Ball v Bank of New York as Trustee
The Defendants claim that the Plaintiffs have not stated sufficient facts to support a claim for wrongful foreclosure. The Court disagrees.
The Plaintiffs clearly allege that no Defendant owned or possessed their individual mortgage notes at the time there was a foreclosure or threatened foreclosure of the Plaintiffs' property. Under Missouri law, a foreclosure is invalid "when a circumstance denies the mortgagee the right to cause the power of sale to be exercised." Graham v. Oliver, 659 S.W.2d 601, 603 (Mo. Ct. App. 1983). One circumstance "that may render a foreclosure sale void" arises when "the foreclosing party does not hold title to the secured note." Williams v. Kimes, 996 S.W.2d 43, 45(Mo. 1999) (en banc); see also, Morris v. Wells Fargo Home Mortg., No. 4:11CV1452 CEl, 2011 WL 3665150, at *2 (E.D. Mo.Aug. 22, 2011) ("A court may set aside a foreclosure sale as invalid when a circumstance denies the mortgagee the right to cause the power of sale to be exercised, such as when the person causing the foreclosure does not actually hold title to the note .... ").
Another is when the foreclosing party lacks possession of the note. In re Washington, 468 B.R. 846, 853 (Bankr. W.D. Mo. 2011). Whether possession or title is required depends on
whether the note is negotiable or non-negotiable. See, Mo. Rev. Stat. §§400.3-301, 400.3-309, 400.1-201(20); Dale Whitman, How Negotiability Has Fouled Up the Secondary Market, and What to Do About It, 37 Pepp. L. Rev. 737, 748 (2010).
A number of cases have held that defects in the securitization process cannot be raised by a mortgagee to support a wrongful foreclosure claim. These courts seem to reason that, because the mortgagees are not parties to any of the securitization contracts, they have no standing to claim noncompliance with these agreements. See, e.g., In re Cook, 457 F.3d 561,567-68 (6th Cir. 2006) (ruling that the failure to record an assignment of a mortgage as required by contract impacted the relationship of the parties to the contract, but did not impede the ability to enforce the mortgage against thirdparties); In re Correia, 452 B.R. 319, 324 (1 st Cir. B.A.P. 2011) ("[T]he Debtors lacked standing to challenge the mortgage's chain of title under the PSA .... The Debtors cannot show they were a party to the contract .... "); Bittinger v. Wells Fargo Bank NA., 744 F. Supp. 2d 619,625-26 (S.D. Tex 2010) (rejecting mortgagor's claim of wrongful foreclosure because mortgagor was not a party or beneficiary under the Pooling and Servicing Agreement and thus had "no ability under Texas law to sue for breach of contract. ").
At least one court applying Missouri law has followed this trend. In re Washington, 2011 WL 6010247, at *5 (Bankr. W.D. Mo. 2011). But the Plaintiffs do not seek to enforce the contracts or affect the relationship between the parties to the contracts. Rather, the Plaintiffs point to defects in the securitization process as evidence that neither title nor possession of the note passed to the trustee who sought to foreclose their mortgages. Thus, the Plaintiffs seek only to use the breaches as evidence that the party seeking to foreclose is not the owner of their note. Missouri law is clear that a court may set aside a foreclosure sale as invalid when a circumstance denies the mortgagee the right to cause the power of sale to be exercised, Morris v. Wells Fargo Home Mortg., No. 4:11CV1452 CEl, 2011 WL 3665150, at *2 (E.D. Mo. Aug. 22, 2011), and ownership of the note is a prerequisite to foreclosure in Missouri, Williams v. Kimes, 996 S.W.2d 43,45 (Mo. 1999) (en banc); In re Washington, 468 B.R. 846,853 (Bankr. W.D. Mo. 2011).