Opinion
DOCKET NO. A-4160-13T3
07-16-2015
U.S. BANK NATIONAL ASSOCIATION, as Trustee for MASTR Alternative Loan Trust 2005-06, Plaintiff-Respondent, v. NIKOLA RADISIC; MRS. NIKOLA RADISIC, his wife; LAURA RADISIC; MR. RADISIC, husband of Laura Radisic, Defendants-Appellants, and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., as a nominee for Capital One Home Loans, LLC, its successors and assigns; and DEL RIO VINEYARDS LLC, Defendants.
Kevin Hanly argued the cause for appellants. Henry F. Reichner argued the cause for respondent (Reed Smith LLP, attorneys; Mr. Reichner, of counsel; Alex G. Gross, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Ostrer and Tassini. On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. F-023335-12. Kevin Hanly argued the cause for appellants. Henry F. Reichner argued the cause for respondent (Reed Smith LLP, attorneys; Mr. Reichner, of counsel; Alex G. Gross, on the brief). PER CURIAM
Plaintiff U.S. Bank National Association (US Bank), as Trustee for MASTR Alternative Loan Trust 2005-06, brought a foreclosure action against defendant borrowers and mortgagors Nikola and Laura Radisic, who acknowledged that they have long been in default on their loan and note, secured by their mortgage. The Chancery Division concluded that plaintiff had demonstrated its right to foreclose, entered an order for default, striking defendants' answer, and treating the action as uncontested. R. 4:64-1(c). The Chancery Division then directed that the matter be referred to the Office of Foreclosure as uncontested and, on plaintiff's motion, final judgment was entered. R. 4:64-1(d). Defendants appeal, asserting that plaintiff lacked standing to bring this action and that the loan was predatory. We have considered the applicable law and the record and affirm.
Facts and Procedural History
In 2000, defendants purchased a home in Wyckoff, Bergen County. By 2005, defendants had three mortgages on the property, securing notes with principals totaling more than $624,000. Defendants have not alleged that they were unable to make their monthly payments of principal, interest, taxes and insurance for those mortgages.
Defendants started a wine importing and distribution business and they applied to Geneva Mortgage Corp. (Geneva) for a loan of $675,000. Geneva's appraisal showed that, as of June 28, 2005, the property had a value of $968,000. At the August 2005 refinance closing (settlement), defendants, with counsel, signed documents, including an updated application, note for the loan, and mortgage securing the loan. The note showed the loan principal: $675,000; fixed interest rate: 6.375%; and 30-year term. The loan, payable to Geneva, was underwritten solely by the defendants' property, not by their income.
The mortgage named Mortgage Electronic Registration Systems, Inc., (MERS), nominee of Geneva and its successors and assigns, as mortgagee. The documents stated that, without notice to the borrowers, the note could be sold and that such a sale would result in a change in the loan servicer that would collect the periodic payments due to repay the loan under the note and security instrument. The borrower would be given written notice of the change in loan servicer. The refinancing resulted in a monthly mortgage payment of about $5,106 per month, about 4% more than the total of defendants' previous monthly payments. Most of the $675,000 paid off defendants' prior mortgages and, after closing costs, defendants received cash of about $36,000. On August 18, 2005, the mortgage was recorded with the county clerk.
Defendants are not elderly and they are not minorities without access to mainstream credit options. Defendants do not allege that this was a high cost loan and they do not allege that closing costs were improper or unreasonable. Defendants do not deny that they received disclosures required by law or that disclosures were inaccurate. Defendants did not assert their right to unilaterally rescind. Defendants did not assert that the loan was "predatory," until this litigation.
Bank of New York v. Raftogionis, 418 N.J. Super. 323 (Ch. Div. 2010) describes MERS, which facilitates the securitization of mortgage loans.
[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 . . . ."
[Id. at 332 (citing Landmark National Bank v. Kessler, 216 P.3d 158, 168 (Kan. 2009); Mortgage Elec. Reg. Sys. Inc. v. Neb. Dep't Banking, 704 N.W.2d 784 (Neb. 2005))]
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.
[Bank of New York v. Raftogionis, supra, 418 N.J. Super. at 333.]
