U.S. Supremes Asked To Address Foreclosing Banksters' Claims That Homeowners Lack Standing To Contest Mortgage Assignments (Void or Voidable???) That Fail To Comply With Terms Of Trust's Governing Documents
In New York City, Law 360 reports:
- Property owners have asked the U.S. Supreme Court to review their suit against several banks, saying the Second Circuit did not appropriately determine whether they had standing to claim that mortgage-backed securities trusts managed by the banks did not own the petitioners' mortgages.
In an Aug. 31 petition, the property owners said that their mortgages were transferred to 37 MBS trusts that the banks — Bank of New York Mellon Corp., HSBC Bank NA, US Bank NA, Deutsche Bank National Trust Co. and Wells Fargo Bank NA — were trustees for, but that those transactions were invalid.
The appeals courts are split on how to determine the standing of property owners who challenge mortgage transfers, and the Second Circuit conflated standing with the merits of the instant case by way of an analysis that “swallows its own tail and makes no sense,” according to the petition.
“The Second Circuit effectively reached the merits of an issue while simultaneously claiming that the parties before it were not suitable to present those issues to it in the first place,” the petition said. “The contradiction in such an approach is palpable and calls into question the integrity of the decision-making process.”
The Racketeer Influenced and Corrupt Organizations Act suit alleged the banks have collected mortgage payments and initiated foreclosure proceedings based on the assumption that they own the mortgages. However, the petition contended that the banks do not own the mortgages and have been fraudulently collecting payments and foreclosing on properties.
The issue of whether the banks own the mortgages turns primarily on whether the mortgages were validly transferred from the originating banks to the trusts. The petition argued that the transactions did not comply with the terms of the agreements that created the trusts because the trusts already closed at the time of the attempted transfers, meaning that New York law renders those transfers void.
The New York federal court dismissed the case with prejudice, saying the petitioners lacked standing to challenge the validity of the transfer. The district court agreed with the banks that the property owners were neither parties to, nor third-party beneficiaries of, the agreements they claimed the banks did not comply with, and that the owners thus had no right to assert that the agreements were breached.
In reaching that conclusion, the district court addressed a disputed issue about the merits of the case — whether the banks' failure to comply with the agreements rendered the transactions completely void under New York law or merely voidable if a party to, or third-party beneficiary of, the transactions wanted to void them.
The district court ruled that the latter was true, a decision the Second Circuit upheld, saying the claims were indistinguishable from the claims in the circuit's own 2014 decision in Rajamin v. Deutsche Bank National Trust Co.
However, the circuit's 2014 decision conflicts with the First Circuit's 2013 ruling in Culhane v. Aurora Loan Services of Nebraska, the petition said.
The Rajamin court reasoned that the alleged injuries were merely hypothetical because the petitioners did not dispute the underlying debt, did not say they were not in default and did not claim they paid more than they owed.
In Culhane, the First Circuit found that an appellant facing foreclosure had constitutional standing to challenge the validity of her mortgage assignment, as well as foreclosure, even when she was not a party to or beneficiary of that transaction, because the “essence of standing is that a petitioner must have a personal stake in the outcome of the litigation.”
Regarding prudential standing, the Second Circuit in Rajamin looked at the merits of the petitioners' argument and concluded that unauthorized actions were not void but merely voidable.
Meanwhile, the First Circuit in Culhane said that decisions finding mortgagers lacked prudential standing to challenge mortgage assignments because they were not parties or third-party beneficiaries painted “with too broad a brush.”
By deciding the question of prudential standing on a superficial consideration of the merits of the claim, the Second Circuit paid little attention to state-law issues better addressed fully on the merits, the Aug. 31 petition said.
The banks could not be reached for comment Tuesday.
The petitioners are represented by Erik S. Jaffe of Erik S. Jaffe PC.
Counsel information for the banks was not available Tuesday.
The case is Tran et al. v. Bank of New York, et al., case number 15-260, in the Supreme Court of the United States.
Foe the homeowner's petition to the U.S Supreme Court, see Anh N. Tran, Et Al. v. Bank of New York (August 31, 2015).
Thanks to Deontos for the heads-up on this litigation.