WE are all learning, to our deep distress, how the perpetual pursuit of profits drove so many of the bad decisions that financial institutions made during the mortgage mania.

But while investors tally the losses that were generated by loose lending so far, the impact of another lax practice is only beginning to be seen. That is the big banks’ minimalist approach to meeting legal requirements – bookkeeping matters, really – when pooling thousands of loans into securitization trusts.

Stated simply, the notes that underlie mortgages placed in securitization trusts must be assigned to those trusts soon after the firms create them. And any transfers of these notes must also be recorded.

But this seems not to have been a priority with many big banks. The result is that bankruptcy judges are finding that institutions claiming to hold the notes that back specific mortgages often cannot prove it.

On Feb. 11, a circuit court judge in Miami-Dade County in Florida set aside a judgment against Ana L. Fernandez, a borrower whose home had been foreclosed and repurchased on Jan. 21 by Chevy Chase Bank, the institution claiming to hold the note. But the bank had been unable to produce evidence that the original lender had assigned the note, which was in the amount of $225,000, to Chevy Chase.

With the sale set aside, Ms. Fernandez remains in the home. “We believe this loan was never assigned,” said Ray Garcia, the lawyer in Miami who represented the borrower. Now, he said, it is up to whoever can produce the underlying note to litigate the case. The statute of limitations on such a matter runs for five years, he said.

A spokeswoman for Capital One, which is in the process of acquiring Chevy Chase, did not return a phone call on Friday seeking comment.

Mr. Garcia has another case in which a borrower tried to sell his home but could not because the note underlying a $60,000 second mortgage cannot be found. The statute of limitations on the matter will expire in October, he said, and if the note holder has not come forward by then, the borrower will be free of his obligation on the second mortgage.

No one knows how many loans went into securitization trusts with defective documentation. But as messes go, this one has, ahem, potential. According to Inside Mortgage Finance, some eight million nonprime mortgages were put into securities pools in 2005 and 2006 and sold to investors. The value of these loans was $797 billion in 2005 and $815 billion in 2006.

If notes underlying even some of these mortgages were improperly assigned or lost, that will surely complicate pending legislation intended to allow bankruptcy judges to modify mortgage terms for troubled borrowers. A so-called cram-down provision in the law would let judges reduce the size of a loan, forcing whoever holds the security interest in it to take a loss.

But if the holder of the note is in doubt, how can these loans be modified?

Bookkeeping is such a bore, especially when there are billions to be made shoveling loans into trusts like coal into the Titanic’s boilers. You can imagine the thought process: Assigning notes takes time and costs money, why bother? Who’s going to ask for proof of ownership of these notes anyhow?

But as the Fernandez case and others indicate, bankruptcy judges across the country are increasingly asking these pesky questions. Two judges in California – one in state court, another in federal court – issued temporary restraining orders last month stopping foreclosures because proper documentation was not produced by lenders or their representatives. And in another California case, a borrower’s lawyer was awarded $8,800 in attorney’s fees relating to costs spent litigating against a lender that could not prove it had the right to foreclose.

California cases are especially interesting because foreclosures in that state can be conducted without the oversight of a judge. Borrowers who do not have a lawyer representing them can be turned out of their homes in four months.

Samuel L. Bufford, a federal bankruptcy judge in Los Angeles since 1985, has overseen some 100,000 bankruptcy cases. He said that in previous years, he rarely asked for documentation in a foreclosure case but that problems encountered in mortgage securitizations have made him become more demanding.

In a recent case, Judge Bufford said, he asked a lender to produce the original of the note and it turned out to be different from the copy that had been previously submitted to the court. The original had been assigned to a bank that had then transferred it to Freddie Mac, the judge explained. “They had no clue what happened after that,” he said. “Now somebody’s got to go find that note.”

“My guess is it’s because in the secondary mortgage market they have been sloppy,” Judge Bufford added. “The people who put the deals together get paid for the deals, but they don’t get paid for the paperwork.”

A small but spirited group of consumer lawyers has argued for years that the process of pooling residential mortgages into securities was so haphazard that proper documentation of the loans was never made in many cases. Leading the brigade is April Charney, a foreclosure lawyer at Jacksonville Legal Aid in Florida; she now trains consumer lawyers around the country to litigate these cases.

Depending on the documentation defect, lawyers say, investors in the trust could try to force the institution that sold the loan to the trust to buy it back. Many of these institutions would be unable to do so, however, because they are defunct. In the meantime, when judges are not persuaded that the documentation is proper, troubled borrowers can remain in their homes even if they are delinquent.

