) (affirming bankruptcy court's decision avoiding deed of trust under section 544 and Tennessee law when deed of trust omitted names of acknowledging parties); Select Portfolio Servs. v. Burden (In re Trujillo), 378 B.R. 526 (6th Cir. B.A.P. 2007) (affirming bankruptcy court's decision avoiding mortgage under section 544 and Kentucky law when debtor was not named or identified in certificate of acknowledgment).

Because RBC Mortgage conceded that at the time of execution the mortgage was defective, and because no argument was made regarding substantial compliance, this Court holds that the mortgage failed to substantially comply with the filing requirements. Therefore, the mortgage was improperly executed with respect to the debtor because the certification of acknowledgment failed to indicate who appeared before the notary public as required under Ohio Revised Code section 5301.01.

RBC Mortgage's Attempt to Validate the Defective Mortgage via Section 5301.45 is Ineffective

The Court rejects the argument of RBC Mortgage that Ohio Revised Code section 5301.45 and Bankruptcy Code section 546(a)(1) allow it to correct a defective acknowledgment and defeat the trustee's strong arm powers by using the debtor's testimony taken at a deposition postpetition. First, section 5301.45 simply does not apply to any situation other than the correction of pagination of acknowledgment clauses. Second, even if section 5301.45 did apply, the postpetition acknowledgment by the debtor was not voluntary. These issues are discussed more fully below.

1. Section 5301.45 is meant as a mechanism to correct pagination only

While older versions of the statutes at issue in this case date back as early as the 1800's, the Court begins its analysis with the 1910 version of the Ohio General Code. See THE GENERAL CODE OF THE STATE OF OHIO (The Commissioners of Public Printing of Ohio 1910) ("Being an Act entitled `An Act to revise and consolidate the general statutes of Ohio"). Section 8510 of the 1910 Ohio General Code provided:

A deed, mortgage, or lease of any estate or interest in real property, must be signed by the grantor, mortgagor, or lessor, and such signing be acknowledged by the grantor, mortgagor, or lessor in the presence of two witnesses, who shall attest the signing and subscribe their names to the attestation. Such signing also must be acknowledged by the grantor, mortgagor, or lessor before a judge of a court of record in this state, or a clerk thereof, a county auditor, county surveyor, notary public, mayor, or justice of the peace, who shall certify theMacknowledgment on the same sheet on which the instrument is written or printed, and subscribe his name thereto. (Emphasis added). This 1910 statute outlined the requirements to validate a deed, mortgage, or lease, including the necessity for two witnesses and that the acknowledgment page be on the same page as the instrument, and is the precursor to Ohio Revised Code section 5301.01.

The original version of what is now Ohio Revised Code section 5301.45 is provided in Local Laws and Joint Resolutions, 57 v 10, and was titled as section 8559 of the Ohio General Code. The current version of the statute is substantially identical to its 1910 version and provides in full:

When a deed, mortgage, lease, or other instrument of writing intended to convey or encumber an interest in real estate is not printed or written on a single sheet, or when the certificate of acknowledgment thereof is not printed or written on the same sheet with the instrument, and such defective conveyance is corrected by the judgment of a court, or by the voluntary act of the parties thereto, such judgment or act shall relate back so as to be operative from the time of filing the original conveyance in the county recorder's office.

OHIO REV. CODE § 5301.45.

Thus, the state of the law regarding the formal requirements of a valid mortgage in 1910 was that although section 8510 required the instrument and acknowledgment clause to be on the same page, section 8559 allowed for correction of this deficiency through voluntary act of the parties or judgment by the court. However, the Ohio Supreme Court held in 1939 that certificates bound to an instrument substantially complied with the statute. The Court explained that:

When the provision now found in Section 8510, General Code, was enacted, more than a hundred years ago, deeds, mortgages and leases were usually and could easily be written in their entirety on a single sheet of paper. In recent years many of such instruments are so long that to write or print them on one sheet would require a roll of paper. Often, too, the acknowledgments are so numerous as to present the same difficulty. What the Legislature sought by the enactment of the provisions now found in Section 8510 was no doubt the prevention of fraud that might be readily perpetrated if the certificate of acknowledgment were on a sheet separate from the instrument itself. With respect to the lease in litigation this danger is eliminated because the certificates are bound to the other parts by rivets so as to make a unified whole.

S.S. Kresge Co., v. Butte, 136 Ohio St. 85, 89-90 (1939).

