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Brett L. Messinger Daniel Ginzburg One Riverfront Plaza 1037 Raymond Blvd., Suite 1800 Newark, NJ 07102-5429 (973) 424-2000 (tel) (973) 424-2001 (fax) Attorneys for Defendant Mortgage Electronic Registration Systems, Inc. UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY JERRY LEE GASKINS, EDITH MAGLIORE, Plaintiffs, v. COUNTRYWIDE BANK, FSB, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; BAC HOME LOANS SERVICING, LP, FKA COUNTRYWIDE HOME LOANS SERVICING, LP; BANK OF AMERICA, N.A., successor by merger to BAC HOME LOANS SERVICING, LP, FKA COUNTRYWIDE HOME LOANS SERVICING, LP; Cynthia Santos, an individual; D.M. Unsworth, an individual and Official Notary Public; and Does 1-5, inclusive, Defendants. Case No. 2:12-cv-06682 (DMC) (JAD) Motion Return Date: February 19, 2013 Document Electronically Filed Oral Argument Requested
MEMORANDUM OF LAW OF DEFENDANT MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. IN SUPPORT OF ITS MOTION PURSUANT TO RULE 12(b)(6) TO DISMISS THE COMPLAINT
DM1\3687177.1
Defendant Mortgage Electronic Registration Systems, Inc. (MERS) submits this brief in support of its motion to dismiss the Complaint filed by plaintiffs Jerry Lee Gaskins and Edith Magliore (Plaintiffs) for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). I. PRELIMINARY STATEMENT Plaintiffs commenced this action seeking a declaratory judgment that their promissory note and mortgage are split and therefore their mortgage loan has become unsecured. Plaintiffs claim is based on a lack of understanding of the law of negotiable instruments and mortgages, including the role that MERS plays in the mortgage industry. Plaintiffs believe that MERS attempted to assign their promissory note without ever having been its holder, and therefore split the note from Plaintiffs mortgage. Plaintiffs are incorrect. In point of fact, the mortgage named MERS as nominee for the original payee on the promissory note, as well as each of the original payees successors and assigns. Plaintiffs promissory note was then
transferred to various successor holders by way of a series of indorsements pursuant to Article 3 of the Uniform Commercial Code (UCC). Following Plaintiffs default on their loan
obligations, MERS assigned Plaintiffs mortgage to the present holder of the promissory note. Thus, contrary to Plaintiffs conclusion, the note and mortgage were never split. Rather, the holder of Plaintiffs note has always been the owner of Plaintiffs mortgage. Accordingly, Plaintiffs are not entitled to the declaratory judgment that they seek. The Complaint should be dismissed for failure to state a claim. II. STATEMENT OF FACTS Because this is a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the following facts are accepted as true for purposes of this motion only.
DM1\3687177.1
A. A
Plaint tiffs Obtain a Loan In the Amou of $1,30 n n unt 00,000 and Mortgage Their Prope erty In Shor Hills, New Jersey As Collateral For Repaym rt w s ment of the Loan
Plaintiffs are husband and wife who are owners o real prope common known a 225 d a of erty nly as Hartshorn Drive, Short Hills, Essex Cou n S unty, New Jersey 07078-3225 ( (the Property). (Declarat tion of Dan Ginzbur (Ginzbu Decl.), Ex. 1 Complaint 3). niel rg urg Plai intiffs
obtained title to the Property on or about December 1, 2004. (Ginzburg D e o t Decl., Ex. 1 Complain 16). nt On August 27, 2007, Plaintiff Jerr Lee Gask O 2 P ry kins (Gask kins) obtain a loan from ned defendan Countryw nt wide Bank FSB (Coun F ntrywide FS SB) in the amount of $1,300,000 (the 0 Loan). (Ginzburg Decl., Ex. 1 Comp plaint 17; A Affidavit of Paul Myers (Myers A f s Aff.), Ex. A Promissor Note1 1) As eviden of the L ry ). nce Loan, on Aug 27, 200 Plaintiff Edith gust 07, Magliore as attorney in fact for Jerry Lee Gaskins, exe e, y G ecuted a prom missory note to Country e ywide FSB in th amount of $1,300,000 (the Note (Myers A Ex. A Note 1 he 0 ). Aff., A 1). Following Ga askins execu ution of the Note, it was indorsed a follows: fr s as rom Country ywide oans, Inc.; th from C hen Countrywide Home Loa ans, Inc. back to FSB to Countrywide Home Lo Countryw wide FSB; th from Co hen ountrywide FSB in blank to any bea F k arer. (Myers Aff., Ex. A Promisso Note at 3). ory 3 To secure re T epayment of the Loan, also on A f , August 17, 2007, Plain ntiffs execut a ted mortgage to MERS as nomi e S, inee for Co ountrywide and its su uccessors a and assigns (the tgage Mortgag ge). (Ginz zburg Decl., Ex. 2 Mortgage at 1, C; Mo M t ortgage at 2) The Mort ). was duly recorded in the Essex County Reco y n C orders Offic e and assign Instrume No. 7128 ned ent 8773.