THE woes brought on by sloppy bookkeeping in securitizations will be on the agenda at the American Bankruptcy Institute’s annual spring meeting on April 3. An article titled “Where’s the Note, Who’s the Holder,” co-written by Judge Bufford and R. Glen Ayers, a former federal bankruptcy judge in Texas, will be the basis of a discussion at the meeting.

Mr. Ayers, who is a lawyer at Langley & Banack in San Antonio, said he expects that these documentation problems will halt a lot of foreclosures. That will mean pain for investors who hold the securities. The problem for those who expect to receive the benefit of the note, Mr. Ayers said, is that they “may not be able to show to the judge they have a right to foreclose.”

“It’s a huge problem,” he added. “It’s going to be expensive, I don’t know how expensive, ultimately to the bondholders.”

You can view the FULL REPORT HERE.

 WHERE’S THE NOTE, WHO’S THE HOLDER: ENFORCEMENT OF PROMISSORY NOTE SECURED BY REAL ESTATE

HON. SAMUEL L. BUFFORD
UNITED STATES BANKRUPTCY JUDGE
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES, CALIFORNIA

(FORMERLY HON.) R. GLEN AYERS
LANGLEY & BANACK
SAN ANTONIO, TEXAS

AMERICAN BANKRUPTCY INSTITUTE
APRIL 3, 2009
WASHINGTON, D.C.

WHERE’S THE NOTE, WHO’S THE HOLDER

INTRODUCTION

In an era where a very large portion of mortgage obligations have been securitized, by assignment to a trust indenture trustee, with the resulting pool of assets being then sold as mortgage backed securities, foreclosure becomes an interesting exercise, particularly where judicial process is involved. We are all familiar with the securitization process. The steps, if not the process, is simple. A borrower goes to a mortgage lender. The lender finances the purchase of real estate. The borrower signs a note and mortgage or deed of trust. The original lender sells the note and assigns the mortgage to an entity that securitizes the note by combining the note with hundreds or thousands of similar obligation to create a package of mortgage backed securities, which are then sold to investors.

Unfortunately, unless you represent borrowers, the vast flow of notes into the maw of the securitization industry meant that a lot of mistakes were made. When the borrower defaults, the party seeking to enforce the obligation and foreclose on the underlying collateral sometimes cannot find the note. A lawyer sophisticated in this area has speculated to one of the authors that perhaps a third of the notes “securitized” have been lost or destroyed. The cases we are going to look at reflect the stark fact that the unnamed source’s speculation may be well-founded.

UCC SECTION 3-309

If the issue were as simple as a missing note, UCC §3-309 would provide a simple solution. A person entitled to enforce an instrument which has been lost, destroyed or stolen may enforce the instrument. If the court is concerned that some third party may show up and attempt to enforce the instrument against the payee, it may order adequate protection. But, and however, a person seeking to enforce a missing instrument must be a person entitled to enforce the instrument, and that person must prove the instrument’s terms and that person’s right to enforce the instrument. §3-309 (a)(1) & (b).

WHO’S THE HOLDER

Enforcement of a note always requires that the person seeking to collect show that it is the holder. A holder is an entity that has acquired the note either as the original payor or transfer by endorsement of order paper or physical possession of bearer paper. These requirements are set out in Article 3 of the Uniform Commercial Code, which has been adopted in every state, including Louisiana, and in the District of Columbia. Even in bankruptcy proceedings, State substantive law controls the rights of note and lien holders, as the Supreme Court pointed out almost forty (40) years ago in United States v. Butner, 440 U.S. 48, 54-55 (1979).

However, as Judge Bufford has recently illustrated, in one of the cases discussed below, in the bankruptcy and other federal courts, procedure is governed by the Federal Rules of Bankruptcy and Civil Procedure. And, procedure may just have an impact on the issue of “who,” because, if the holder is unknown, pleading and standing issues arise.

BRIEF REVIEW OF UCC PROVISIONS

Article 3 governs negotiable instruments – it defines what a negotiable instrument is and defines how ownership of those pieces of paper is transferred. For the precise definition, see § 3-104(a) (”an unconditional promise or order to pay a fixed amount of money, with or without interest . . . .”) The instrument may be either payable to order or bearer and payable on demand or at a definite time, with or without interest.

