Trustees charged with overseeing pools of mortgage-backed securities hold the ability to rightfully foreclose on homes when delinquent borrowers refuse to leave, according to a recent ruling in Alabama, the third in recent weeks there involving trustees. The ruling however, is by no means definitive.
The case – Wells Fargo Bank (WFC)
v. Edward J. Thomas – came out of Montgomery County in late March and closely parallels two other rulings in the state of Alabama that have addressed similar standing issues when a trustee is party to a foreclosure.
Judge Charles Price in the Circuit Court of Montgomery County ruled Wells Fargo Bank in its capacity as trustee for asset-backed certificates held in the Soundview Home Loan Trust
possessed the standing to foreclose on a loan within the trust.
The two other cases – U.S. v. Congress
and Horace v. LaSalle Bank –
varied in their outcomes, with the judge in Congress saying a
former homeowner challenging a foreclosure has no third-party standing to challenge the terms of the pooling and servicing agreement connected to the trust. Meanwhile, the judge in Horace said the homeowner (Horace) "is a third-party beneficiary of the pooling and servicing agreement … without such … plaintiff Horace and other mortgagors similarly situated would have never been able to obtain financing."
Attorneys working on the cases have said the courts' seemingly different outcomes on the issue of third-party beneficiary status will probably be ironed out on appeal.
In Wells Fargo v. Thomas, the case revolved around a $480,000 mortgage issued by Option One Mortgage
to a builder by trade.
The defendant, Edward Thomas, defaulted on the note after making a few payments, court documents say. Thomas remained in the home after the foreclosure was complete in March 2008 and later challenged Wells Fargo's foreclosure saying as trustee it "did not have standing to foreclose." The case notes that the Thomases have refused to leave and have remained in the home for more than three years without any payment of any kind.
Thomas argued New York law governed the case based on the pooling and securitization agreement.
But the court sided with Wells Fargo, saying the Thomases were not parties to the PSA and that one section of their mortgage even stipulates that "this security instrument shall be governed by federal law and the law of jurisdiction in which the property is located." In this case, the property is in Mathews, Ala.
The Thomases' also lost on their counterclaims, which included allegations that Option One, the originator, "engaged in predatory lending through its loans to Thomas." The Thomas family also filed third-party claims against Lender Processing Services
alleging the mortgage processing services firm charged "illegal fees through its technology, attorney network and practices" among other allegations. The claims against LPS were dismissed with the court declaring a "failure to produce such evidence leaves the trial court with no choice but to grant summary judgment in favor of the moving party."
The Wells Fargo v. Thomas suit is the third case of this type to surface in Alabama. Thus far, the outcome of the three cases is two courts have denied third-party beneficiary status to borrowers on the PSA agreements while also granting the trustee standing to foreclose. The remaining case -- Horace -- said the trustee had no standing to foreclose, and it recognized third-party rights for the homeowner on the PSA.
Write to Kerri Panchuk.