1
Althou not anne ugh exed to the Complaint, the Promis ssory Note i referenced throughou the is d ut Complain and it see nt ems to have been Plaint e tiffs intenti to annex the Promis ion x ssory Note t the to Complain (Ginzbur Decl., Ex 1 Com nt. rg x. mplaint 17) . Therefore, the Promis ssory Note sh hould be review wable by the Court on th motion to dismiss. S Pension B e his o See Benefit Gua Corp. v. W ar. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993). I F .
B. B
Plaint tiffs Mortg gage is Assig gned to Ban of Americ N.A. nk ca,
On May 10, 2011, Plainti O 2 iffs Mortga was assig age gned to BAC Home Loa Servicing LP, C ans g fka Coun ntrywide Ho ome Loans Servicing LP (BAC). (Ginzburg D S P Decl., Ex. Assign 3 nment of Mortg gage). The Assignment of Mortgage was duly r A e recorded in t Essex Co the ounty Recor rders Office an assigned Instrument No. 11037 nd d t 7955. (Gin nzburg Decl., Ex. 3 Assignme of ent Mortgage e). The Assignm T ment of Mort tgage states that, along with the m mortgage, ME ERS is assig gning the note and obl e(s) ligations the erein describ and the money due and to become due the bed ereon with interest . . . . (G Ginzburg De Ex. 3 Assignme of Mortg ecl., ent gage). Plaint tiffs capitalize on this state ement and be elieve that it signifies MERS assign t M nment of the Note. (Gin e nzburg Decl., Ex. 1 Complaint 21 However as detailed below, that is not the c 1). r, d t case. C. C Plaint tiffs File the Present Ac e ction, Whic Fails to S ch State a Claim m
On October 23, 2012, Plaintiffs com O 2 mmenced the present ac e ction. The C Complaints sole s cause of action is on for a declaratory judg ne gment that: ( Countryw (i) wide FSB is the holder o the of Note and BAC is the owner of th Mortgage (ii) the Mo d e he e; ortgage is un nenforceable (iii) the Note is e; enforceab but unsecured. As described mo fully belo Plaintiff Complain is based o the ble d ore ow, fs nt on erroneou belief tha MERS co us at onveyed the Note. Tha is not the case. ME at e ERS was m merely Plaintiffs mortgagee as nomine for each of the hold s e, ee ders of the N Note. In tur the Note was rn, e transferre through a series of in ed ndorsements to its prese holder. T s ent Thus, MERS identity a the as mortgage is immate ee erial to the tr ransfer or enforcement of the Note. As a result, the Complain fails to sta a cause o action and should be d A nt ate of d dismissed.
III.
A motion to dismiss purs d suant to Rule 12(b)(6) m be grant when, ac may ted ccepting all wellpleaded allegations in the comp plaint as tru and viewi them in the light m ue ing n most favorab to ble plaintiff, plaintiff is not entitled to relief. In re Burling d I gton Coat F Factory Sec. Litig., 114 F.3d . 420 owever, fac ctual allegati tions must b enough to raise a rig to be o ght 1410, 14 (3d Cir. 1997). Ho relief abo a specul ove lative level. Bell Atl. Corp. v. Two C ombly, 127 S Ct. 1955, 1965 (2007) see S. ); also Ashc croft v. Iqba 129 S. Ct. 1937, 1949-50 (2009) ( al, (discussing p plausibility s standard). A pleading that offers l A t labels and co onclusions o a formul recitation of the elem or laic n ments of a cau of action will not do. Id. at 1949. T use n a This Court i not com is mpelled to a accept unwarran nted inferen nces, unsupp ported conc clusions or legal concl lusions disg guised as fa actual allegation ns. Baraka v. McGree a evey, 481 F.3d 187, 211 (3d Cir. 20 1 007). When deciding a Rule n 12(b)(6) motion to dismiss for failure to sta a claim, this Court m conside the comp d f ate may er plaint, exhibits attached to the comp o plaint, matte of publ record, and undisp ers lic putedly auth hentic documen if the pla nts aintiffs clai ims are bas upon tho docume sed ose ents. Pensio Benefit G on Guar. Corp. v. White Conso Indus., 99 F.2d 1192 1196 (3d C 1993). ol. 98 2, Cir. The Declarato Judgmen Act, 28 U.S.C. 220 provides that a court may declar the T ory nts U 01, s t re rights and other legal relations of any interested party see d l f eking such d declaration . . . . Zimme erman v. HBO Affiliate Gr roup, ACS, 834 F.2d 1163, 1170 (3d Cir. 19 1 987) (empha asis in orig ginal). However whether to do so is wit r, o thin the soun discretion of the trial court. Id. at 1170. nd n t Here, the Com H mplaint is ba ased on a mi isinterpretati of the law Accordin ion w. ngly, it shou be uld dismissed for failure to state a cla d aim.