Noticeably missing from later versions of section 8510 (now 5301.01 of the Ohio Revised Code), is the requirement that the notary certify the acknowledgment on the same sheet as the instrument. See OHIO REV. CODE § 1.01 ("All statutes of a permanent and general nature of the state as revised and consolidated into general provisions, titles, chapters, and sections shall be known and designated as the `Revised Code'"); OHIO GENERAL CODE § 8510, OHIO REV.CODE § 5301.01. In fact, the current version of section 5301.07 specifically provides that no instrument conveying real estate is defective or invalid because "the certificate of acknowledgment is not on the same sheet of paper as the instrument."

It appears that section 5301.45 was enacted to afford an opportunity for parties to physically affix separate pages of an instrument and an acknowledgment clause to enable substantial compliance with section 5301.01. The Ohio Jurisprudence 3d contains an analysis of the interplay between these statutes.

[Section 5301.45] assumes that the certificate of acknowledgment must be printed or written on the same sheet with the mortgage, or else the mortgage is defective; but there is now no statute specifically requiring the acknowledgment to be on the same sheet. The reason for the above provision, so far as acknowledgments are concerned, undoubtedly lies in the fact that under an earlier from of RC section 5301.01, it was required that the acknowledgment be on the same sheet of paper as that on which the conveyance was written. It seems likely that the omission from the statute in this respect was due to judicial construction of the former statute, in regard to which the courts, recognizing the ever-increasing length of instruments such as mortgages, held that the instrument was valid where the sheets were securely fastened together and a certificate of acknowledgment was on the last page. In some cases, emphasis was placed upon the sheets being so fastened together that the one bearing the certificate of acknowledgment could not be removed without showing evidence of mutilation.

69 O. Jur. 3d Mortgages § 102 (1986).

The Ohio Transaction Guide, a multi-volume set that has provided practitioners with research tools and practice tips for over thirty years is instructive and consistent with this Court's understanding of the intention of the statute. Section 188.30 of the Ohio Transaction Guide provides that "if a deed is not printed or written on the same sheet with the instrument, the conveyance may be corrected by the judgment of a court or by the voluntary act of the parties." It continues by providing that "[a]lthough it is not necessary to the validity of the deed that the acknowledgment appear on the same sheet of paper as the deed, the usual practice is to convey the property with the necessary acknowledgments on the same sheet." Thus, the original and later versions of section 5301.45 were designed as a mechanism for correcting failure to adhere to a repealed requirement of section 5301.01. This Court holds that section 5301.45 was enacted to amend mortgages and deeds where the execution and acknowledgment clauses were on separate pieces of paper, at a time in history when such documents were required to appear on the same page, and the parties wished to physically bind them together. Therefore, section 5301.45 cannot be used to correct the type of acknowledgment clause defect at issue in this case.

2. The debtor's postpetition acknowledgment was not voluntary

Even if this Court were to find that section 5301.45 can be utilized to cure a defective mortgage certification clause under section 546(b)(1), the debtor's postpetition acknowledgment was not voluntary. Specifically, the debtor testified at a deposition after being served with process and was required to answer questions under oath. This is not the type of voluntary behavior provided for by the statute, especially because both the deposition and "re-recording" of the mortgage took place after the trustee had initiated this adversary proceeding, and served the debtor with a summons and complaint.

In summary, this Court holds that section 5301.45 can only retroactively perfect a mortgage where the instrument and acknowledgment clause are on separate pages, the parties voluntarily act to attach those pages, and the mortgage is otherwise a validly executed document. Therefore, the Court rejects RBC Mortgage's attempt to use section 5301.45 and the debtor's postpetition deposition testimony to correct the type of acknowledgment clause defect at issue in this case.

The Trustee May Avoid the Debtor's Undivided Half Interest in the Subject Property

Although it is well established that a trustee may avoid a debtor's half interest when a mortgage is found to be valid as to one co-owner and defective as to the other co-owner, RBC Mortgage asserts that the title of the tenancy held by the debtor and Radbourne somehow mandates a different result. This Court finds that Radbourne and the debtor held the property as joint tenants, as evidenced by the deed's use of the language to "Mary Brigid, unmarried and Susan Radbourne, unmarried, remainder to the survivor of them," (emphasis added). Section 5302.20 provides that a deed showing a clear intent to create a joint tenancy with rights of survivorship "shall be liberally construed to do so." OHIO REV. CODE § 5302.20. This Court finds that based on the clear reading of the deed in question, the intention of the parties was to create a joint tenancy with rights of survivorship.

