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1 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF MICHIGAN
2 SOUTHERN DIVISION
3 _______________________________________
4 PABLO BOCARDO, an individual, and GUADALUPE BOCARDO, an individual,
5 Plaintiffs,
6 DOCKET NO. 1:12-cv-177 vs.
7
8 SELECT PORTFOLIO SERVICING, INC., a Delaware corporation, and THE
9 FEDERAL NATIONAL MORTGAGE ASSOCIATION,
10 Defendants.
11 ________________________________________/
12
13 TRANSCRIPT OF RULE 16 SCHEDULING CONFERENCE
14 BEFORE THE HONORABLE ROBERT J. JONKER
15 UNITED STATES DISTRICT JUDGE
16 GRAND RAPIDS, MICHIGAN
17 May 7, 2012
18
19 Court Reporter: Glenda Trexler Official Court Reporter
20 United States District Court 685 Federal Building
21 110 Michigan Street, N.W. Grand Rapids, Michigan 49503
22
23 Proceedings reported by stenotype, transcript produced by
24 computer-aided transcription.
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1 A P P E A R A N C E S:
2 FOR THE PLAINTIFFS:
3 MR. JASON DOUGLAS JENKINSON JESSE L. WILLIAMS, PLLC
4 125 Park Street, Suite 100 Traverse City, Michigan 49684
5 Phone: (231) 929-8340 Email: [email protected]
6 FOR THE DEFENDANTS:
7 MR. WILLIAM TODD VAN ECK
8 VAN ECK & ASSOCIATES 39 South Main Street, Suite D
9 Rockford, Michigan 49341 Phone: (616) 866-6064
10 Email: [email protected]
11 * * * * *
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1 Grand Rapids, Michigan
2 May 7, 2012
3 10:34 a.m.
4 P R O C E E D I N G S
5 THE COURT: We're here on Bocardo against
6 Select Portfolio, 1:12-cv-177. We have a Rule 16 on the
7 calendar today. There's also a motion to dismiss pending. So
8 let's start with appearances and go from there.
9 MR. JENKINSON: Jason Jenkinson, Your Honor, on
10 behalf of Pablo Bocardo and Guadalupe Bocardo.
11 THE COURT: All right. Thank you.
12 MR. VAN ECK: Good Morning, Your Honor, William
13 Todd Van Eck on behalf of the defendants standing in the place
14 of Orleans Associates this morning because of a conflict they
15 had.
16 THE COURT: Okay.
17 MR. VAN ECK: Thank you.
18 THE COURT: All right. In terms of where we are on
19 the case, we have the motion to dismiss that we ought to
20 address, because if it's granted, there's really no point in a
21 schedule. There's also a discussion about settlement in the
22 joint status report that suggests there's an offer from
23 plaintiffs or at least a discussion from the plaintiffs to talk
24 about some kind of a mortgage modification. And I don't know
25 where they are on that.
4
1 Let me start with that. You know, I have two
2 cases -- we've had a lot of mortgage foreclosure cases. What's
3 happened in the last, I don't know, maybe six months, maybe a
4 little less than that, anything that Fannie Mae has been
5 involved in I've been getting motions to adjourn case
6 management schedules because Fannie Mae is in the process of
7 reviewing things for possible modifications. I just took, I
8 mean, two that are on my pile from last week in case number
9 11-cv-1134 and one in case number 12-cv-265.
10 Fannie Mae is not a party in either of those cases,
11 but they are referenced in both of the proposed scheduling
12 matters by the actual lending parties who say, you know, that
13 there's a modification in the works that they are looking at.
14 So what is the status in this case? Is there any
15 hope for that? I know Bocardos say, "We thought we were doing
16 that," and apparently they put their money with an
17 untrustworthy person, you know, not somebody that ultimately
18 they should have, and that may or may not have ultimate impact
19 on what Fannie Mae thinks about the case or on what the
20 resources of the plaintiffs are for the case. But, you know,
21 before we do any kind of scheduling or discussion of the case,
22 if mortgage modification is in the wind, we might as well know
23 that at the beginning and save everybody time and money.