The Pooling and Servicing Agreement (PSA) relevant here is dated November 1, 2005 and provides for the following: Wells Fargo Bank, N.A., (Wells Fargo) serves as the PSA master servicer, trust administrator, and custodian for the PSA trustee, which is US Bank. America's Servicing Company (America's Servicing) is a division of Wells Fargo. UBS Real Estate Securities, Inc., is the PSA transferor. Mortgage Asset Securitization Transactions, Inc., (MAST) is the PSA depositor. The trust, for federal income tax purposes, consists of three Real Estate Mortgage Investment Conduits, called "REMICs," under the Internal Revenue Code. The trust cut-off date is November 1, 2005 and closing date is November 29, 2005; but, from time to time, mortgage loans may be added to or removed from the Trust. Original notes are to be delivered to the trust. Transfers of mortgage notes are as follows: the PSA depositor (MAST) delivers to the PSA custodian (Wells Fargo) the original mortgage note, endorsed by manual or facsimile signature in blank. Pursuant to the PSA and the laws of the State of New York, the PSA depositor (MAST) establishes the express trust. Lenders convey mortgage loans to US Bank, the PSA trustee, which issues securities. Cash flows from payments on mortgage loans benefit investors in the securities. The PSA is filed with the Securities Exchange Commission (SEC) and is available to the public on line.
On February 1, 2006, US Bank, the PSA trustee, acquired the original note, duly endorsed in blank, and mortgage; US Bank has remained in possession of them, according to the certification submitted in support of plaintiff's motion for summary judgment. From 2005 until September 2010, defendants made the payments on their note, making payments to America's Servicing, the division of Wells Fargo.
Defendants failed to make their payments due for October 2010 and thereafter. In October 2011, Wells Fargo sent to defendants a Notice of Intention to Foreclose (NOI), which identified their lender: US Bank, the PSA trustee. Defendants have not denied receipt of the NOI. Further, defendants do not allege that any other person or entity at any relevant time made a demand upon them for payment on the note conflicting with the claim here.
On or about December 6, 2011, MERS executed the assignment of defendants' mortgage, formally assigning it to US Bank and, on December 21, 2011, the assignment of mortgage was recorded, according to the certification submitted in support of the motion for summary judgment.
On October 16, 2012, the complaint was filed and on December 10, 2012, the answer and defenses were filed. The parties engaged in discovery. Defendants have admitted that they had the PSA and prospectus and admit default since October 1, 2010. On May 23, 2011, the Chancery Division judge conducted a conference and determined that additional information requested by defendants was irrelevant.
On September 10, 2013, US Bank filed its notice of motion for summary judgment, supported by exhibits, including the certification (referred to above) of Michael Allen Foley. Foley is Vice President for Loan Documentation for Wells Fargo, Trustee for plaintiff MASTR Alternative Loan Trust 2005-06. Wells Fargo has maintained loan records related to defendants' loan and those records are made in the ordinary course of its regularly conducted business activities, at or about the time of the event recorded, by or from information transmitted by a person with knowledge of their substance. See N.J.R.E. 803(c)(6). Foley has had complete access and authorization to review relevant business records and he has reviewed the records related to this matter. He has personal knowledge of the circumstances described above, including MERS assignment of the mortgage, recording of the assignment, and US Bank's acquisition of the original note and mortgage. Wells Fargo, as agent for US Bank, as trustee for MASTR Alternative Loan Trust 2005-06, has actual possession of the note, which is duly endorsed in blank. The copies of the note, mortgage and assignment of mortgage submitted with the summary judgment motion papers were true copies of those documents.
On October 13, 2013, defendants filed opposition to the motion. Defendants admitted executing the note and mortgage and that since October 2010, they have been in default and they did not challenge MERS's ability to assign their mortgage. The Chancery Division adjourned the trial date to allow oral argument on the motion on October 25, 2013. Defendants argued that plaintiff had not shown that it had standing. Plaintiffs pointed out that borrowers did not have standing to challenge compliance with a PSA.
The Chancery Division accepted and relied on plaintiff's certification and, in that regard, we find no abuse of discretion. On October 25, 2013, the Chancery Division entered an order for default and directed that the matter be referred to the Office of Foreclosure as an uncontested matter. R. 4:64-1(d). On February 6, 2014, plaintiff moved for entry of final judgment and on April 7, 2014, final judgment was entered.
The Chancery Division judge issued a letter setting forth enumerated reasons for his order:
The plaintiff has established these material facts that demonstrate its right to foreclose.
1. On August 2, 2005, defendants borrowed $675,000 and signed a note to Geneva Mortgage Corporation.
2. That same day, defendants signed a mortgage to MERS as agent for Geneva Mortgage Corporation. This mortgage was recorded.
