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U.S. Bank Nat'l Ass'n v. Riley

May 18, 2016
DOCKET NO. A-3322-14T4 (N.J. Super. May. 18, 2016)


DOCKET NO. A-3322-14T4



Pearce Law, L.L.C., attorneys for appellant (Randy T. Pearce and Gregory A. Randazzo, of counsel and on the briefs). Reed Smith, LLP, attorneys for respondent (Henry F. Reichner, of counsel and on the brief).

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Lihotz and Higbee. On appeal from Superior Court of New Jersey, Chancery Division, Union County, Docket No. F-19003-12. Pearce Law, L.L.C., attorneys for appellant (Randy T. Pearce and Gregory A. Randazzo, of counsel and on the briefs). Reed Smith, LLP, attorneys for respondent (Henry F. Reichner, of counsel and on the brief). PER CURIAM

Defendant Diane Riley appeals from a February 26, 2015 order granting summary judgment to plaintiff U.S. National Bank Association, the trustee for a mortgage pooling trust, foreclosing on defendant's interest in real property. On appeal, defendant argues the assignment of the note and mortgage to the trust was void under New York law, therefore plaintiff had no legal right to foreclose and summary judgment must be set aside. We reject this assertion as defendant lacks standing to challenge plaintiff's execution of its fiduciary obligations to the trust.

These undisputed facts are taken from the summary judgment record. On September 21, 2005, defendant executed a note for $572,000, borrowed from U.S. Mortgage Corporation to purchase residential real property. To secure repayment under the terms of the note, defendant executed a mortgage, naming Mortgage Electronic Registration Systems Inc. (MERS) as nominee for U.S. Mortgage Corporation.

In Bank of New York v. Raftogianis, 418 N.J. Super. 323 (Ch. Div. 2010) the court described MERS and its role in assigning notes and mortgages to a mortgage pool trust in this way:

[MERS] administers a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Lenders participate as members of the MERS system. When mortgage loans are initially placed, lenders retain the underlying notes but can arrange for MERS to be designated as the mortgagees on the mortgages . . . .

Generally, one or more lenders will sell substantial numbers of mortgage loans they have issued to a pool or trust. Interests in that pool are then sold to individual investors, who receive certificates entitling them to share in the funds received as the underlying funds are repaid. That can occur without any notice to the debtors/mortgagors who remain obligated on the original notes. Other entities, generally called "servicers" are retained to administer the underlying loans. Those servicers or additional "subservicers" will be responsible for collecting and distributing the funds which are due from the debtors/mortgagers. Many are given the authority to institute and prosecute foreclosure proceedings.

[Id. at 332-33.]

Following defendant's default, MERS assigned the mortgage to plaintiff in its fiduciary capacity. As set forth in the February 28, 2006 Pooling and Serving Agreement (the Agreement), plaintiff serves as the trustee of a trust entitled "MASTR Asset Backed Securities Trust 2006-AB1, Mortgage Pass-Through Certificates, Series 2006-AB1" (the Trust). The terms of the Agreement, governed by New York law, required plaintiff to "take physical possession of and certify receipt of mortgage loan documents, including but not limited to assignments of mortgage and original promissory notes, prior to 90 days after the closing date of the [Trust.]" When the Agreement was executed, a pool of mortgages were transferred to the Trust.

The Agreement stated

if any Mortgage has been recorded in the name of [MERS] . . . no assignment of Mortgage in favor of the trustee will be required to be prepared or delivered and instead, the Master Servicer shall enforce the negotiations of the applicable Servicer under its related Servicing Agreement to cause the trustee to be shown as owner of the related Mortgage loan on the record of MERS . . . .
MERS, as nominee for US Mortgage Corp., formally assigned defendant's note and mortgage to plaintiff on August 24, 2011, roughly five years after the closing date.