24 Is that -- I mean, where is that?
25 MR. VAN ECK: Your Honor, it's my understanding in
5
1 light of the fact that this case is a post-redemption period, a
2 post-eviction filing --
3 THE COURT: Well, so were the other two.
4 MR. VAN ECK: -- and with a motion to dismiss
5 pending, I can't tell the Court it's not something that is
6 being considered, but I have no information that it is being
7 considered. And I've done some work for Orleans and I haven't
8 seen that post-eviction, but if the Court is seeing it, I
9 certainly wouldn't --
10 THE COURT: Well, I'm not sure Orleans & Associates
11 is in on it, although they are in on a lot of them. But, I
12 mean, as a practical matter if you've got a whole bunch of
13 stuff in the pipeline and you've got debtors who have an
14 income -- at least from the bankruptcy schedule at the time it
15 looked like they had a combined income of about $5,500 a month.
16 I don't know if that's changed.
17 MR. JENKINSON: No, Your Honor, it hasn't.
18 THE COURT: Okay. But if it's changed, they had
19 equity in the house, they lost 14,000 or so to the unscrupulous
20 person. So that hurts. I get that. And that means that
21 there's more money that hasn't been actually paid, I take it,
22 to the creditor. Then that's going to be a burden. I get
23 that. But by the same token you've got somebody living in the
24 house with income to pay. You know, that's the makings of a
25 deal typically, no matter where they are in the process. And
6
1 I've just had two where the settlement involved undoing the
2 foreclosure sale, the sheriff's deed in a recordable form that
3 was put on the record.
4 So it doesn't seem like the parties in at least other
5 cases have found it as a barrier. Now, you know, we can go
6 ahead and deal with the case, but again, if this is a practical
7 solution that the parties want to explore, then I don't want to
8 do anything to get in the way of that. So that's why I start
9 with it.
10 MR. JENKINSON: Well, Your Honor, in my discussions
11 with Mr. Goudie who has been handling the case, it is my
12 understanding that post today and what your decision is today
13 moving forward, that would determine whether or not we would
14 move forward with the modification.
15 I have experienced in at least a dozen cases in upper
16 Michigan where even though it is post-eviction, post-sheriff's
17 sale and eviction, summary proceedings, the lenders are now
18 starting to modify if the mortgagors have the requisite income.
19 THE COURT: I don't know. Mr. Van Eck?
20 MR. VAN ECK: I don't have any information, candidly,
21 whether it's a no-go or go. I will -- I can certainly pass it
22 along. With a motion to dismiss pending, I don't know if that
23 is an indication of which way the defendants want to go either.
24 So I cannot give the Court a solid yes or no on that matter.
25 THE COURT: All right. All right. Well, you know,
7
1 there's a whole bunch of bad cases out there in the sense that
2 the economics just don't work. There's no equity in the house,
3 they are underwater, income is low, arrearages are huge.
4 Sometimes even they make a modification work. Though whether
5 they will over the long term is an open question. But we just
6 looked at the bankruptcy petition online a few minutes ago.
7 You don't usually see 5,500 bucks in combined income, a
8 mortgage of I think it was 180 at inception, it's probably more
9 than that now with the arrearages, but even then, you know,
10 equity I think estimated at twenty, twenty-five thousand. You
11 know, even if the bank has a complete winning hand from a legal
12 point of view, you know, why take it if you've got somebody in
13 the house who wants to stay there and can afford to pay for it?
14 That's ultimately a question the parties have to resolve,
15 obviously. And I realize Fannie Mae is flooded with all kinds
16 of things and maybe they need hard-and-fast rules in order to,
17 you know, to evaluate it. But here is the scenario that I
18 worry about. I mean, let's say they have a hard-and-fast rule
19 that says with a motion to dismiss pending we don't consider
20 it. Or a motion to dismiss granted, tough you're out of luck,
21 eviction goes forward. And now, you know, six months from now
22 everybody loses. Everybody. Including Fannie Mae, because
23 they have got to sell the house at a discount in a distressed
24 market. When if everybody knew the real facts they'd say,
25 "Jeez, we'd rather not have a motion to dismiss decided. We'd
8
1 rather see if there's a mod possible, especially under these
2 circumstances." And then I've lost that opportunity just
3 because of something I do. And that's what I don't want to do.
4 I don't want to take an action or fail to take an action that
5 puts the parties potentially in a worse position. So I don't
6 know, I'll have to think about it as we go forward, I guess,
7 here today, but from either parties' perspective is there
8 anything else you want to add on that topic?