3. This mortgage was assigned to plaintiff by MERS's assignment dated December 6, 2011. This assignment was recorded.
4. The [NOI] in form complying with the requirements of the statute [N.J.S.A. 2A:50-56] was sent October 2, 2011 by America's Servicing Co., plaintiff's servicer, to defendants, in which it identified the plaintiff as the lender.
5. Defendants defaulted in their payments on October 1, 2010, and remain in default.
Standing to sue is conferred by the assignment of the mortgage predating the complaint; possession of the note is not necessary to commence suit. However, the certification sets ownership as of February 1, 2006, a date prior to the filing of the complaint.
Defendants do not deny the debt and do not assert that they face conflicting claims as to whom they owe the money. Therefore, they have no standing to challenge the assignment (which is presumed to be valid in the absence of such an asserted conflict of claimants) or to challenge a violation of the governing trust agreement, they not being parties thereto.
Defendants' assertions of predatory lending are self-proclaimed and conclusionary, not addressed in any facts advanced in their opposing certification.
On May 16, 2014, defendants filed this appeal.
Conclusions of Law
Defendants admit default, but seek relief from the judgment, asserting that the Chancery Division erroneously failed to accept their arguments that plaintiff lacks standing and that there was predatory lending.
Standing
The Superior Court is a court of general jurisdiction. N.J. Const., Art.VI, § III, ¶ 2. Our judicial policy, and not constitutional authority, requires that a party have standing. Deutsche Bank Nat'l Trust v. Russo, supra, 429 N.J. Super. at 101 (citing DeVesa v. Dorsey, 134 N.J. 420, 428 (1993), contrasting the Superior Court with federal courts). Standing is a "judicially constructed and self-imposed limitation" that governs whether a matter is appropriate for judicial review, not whether the court has power to review the matter. Deutsche Bank Nat'l Trust v. Russo, supra, 429 N.J. Super. at 101 (quoting N.J. Citizen Action v. Riviera Motel Corp., 296 N.J. Super. 402, 411 (App. Div. 1997), appeal dismissed, 152 N.J. 361 (1998) (further citation omitted)).
A bond or note documenting a debt secured by a mortgage may be negotiable or nonnegotiable. Bank of New York v. Raftogionis, supra, 418 N.J. Super. at 328. Since a mortgage secures the mortgagor debtor's obligation, where there is default, the mortgagee may force sale of the mortgaged property to satisfy the obligation. Id. at 327-28. The party seeking foreclosure of a mortgage must generally own or control the underlying debt. Ibid. (citing Gotlib v. Gotlib, 399 N.J. Super. 295 (App. Div. 2008); Garroch v. Sherman, 6 N.J. Eq. 219 (Ch. 1847); Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619 (Mo. App. 2009)).
The Uniform Commercial Code's (UCC's) Article (Chapter) 3, adopted as N.J.S.A. 12A:3-101 to -605, governs negotiable instruments and a mortgage note is such a negotiable instrument. N.J.S.A. 12A:3-102(a), -104(e). The UCC states, "An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument." N.J.S.A. 12A:3-203(a). "Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course," except "if the transferee engaged in fraud or illegality affecting the instrument." N.J.S.A. 12A:3-203(b).
Under the UCC, a "[p]erson entitled to enforce an instrument" includes a holder of the instrument and such "a person entitled to enforce the instrument even though the person is not the owner of the instrument." N.J.S.A. 12A:3-301. See also N.J.S.A. 12A:3-302 (defining "holder in due course.") That is, under the UCC, the enforcing party must be a holder or nonholder in possession of the rights of the holder. The UCC does not specify that physical possession is necessary for a holder to enforce an instrument and courts recognize that delivery of the instrument to an agent of the owner can constitute constructive delivery or possession. N.J.S.A. 12A:3-301; Bank of New York v. Raftogionis, supra, 418 N.J. Super. at 331 (citing Midfirst Bank, SSB v. C.W. Haynes Corp., 893 F.Supp. 1304, 1314-15 (D.S.C. 1994); Fed. Deposit Ins. Corp. v. Linn, 671 F.Supp. 547, 553 (N.D.Ill. 1987); Corporacion Venezolana de Fomento v. Vintero Sales, 452 F.Supp. 1108, 1117 (S.D.N.Y. 1978)).
We have held that "either possession of the note or an assignment of the mortgage that predate[s] the original complaint confer[s] standing." Deutsche Bank Trust Co. Americas v. Angeles, 428 N.J. Super. 315, 318 (App. Div. 2012) (citing Deutsche Bank Nat'l Trust Co. Americas v. Mitchell, 422 N.J. Super. 214, 216, 225 (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." Bank of New York v. Raftogionis, supra, 418 N.J. Super. at 331, 339.
