An amended complaint asserting a RICO action against REMIC trusts was dismissed on the grounds that Plaintiffs lacked standing to assert the failure to comply with the Trust's pooling and servicing agreement. The writ asserts that a split exists within the U.S. Circuits on the issue of Plaintiffs' standing. The Second Circuit held that Plaintiffs lacked standing to challenge the validity of the assignment. The First Circuit in Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir.2013) held that Plaintiffs have standing to challenge the validity of the assignment.
Both Anh Nguyet Tran and Culhane address the issue of whether Plaintiffs have standing to challenge the validity of an assignment. However, rather than determining only the threshold issue that Plaintiffs have standing to challenge the validity of the assignment as inCulhane, the Court in Anh Nguyet Tran addressed the merits of the challenge to the validity of the assignment. In Culhane, the Court determined that if the Plaintiff's challenge was correct the foreclosure would be void. As such, Culhane found the Plaintiffs had standing, but then determined that the Plaintiffs' challenge to MERS involvement in the transaction did not render the assignment void. In Anh Nguyet Tran, the Court determined that Plaintiffs' lacked standing to challenge the validity of the assignment based upon the Court's determination of the merits. In Anh Nguyet Tran, the Court determined that the challenge to the validity of the assignment would not succeed and therefore determined that Plaintiffs lacked standing.
One of the main issues is whether the failure to comply with the Trust's governing documents renders the transaction void or merely voidable. If the promissory note and mortgage are transferred after the closing date, and in a manner not described by the Pooling and Servicing Agreement, then the terms of the Pooling and Servicing agreement are violated. The majority of these trusts are governed by New York Law. The New York Law of Estates, Powers and Trusts, N.Y. EPT. LAW § 7-2.4, states:
If the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.
The Second Circuit relied upon standard Trust Law and determined that the beneficiaries could ratify invalid acts of the Trustee. If the invalid acts could be ratified, then these transactions were merely voidable, not void. A voidable transaction does not give Plaintiff mortgagors standing to challenge the validity of the assignment.
The problem in Anh Nguyet Tran is that the Court addresses the merits of the case upon a motion to dismiss based upon the threshold issue of standing. There has been no discovery and no argument presented on the issue upon which the Court ultimately determined the case; whether the beneficiaries could ratify the invalid act of the Trustee. Generally speaking, it is true that beneficiaries can ratify the invalid acts of the Trustee. However, in mortgage securitization the Courts are dealing with REMIC Trusts, and these Trusts have provisions which prevent the Trustee from taking any action that would render the REMIC election invalid. The invalid acts of a Trustee of a REMIC Trust cannot be ratified. As such, these invalid transactions are void not merely voidable.
A similar battle is being fought in Ohio. Homeowners are prevented from asserting challenges to the validity of the assignment based upon appellate court decisions that rely upon Bank of New York Mellon vs. Unger (Ohio App. 8th Dist.) 2012-Ohio-1950. However, the Sixth Circuit has expressly stated that the federal cases relied upon by Unger are too broadly interpreted. See, Alexander vs. Deutsche Bank National Trust Co. (N.D. Ohio West Dis.) Case No.: 3:12-CV-02704; and Slorp vs. Lerner Sampson & Rothfuss, 587 Fed.Appx. 249. According to Alexander and Slorp Ohio Homeowners should be able to challenge the validity of assignments if the challenge would result in a void transaction.
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