Further, joint tenants hold "an equal share of the title during their joint lives unless otherwise provided in the instrument creating the survivorship tenancy." OHIO REV. CODE § 5302.20. Although this statute provides that joint tenants are subject to a proportionate share of the costs related to ownership, it also provides that when a creditor of a survivorship tenant enforces a lien against the debtor's interest, the interest "shall be equal unless otherwise provided in the instrument creating the survivorship tenancy." OHIO REV. CODE § 5302.20. This proposition is supported by recent case law. In Simon v. CitiMortgage, Inc., (In re Doubov), 423 B.R. 505 (N.D. Ohio 2010), the bankruptcy trustee sought to avoid the debtor wife's half interest in property that both spouses mortgaged as joint tenants. The trustee argued that a defective acknowledgment rendered the mortgage avoidable as to the debtor wife. Judge Morgernstern-Clarren held:

When the debtors granted the mortgage, they held the property under a survivorship tenancy. See Ohio Rev. Code §§ 5302.17, 5302.20. Under this form of ownership each survivorship tenant holds an equal share of the title to the property during their joint lives (unless the instrument creating the tenancy provides otherwise, which this one does not.) Ohio Rev. Code 5302.20(B). . . .
. . . .

Under Ohio law, a person is precluded from granting a mortgage on property in which he has no interest. See Ins. Co. Of N. Am. v. First Nat'l Bank of Cincinnati, 444 N.E. 2d 456, 459 (Ohio Ct. App. 1981). Additionally "a mortgagor can only bind the estate or property he has, and a `mortgagee can take no greater title than that held by the mortgagor.'" Stein v. Creter (In re Creter), Adv. No 06-2042, 2007 WL 2615214, at *4 (Bankr. N.D. Ohio Sept. 5, 2007) (quoting 69 Ohio Jur. 3d Mortgages and Deeds of Trusts § 17); see also Stubbins v. HSBC Mortgage Servs., Inc. (In re Slack), 394 B.R. 164, 170 (Bankr. S.D. Ohio 2008). When Mr. Doubov gave the mortgage to Citifinancial, he only held title to the property under a survivorship tenancy; that one-half interest is what he mortgaged.

In re Doubov, 42,3 B.R. at 513-14.

Similarly, when the debtor and Radbourne mortgaged the property, they did so as joint tenants with rights of survivorship. The instrument creating the tenancy did not provide for other treatment of ownership, and thus the debtor, as a matter of law, held an undivided half interest in the property at the time it was mortgaged. When Radbourne gave the mortgage to RBC Mortgage, she only held a half interest, and that is what RBC Mortgage received. This conclusion is supported by the fact that both the debtor and Radbourne answered the trustee's complaint by claiming an undivided half interest in the property, and this Court declines to consider any argument by RBC Mortgage that the debtor owes Radbourne some equitable relief as a result of her filing for a petition for bankruptcy. This Court holds that the certificate of acknowledgment is defective and the trustee can avoid themortgage as it relates to the undivided half interest of Mary Brigid.

Unresolved Matters Including Radbourne's Cross-Claim

While it appears that this decision resolves most of the claims at issue in this adversary proceeding, one matter not yet addressed in this decision is Radbourne's cross-claim against RBC Mortgage. In her cross-claim, Radbourne alleges that she was damaged as a result of negligence by RBC Mortgage in the preparation of the loan documentation and closing of the loan transaction that are the subject of this adversary proceeding. In its cross-motion for summary judgment, RBC Mortgage also seeks summary judgment on Radbourne's cross-claim. Radbourne has not filed a response.

The Court is reluctant to decide the merits of Radbourne's cross-claim absent further argument from the parties on the question of jurisdiction to hear this claim. For example, even if the parties were to consent to the undersigned judge entering a final judgment on the cross-claim, the Court has serious doubts as to whether it has "related to" subject matter jurisdiction over a non-debtor's tort claim against another non-debtor. See 28 U.S.C. § 1334; In re Dow Corning Corp., 8,6 F.3d 482 (6th Cir. 1996).

An action is "related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankruptcy estate." 86 F.3d at 489 (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). For example, any recovery to the non-debtor Radbourne is unlikely to affect the debtor's estate, either positively or negatively. Accordingly, any party wishing to have this Court decide the cross-claim should be prepared to address the issue of subject matter jurisdiction at a status conference at 1:30 P.M. on June 8, 2010.

In addition, while not included as a separate count, the trustee does seek, in her prayer for relief, authority to sell the real property, including the interest of the non-debtor co-owner. Therefore, counsel shall be prepared to advise the Court at the status conference as to what additional steps are needed to resolve all remaining claims in this adversary proceeding. Until there is a final decision on Radbourne's cross-claim and any other unresolved claims, this is not a final judgment for purposes of 28 U.S.C. § 158. See Bankr. Rule 7054 and Fed. R. Civ. P. 54(b).