In challenging plaintiff's right to foreclose, defendant does not dispute: the validity of the note or mortgage; her default; the amount owed; the fact the note and mortgage were assigned by MERS to plaintiff; that defendant properly received a notice of intent to foreclose; and plaintiff possessed the original note and mortgage, and complied with other statutory requirements prior to the filing its foreclosure complaint on August 14, 2012. Rather, defendant attacks the assignment as void under the terms of the Agreement because it occurred beyond the ninety-day period following the closing date of the Trust. As a result of this purported void transfer, defendant challenges plaintiff's right to foreclose.

Reviewing the arguments and pleadings filed by the parties, Judge Katherine R. Dupuis issued a written statement of reasons accompanying her summary judgment order. The judge found, because defendant was not a party to the Trust or the Agreement, she lacked the right to assert a claim alleged to be in contravention of the Agreement's terms. Judge Dupuis wrote:

Plaintiff has established the validity of the mortgage as defendant [has] admitted executing the documents. Defendant does not contest the existence of [the] indebtedness. The only remaining issue is whether plaintiff has standing to foreclose. As set forth above, the mortgage was assigned to US Bank National. As such, the plaintiff has standing to foreclose.

Defendant has not properly disputed the facts set forth in plaintiff's statement of material facts as defendant has not provided citations to the record that dispute plaintiff's facts. As such, defendant's motion is without merit and must be denied as plaintiff has established the material facts necessary to establish the right to foreclose.

Defendant moved for reconsideration, and following oral argument Judge Dupuis issued an order denying defendant's motion, stating:

The court did not fail to consider the case law presented by defendant in his previous brief and set forth during oral argument. Further, the court neither expressed its
decision based on a palpably incorrect or irrational basis nor failed to appreciate the significance of probative, competent evidence. The court again finds plaintiff has standing as, not only does it possess a note indorsed in blank, but it also has an assignment that predates the filing of the complaint.

Final Judgment of Foreclosure was filed on March 3, 2015. Defendant's motion to stay final judgment was denied by the trial judge as was her emergent application for a stay filed with this court.

We review a summary judgment order de novo, applying the same standard governing the trial judge. Davis v. Brickman Landscaping, Ltd., 219 N.J. 395, 405-06 (2014); Townsend v. Pierre, 221 N.J. 36, 59 (2015); Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Pursuant to Rule 4:46-2(c), we "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). "It [is] not the court's function to weigh the evidence and determine the outcome but only to decide if a material dispute of fact existed." Gilhooley v. Cty. of Union, 164 N.J. 533, 545 (2000).

"The very object of the summary judgment procedure . . . is to separate real issues from issues about which there is no serious dispute." Shelcusky v. Garjulio, 172 N.J. 185, 200-01 (2002). "[W]hen the evidence 'is so one-sided that one party must prevail as a matter of law,' the trial court should not hesitate to grant summary judgment." Brill, supra, 142 N.J. at 540 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202, 214 (1986)). If no genuinely disputed facts exist, we must "then decide whether the trial court's ruling on the law was correct," W.J.A. v. D.A., 210 N.J. 229, 237-38 (2012) (quoting Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010)), a review which is not deferential.

To succeed on a motion for summary judgment in a foreclosure proceeding, the mortgagee must establish a prima facie case of the right to foreclose. Thorpe v. Floremoore Corp., 20 N.J. Super. 34, 37 (App. Div. 1952); see also Central Penn Nat'l. Bank v. Stonebridge, Ltd., 185 N.J. Super. 289, 302 (Ch. Div. 1982). The mortgagee must present proof of execution, recording, and non-payment of the note and mortgage. Thorpe, supra, 20 N.J. Super. at 37.