9 MR. JENKINSON: Only that the Bocardos have actually
10 been escrowing money since the summary proceeding to -- in
11 hopes to entice a modification.
12 THE COURT: The summary proceeding, I take it, is on
13 hold at this point?
14 MR. JENKINSON: Yes, there's a stay.
15 THE COURT: Nobody has moved. Okay. And so that was
16 after they discovered that they were entrusting their 14,000 or
17 whatever it was to a bad actor?
18 MR. JENKINSON: Unfortunately they didn't realize
19 that until they got a notice of hearing to go to the eviction
20 proceeding. They had no idea what was happening before that.
21 The woman is now in Leelanau County. She's being
22 charged with conversion. And it's a five-year felony. And
23 also using a computer to do that. And she's currently under
24 investigation by the Attorney General of Michigan. I have been
25 privy to some of those discussions because I had worked with
9
1 other clients. And there's some serious allegations and
2 charges that she's looking at.
3 THE COURT: Are you pursuing a separate action
4 against her? I know she may not have the money anymore, but is
5 that on the books?
6 MR. JENKINSON: We have not, because she's completely
7 uncollectible, and the Bocardos don't have the funds to go in
8 that direction. We've been focusing on a modification.
9 THE COURT: Okay. All right. Mr. Van Eck, anything
10 else?
11 MR. VAN ECK: I don't have any information to dispute
12 what's being said about the person who took the money. I don't
13 know that a scheduling conference or completion of our work
14 today would impinge on anything moving forward, modification or
15 anything else, simply because it's a scheduling matter.
16 THE COURT: Well, it's not just that. I mean, a
17 scheduling matter, when I have a motion pending, I typically
18 address the pending motion. So that's where I would normally
19 start in just a minute. But anyway.
20 MR. VAN ECK: I'm okay with delaying the pending
21 motion, because I do think if the Court enters a motion to
22 dismiss that it will or it may very well close the door.
23 That's something that's a little more significant. Obviously a
24 little more substantive and a determination of the case at
25 whole. So if the Court wants to delay that with its concerns,
10
1 because I do think that would have an effect on a modification.
2 I can't say that it would have a permanent effect, but it seems
3 to me like it would have some effect.
4 THE COURT: All right.
5 MR. JENKINSON: But unfortunately I think my
6 conversations with Mr. Goudie -- or Goudie -- suggest that
7 simply delaying the motion -- they are going to wait for the
8 determination of the motion before they decide whether they are
9 going to do a modification.
10 THE COURT: All right.
11 MR. JENKINSON: Meaning they have no intention of
12 modifying, so they would probably wait until this motion gets
13 heard again.
14 THE COURT: All right. Well, let's go to the motion
15 then, Mr. Van Eck. I'll give you a chance to start as the
16 moving party, and then we'll hear from Mr. Jenkinson.
17 MR. VAN ECK: Thank you, Your Honor. The motion
18 itself, the Court has a copy of the brief I'm presuming and has
19 also reviewed it. I don't have a whole lot to add to the brief
20 itself, so we'll stand on the brief and the motion itself at
21 this point unless the Court has specific questions of me.
22 THE COURT: Okay. Well, let's hear from
23 Mr. Jenkinson, then, and then we can get any rebuttal from the
24 defense. Go ahead.
25 MR. JENKINSON: Yes, Your Honor. I would just like
11
1 to begin with the issue of standing. I am going to rest on my
2 brief. I just want to make sure that I am clear. I do
3 understand that the courts have held that the expiration of the
4 redemption period does extinguish rights to challenge a
5 foreclosure. However, as stated in the brief, in
6 Manufacturers v. Snell and Reid v. Rylander, the courts believe
7 that we should be able to look at these foreclosures
8 post-redemption period. And that was stated in Langley in an
9 excerpt where I believe the court states that it is the people
10 who are holding over after the redemption period and through
11 the summary proceeding and challenging the actual functioning
12 of the foreclosure at the summary proceeding who are the --
13 have the most standing.
14 I believe that, you know, the state of Michigan
15 recognizes that we can't just take away a defendant in the
16 summary proceeding, their rights to challenge a foreclosure,
17 simply because they may have not understood the process before
18 that or simply because they waited or they got legal counsel
19 later. I believe that they have -- they have purchased the
20 home, they have lived in the home, and they have every right to
21 hold over and challenge those proceedings as long as it is done
22 at the summary proceeding level.
