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Minnesota High Court Voids Foreclosure for Failure to Strictly Follow the Law - Ruiz v. 1st Fidelity Loan Servicing

April 19, 2013

Vincent Howard and our Norco foreclosure defense attorneys have seen mixed results from homeowners challenging foreclosures that don't have a clear chain of valid assignments. Because it's now standard for mortgages to be bought and sold multiple times as an investment, the paperwork reflecting those transfers has sometimes fallen by the wayside. In fact, during the housing bubble, this happened quite a lot, possibly because of the rapid transfers between financial institutions and the perception that it didn't matter. Unfortunately for the loan servicer in Ruiz v. 1st Fidelity Loan Servicing, it mattered quite a bit in the foreclosure of Doris Ruiz. Ruiz challenged the assignment to 1st Fidelity, saying the name of the servicer was incorrect. The trial court ruled that 1st Fidelity had substantially complied, but the court of appeals and the Minnesota Supreme Court disagreed, saying strict compliance is required under Minnesota law.

Ruiz took out her mortgage for a Minneapolis duplex in 2005. The original lender, Chase Bank, assigned the mortgage to JP Morgan Chase Bank NA in 2006. She defaulted in 2008, and in 2009, the mortgage was assigned again to "1st Fidelity," rather than 1st Fidelity Loan Servicing LLC. A demand letter went to Ruiz from 1st Fidelity in March of 2010, and the company published a notice of foreclosure sale on May 18 of that year. It also recorded an assignment from "JP Mortgage [sic] Chase Bank, NA" to "1st Fidelity Loan Servicing LLC," which was delivered to the county recorder's office May 14 but not recorded until May 18. Ruiz postponed the sale but was unable to stop it or redeem the property. After the sale, she sued, alleging failure to comply with Minnesota foreclosure law, wrongful eviction and quiet title. The trial court granted summary judgment to 1st Fidelity, saying 1st Fidelity had at least substantially complied with the law.

The court of appeals reversed, finding that Minnesota law requires strict compliance, rather than substantial compliance. It further found that 1st Fidelity did not substantially comply because the third assignment was made after its notice of sale.

The servicer appealed, arguing that it did strictly comply because Minnesota foreclosure by advertisement law requires assignments to be made before the sale, rather than before the start of foreclosure by advertisement. In the alternative, it argued that substantial compliance only is required. The Minnesota Supreme Court disagreed. Minnesota foreclosure by advertisement law is unambiguous that foreclosing entities may not foreclose without meeting certain conditions outlined by statute. These conditions include recording all assignments of the mortgage before starting the foreclosure process. The high court had already rejected the idea that "foreclosure" in the statute refers only to the sale of the property, in a 1925 case holding that the requirements are in place at the first step. Because the third assignment was not timely recorded, the court said, 1st Fidelity did not strictly comply. Thus, it remanded the case for further examination of the wrongful eviction claim.

Vincent Howard and our Yorba Linda foreclosure defense lawyers are pleased that the court requires strict compliance with foreclosure statutes. This is important because those statutes exist for the protection of people involved in real estate deals. A lot is at stake for homeowners like Ruiz, who have far less money and thus less legal firepower than lenders and loan servicers. The state has an interest in protecting its property owners by requiring the foreclosing entity to unambiguously show that it owns the debt before it can take the property. The "corrective assignment" here is also interesting because it resembles many of the "corrective assignments" made during the early days of the housing bust, when mortgages were assigned to the foreclosing entity well after that entity had started foreclosure proceedings. At Howard Law, P.C., our Rialto foreclosure defense attorneys challenge these hasty and inadequate assignments whenever appropriate.

If you believe your lender deceived you when you took out your loan or engaged in shady foreclosure practices, you should call Vincent Howard and the team at Howard Law to discuss your legal options. You can reach us through our website or call toll-free at 1-800-872-5925.

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