For the reasons stated above, the Court holds that the certificate of acknowledgment is defective and the trustee can avoid the mortgage as it relates to the half interest of the debtor. Accordingly, the trustee's motion for summary judgment is granted. While it appears that this decision is largely dispositive, until there is a final decision on Radbourne's cross-claim, this is not a final judgment for purposes of 28 U.S.C. § 158. See Bankr. Rule 7054 and Fed R. Civ. P. 54(b). The Court will conduct a status conference at 1:30 p.m. on June 8, 2010. Counsel shall be prepared to advise the Court as to what additional steps are needed to resolve all remaining claims in this adversary proceeding.

Page 24


For the reasons stated in the separate Memorandum of Opinion, the Court holds that the certificate of acknowledgment is defective and the trustee can avoid themortgage as it relates to the half interest of the debtor. Accordingly, the trustee's motion for summary judgment is granted. While it appears that this decision is largely dispositive, until there is a final decision on Radbourne's cross-claim, this is not a final judgment for purposes of 28 U.S.C. § 158. See Bankr. Rule 7054 and Fed R. Civ. P. 54(b). The Court will conduct a status conference at 1:30 p.m. on June 8, 2010. Counsel shall be prepared to advise the Court as to what additional steps are needed to resolve all remaining claims in this adversary proceeding.



1. This Memorandum of Opinion is not intended for official publication.

2. In Zaptocky, the Sixth Circuit identified "three major prerequisites for the proper execution of a mortgage: (1) the mortgagor must sign the mortgage deed; (2) the mortgagor's signature must be attested by two witnesses; and (3) the mortgagor's signature must be acknowledged or certified by a notary public." Zaptocky, 250 F.3d at 1024. The differences between Zaptocky's three requirements and Leahy's four requirements are (A) the deletion in Leahy of Zaptocky's second requirement — attestation by two witnesses — due to a change in the statute, and (B) the Leahy court's breaking down of Zaptocky's third requirement — certification of acknowledgment — into three separate parts.
Bank Fails to Rebut Satisfaction's Validity
Created By Notary's Acknowledgment;
Foreclosure Denied Wells Fargo Bank NA v. Moise
May 29, 2010 at 9:13 am

The trial court opinion was published in the New York Law Journal.


Real Property

Defendants seek summary judgment based on the fact that Plaintiff has not shown a valid assignment of the mortgage and note.

Plaintiff originally submitted an assignment of the mortgage dated April 30, 2009. The assignment was signed by Yolanda Williams, Assistant Secretary of Mortgage Electronic Systems, Inc.. However, the notary public's acknowledgement states that she witnessed and acknowledged the signature of Herman John Kennerty, whose name does not appear anywhere on the document.

Plaintiff acknowledges that there was a mistake on the assignment and argues the mistake was de minimis not curat lex. It also argues that the Court should simply replace the defective assignment with the correction assignment, and proceed with its action. In fact, the error was not de minimis as the signature of the purported assignor was not acknowledged, rendering the assignment a nullity.

A simple typographical error can be amended, but a failure to properly acknowledge the signature of a person who signed the instrument cannot be. No affidavit is submitted either Yolanda Williams or the notary Lisa Rhyne explaining what the alleged error was or how it occurred. In fact, the so called "correction" assignment in fact is acknowledged by a different notary on a different date.

Wednesday, May 26, 2010



I had a rough day, and a wonderful homeowner had this e-mail waiting for me.  I had to share it because I want you to know this is why we are here for each other at this particular moment in time: 

Good day to you Kelly,

Things have progressed a little slower that what I anticipated. Here’s what I HAVE left to do before I can send the package out to you: (ALL else is done)

Waiting for a FULL Property report with chain of title since I built the home in 2005. That’s it. 

A few Q’s for you: 

When I send out the QWR and I send the CC letters to the XX Senators, the Governor, HUD and the rest, do I attach a cover letter in each indicating to each one that I have sent a letter to the other so that they ALL know who was CC’d?

Lastly, I could not find any info on the paperwork anything about MERS…But again I may be a novice as to where to find it.

On a personal note, I can only thank YOU from an e-mail standpoint and wonder ‘who I am’ to have been tapped on the shoulder to receive this connection such as yourself, and that you are offering to help myself and my family right a wrong that I feel that has been perpetrated against me by Wells Fargo. 

After reading your QWR out loud to my wife last night’, I looked at my wife, feeling humbled and with a lump in my throat and asked her, “why”. She said what do you mean. I said, why did I find this blog and why did I write the e-mail and why is this help before us and our family. And WHY is this person offering to help US. After what we see ALL over this country it just doesn’t seem that there are ANY ‘real’ good people left.

All I can say at this point and in behalf of my family Kelly is, THANK YOU from my heart.
Fearful Homeowner


Civil Action No. 09-11468-NMG.
United States District Court, D. Massachusetts.
May 24, 2010.