Defendants are not parties to and are not beneficiaries of the PSA, so they do not have standing to assert violation of the PSA Trust. See Rajamin v. Deutsche Bank Nat'l Trust Co., 757 F.3d 79, 86 (2d Cir. 2014) (stating only a party to a contract or a third party beneficiary of the contract may enforce the contract); Reinagel v. Deutsche Bank Nat. Trust Co., 735 F.3d 220, 228 n. 29 (5th Cir. 2013) ("courts invariably deny mortgagors third-party status to enforce PSAs"). In any event, there is no evidence of a violation of the PSA.
Defendants cite In re Kemp, 440 B.R. 624, 631 n.13 (Bankr. D. N.J. 2010), and argue that without physical possession of the instruments, plaintiff lacks standing. In response, plaintiff cites In re Phillips, 491 B.R. 255, 263-64 (Bankr. D. Nev. 2013) (declining to follow Kemp as contrary to the history of negotiable instruments and the UCC). We accept that possession may be constructive.
There is no evidence of fraud or mistake. Defendants have not contradicted the evidence of assignment and constructive possession. No other entity has come forward to demand payment. We see no error in the Chancery Division's accepting assignment and possession preceding the filing of the complaint. Accordingly, we reject defendants' argument that there is no standing.
Predatory Lending
It is generally presumed that parties act in their own self-interests and "the relationship between lenders and borrower is conducted at arms-length." United Jersey Bank v. Kensey, 306 N.J. Super. 540, 553 (App. Div. 1997), certif. denied, 153 N.J. 402 (1998). Banks are not required to disclose to borrowers the manner in which they internally analyze and underwrite loans and lenders are not required to disclose to borrowers "information they may have concerning the financial viability of the transactions" that borrowers are about to enter. United Jersey Bank v. Kensey, supra, 306 N.J. Super. at 557 (quotation omitted).
Defendants are not elderly and they are not minorities who lack access to mainstream credit options. See Nowoleska v. Steele, 400 N.J. Super. 297 (App. Div. 2008) (holding that in an ejectment action where the defendant was an elderly woman who had lived in a home for forty-three years and who asserted defenses, including that the lending transaction was fraudulent, the judgment of default should be vacated). Defendants have produced no proof that any fraud caused them to rely to their detriment on a material misrepresentation or that the lender otherwise caused their default. Deutsche Bank Nat'l Trust v. Russo, supra, 429 N.J. Super. at 102 (citing Jewish Center of Sussex Cnty. v. Whale, 86 N.J. 619, 624 (1981)).
There is no evidence that closing costs were improper or unreasonable or that defendants did not receive disclosures required by law or that disclosures were inaccurate. Defendants have not shown that this was a high cost loan or that the transaction violated the Truth-in-Lending Act (TILA), 15 U.S.C.A. § § 1601 to 1667, or the Home Ownership and Equity Protection Act, 15 U.S.C.A. § 1602(aa), a part of TILA. Defendants did not exercise their right to unilaterally rescind. See 12 C.F.R. § 226.23(a)(3). Defendants were not victims of any statutory violation. See Assocs. Home Equity Servs., Inc., v, Troup, 343 N.J. Super. 254 (App. Div. 2001).
Defendants did not assert that the loan's interest rate or terms were "predatory" until this litigation. Defendants, when in the Chancery Division, did not argue violation of the Consumer Fraud Act (CFA); but in their brief they refer to a possible violation of the CFA. N.J.S.A. 56:8-1 to -106. Since defendants did not raise this issue before the trial court and they did not adequately present it to us, we do not reach it. Soc'y Hill Condo. Ass'n, Inc. v. Soc'y Hill Assocs., 347 N.J. Super. 163, 176 (App. Div. 2002) (an issue not briefed is waived); Miller v. Reis, 189 N.J. Super. 437, 441 (App. Div. 1983) (issues raised in a conclusory statement in a brief and not sufficiently briefed are not considered on appeal).
In sum, the record simply does not support predatory lending.
The validity of the mortgage and default were not contested and the pleadings show no genuine issue relative to plaintiff's right to foreclose. R. 4:64-1(c). Accordingly, the Chancery Division correctly concluded that the matter was uncontested, and entered default, after which final judgment was appropriately entered.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION