Apr 03, 2013

Want to Take my Home? A Tale of David, the Homeowner, Versus Goliath, the Bank

They say the devil is in the details. A national bank found this out the hard way when it brought a mortgage foreclosure action against a homeowner in Chester County, Pennsylvania without the evidence to back it up.

In March 2012, the Chester County Court of Common Pleas granted judgment for JPMorgan Chase, N.A. against a homeowner, Francis X. Murray, in a foreclosure action for an amount in excess of $882,762.59. The facts were not in dispute. Originally, Murray had taken out a mortgage with Great Western Bank. The mortgage was then assigned to Deutsch Bank National Trust Company, and ultimately to Deutsch Bank National Trust Company as Trustee for Washington Mutual Mortgage Securities, whose loans were serviced by JPMorgan Chase, N.A.

According to the bank’s complaint, the homeowner had defaulted on his home loan repayment obligations in September, 2009 and remained in default through April 2010. The damages claimed and awarded by the trial court consisted of installment payments, interest, late charges, escrow advances, and other related fees and costs.

JPMorgan Chase, N.A. replaced Deutsch Bank National Trust Company as the plaintiff to the action after a motion for substitution was granted by the trial court.

Without an attorney, Murray filed an appeal (JPMorgan Chase v. Francis X. Murray 2013 WL 1092850). He raised the following issues, each of which had been dismissed by the lower court:

  • Did JPMorgan Chase, N.A. have standing to bring the foreclosure action absent proof that it was in fact the “holder in due course” of the mortgage note, or otherwise had possession of the note in order to acquire the right to sue; and
  • Was the foreclosure complaint properly verified, when the attestation for the complaint was signed by a person having no position with the original plaintiff.

The Pennsylvania Superior Court issued a surprisingly pro-consumer opinion that will give new leverage to distressed homeowners and should serve as a cautionary tale for banks and financial institutions.

First, in line with courts in other jurisdictions, the Superior Court found that a mortgage note is in fact a “negotiable instrument” under Pennsylvania’s Uniform Commercial Code (UCC). JPMorgan Chase, N.A. had not proven that it was entitled to enforce the note and bring an action for foreclosure because it had not established that it was a “holder in due course” of the note through a clear chain of assignment, or that it presently possessed the original note, indorsed “in blank,” thereby eliminating the need to demonstrate a chain of assignment.

The Court found it significant that JPMorgan Chase, N.A. never produced the original note, upon which its cause of action was based. Additionally, Murray contested the authenticity of a purported mortgage document and another loose document lacking a date or a reference. The Superior Court held that these disputes constituted “contested issues of fact” rendering judgment improper.

The Superior Court also held that the underlying complaint was improperly verified. The action was originally brought by Deutsch Bank National Trust Company as Trustee for Washington Mutual Mortgage Securities. However, the complaint was verified by an individual identified as a having a position only with JPMorgan Chase, N.A., and not with the original named plaintiff. The Superior Court found that this manner of verification, lacking a direct connection to the party pursuing the action, violated Pennsylvania Rule of Civil Procedure 1024(c) to such an extent that its deficiency “approaches a level…perhaps not even warranting an opportunity to correct the error.”

Finally, in an additional rebuke to the bank, the Superior Court vacated the lower court’s order allowing for substitution of named plaintiffs, until such time as JPMorgan Chase N.A.’s right to bring an action under the note can be established through a valid assignment, or through possession of the original note, indorsed in blank.

Message to homeowners facing a foreclosure: Stand your ground, and hold the mortgage companies to their proof.

Message to Financial Institutions: Preserve your documents and meticulously preserve key documents.

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