NATHANIEL M. GORTON, District Judge.

Plaintiff Timothy Corcoran ("Corcoran"), an individual residing in Milton, Massachusetts, has brought suit against defendant Saxon Mortgage Services, Inc. ("Saxon"), a residential mortgage lender incorporated in Virginia, for various violations of state and federal law. Before the Court are 1) Defendant's motion to dismiss, 2) Defendant's motion to strike several exhibits appended to Plaintiff's opposition to Defendant's motion to dismiss and 3) Plaintiff's motion to amend the complaint to add several new claims.

I. Factual Background

The plaintiff alleges that in January, 2007, he purchased a single family home located at 1056 Washington Street, Canton, Massachusetts, for approximately $430,000. In connection with that purchase, the plaintiff executed a mortgage and 30-year adjustable-rate note ("the Note") with Saxon Mortgages Services for a principal amount of $378,250 (about 88% of the purchase price).[ 1 ] The current balance of the mortgage is approximately $131,000.

The plaintiff claims that, at the time of the execution of the mortgage, he was not informed of the details and features of its interest rate, e.g., that it had a "floor" rate of 8.45%. The plaintiff also asserts that at the first interest-rate-change date in February, 2009, the defendant increased the interest rate by more than one percentage point (from 8.45% to 9.75%) in violation of the terms of the Note. Finally, the plaintiff alleges that the defendant failed to provide him with requested loan documents on several occasions.

II. Procedural History

On July 21, 2009, the plaintiff filed a nine-count complaint in the Massachusetts Superior Court Department for Norfolk County, alleging: 1) breach of contract, 2) unjust enrichment, 3) violation of M.G.L. c. 93A, 4) negligence, 5) violation of the Truth in Lending Act, 6) breach of fiduciary duty, 7) predatory lending, 8) fraud and 9) breach of the covenant of good faith and fair dealing. Plaintiff seeks damages in the amount of $207,000, plus interest, costs and attorneys' fees.

On September 3, 2009, the defendant removed the case to this Court and on October 2, 2009, moved to dismiss all the counts against it. The plaintiff opposed that motion and the defendant then moved to strike several supporting exhibits appended to the plaintiff's opposition. The plaintiff has also requested leave to file an amended complaint asserting several additional federal law claims.

On April 23, 2010, the Court convened a scheduling conference at which it announced its tentative rulings with respect to the various pending motions and invited oral argument on the issues as to which it was undecided. Having taken the motions under advisement and conducted further research on those issues, the Court now announces its rulings.

III. Analysis

A. Defendant's Motion to Dismiss

1. Legal Standard
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). In considering the merits of a motion to dismiss, the Court may look only to the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the complaint and matters of which judicial notice can be taken. Nollet v. Justices of the Trial Court of Mass., 83 F. Supp. 2d 204, 208 (D. Mass. 2000) aff'd, 248 F.3d 1127 (1st Cir. 2000). Furthermore, the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Langadinos v. American Airlines, Inc., 199 F.3d 68, 69 (1st Cir. 2000). If the facts in the complaint are sufficient to state a cause of action, a motion to dismiss the complaint must be denied. See Nollet, 83 F. Supp. 2d at 208.

Although a court must accept as true all of the factual allegations contained in a complaint, that doctrine is not, however, applicable to legal conclusions. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). Threadbare recitals of the legal elements, supported by mere conclusory statements, do not suffice to state a cause of action. Id. Accordingly, a complaint does not state a claim for relief where the well-pled facts fail to warrant an inference of any more than the mere possibility of misconduct. Id. at 1950.

2. Application
i. Breach of Contract, Unjust Enrichment and Breach of the Covenant of Good Faith and Fair Dealing (Counts I, II and IX)
In Counts I, II and IX of the complaint, Corcoran alleges that Saxon 1) breached the terms of the Note by increasing the interest rate by more than one percent on the first change date, 2) breached the implied covenant of good faith and fair dealing and 3) has been unjustly enriched by collecting excessive interest as a result of those breaches. All of the plaintiff's contractually-based claims fail, however, because the Note did not prohibit the lender from increasing the interest rate from 8.45% to 9.75% at the first change date in February, 2009. Rather, it expressly permitted the lender to adjust the rate to a maximum of 11.45%. It was only after the initial change date that the 1% limitation became effective. Section 4(D) of the Note, which governs the limits on interest rate changes, states:

The interest rate I am required to pay at the first Change Date will not be greater than 11.45% or less than 8.45%. Thereafter, my interest rate will never be increased or decreased on any single Change Date by more than one percentage point from the rate of interest I have been paying for the preceding six months. My interest rate will never be greater than 14.95% or less than 8.45%.