Ordinary negotiable instruments include notes and drafts (a check is a draft drawn on a bank). See § 3-104(e).

Negotiable paper is transferred from the original payor by negotiation. §3-301. “Order paper” must be endorsed; bearer paper need only be delivered. §3-305. However, in either case, for the note to be enforced, the person who asserts the status of the holder must be in possession of the instrument. See UCC § 1-201 (20) and comments.

The original and subsequent transferees are referred to as holders. Holders who take with no notice of defect or default are called “holders in due course,” and take free of many defenses. See §§ 3-305(b).

The UCC says that a payment to a party “entitled to enforce the instrument” is sufficient to extinguish the obligation of the person obligated on the instrument. Clearly, then, only a holder – a person in possession of a note endorsed to it or a holder of bearer paper – may seek satisfaction or enforce rights in collateral such as real estate.

NOTE: Those of us who went through the bank and savings and loan collapse of the 1980’s are familiar with these problems. The FDIC/FSLIC/RTC sold millions of notes secured and unsecured, in bulk transactions. Some notes could not be found and enforcement sometimes became a problem. Of course, sometimes we are forced to repeat history. For a recent FDIC case, see Liberty Savings Bank v. Redus, 2009 WL 41857 (Ohio App. 8 Dist.), January 8, 2009.

THE RULES

Judge Bufford addressed the rules issue this past year. See In re Hwang, 396 B.R. 757 (Bankr. C. D. Cal. 2008). First, there are the pleading problems that arise when the holder of the note is unknown. Typically, the issue will arise in a motion for relief from stay in a bankruptcy proceeding.

According F.R.Civ. Pro. 17, “[a]n action must be prosecuted in the name of the real party in interest.” This rule is incorporated into the rules governing bankruptcy procedure in several ways. As Judge Bufford has pointed out, for example, in a motion for relief from stay, filed under F.R.Bankr.Pro. 4001 is a contested matter, governed by F. R. Bankr. P. 9014, which makes F.R. Bankr. Pro. 7017 applicable to such motions. F.R. Bankr. P. 7017 is, of course, a restatement of F. R. Civ. P. 17. In re Hwang, 396 B.R. at 766. The real party in interest in a federal action to enforce a note, whether in bankruptcy court or federal district court, is the owner of a note. (In securitization transactions, this would be the trustee for the “certificate holders.”) When the actual holder of the note is unknown, it is impossible – not difficult but impossible – to plead a cause of action in a federal court (unless the movant simply lies about the ownership of the note). Unless the name of the actual note holder can be stated, the very pleadings are defective.

STANDING

Often, the servicing agent for the loan will appear to enforce the note. Assume that the servicing agent states that it is the authorized agent of the note holder, which is “Trust Number 99.” The servicing agent is certainly a party in interest, since a party in interest in a bankruptcy court is a very broad term or concept. See, e.g., Greer v. O’Dell, 305 F.3d 1297, 1302-03 (11th Cir. 2002). However, the servicing agent may not have standing: “Federal Courts have only the power authorized by Article III of the Constitutions and the statutes enacted by Congress pursuant thereto. … [A] plaintiff must have Constitutional standing in order for a federal court to have jurisdiction.” In re Foreclosure Cases, 521 F.Supp. 3d 650, 653 (S.D. Ohio, 2007) (citations omitted).

But, the servicing agent does not have standing, for only a person who is the holder of the note has standing to enforce the note. See, e.g., In re Hwang, 2008 WL 4899273 at 8.

The servicing agent may have standing if acting as an agent for the holder, assuming that the agent can both show agency status and that the principle is the holder. See, e.g., In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008) at 520.

A BRIEF ASIDE: WHO IS MERS?

For those of you who are not familiar with the entity known as MERS, a frequent participant in these foreclosure proceedings:

MERS is the “Mortgage Electronic Registration System, Inc. “MERS is a mortgage banking ‘utility’ that registers mortgage loans in a book entry system so that … real estate loans can be bought, sold and securitized, just like Wall Street’s book entry utility for stocks and bonds is the Depository Trust and Clearinghouse.” Bastian, “Foreclosure Forms”, State. Bar of Texas 17th Annual Advanced Real Estate Drafting Course, March 9-10, 2007, Dallas, Texas. MERS is enormous. It originates thousands of loans daily and is the mortgagee of record for at least 40 million mortgages and other security documents. Id.

