DIAZ ANSELMO COLLABORATES WITH FIRMS ACROSS MULTIPLE JURISDICTIONS TO ASSIST IN AN IMPORTANT WIN FOR THE LENDER

About nine months after conducting a bench trial on several claims brought by and against MFRA Trust 2015-1 (“MFRA”) and Melanie and Henry Howe (“the Howesⁱ”), Maine’s  federal district court entered a 70-page judgment resolving the parties’ respective claims including the lender’s foreclosure and note actions and the borrowers’ FDCPA  counterclaims.ⁱⁱ This article focuses primarily on our firm’s involvement in the case to assist  with establishing standing. 

In 2007 the Howes borrowed $208,000 from Challenge Financial Investors  Corporation (“Challenge”) to purchase property located in Hollis Center, Maine.ⁱⁱⁱ The loan  was memorialized by a note and secured by a mortgage which named MERS as the nominee  for Challenge.^iv Two months after originating the loan Challenge sold it to Federal National  Mortgage Association (“FNMA”). The Howes struggled to make the required payments  starting in 2008 and that led to three modifications of the loan between 2010 and 2014 and multiple lawsuits including the one which is the subject of this article.^v 

In September 2010, the Florida Secretary of State administratively dissolved  Challenge, the original lender.^vi Over the next several years, ownership and servicing of the Howes’ loan changed hands multiple times, but one particular ownership transfer proved  problematic.^vii In 2013 MERS, as nominee for Challenge, assigned the mortgage to Nationstar  Mortgage LLC (“Nationstar”). This was problematic because Challenge had already been  administratively dissolved years earlier so MERS lacked the authority to execute the  assignment on Challenge’s behalf. This rendered the assignment to Nationstar invalid and  the two subsequent assignments from Nationstar to MTGLQ and MTGLQ to MFRA invalid. 

Due to the Howes’ continuing payment default, MFRA filed an action on the Howe’s  note in 2021 in Maine’s federal^viii court; however, without a valid assignment of the mortgage  MFRA could not foreclose its mortgage in Maine^ix. Because Challenge was a Florida  corporation, MFRA engaged Diaz Anselmo to file suit in Florida to effectuate a valid transfer  of the Howe’s loan from Challenge to MFRA.^xIn 2022 Diaz Anselmo filed suit and asked the  Florida court to appoint a receiver for Challenge which the court did. The “Receivership  Order,” issued on February 3, 2023, gave the receiver the authority to execute documents on  behalf of MFRA. Pursuant to that authority, the receiver executed a “Quitclaim Assignment” of the Howe’s mortgage from Challenge to MFRA on February 21, 2023.^xi 

Thereafter, MFRA sent a demand notice to the Howes and then filed a foreclosure  action in 2024 in Maine which was later consolidated with the 2021 note action.^xii In the  foreclosure action the Howes challenged MFRA’s standing which derived from the Florida  Quitclaim Assignment executed by the receiver.^xiii The issue was whether MFRA could cure 

the standing defect that arose from “the defective MERS assignment when the original  lender [was] defunct and unwilling to assign its original rights” to MFRA.^xiv Noting Maine’s  highest court had not squarely addressed this issue, the Court noted it “must make an  ‘informed prophecy’ as to how the Law Court would decide the issue.” 

Firstly, the court explained that state courts had “equitable authority to appoint  receivers for insolvent corporations” and our country’s Constitution required that states give  “full faith and credit” to the judicial proceedings of other states.^xv The Court recognized the  receivership and resulting Quitclaim Assignment and concluded MFRA could rely on them  to prove standing in the Maine court proceedings.^xvi 

Next, the Court addressed the Howes’ two procedural arguments which centered  around due process. They argued that because they were not named as defendants in the  Florida receivership action, the proceedings were “defective and deprived the receiver of  authority” to execute the Quitclaim Assignment.^xvii Alternatively, the Howes argued that even  if they were not indispensable parties to the receivership action, they were at least entitled  to notice of the hearing under the receivership statute^xviii and that the Florida Court’s  appointment of a receiver ex parte was improper.^xix 

The Court rejected both arguments explaining that the receivership action addressed  Challenge’s ability to assign its interest in the mortgage, it did not adjudicate the Howes’  rights in the mortgage or the property. Therefore, they were not indispensable parties. Relatedly, the Court explained that any perceived defects in notice did not affect the  receiver’s authority conferred by the Florida court and the validity of the resulting  assignment. 