(emphasis added). Thus, because the increase in the rate to 9.75% was permissible under the terms of the Note, the plaintiff has not stated a claim for breach of contract, unjust enrichment or breach of the covenant of good faith and fair dealing.

ii. Truth in Lending Act (Count V)
The plaintiff alleges that the defendant violated the Truth in Lending Act ("TILA") because it failed to disclose all the terms of the loan and disproportionately raised the interest rate. The defendant responds that the plaintiff's TILA claim is barred because 1) it was not brought within the one-year statute of limitations period and 2) the loan was not for personal or family use.

TILA, 15 U.S.C. §§ 1601-1667f, requires creditors to make "clear and accurate disclosures" of the terms of consumer credit transactions, including the "annual percentage rates of interest." Belini v. Washington Mut. Bank, FA, 412 F.3d 17, 20 (1st Cir. 2005). If a creditor fails to make such disclosures, a debtor can sue for damages. 15 U.S.C. § 1640(a). The statute of limitations for bringing a TILA action is "one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e).[ 2 ]

Saxon contends that the date of the "occurrence of the violation" is January 17, 2007 (the date of the closing at which the defendant allegedly failed to provide the required disclosures). Plaintiff insists, however, that the relevant date is February 1, 2009, the day on which the allegedly unlawful change in his interest rate occurred. He claims that he did not discover the alleged violations until after his interest rate changed and that, before that time, he had been unaware that the disclosures had been inadequate.

After further review of the subject statute of limitations, the Court has concluded that the defendant's contention is correct. Because the plaintiff's TILA claim is based on insufficient disclosures, the limitation period runs from the date of the transaction at which the disclosures should have been made, i.e., on January 17, 2007. See De Jesus-Serrano v. Sana Inv Mortg. Bankers, 552 F. Supp. 2d 191, 194-95 (D.P.R. 2007) (running one-year statute of limitations from date mortgage transaction was consummated); Rodrigues v. Members Mortgage Co., Inc, 323 F. Supp. 2d 202, 210 (D. Mass. 2004) (same).

Although equitable tolling can rescue a TILA claim otherwise barred by the statute of limitations when the plaintiff has "in some extraordinary way ... been prevented from asserting his rights," Corcoran has not made such a showing. See Taggart v. Chase Bank USA, N.A., 355 Fed. Appx. 731, 732 (3rd Cir. 2009) (equitable tolling unwarranted because plaintiff did not show that defendants actively misled him or took extraordinary steps to prevent him from asserting his rights); Hubbard v. Fidelity Bank, 91 F.3d 75, 79 (9th Cir. 1996) (rejecting plaintiff's argument that statute of limitations should be tolled until she "discovered there were possible anomalies or errors in her loan" because nothing prevented her from comparing the initial disclosures to TILA's statutory requirements). Thus, because the plaintiff has not alleged that the defendant prevented him from asserting his rights in any way, equitable tolling is unwarranted and the plaintiff's TILA claim is time-barred.

Moreover, even if the plaintiff had asserted a timely TILA claim, it would still fail because the plaintiff obtained the loan for business, as opposed to residential purposes. See 15 U.S.C. § 1603(3) (exempting from TILA "credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes"). At the time the plaintiff obtained the loan, he represented to the lender that it would be used to purchase an "investment property" and that he did not intend to occupy the premises personally. Courts have consistently held that extensions of credit to acquire non-owner-occupied rental property are for business rather than for personal purposes. See Lind v. New Hope Property, LLC, 2010 WL 1493003 (D.N.J. Apr. 13, 2010); Antanuos v. First Nat. Bank of Arizona, 508 F. Supp. 3d 466, 470-71 (E.D. Va. 2007).[ 3 ] Thus, because 1) plaintiff's loan is "commercial" in nature and 2) the one-year statute of limitations on his claim has expired, his reliance on TILA is misplaced.

iii. Chapter 93A (Count III)
Plaintiff's Chapter 93A claim fails because it is predicated solely on the alleged breach of contract and the Truth in Lending Act ("TILA") violation, both of which (as discussed above) will be dismissed as a matter of law. See Shaner v. Chase Bank, U.S.A., N.A., 570 F. Supp. 2d 195, 201 (D. Mass. 2008) (plaintiff's Chapter 93A claim fails because underlying TILA claim fails).

iv. Negligence (Count IV)
In Count IV, the plaintiff alleges that Saxon is liable for common law negligence because it owed a "duty to ensure fair dealings." The plaintiff's negligence claim fails for two reasons. First, Saxon does not owe the plaintiff a duty to "ensure fair dealings" because a lender owes no general duty of care to a borrower. See, e.g., In re Fordham, 130 B.R. 632, 646 (Bankr. D. Mass. 1991); Murray v. America's Servicing Co., 2009 WL 323375, at *5 (Mass. Dist. Ct. Jan. 12, 2009).