23 It has been claimed by the defendants that they made
24 no attempt to challenge this foreclosure or to in any way move
25 on to try and modify. And I believe that we have shown that
12
1 they have done that. The Bocardos did do that. They were
2 attempting.
3 Now, whether or not they put their trust into someone
4 who wasn't trustworthy, I can say that there's nearly a hundred
5 families in Michigan that did the exact same thing and are in
6 this exact same place.
7 So I believe that they -- I believe they have met
8 their burden of challenging at the summary proceeding and so
9 they do have standing post sheriff's sale and post redemption
10 period expiration to be here.
11 With that being said, I believe that the defendant's
12 position is that even if there is standing that the foreclosure
13 procedure was done properly under MCL 600.3204(1)(d), meaning
14 there is a proper chain of title. And what we are doing is we
15 are challenging that. We are challenging that, as stated in
16 the brief, under the idea that Fannie Mae claims the ownership
17 of the mortgage note, and they also at the end of the process
18 are claiming or alleging that they are bona fide purchasers of
19 this property at the sheriff's sale.
20 And as you will see in our brief, that, in our eyes,
21 means that the execution of the mortgage with Credit Suisse at
22 the beginning, with MERS as a nominee, and the transfer to SPS,
23 is merely a nullity. We believe that they are acting as a
24 servicer, which is in their own correspondence when they say
25 that they are a servicer for Fannie Mae, meaning that
13
1 Fannie Mae has some type of ownership. And we believe that
2 Fannie Mae has owned it the entire time. And if that is not
3 true and if SPS is actually the owner through an assignment
4 from Credit Suisse and MERS, then there should have been some
5 type of transfer of funds, some type of sale as evidenced by
6 the sheriff of Antrim County.
7 Now, the defendants also allege that they have
8 affidavits. And I would like to say that an affidavit is
9 merely someone notarizing a piece of paper to say that they saw
10 that person sign it. Now, that doesn't necessarily mean that
11 the information contained in the affidavit is true, and that
12 doesn't also necessarily mean that the person signing the
13 affidavit doesn't believe that what's in it is true. But what
14 I'm saying is that SPS is trying to wear several hats. That's
15 how I posited it in our brief. Meaning they are going to act
16 as though they are the servicer or they are going to act as if
17 they are the owner. And what I am saying, that there is not a
18 clear chain of title. I think the way that this is set up with
19 Fannie Mae claiming ownership, underwriting the loans and just
20 taking over ownership at the end means that everything going on
21 in between is an attempt at the banks to name anybody and
22 everyone as an owner in the indebtedness or has an interest in
23 the indebtedness so that way anybody involved can foreclose.
24 And at the end of the day I believe that because of this we
25 have the problem that we're looking at now, which is Fannie Mae
14
1 is not in position to modify these loans. As far as on
2 information and belief, they don't give loans. That's not
3 their duty.
4 So now we have a position where the people in the
5 middle, SPS, Credit Suisse, they have no -- there's no
6 incentive for them to modify because they don't really have any
7 interest in the loan. The loan is either going to be paid off,
8 it's going to be handed back to Fannie Mae at the end, and I
9 believe that what's happening. It lacks transparency. I think
10 the intermediate actions in the foreclosure are a nullity, and
11 I believe that this foreclosure should -- we should not dismiss
12 this case and we should further, you know, explore what it is
13 that Fannie Mae's process is and what they are in this process.
14 What is the hat they are wearing? If they are the ones who are
15 attempting to evict our clients right now in the district court
16 summary proceeding, therefore, that is why we brought an action
17 against them in the circuit court.
18 They have not relayed to us who they are, what hat
19 they are wearing, and exactly how they are going to explain to
20 my clients, the Bocardos, that they are taking their home. And
21 there was no direct line -- or there was no unbroken chain of
22 title or there are people missing from the chain of title at
23 the inception or at the end when Fannie Mae takes possession
24 with no transfer of funds. Thank you.
25 THE COURT: Before you sit down, after Sauerman from
15
1 the Michigan Supreme Court, short decision though it was, the
2 issue of -- and you haven't talked about it exactly in these
3 terms. You haven't talked about it in terms of splitting the
4 note and mortgage. I realize that. But, you know, hasn't that
5 essentially closed the door on the kinds of arguments you're
6 making? How did you get around Sauerman?
