Erobobo, Rajamin – Why Borrowers Cannot Enforce the PSA

In the Rajamin opinion, the US 2nd Circuit made it clear that a only a party to, a person injured by, or a third party beneficiary of the Pooling and Servicing Agreement (PSA) has standing to enforce or dispute it.  Thus, the  effort to challenge standing to sue because of a violation of the PSA will ultimately fail and waste a lot of resources, as Rajamin discovered the hard way.

Rajamin v. Deutsche Bank Nat. Trust Co., 757 F. 3d 79 – Court of Appeals, 2nd Circuit

How Courts have cited Rajamin

You will find the most recent serious citation to Rajamin in this Erobobo slip opinion:

WELLS FARGO BANK, NA v. EROBOBO, 2015 NY Slip Op 3522 – NY: Appellate Div., 2nd Dept. 2

In any event, Erobobo, as a mortgagor whose loan is owned by a trust, does not have standing to challenge the plaintiff’s possession or status as assignee of the note and mortgage based on purported noncompliance with certain provisions of the PSA (see Bank of N.Y. Mellon v Gales, 116 AD3d 723, 725; Rajamin v Deutsche Bank Natl. Trust Co., 757 F3d 79, 86-87 [2d Cir]).

—the Appellate Division of the New York Supreme Court (“Appellate Division”) ruled that mortgagors lack standing to assert such breaches, citing as authority the opinion of the district court in this very case: While holding that the plaintiff bank was not entitled to summary judgment in its action to foreclose the defendants’ mortgage, the Appellate Division affirmed the lower …
– in Rajamin v. Deutsche Bank Nat. Trust Co., 2014 and 3 similar citations
Under New York law, “only an intended beneficiary of a contract may assert a claim as a third-party beneficiary.”
– in Colton v. US National Bank, 2013 and one similar citation
“The weight of caselaw throughout the country holds that a non-party to a PSA lacks standing to assert non-compliance with the PSA as a claim or defense unless the non-party is an intended (not merely incidental) third party beneficiary of the PSA.”
– in IN RE DALY, 2015 and one similar citation
Plaintiffs have not alleged any facts that would support plausibly a claim that they are intended third-party beneficiaries of the PSAs. Thus, Plaintiffs lack standing to challenge Defendants’ alleged ownership of the Notes and [Deeds of Trust] or authority to foreclose based on non-compliance with the PSAs
– in Tran v. Bank of New York, 2014 and one similar citation
In an opinion filed on March 28, 2013, the district court granted the motion to dismiss the Complaint for failure to state a claim on which relief can be granted, finding that plaintiffs lacked standing to challenge defendants’ ownership of the notes and mortgages based on alleged noncompliance with the terms of the PSAs.
However, Erobobo has been criticized and multiple federal courts, including in this District, have held that under New York law, an assignment of a mortgage into a trust in violation of the terms of the PSA is voidable, not void
– in HALACY v. WELLS FARGO BANK, NA, 2013 and one similar citation
These cases have further held that for a party to be considered a third-party beneficiary to a PSA, the intent to render a non-party a third-party beneficiary must be clear from the face of the PSA.
– in Tran v. Bank of New York, 2014 and one similar citation
In so holding, the Court in Rajamin stated that it was joining “the weight of the case law around the country.”
But even if he would benefit from some of its provisions, he is at most an “incidental” beneficiary.
Because plaintiffs have failed to satisfy both the constitutional and prudential requirements of standing, they may not assert a quiet title claim.[11
– in ZUTEL v. WELLS FARGO BANK, NA, 2014 and 2 similar citations
“The `prudential standing rule… normally bars litigants from asserting the rights or legal interests of others in order to obtain relief from injury to themselves.'”
– in Gache v. HILL REALTY ASSOCIATES, LLC, 2014 and 2 similar citations
The Second Circuit affirmed, holding “as unauthorized acts of the Trustee may be ratified by the trust’s beneficiaries such acts are not void but voidable; and that under New York Law such acts are voidable only at the insistence of a trust beneficiary or a person acting on his behalf.”
—disagreeing with Glaski’s interpretation of New York law; finding improper transfer into investment trust is voidable, not void
– in Kan v. Guild Mortgage Co., 2014 and 2 similar citations
Thus, although a post-closing-date loan assignment violates the terms of the PSA, these courts conclude that such an assignment is not void,[4] but is merely voidable, because the trustee has the option of accepting the loan assignment despite its untimeliness.
– in Wood v. Germann, 2014 and one similar citation
In addition to these “constitutional limitations” on federal court jurisdiction, the standing inquiry also “involves… prudential limitations on its exercise.”
– in ZUTEL v. WELLS FARGO BANK, NA, 2014 and one similar citation
These courts have recognized that a PSA is a contract between the originating lender and the subsequent purchaser/trustee and that, under traditional principles of contract law, a contracting party is capable of ratifying conduct that is done in violation of the contract.
– in Wood v. Germann, 2014 and one similar citation
—borrowers sought a judgment declaring that the defendant trusts did not own the borrowers’ loans and mortgages because the parties to the trusts breached the terms of the securitization agreements.
– in IN RE LAKE CHARLES RETAIL DEVELOPMENT LLC, 2014 and one similar citation
As defendant was not an intended third party beneficiary of the Pooling and Servicing Agreement, he may not assert noncompliance
– in US BANK NA v. Duthie, 2014 and one similar citation
In fact, plaintiffs'”impl [ication] that the loans are owned by some other entity or entities [] is highly implausible, for that would mean that since 200 [5], there was no billing or other collection effort by” the loan’s true owner.
– in ZUTEL v. WELLS FARGO BANK, NA, 2014 and one similar citation

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