Second, even if a duty existed, the claim is barred by the economic loss doctrine which provides that, in negligence actions, "purely economic losses are unrecoverable ... in the absence of personal injury or property damage." See, e.g., FMR Corp. v. Boston Edison Co., 613 N.E.2d 902, 903 (Mass. 1993). In this case, the plaintiff does not seek to recover for personal injury or property damage. Rather, his alleged damages, the additional costs and interest accrued on the loan, are purely economic in nature.

Thus, because the plaintiff does not sufficiently allege that 1) Saxon owed it a duty or 2) he has suffered damages other than economic loss, his claim for negligence cannot stand.

v. Breach of Fiduciary Duty (Count VI)
In this count, the plaintiff claims that the defendant breached its fiduciary duty by failing to "assist" him and by "taking advantage of the transaction by self dealing." This claim also fails because, under Massachusetts law, neither a mortgage holder nor its servicer owes a fiduciary duty to a borrower. FAMM Steel, Inc. v. Sovereign Bank, 571 F.3d 93, 102 (1st Cir. 2009) ("the relationship between a lender and a borrower, without more, does not establish a fiduciary duty.") Although a fiduciary duty may arise when a "borrower reposes its trust and confidence in the lender," one party cannot unilaterally transform a business relationship into a fiduciary one. Id. Rather, the defendant must know of and accept the plaintiff's trust. See also Broomfield v. Kotow, 212 N.E.2d 556 (Mass. 1965) ("the catalyst in such change is the defendant's knowledge of the plaintiff's reliance on him"). Given that the plaintiff does not allege that the defendant knew of or voluntarily accepted the plaintiff's reliance on its "assistance," the claim for breach of fiduciary duty fails as a matter of law.

vi. Predatory Lending (Count VII)
In Count VII, the plaintiff asserts that the defendant's interest rates violated the "Commonwealth's Predatory Lending Regulations." He does not, however, refer to any particular regulation (or group of regulations), rendering the nature of his claim difficult to discern. The Court presumes that he is referring to Chapter 8 of the Code of Massachusetts Regulations, which affords the Attorney General, under the authority of Chapter 93A, the power to regulate unfair or deceptive trade practices. See 940 C.M.R. §§ 8.01-8.08. Those regulations do not, however, provide the plaintiff with a private cause of action and, as such, the plaintiff fails to state a claim for predatory lending.

vii. Fraud (Count VIII)
The plaintiff's final claim is for fraud or intentional misrepresentation. Specifically, he alleges that the agreement was "induced by intentional misrepresentations, fraud, and deceit perpetrated by the Defendant" and that he "relied on statements made by the Defendant regarding a cap on the interest rate that was false." The defendant argues that, despite the requirements of Fed. R. Civ. P. 9(b), the plaintiff has failed to identify, with particularity, the allegedly false statements of fact underlying his claim. At a bare minimum, a plaintiff alleging fraud must specify "the identity of the person(s) making the representation, the contents of the misrepresentation, and where and when it took place." Equipment & Systems for Industry, Inc. v. North meadows Const. Co., 798 N.E.2d 571, 574 (Mass. App. Ct. 2003). The plaintiff should also allege the materiality of the misrepresentation, his reliance thereon and the resulting harm. Id.

Under the relevant pleading standards, Corcoran's allegations of fraud are woefully inadequate. He does not identify with any degree of specificity: 1) the misrepresentations allegedly made by Saxon, 2) the person or persons who made them 3) when and where they took place, 4) their materiality, 5) his reliance on them or 6) the resulting harm. Nor does his memorandum explain his failure to provide those necessary elements. Instead, Corcoran formulaically recites the elements of intentional misrepresentation and states in a conclusory fashion that "no lender would have extended the loan in this fashion." Accordingly, because the complaint does not come close to complying with Fed. R. Civ. P. 9(b), the plaintiff's fraud claim cannot stand.

B. Defendant's Motion to Strike (Docket No. 12)
The defendant has also moved to strike several exhibits appended to the plaintiff's opposition to the defendant's motion to dismiss on the grounds that they present new factual allegations and extraneous information that cannot be considered on a motion to dismiss. Specifically, the defendant objects to 1) an affidavit in which the plaintiff discusses his discovery of the alleged TILA violations and 2) a supporting exhibit showing the LIBOR index (the common benchmark for calculating interest for adjustable-rate loans) for November, 2009.