MERS acts as agent for the owner of the note. Its authority to act should be shown by an agency agreement. Of course, if the owner is unknown, MERS cannot show that it is an authorized agent of the owner.

RULES OF EVIDENCE – A PRACTICAL PROBLEM

This structure also possesses practical evidentiary problems where the party asserting a right to foreclose must be able to show a default. Once again, Judge Bufford has addressed this issue. At In re Vargas, 396 B.R. at 517-19. Judge Bufford made a finding that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.

FORECLOSURE OR RELIEF FROM STAY

In a foreclosure proceeding in a judicial foreclosure state, or a request for injunctive relief in a non-judicial foreclosure state, or in a motion for relief proceeding in a bankruptcy court, the courts are dealing with and writing about the problems very frequently.

In many if not almost all cases, the party seeking to exercise the rights of the creditor will be a servicing company. Servicing companies will be asserting the rights of their alleged principal, the note holder, which is, again, often going to be a trustee for a securitization package. The mortgage holder or beneficiary under the deed of trust will, again, very often be MERS.

Even before reaching the practical problem of debt and default, mentioned above, the moving party must show that it holds the note or (1) that it is an agent of the holder and that (2) the holder remains the holder. In addition, the owner of the note, if different from the holder, must join in the motion.

Some states, like Texas, have passed statutes that allow servicing companies to act in foreclosure proceedings as a statutorily recognized agent of the noteholder. See, e.g., Tex. Prop. Code §51.0001. However, that statute refers to the servicer as the last entity to whom the debtor has been instructed to make payments. This status is certainly open to challenge. The statute certainly provides nothing more than prima facie evidence of the ability of the servicer to act. If challenged, the servicing agent must show that the last entity to communicate instructions to the debtor is still the holder of the note. See, e.g., HSBC Bank, N.A. v. Valentin, 2l N.Y. Misc. 3d 1123(A), 2008 WL 4764816 (Table) (N.Y. Sup.), Nov. 3, 2008. In addition, such a statute does not control in federal court where Fed. R. Civ. P. 17 and 19 (and Fed. R. Bankr. P. 7017 and 7019) apply.

SOME RECENT CASE LAW

These cases are arranged by state, for no particular reason.

Massachusetts

In re Schwartz, 366 B.R.265 (Bankr. D. Mass. 2007)

Schwartz concerns a Motion for Relief to pursue an eviction. Movant asserted that the property had been foreclosed upon prior to the date of the bankruptcy petition. The pro se debtor asserted that the Movant was required to show that it had authority to conduct the sale. Movant, and “the party which appears to be the current mortgagee…” provided documents for the court to review, but did not ask for an evidentiary hearing. Judge Rosenthal sifted through the documents and found that the Movant and the current mortgagee had failed to prove that the foreclosure was properly conducted.

Specifically, Judge Rosenthal found that there was no evidence of a proper assignment of the mortgage prior to foreclosure. However, at footnote 5, Id. at 268, the Court also finds that there is no evidence that the note itself was assigned and no evidence as to who the current holder might be.

Nosek v. Ameriquest Mortgage Company (In re Nosek), 286 Br. 374 (Bankr D Mass. 2008).

Almost a year to the day after Schwartz was signed, Judge Rosenthal issued a second opinion. This is an opinion on an order to show cause. Judge Rosenthal specifically found that, although the note and mortgage involved in the case had been transferred from the originator to another party within five days of closing, during the five years in which the chapter 13 proceeding was pending, the note and mortgage and associated claims had been prosecuted by Ameriquest which has represented itself to be the holder of the note and the mortgage. Not until September of 2007 did Ameriquest notify the Court that it was merely the servicer. In fact, only after the chapter 13 bankruptcy had been pending for about three years was there even an assignment of the servicing rights. Id. at 378.

Because these misrepresentations were not simple mistakes: as the Court has noted on more than one occasion, those parties who do not hold the note of mortgage do not service the mortgage do not have standing to pursue motions for leave or other actions arising form the mortgage obligation. Id at 380.

As a result, the Court sanctioned the local law firm that had been prosecuting the claim $25,000. It sanctioned a partner at that firm an additional $25,000. Then the Court sanctioned the national law firm involved $100,000 and ultimately sanctioned Wells Fargo $250,000. Id. at 382-386.

In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008).

Like Judge Rosenthal, Judge Feeney has attacked the problem of standing and authority head on. She has also held that standing must be established before either a claim can be allowed or a motion for relief be granted.