State law provides a party seeking to initiate a foreclosure must "own or control" the underlying debt obligation at the time an action is initiated to satisfy standing to foreclose. Deutsche Bank Nat'l Trust Co. v. Mitchell, 422 N.J. Super. 214, 222 (App. Div. 2011) (finding bank did not have standing to file foreclosure complaint "because it did not have an assignment nor did it demonstrate that it possessed the note at that time."); see also Deutsche Bank Trust Co. Americas v. Angeles, 428 N.J. Super. 315, 318 (App. Div. 2012) ("[E]ither possession of the note or an assignment of the mortgage that predated the original complaint confer[] standing."). Absent proof of ownership or control, a plaintiff "lacks standing to proceed with the foreclosure action and the complaint must be dismissed." Mitchell, supra, 422 N.J. Super. at 222 (quoting Wells Fargo Bank, N.A. v. Ford, 418 N.J. Super. 592, 597 (App. Div. 2011)). Consistent with this principle, "there can be constructive delivery or possession, through the delivery of the instrument to an agent of the owner" and "the actual delivery of the notes to [the trust's] custodian, would presumably constitute constructive delivery to the . . . Trustee." Raftogianis, supra, 418 N.J. Super. at 331, 339.

Admittedly plaintiff was not the original lender and therefore must demonstrate it is an entity "entitled to enforce" the note under N.J.S.A. 12A:3-301 as "'a nonholder in possession of the instrument who has the rights of a holder.'" Ford, supra, 418 N.J. Super. at 597 (quoting N.J.S.A. 12A:3-301). Sufficient proofs include authenticated evidence by an individual with personal knowledge of the facts demonstrating plaintiff possesses defendant's original note and mortgage, ownership was acquired through a valid assignment, together with the note described in the mortgage, "with all interest, all liens, and any rights due or to become due thereon." Id. at 598-99; see Angeles, supra, 428 N.J. Super. at 318; R. 1:6-6.

On appeal, defendant presents the same challenge to the assignment of her note and mortgage to plaintiff. To understand the argument, we provide a brief statement of the law governing the nature of the Trust's formation. The Trust is a tax-exempt Real Estate Mortgage Investment Conduit (REMIC), as permitted by 26 U.S.C.A. § 860G(d)(1). Sections 860A through 860G of the Internal Revenue Code grant preferential pass-through taxation to REMIC beneficiary-investors in compliance with the Treasury regulations. 26 U.S.C.A. § 860A-860G.

Qualifying assets owned by a REMIC Trust include "qualified mortgages," that is, those principally secured by an interest in real property. See 26 U.S.C.A. § 860G(a)(3)(A)(i), (ii). The applicable Treasury regulations provide a REMIC is not formed until: "(i) The sponsor identifies the assets of the REMIC, such as through execution of an indenture with respect to the assets; and (ii) [t]he REMIC issues the regular and residual interests in the REMIC." CFR § 1.860D-1(c)(2)(i)-(ii). Also, REMIC mortgage loan assets must be acquired on the startup day of the REMIC or within three months thereafter, except a REMIC may exchange a defective loan for a "qualified replacement mortgage" for up to two years. 26 U.S.C.A. § 860G(a)(4).

26 U.S.C.A. § 860D(a)(4) permits a REMIC to contain some portion of non-qualified mortgages.

Defendant's sole argument is the note and mortgage were assigned from MERS well-beyond the ninety-day period following the date the Trust closed, in violation of the terms of the Agreement, as required to maintain its status as a qualified REMIC Trust. Since plaintiff may not act in contravention of the Trust, its late acquisition of the note and mortgage is void. We reject this argument.