Because the allegedly improper exhibits are irrelevant to this Court's ruling on the defendant's dispositive motion, the motion to strike will be denied as moot.

C. Plaintiff's Motion to Amend Complaint (Docket No. 15)
Finally, the plaintiff has requested leave to file an amended complaint adding three new causes of action under 1) the Fair Credit Consumer Act 2) the Fair Credit Reporting Act ("FCRA") and 3) the Fair Debt Collection Practices Act ("FDCPA"). The plaintiff asserts that, subsequent to the filing of the complaint, he discovered that the defendant made false statements to three credit reporting agencies. Specifically, he alleges that the defendant falsely suggested to the credit reporting agencies that the plaintiff owed it over $120,000 and neglected to report that there was a bona fide dispute regarding the loan's validity. The plaintiff claims the defendant's false statements have tarnished his credit and made it difficult for him to obtain loans.

Although motions for leave to amend complaints are, for the most part, liberally granted, courts are not compelled to grant them when the proposed amendments are "futile." Muskat v. United States, 554 F.3d 183, 196 (1st Cir. 2009) ("futility is a sufficient basis for denying leave to file an amended complaint"). For the reasons expressed below, the Court will deny the plaintiff's motion with respect to the first two claims (violation of the Fair Credit Consumer Act and the FCRA), but allow the plaintiff to file an amended complaint asserting a single cause of action under the FDCPA.

The plaintiff's first proposed claim (violation of the Fair Consumer Credit Act), is futile because there is no such statute. Enough said.

The second proposed cause of action (violation of the FCRA) is also futile. The FCRA, 15 U.S.C. §§ 1681-1681x, imposes an elaborate regulatory scheme upon the commercial furnishers of information to credit reporting agencies. It provides for enforcement of most of its provisions by federal agencies, not individual citizens. See Chiang v. Verizon New England, 595 F.3d 26, 34 (1st Cir. 2010). Specifically, Congress limited furnishers' liability by prohibiting private suits for violations of § 1681s-2(a), which prohibits a person from furnish[ing] any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.

Id. Although the Act also creates a private cause of action, such an action is triggered only by violations of a separate part of the statute (§ 1681s-2(b)) that implicates a furnisher's duty to investigate a dispute over the accuracy of furnished information.

Although the plaintiff does not specify the particular section of the FCRA that he invokes, he alleges that the defendant falsely reported that his loan was in default but does not implicate any of the defendant's investigatory duties. As such, his claim will be construed as an alleged violation of § 1681s-2(a) which, as discussed above, creates no private cause of action and cannot stand.

The plaintiff's final proposed cause of action alleges that the defendant violated the FDCPA by inaccurately reporting his debt to the credit bureaus, using deceptive means to collect upon his debt and failing to provide essential loan documents. The FDCPA prohibits debt collectors from making false or misleading statements and from engaging in abusive and unfair practices. See 15 U.S.C. §§ 1692-1692p. The defendant insists that, given the plaintiff's default, its reporting of such was entirely accurate and, accordingly, the plaintiff's FDCPA claim is untenable.

Defendant's argument here falls short. Although defendant's reporting that the plaintiff was in default was narrowly accurate, it was not a full disclosure. The plaintiff's proposed claim alleges that, in reporting the default, the defendant failed to disclose that there was a bonafide dispute regarding the underlying validity of the loan. Assuming that factual allegation is true, the Court finds that the putative claim would not be futile and will allow the plaintiff to file an amended complaint stating such a claim.

In accordance with the foregoing,

1) Defendant's Motion to Dismiss (Docket No. 6) is ALLOWED;
2) Defendant's Motion to Strike (Docket No. 12) is DENIED as moot; and
3) Plaintiff's Motion for Leave to Amend Complaint (Docket No. 15) is, with respect to proposed Counts IX and X, DENIED, but, with respect to proposed Count VIII, ALLOWED.
So ordered.

1. As discussed below, although plaintiff's complaint alleges that Saxon was the original mortgagee, plaintiff later acknowledged that the lender was G.E. Money Bank and that Saxon was the servicer of the loan.

2. The limitations period is extended to three years if the borrower has an extended right of rescission. McIntosh v. Irwin Union Bank and Trust Co., 215 F.R.D. 26, 30 (D. Mass. 2003). This extension does not, however, apply here because Corcoran neither seeks rescission nor is entitled to it. See 15 U.S.C. § 1635(e) (right of rescission does not apply where property is not the principal dwelling of the purchaser).

3. The Board of Governors of the Federal Reserve System has come to the same conclusion: Credit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes.46 Fed. Reg. 50288, 50297 (Oct. 9, 1981) (as amended 75 Fed. Reg. 7658 (Feb. 22, 2010)


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