7 MR. JENKINSON: Well, Your Honor, I don't think that
8 Sauerman addressed 3204(1)(d) --
9 THE COURT: All right.
10 MR. JENKINSON: -- which is the actual assignments,
11 okay? The chain of title.
12 THE COURT: So you're saying even if it's a proper
13 party to bring the action, somebody has still got to clean up
14 the title satisfactorily under (d), and Sauerman doesn't give
15 us guidance on that?
16 MR. JENKINSON: I don't believe Sauerman does,
17 Your Honor. I believe Sauerman just names the parties who may
18 be able to foreclose because of their interest in the
19 indebtedness. Whether the note is separated, a bona fide
20 mortgagee and a holder of the record mortgage does have the
21 power to foreclose. And what I am saying is I don't believe
22 that that is the party that did foreclose.
23 THE COURT: Okay. Thank you.
24 MR. JENKINSON: Thank you.
25 THE COURT: Go ahead, Mr. Van Eck. I'll give you
16
1 time for rebuttal.
2 MR. VAN ECK: Yes, Your Honor. Some of the argument
3 as I understood it from plaintiffs was that there's some form
4 of a subjective nature in this. Foreclosure by advertisement
5 through Michigan is really a three-phase process. The first
6 phase is the default phase wherein payments are not made timely
7 and notices are given. The second phase commences at the
8 foreclosure sale, and at that point it's put on the courthouse
9 steps for auction and the highest bidder wins title subject to
10 redemption rights. And then the third phase is the post
11 redemption. If the property is not redemptioned or redeemed by
12 the party who originally owned the property, they lose it
13 automatically upon expiration of the redemption period.
14 In this case, or in any case, the party who is the
15 highest bidder at the foreclosure sale can be any party,
16 candidly. Todd Van Eck can walk in at a foreclosure sale, bid
17 higher than a bank, and get legal title to the property. And
18 at each phase in the foreclosure the ability of the debtor to
19 come in and to make argument, legal argument, is reduced.
20 In other words, during the default phase, the first
21 phase, they can ask for accounting of their mechanisms along
22 those lines. Trying to make sure that the amount outstanding
23 is correct, et cetera. In the second phase, in the redemption
24 phase, they can argue the amount of redemption. And in the
25 third phase they are really foreclosed for it's an eviction
17
1 proceeding. They are essentially foreclosing most arguments.
2 The only argument that remains is the title argument and
3 whether sufficient process was followed under the foreclosure
4 action.
5 The argument here seems to be that the parties
6 themselves aren't the proper parties. However, the Supreme --
7 the Michigan Supreme Court has determined that a servicer can
8 commence foreclosure, can take the steps of foreclosure. And
9 if those are not objected to during the redemption period in
10 the eviction phase, many of those arguments fall off.
11 In this case the servicer did take the foreclosure
12 action, did process it, and in the case that was just cited and
13 under MCL 600.3204(1)(d), any of the following parties may
14 foreclose by advertisement: The owner of the indebtedness, the
15 owner of an interest in the indebtedness, or the servicing
16 agent of the mortgage. There's no requirement that any one of
17 them, it just has to be one of them. I'm sorry, it's not a
18 requirement that all of them participate, just any one of them.
19 It appears here that the servicer did the
20 foreclosing. They met all the statutory criteria. The
21 sheriff's deed was properly recorded. At the expiration of the
22 sheriff's deed a new owner owned the property. It could be
23 William Todd Van Eck, it could be anybody as long as they were
24 the highest bidder, and in this case it's Fannie Mae, who then
25 commenced an eviction as the title owner of the property. So
18
1 we would ask that the Court dismiss this case.
2 THE COURT: Okay. Let me take -- for both parties a
3 minute, I want to make sure I understand the sequence that
4 happened in bankruptcy.
5 There was a bankruptcy, as I understand it, a
6 Chapter 7 discharge. And was there a reaffirmation? How did
7 the mortgage note come out of the bankruptcy, do you know? Was
8 it a reaffirmation of the debt? Does either party know?