Ohio

In re Foreclosure Cases, 521 F.Supp. 2d (S.D. Ohio 2007).

Perhaps the District Court’s orders in the foreclosure cases in Ohio have received the most press of any of these opinions. Relying almost exclusively on standing, the Judge Rose has determined that a foreclosing party must show standing. “[I]n a foreclosure action, the plaintiff must show that it is the holder of the note and the mortgage at the time that the complaint was filed.” Id. at 653.

Judge Rose instructed the parties involved that the willful failure of the movants to comply with the general orders of the Court would in the future result in immediate dismissal of foreclosure actions.

Deutsche Bank Nat’l Trust Co. v. Steele, 2008 WL 111227 (S.D. Ohio) January 8, 2008.

In Steele, Judge Abel followed the lead of Judge Rose and found that Deutsche Bank had filed evidence in support of its motion for default judgment indicating that MERS was the mortgage holder. There was not sufficient evidence to support the claim that Deutsche Bank was the owner and holder of the note as of that date. Following In re Foreclosure Cases, 2007 WL 456586, the Court held that summary judgment would be denied “until such time as Deutsche Bank was able to offer evidence showing, by a preponderance of evidence, that it owned the note and mortgage when the complaint was filed.” 2008 WL 111227 at 2. Deutsche Bank was given twenty-one days to comply. Id.

Illinois

U.S. Bank, N.A. v. Cook, 2009 WL 35286 (N.D. Ill. January 6, 2009).

Not all federal district judges are as concerned with the issues surrounding the transfer of notes and mortgages. Cook is a very pro lender case and, in an order granting a motion for summary judgment, the Court found that Cook had shown no “countervailing evidence to create a genuine issue of facts.” Id. at 3. In fact, a review of the evidence submitted by U.S. Bank showed only that it was the alleged trustee of the securitization pool. U.S. Bank relied exclusively on the “pooling and serving agreement” to show that it was the holder of the note. Id.

Under UCC Article 3, the evidence presented in Cook was clearly insufficient.

New York

HSBC Bank USA, N.A. v. Valentin, 21 Misc. 3D 1124(A), 2008 WL 4764816 (Table) (N.Y. Sup.) November 3, 2008. In Valentin, the New York court found that, even though given an opportunity to, HSBC did not show the ownership of debt and mortgage. The complaint was dismissed with prejudice and the “notice of pendency” against the property was canceled.

Note that the Valentin case does not involve some sort of ambush. The Court gave every HSBC every opportunity to cure the defects the Court perceived in the pleadings.

California

In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008)

and

In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008)

These two opinions by Judge Bufford have been discussed above. Judge Bufford carefully explores the related issues of standing and ownership under both federal and California law.

Texas

In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008)

and

In re Gilbreath, 395 B.R. 356 (Bankr. S.D. Tex. 2008)

These two recent opinions by Judge Jeff Bohm are not really on point, but illustrate another thread of cases running through the issues of motions for relief from stay in bankruptcy court and the sloppiness of loan servicing agencies. Both of these cases involve motions for relief that were not based upon fact but upon mistakes by servicing agencies. Both opinions deal with the issue of sanctions and, put simply, both cases illustrate that Judge Bohm (and perhaps other members of the bankruptcy bench in the Southern District of Texas) are going to be very strict about motions for relief in consumer cases.

SUMMARY

The cases cited illustrate enormous problems in the loan servicing industry. These problems arise in the context of securitization and illustrate the difficulty of determining the name of the holder, the assignee of the mortgage, and the parties with both the legal right under Article 3 and the standing under the Constitution to enforce notes, whether in state court or federal court.

Interestingly, with the exception of Judge Bufford and a few other judges, there has been less than adequate focus upon the UCC title issues. The next round of cases may and should focus upon the title to debt instrument. The person seeking to enforce the note must show that:

(1) It is the holder of this note original by transfer, with all necessary rounds;
(2) It had possession of the note before it was lost;
(3) If it can show that title to the note runs to it, but the original is lost or destroyed, the holder must be prepared to post a bond;
(4) If the person seeking to enforce is an agent, it must show its agency status and that its principal is the holder of the note (and meets the above requirements).

Then, and only then, do the issues of evidence of debt and default and assignment of mortgage rights become relevant.

Our court systems are in bed with Corporate Banking Institutions. They may not be being paid off to ignore the violations but I describe being “in bed” with these fraudsters as simply “allowing them to get away with outright fraud and extortion.”