B. B
The Complaint Should Be Dismiss B sed Becaus Contrar to Plaintiffs se, ry Asser rtion, There Was Never Any Split of the No and Mor e r t ote rtgage
The gravamen of Plaintif Complaint is that the Note and M T n ffs e Mortgage became irrevocably split because while the Mort b tgage was assigned to BAC (see Ginzburg D a Decl., Ex. 3 Assignm ment of Mort tgage), Coun ntrywide FSB remained the payee o the Note (See Ginz d on e. zburg Decl., Ex 1 Com x. mplaint 26, 38-41). This erroneo assertion entirely om the sequ T ous n mits uence of events by which the Note was conveyed to a series o f holders, ea of whom retained M s s t ach m MERS as their nominee for mortgagee of record. Under these circumstan n r e nces, the No and Mort ote tgage were alw ways held and owned, res d spectively, by the same e b entity. 1. The Note Was Tra N ansferred In Accordance With the Re e equirements of Article 3 of the UC Which Deals With Conveyances of Negotiab Instrume CC, D C s ble ents
Article 3 of the UCC deals with neg A t gotiable inst truments like the Note, and provide the e es mechanis through which the ability to enforce the N sm e Note was tr ransferred f from the ori iginal payee, Countrywide FSB. A promissory note is one type of inst y e trument und the UCC. See N.J. S der . Stat. 12A:3-104. Under th UCC, one class of persons entitle to enforce an instrum he e ed e ment is called a holder. Id. d 12A:3-301. A ho older is defi ined either as any person in possess a n sion of an in nstrument payable to bearer or, where the instrume is payab to a spec r t ent ble cific person, who is in p possession o the of instrumen Id. 12A nt. A:1-201(20). A person wh is not the original pa ho e ayee of an in nstrument can become a holder thr rough negotiat tion. N.J. Stat. 12A:3-202. . Negotiation is defined as deliv n very of a b bearer
instrumen or the de nt, elivery of the instrument and indors t sement by th payee on the instrum he ment if of the instru ument is pa ayable to a specific pers s son. Id. A indorsem An ment is the signature o an e authorize person fo the purpo of negot ed or ose tiating the i instrument. Id. 12A:3 3-204. Last a tly,
bearer instrument is one that is endorsed in blank and which may be enforced by any party who possesses it. Id. Here, following Gaskins execution of the Note to Countrywide FSB, it was indorsed to Countrywide Home Loans, Inc., then back to Countrywide FSB and then indorsed in blank by Countrywide FSB. (See Myers Aff., Ex. A Note at 3). As a result, the Note is presently a bearer instrument because it is indorsed in blank. See N.J. Stat. 12A:3-204. Accordingly, the Note is enforceable by anyone who possesses the Note. See Mesina v. Citibank, N.A., No. 102304, 2012 WL 2501123 at *3 (Bankr. D.N.J. June 27, 2012) (A holder of the Note is entitled to enforce it. If the Creditor can prove that it is in possession of the Note endorsed in blank, then as a holder it is entitled to enforce the Note.). Contrary to Plaintiffs assertions, neither MERS nor the Assignment of Mortgage had anything to do with the transfer of the Note. Rather, the Note was transferred to the present holder pursuant to the requirements of Article 3 of the UCC. 2. MERS Acted As Nominee For Each of the Holders of the Note and There Was No Split of the Note and Mortgage
The Mortgage specifically states that MERS acts as a nominee for Lender and Lenders successors and assigns. (Ginzburg Decl., Ex. 2 Mortgage at 1, C; Mortgage at 2) (emphasis added). The Mortgage defined Lender as Countrywide FSB. (See Ginzburg Decl., Ex. 2 Mortgage at 1, D). Pursuant to the negotiation of the Note, Countrywide FSBs successors and assigns were Countrywide Home Loans, Inc., again Countrywide FSB and then any party in possession of the Note. (See Myers Aff., Ex. A Note at 3). Thus, each time a new holder took possession of the Note, MERS became its nominee. This arrangement was reviewed in detail and approved by the seminal case of Bank of N.Y. v. Raftogianis, 418 N.J. Super. 323 (Ch. Div. 2010), which bears striking similarities to the present action. In Raftogianis, borrowers took out a loan from American Home Mortgage