9 MR. JENKINSON: No, Your Honor, I do not know.
10 THE COURT: All right.
11 MR. VAN ECK: I do not know.
12 THE COURT: Then I was noticing in the defense brief,
13 the opening brief, the allegation or the statement is that the
14 default was in April of 2009, which would have been either
15 during or before the bankruptcy, and it seemed like the actual
16 foreclosure papers reference April 2010 as the default time.
17 Does either party know what the actual sequence of
18 default is?
19 MR. JENKINSON: I think that the first date is
20 incorrect.
21 THE COURT: The April of 2009 would be incorrect do
22 you think?
23 MR. JENKINSON: Yes, Your Honor. I don't think we
24 are contesting the dates.
25 THE COURT: Okay. Do you know, Mr. Van Eck, what
19
1 your records show or your client's records show on default?
2 MR. VAN ECK: I'm sorry, I do not.
3 THE COURT: Okay. Okay. Well, as I said, the motion
4 to dismiss has been pending, and when there's a motion to
5 dismiss pending at the time of a Rule 16, I typically take that
6 up when I think the record is ripe for it as we discussed
7 earlier at the beginning of the process.
8 And there's, I think, two fundamental bases that the
9 defense says the case ought to be dismissed. The first is that
10 once the redemption period has run on the sheriff's sale the
11 plaintiffs don't have any standing to bring a claim like this
12 challenging the foreclosure by advertisement. And the second
13 is even if we give them standing to do it, there's nothing
14 wrong here with the process, at least nothing wrong that
15 Sauerman hasn't blessed from the Michigan Supreme Court. And I
16 want to deal with those in turn.
17 With respect to standing, I've held in an earlier
18 case, or at least I've stated and then held in subsequent
19 cases, I don't think the standing argument works for the
20 defense. It may be that the Michigan Court of Appeals in the
21 Overton case, which was an unpublished Court of Appeals case
22 where I think this issue first came up, was using somewhat
23 loose language. And I know that other courts since then have
24 used the same language. But at least from my perspective,
25 standing is an Article III jurisdictional issue. It deals with
20
1 injury in fact first of all. And I can't imagine anybody
2 better than the party that says they are entitled to lawful
3 possession of the house because something was wrong with the
4 foreclosure process. And even one better than that, to
5 actually establish injury in fact. In fact, they are probably
6 the only people in a case like this who could do it.
7 More than it, it seems to me they are clearly within
8 the scope of the intended beneficiaries of the foreclosure by
9 advertisement statutory process. Plainly, if their rights are
10 going to be foreclosed, they are within the scope of what's
11 going on there. So even though they are late -- and they are
12 late to the table clearly. In this case in particular they
13 didn't even file the action before the foreclosure process had
14 run its course and the sheriff's sale happened. And for that
15 matter they didn't even file it before the end of the
16 redemption period. So they are late, and they are later than
17 in most other cases where I've applied this. But from an
18 Article III perspective, from a pure constitutional standing
19 perspective, I don't think that matters. I think they are
20 still parties injured in fact if what they say is true and if
21 what they claim from a legal point of view is correct, and so I
22 think they have standing in a technical sense to make the
23 claim.
24 Things about timing can still matter for sure with
25 things like equity when we're talking about a laches defense.
21
1 It might even matter with respect to remedy. If, for example,
2 we were dealing with a contest between plaintiffs in possession
3 of the property now under the original mortgage and a
4 third-party purchaser at a sheriff's sale, you know, remedy
5 might be different. There might not be an equitable remedy
6 to upset that, but there might still be a damages remedy
7 against the parties who wrongfully foreclosed if in fact it
8 could be approved. Here, though, I don't think we need to
9 confront that since the successful purchaser, whether by credit
10 bid or otherwise, at the sheriff's sale was the putative
11 lender, or at least the person who says they came into
12 possession of the note. So I think the issues involving the
13 timing of the lawsuit are best addressed on things like
14 potential defenses, whether it's by laches or by remedy, but I
15 don't think they close the courthouse door to a plaintiff in
16 this position.
17 Now, on the merits I think it's a closer question.
18 The reading of Sauerman that Mr. Jenkinson gives it is, I
19 think, technically correct. It is a very short opinion. It is
20 one in which the Supreme Court of Michigan exercised its power
21 to basically make a plenary ruling without the normal briefing
22 and argument. They have that power under their rules. But it
23 means for judges like me who have to interpret what it means,
24 it's a little bit more difficult.