Let me illustrate my point with a Hypothetical Scenario: I create a company called “Countywide Home Loans.” I find a homeowner who is 90 days behind on their mortgage (this is easy because I can buy that list of people from the Credit Reporting Agencies like Equifax or Experian).

Countywide Home Loans files a foreclosure complaint against Jose and Maria Sanchez (my fictitious homeowners).
In our foreclosure complaint we allege and state the following to the Court:

1. Countywide Home Loans owns and holds the mortgage and note;
2. The Mortgage we attach to the Foreclosure Complaint has the Mortgagee listed as America’s Wholesale Lender on it, NOT Countywide Home Loans (but oh well);
3. We allege that the Mortgage has been assigned to Countywide Home Loans by America’s Wholesale Lender; but we do not include that purported assignment of mortgage in our Complaint;
4. We allege that the Note has been lost and we are seeking to re-establish the Lost Note under Florida Statute 673.3091; we were in possession of the Note when it was lost; we had the right to enforce it when it was lost; the loss was NOT the result of a transfer and we cannot reasonably obtain the Note because its whereabouts cannot be determined (these are the elements required to actually re-create a Note out of thin air in Florida)
5. We state that the borrower is in Default on the loan and owes us $223,191.65 according to the Note that they executed which we own and had the right to enforce when the Note was lost;
6. We therefore ask the court for final judgment of foreclosure based on the “facts”stated in our Complaint.

This is exactly what happens about 2000+ times per month in Lee County, Florida. The filings of Plaintiffs (institutions) look exactly like this, more or less, in every case. The case above, if I filed it, could be rushed through the court system in about 90 days with a 98% probability of success.

If the borrower/homeowner did not contest the allegations by Responding to the Foreclosure Complaint that I filed and served them with, I would gain a Default Judgment against them within 30 days. I could Motion for Summary Judgment and file the necessary Affidavits and get a hearing in about 30 more days. I would be granted Summary Judgment guaranteed as the Judges presiding over these cases DO NOT even lift an eye of caution or inspection as to the validity of any of these allegations by the Plaintiffs. I would literally be granted Final Judgment on the case within about 45 days from the granting of Summary Judgment. A Foreclosure Sale would be granted and take place at which point Certificate of Title would be issued to Countywide Home Loans.

Voila! Countywide Home Loans, Inc. just took a home from a Homeowner! No questions asked. The allegations in my complaint were patently false. The judicial system did not ask even one question or inspect the truthfulness of my allegations. The foreclosure is slammed through the system at record paces through the so-called “ROCKET DOCKETS” our judges here in Lee County call them.

Folks, this is it. This is no sensationalist story. There is no exaggeration here. This is happening thousands of times each month in our court systems! Only, the homeowners are real, the institutions are real and they are illegally seizing and evicting homeowners. These Institutions (like Wells Fargo, Bank of America, Lasalle Bank, Deutsche Bank, Countrywide, Citimortgage, Wachovia, etc.) DO NOT own these loans or mortgages in 9 out of 10 cases (maybe higher), yet they are alleging they do own the Note and Mortgage and have the right to foreclose. The Court Systems are NOT requiring them to prove it with valid documentation and worse, the Courts are completely ignoring clear cases of outright FRAUD by these institutions! When they do produce some documentation, it is fabricated and lacks authenticity most of the time. This can be quantified and proven. Fact.

Here’s an article written by Gretchen Morgenson from the NY Times to give further context:

A Mortgage Paper Trail Often Leads to Nowhere

But that didn’t stop him from putting on his best suit, marching into a Miami courtroom this month and going up against an attorney with 30 years of experience to stop a foreclosure proceeding against his family’s home. Molina did such a good job of representing himself that the judge in the case thought he was a lawyer and punctuated his ruling in Molina’s favor by tearing up the other side’s motion for summary judgment and throwing it over his shoulder.

“I felt like a million dollars,” Molina told msnbc.com, describing his day in Judge David C. Miller’s courtroom in Florida’s 11th Judicial Circuit Court. “I felt like if there was anything in my life that I had done correctly, it had to be that. Every single lawyer after the fight came over and shook my hand.” – By Mike Starkey, MSNBC

CLICK HERE to read the Full Story…

LUIS GETS MY VOTE FOR A PROMOTION IN THE ARMY… WE’RE FIGHTING A WAR. BE A SOLIDER, NOT A BYSTANDER.