The Court concluded the Quitclaim Assignment validly transferred Challenge’s  mortgage ownership to MFRA, cured the prior assignment defect, and established MFRA’s  standing to foreclose.^xx These findings constitute a significant victory in Maine on the issues  of receivership and standing. The final judgment awarding MFRA $319,798.42 also highlights  the importance of collaboration between law firms across jurisdictions and the value of  using local firms who are better able to navigate the legal and procedural requirements of their jurisdiction.

In a hurry? Click here for the key points.

1. In 2007 Melanie and Henry Howe (“the Howes”) borrowed $208,000 from Challenge Financial Investors Corporation (“Challenge”), a Florida corporation, to purchase property located in Maine. The Howes defaulted on the loan and entered into several modification agreements but ultimately failed to cure their default. In September 2010, the Florida Secretary of State administratively dissolved Challenge.

2. Ownership and servicing of the Howes’ loan changed hands multiple times, but ownership concerns stemmed from one particular transfer. In 2013 MERS, as

   nominee for Challenge, assigned the mortgage to Nationstar. Since MERS lacked the authority to execute the assignment on behalf of the dissolved company the assignment to Nationstar and two subsequent assignments were ineffectual. The client retained Diaz Anselmo to file a receivership action and obtain an assignment of mortgage from Challenge to MFRA.

3. The appointed receiver executed a Quitclaim Assignment of mortgage which was later relied upon in the Maine foreclosure action to establish MFRA’s standing. The Maine Court explained that state courts had “equitable authority to appoint receivers for insolvent corporations” and our country’s Constitution required that states give “full faith and credit” to the judicial proceedings of other states.

4. Ultimately, the Court entered a final judgment awarding MFRA $319,798.42 on its note action. The judgment highlights the importance of collaboration between law firms across jurisdictions and the value of using local firms who are better able to navigate the legal and procedural requirements of their jurisdiction.

ⁱ For consistency, reference will be made to the “Howes” throughout this article even though  Mr. Howe was not involved in some of the later lawsuits. 

ⁱⁱ Wilmington Trust, National Association, etc., as Trustee for MFRA Trust 2015-1 v. Henry W.  Howe Iv and Melanie B. Howe, U.S. Dist. Court of Maine Case No. 2:21:cv-00278-SDN. ⁱⁱⁱ Judgment, pg. 2. 

^iv Judgment, pg. 4. Future references to this case are to this citation until indicated otherwise. ^vJudgment, pg. 4-5.  

^vi Judgment, pg. 5. 

^vii Judgment, pg. 5-7. 

^viii Interestingly, federal court jurisdiction was established through the diversity of the parties which included a Delaware lender, Maine borrowers, Florida servicers, and other defendants  with their principal place of business in California and Michigan. Judgment, pg. 3-4.

^ix Judgment, pg. 9, 19, 21. In Florida, the holder of a note secured by a mortgage can foreclose  its mortgage lien without an assignment of the mortgage. An assignment only becomes  necessary to demonstrate ownership if the note is not endorsed or if the chain of  endorsements is broken. That is not the case in Maine. Even though the note attached to  MFRA’s foreclosure complaint was properly endorsed, Maine law requires a foreclosing  plaintiff to “prove its requisite interest in both the note and the mortgage,” including an  unbroken chain of assignments of the mortgage. Judgment, pg. 20-21.

^xJudgment, pg. 9. Future references to this case are to this citation until indicated otherwise. ^xi Judgment, pg. 10. 

^xii Judgment, pg. 2-3.

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