25 The question is: Does it apply to the facts of this
22
1 case in a way that I ought to say as a matter of law on a
2 Rule 12(b)(6) motion the case needs to be dismissed here and
3 now without any further factual development?
4 The question is, I think as I said, a close one, and
5 I've dismissed several cases post Sauerman in which I've
6 believed that the fundamental claim urged by the plaintiff is
7 that something went wrong at the inception of the mortgage when
8 the note itself was severed from the mortgage rights or some
9 piece of the mortgage rights. It's a little hard to tell
10 what's actually been directed to MERS under the language of the
11 mortgage here as in the other MERS mortgages. Before Sauerman
12 I had some problems with that and would have thought under
13 common law of property that created some difficulties. And I
14 wasn't alone in that. A number of bankruptcy courts,
15 particularly one from the Eastern District of New York, had
16 taken that process to task.
17 But at least the Michigan Supreme Court said, I
18 think, in Sauerman, "That's okay with us. We think the mere
19 fact that mortgage and note have been split or that some piece
20 of the mortgage rights were peeled off to MERS and then later
21 assigned through multiple parties to the party that actually
22 initiates the foreclosure by advertisement, that's okay. We
23 think that's compliant with the statute." And so to that
24 extent I would think I would be bound to apply Sauerman.
25 What I hear from Mr. Jenkinson and what I think a
23
1 liberal reading of the pleadings here permits, at least at the
2 Rule 12(b)(6) context, is that his challenge is really
3 different than that. He may or may not have problems with that
4 aspect of the MERS mechanism, but what he's saying is under
5 600.3204, I think we've talked about (1)(d), but I think he's
6 actually referencing sub 3 which says, "If the party
7 foreclosing the mortgage by advertisement is not the original
8 mortgagee, a record chain of title shall exist prior to the
9 date of sale under Section 3216 evidencing the assignment of
10 the mortgage to the party foreclosing the mortgage."
11 I think the defense has asserted we've got that here
12 where the papers are in place. And as I said, I think it's
13 close, but I think there's at least for purposes of 12(b)(6)
14 and reading the plaintiffs' allegations enough to carry the
15 case beyond the motion to dismiss and into the discovery phase
16 and whatever else may come in the case so we have a full and
17 complete record when we finally do adjudicate the merits.
18 In particular a couple things strike me that at least
19 raise questions. One actually is the record of default itself
20 as we confirmed here. The papers initially submitted by the
21 defendants admitted that the default date was April 2009, which
22 is a little difficult to believe. If it were that, it should
23 have been dealt with in the bankruptcy, and we don't have
24 information on how the bankruptcy court dealt with that.
25 The defense -- or rather the plaintiffs I think say
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1 it was April 2010, and there's some other indications in the
2 actual foreclosure documents that support that. And so with a
3 question on the timing of the default itself, particularly in
4 the case of a bankruptcy that's played a part here and is kind
5 of a black hole of information for us right now, I think that's
6 an issue that would require some development.
7 And secondly, and more significantly for purposes of
8 the statutory section I referenced, there's ambiguity,
9 inconsistency in my mind on when exactly and what exactly was
10 assigned to SPS, the ultimate servicer here.
11 For example, I think the pleadings indicate and the
12 defendant's own documents indicate -- and I'm looking at
13 Exhibit 3 of the plaintiffs' response, third paragraph -- that
14 SPS acquired the servicing of the lien from Credit Suisse
15 effective May 18th of 2007.
16 So that goes all the way back to nearly the inception
17 of the loan, and that's based on the SPS letter addressed to
18 somebody I don't know. MFI Miami, Attention Steve Dibert or
19 Dibbert. Anyway, the purpose for my point is May 18, 2007.
20 When I look, though, at Exhibit 2 of the same
21 package, the corporate assignment to SPS, it's actually
22 dated -- well, it looks to me anyway like September 21, 2009,
23 two years later. More than that, it doesn't assign simply
24 rights to service or rights to the mortgage, it actually says
25 the mortgage and the note are assigned, which opens up the
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1 question of if so, what's the actual chain of title for the
2 note? What's moved it beyond that?