We consider the challenge under New York law, which governs the Trust. "[U]nder New York law, only the intended beneficiary of a private trust may enforce the terms of the trust." Rajamin v. Deutsche Bank Nat'l Trust Co., 757 F.3d 79, 88 (2d Cir. 2014). Here, defendant is neither a party to nor a beneficiary of the Trust. Accordingly, she lacks standing to challenge any alleged violation of the Agreement. See, e.g., Ibid.; Bank of N.Y. Mellon v. Gales, 116 A.D.3d 723, 725 (N.Y. App. Div. 2014) (finding defendant mortgagor lacked standing to challenge actions that allegedly violated the subject lender's Policy Service Agreement); In re Richmond, 534 B.R. 479, 491 (Bankr. E.D.N.Y. 2015) ("It is well established that a non-party to a [Agreement] lacks standing to assert non-compliance with the terms of that agreement as a defense to enforcement of a note and mortgage by a trust."); In re Estate of McManus, 390 N.E.2d 773, 774 (N.Y. 1979) (holding those not beneficially interested in a trust "lack standing to challenge the actions of its trustee"). "[C]ourts invariably deny mortgagors third-party status to enforce [Pooling and Serving Agreements]." Reinagel v. Deutsche Bank Nat. Trust Co., 735 F.3d 220, 228 n.29 (5th Cir. 2013); see also Restatement (Third) of Trusts § 94(1) (2012) ("A suit against a trustee of a private trust to enjoin or redress a breach of trust or otherwise to enforce the trust may be maintained only by a beneficiary or by a co-trustee, successor trustee, or other person acting on behalf of one or more beneficiaries."). Regardless of whether the assignment violates the Agreement, defendant has no standing or authority to advance such a challenge.

Defendant maintains despite a lack of standing to generally challenge a trustee's actions, she may assert a defense to plaintiff's foreclosure by proving the trustee's actions in receiving assignment of her note and mortgage was void, and thereby demonstrating plaintiff did not own the note and mortgage when its complaint was filed. See Bank of Am. Nat'l Ass'n v. Bassman FBT, L.L.C., 981 N.E.2d 1, 7 (Ill. App. Ct. 2012) ("[A] borrower may raise a defense to an assignment that would render [it] . . . void."). The argument is erroneous. "[A] mortgagor whose loan is owned by a trust, does not have standing to challenge the plaintiff's possession or status as assignee of the note and mortgage based on purported noncompliance with certain provisions of the [Pooling and Serving Agreement]." Wells Fargo Bank, N.A. v Erobobo, 127 A.D.3d 1176, 1178 (N.Y. App. Div. 2015). Because unauthorized acts of a trustee can be ratified, ultra vires actions are voidable and not void. Rajamin, supra, 757 F.3d at 90; Gales, supra, 116 A.D.3d at 725.

It is also well established under New York law that a trustee's considered ultra vires conduct in contravention of a trust agreement's terms, are voidable acts, and not void as defendant suggests. Mooney v. Madden, 193 A.D.2d 933, 933-34 (N.Y. App. Div. 1993) ("A trustee may bind the trust to an otherwise invalid act or agreement which is outside the scope of the trustee's power when the beneficiary or beneficiaries consent or ratify the trustee's ultra vires act or agreement."). See also Rajamin, supra, 757 F.3d at 90 (stating under New York law, transfers into a trust in violation of a Pooling and Servicing Agreement are merely voidable). --------

We conclude plaintiff has no standing to challenge the plaintiff's compliance or violation of the Agreement. Because there is no dispute regarding the validity of the note and mortgage, the amount of indebtedness, the existence of the assignment or plaintiff's compliance with New Jersey's statutory prerequisites to commence foreclosure, summary judgment was properly granted. Great Falls Bank v. Pardo, 263 N.J. Super., 388, 394 (Ch. Div. 1993), aff'd 273 N.J. Super. 542 (App. Div. 1994). Further, we discern no abuse of discretion in denying defendant's motion for reconsideration. Judge Dupuis properly evaluated the probative, competent evidence and her legal conclusion was not "palpably incorrect." Palombi v. Polombi, 414 N.J. Super. 274, 288 (App. Div. 2010).

Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.


Summaries of

U.S. Bank Nat'l Ass'n v. Riley

May 18, 2016
DOCKET NO. A-3322-14T4 (N.J. Super. May. 18, 2016)
Case details for

U.S. Bank Nat'l Ass'n v. Riley

Case Details



Date published: May 18, 2016


DOCKET NO. A-3322-14T4 (N.J. Super. May. 18, 2016)