Acceptance, Inc. (AHMA) and executed a note and mortgage as evidence of the loan and to secure its repayment. Id. at 442. The mortgage, just as in this case, named MERS as the nominee for AHMA and its successors and assigns. Id. The note, just as in this case, was then indorsed in blank, which made it payable to bearer (in that case, to Bank of New York). Id. at 442-43. The mortgage was then assigned by MERS to Bank of New York. Id. at 445. The assignment of mortgage in Raftogianis had the same language regarding assignment of the note as in this case. Id. at 445. After the borrowers defaulted on their loan obligations and a foreclosure action was commenced against them, they questioned the Bank of New Yorks standing to prosecute the foreclosure action in light of the purported separation of the note and mortgage. Id. at 447. The court found that argument creative, but not convincing. Id. at 448. Specifically, the court held that although the actual transfers of interests in the note and mortgage occurred in different ways, i.e., the note through negotiation and the mortgage through assignment, [t]here was no reason . . . that plaintiff could not acquire the right to enforce the note and mortgage through those other transactions. Id. at 450. The court concluded by squarely rejecting any argument based on the alleged separation of the note and mortgage. Id. Plaintiffs argument in this case is a repeat of the argument in Raftogianis, except that Plaintiffs entirely missed the issue of the negotiation of the Note. Thus, their argument is not novel and should be rejected by the Court. 3. The Split Argument Has Been Soundly Rejected by Courts Nationwide
Arguments based on the purported split of the note and mortgage have consistently been rejected by courts around the country. See, e.g., Smith v. Saxon Mortgage, No. 09-cv-3375 (N.D. Ga. Mar. 16, 2011), affd, No. 11-11762, 2011 WL 5375063 (11th Cir. Nov. 8, 2011) (The magistrate judge . . . properly rejected plaintiffs assertion that the splitting of the 7
[MERS] mortgage and the note rendered the mortgage a nullity.); BAC Home Loans Servicing, LP v. Lundin, No. 11-118609-CH (Mich. Cir. Ct., Oakland Cnty. Feb. 2, 2012) ([C]ourts have uniformly held that [Plaintiffs] separation a/k/a note splitting argument is unavailing to mortgagors attempting to invalidate a mortgage written in favor of MERS for the simple reason that there is no separation of the debt from the security.); Manderville v. Litton Loan Servicing LP, No. 10-cv-1696, 2011 WL 2149105 at *3 (D. Nev. May 31, 2011) (the court has determined that the split the note theory is unfounded and dismissal of it is warranted); Ruggia v. Wash. Mut., a division of JP Morgan Chase Bank, et al., 719 F. Supp. 2d 642 (E.D. Va. 2010), affd, 442 Fed. Appx. 816 (4th Cir. Aug. 11, 2011) (the so-called split of the Deed from the Note alleged by Plaintiffs does not render the Deed unenforceable nor does it leave the Note unsecured); In re Frederick, Nos. 11-71114 and 11-71135 (Bankr. E.D.N.Y. Aug. 22, 2011) (holding that the trustee did not demonstrate that the MERS mortgages and notes were split and noted that the trustee did not provide any case law to substantiate the claim). In sum, Plaintiffs are not the first to make split argument. Nevertheless, that argument has been soundly and continuously rejected around the country. This Court, too, should reject the claim, especially because it is based on Plaintiffs incomplete understanding of the facts.
IV.
CONCLUSION Plaintiffs are not entitled to a declaratory judgment. Their argument is based on an
incomplete knowledge of the facts and a misunderstanding of the law of negotiable instruments and mortgages. Plaintiffs Note was properly negotiated until it reached the present holder. Plaintiffs Mortgage remained recorded in the name of MERS until its assignment to BAC. This does not result in a splitting of the Note and Mortgage. Rather, the conveyances of the Note and Mortgage were accomplished through the routes established by law for each of those documents. Numerous courts around the country, including those in New Jersey, have held that process to be proper. This Court should do the same. Accordingly, the Complaint should be dismissed.
Respectfully submitted,
/s Daniel Ginzburg By: Brett L. Messinger Daniel Ginzburg One Riverfront Plaza 1037 Raymond Blvd., Suite 1800 Newark, New Jersey 07102 Telephone: 973.424.2000 Facsimile: 973.424.2001 Attorneys for Defendant Mortgage Electronic Registration Systems, Inc.