3 It may ultimately be that these questions have
4 answers. The secondary market for mortgages is well
5 established, or at least was well established. And there's
6 questions that Fannie Mae may be able to answer and SPS may be
7 able to answer, but it does seem to me the more prudent course
8 here is to say we'll take the plaintiffs' allegations with
9 permitted inferences for all they are worth at the early stage
10 of the case and deny the motion to dismiss giving both sides
11 the opportunity to develop the record and come back on a motion
12 for summary judgment or other appropriate response. If in the
13 meantime that opens the door to evaluation of loan
14 modification, which as I indicated at the outset I'm seeing in
15 a lot of Fannie Mae cases right now, so much the better.
16 We have plaintiffs here who have good income, unlike
17 a lot of people in default on a mortgage. We have, moreover,
18 plaintiffs who were the victims of an admitted fraud, not by
19 any party of this case, by a third party of the case, but that
20 certainly implicates the equity considerations, also suggests
21 that they may well have a greater ability to pay than their
22 payment history most recently would suggest.
23 And finally, we have the fairly unusual situation of
24 people in possession with equity in the house. That doesn't
25 happen very much anymore in cases like this. So not only will
26
1 denying the motion to dismiss give the parties a chance to
2 develop their factual basis for the legal issues here, but it
3 also gives them a window to see if there's a practical
4 resolution.
5 So we'll enter an Order denying the motion to dismiss
6 for the reasons articulated here, and then I can just go on and
7 give the parties a case schedule based on the joint status
8 report which I think is essentially a schedule that works from
9 my perspective.
10 So I'd say -- and, Mr. Jenkinson, I think you
11 indicated you don't have any intention of pursuing the actual
12 fraudulent party who is in jail right now, so you're not going
13 to add her to this case and try to do anything, this is
14 strictly between you and the lender at this point?
15 MR. JENKINSON: Yes, Your Honor.
16 THE COURT: Okay. And from the lender's point of
17 view, you think you've got everybody you need here right now?
18 MR. VAN ECK: I believe so.
19 THE COURT: Okay. So if you're going to make
20 amendments to the pleadings or parties, do it by motion. In
21 light of the denial of the motion to dismiss, the defendants
22 will have the time they'd normally have to file an Answer,
23 obviously, but if you make changes to pleadings after that, do
24 it by motion.
25 I'll give you discovery through November 30, and then
27
1 if you are going to use experts, do it on this schedule:
2 August 31 for the plaintiffs' preliminary expert disclosures,
3 the (a)(2)(A) disclosures, reports by September 30. And then
4 for the defendants, (a)(2)(A) expert disclosures by
5 September 30 and reports by October 31.
6 The initial disclosures, the parties are proposing
7 June 1. I'm just going to bump that to June 15 so you'll have
8 the Answer of the defendants on file before you have to do your
9 disclosures. And I'll give you a dispositive motion cutoff of
10 December 31 which you're requesting.
11 The actual report suggested no ADR, but that may or
12 may not be the way you want to go once you get into discovery.
13 So by June 15 when you do your initial disclosures also do a
14 supplemental joint status report that simply indicates the
15 parties' position on ADR given the current status of the case.
16 And it could be the same. Maybe you'll think "We don't want
17 ADR" or "We can work this out on our own" if it can be worked
18 out. But if not, you know, or in any case tell me what your
19 position is, and then I'll pick something if it's appropriate.
20 And then for trial it looks like the parties are
21 saying a bench trial, so we'll schedule that and give you a
22 normal pretrial conference schedule for that and magistrate
23 judge settlement conference right before it. And that will
24 come into play if all of the dispositive motions are resolved
25 in a way that has an issue left for trial.
28
1 So I think that covers your joint status report. Are
2 there any other items we should take up today, Mr. Jenkinson?
3 MR. JENKINSON: No, Your Honor.
4 THE COURT: Mr. Van Eck?
5 MR. VAN ECK: No, Your Honor.
6 THE COURT: Okay. Thank you all.
7 MR. JENKINSON: Thank you, Your Honor.
8 THE CLERK: All rise, please. Court is in recess.
9 (Proceeding concluded at 11:14 a.m.)
10 * * * * *
11 I certify that the foregoing is a correct transcript
12 from the record of proceedings in the above-entitled matter.
13
14 Date: May 15, 2012
15
16 /s/ Glenda Trexler __________________________________
17 Glenda Trexler, CSR-1436, RPR, CRR
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