Don’t let these instituitions just take your home from you. Are you kidding? Here’s exactly what they fraudsters do!

These guys hire an attorney and make some allegations on paper that they own your Note and Mortgage and they have the right to foreclose on you. Yadda, yadda, yadda…

How would you feel if I was that institution? I just make up a company called Countywide Home Loans (notice the spelling) and I hire a slick attorney and I file a complaint against you alleging that you have defaulted in your payments and I own the mortgage and note and are seeking a foreclosure. I also allege to the court in my complaint that I don’t have the original Note but I want to “Re-establish the lost Note” under a certain state statute (in Florida it’s F.S. 673.3091) which means Iin layman’s terms that I want the court to give me the right to re-create the Note out of thin air and make up the terms as I go. Oh, and I attach the original mortgage to my complaint which is in the name of a different lender but my but my explanation for that is that they assigned the mortgage to me and now I am the owner and holder of that mortgage and note. Oh and by the way, the assignment of that mortgage hasn’t been recorded yet.

Then I go to Fidelity National Financial out of Jacksonville, FL (or my attorney) and I have them create that assignment of mortgage for me and back date it pre-filing of the foreclosure and BOOM! I am now the assignee of your mortgage, the owner of a new Note created out of thin air and I get to take your home from you.

Some reading this might say, “Lane, you’re ridiculous, this isn’t happening. You’re exaggerating and being a little dramatic, eh?” Ha! I wish I was. This is EXACTLY what is happening in over 90% of all foreclosures being filed right now in Florida. I can’t speak to what’s happening in other states but I hear through the channels that it’s the same.

Man, I could go on and on and on about this one. I simply cannot believe that our ELECTED JUDGES are having any of this!! This is outright criminal, but oh, it’s not, it’s supposedly completely legal and ok to be able to allege something that is patently false. I hear that’s called “fraud on the court” and should result in sanctions and possibly criminal proceedings against the institutions but no, nothing’s happening. You know why folks… this is easy. It’s because 98% of all homeowners that get served foreclosure papers or notice of default do NOTHING. That’s right, they let the bank/institution walk all over them, allege anything and take ‘em to the cleaners.

Because they do nothing, the court checks nothing. Does no quality control or fact checking to make sure that “Countywide Home Loans” is truly the owner of Luis Molina’s Mortgage and Note. They rubber stamp the lawsuit with a BIG, FAT DEFAULT on it and get on with it.

I met with the Chief Administrative Judge in Lee County, FL today as a representative of the Lee County Foreclosure Task Force. What stuck out to me was that he said the court’s job is to “dispose of these cases as quickly and efficiently as possible.”

You know what, he’s right! He’s doing nothing wrong. It’s up to the homeowner to FIGHT! Or hire a damn good attorney who knows what they’re doing to fight for them (which I highly recommend by the way).

This is the ultimate War on the Home Front. Get out your rusty sword, polish it up, sharpen it and get in the game. Fight for your home and find some inspiration in Luis Molina!! AWESOME! Luis, you’re a hero. Way to go. Now get after it…

In the confusing sea of paperwork transferring mortgage notes from lender to holder to securitized pool, many consumers aren’t at all sure exactly which entity owns their mortgage notes, or how one entity is related to another.

But this big paperwork mess is working to the advantage of many homeowners facing foreclosure in that the mortgage lenders and note holders may not know, either. This is evidenced by the fact that 90% of all Foreclosure Complaints I have read in the last 6 months allege (by the Plaintiff/Lender) that the “Note was lost or destroyed and its whereabouts cannot reasonably be determined.” Thus, they are seeking under certain state statutes to “Re-establish a Lost/Stolen Promissory Note.” Legalese for re-creating the note out of thin air.

If homeowners do nothing in these foreclosure lawsuits, the courts essentially “rubber stamp” these requests and find the homeowner in default. One BIG mistake I am finding is that some homeowners ARE responding to the suits in their own words on the ADVICE of certain friends, even some attorneys. Folks, this is a HUGE mistake. If you do not claim all of your defenses (afforded to you) in your initial response (called a responsive pleading) then by Rules of Civil Procedure, you are in fact “waiving those defenses.”

I highly recommend retaining an attorney to represent you. If you want an attorney to help you, which I highly recommend, send an email to lane@lanehouk.com

Hiring an attorney to represent you in a foreclosure is the only smart move and it’s an investment that pays a return, not an expense. If you don’t understand my point here, email me and I’ll explain…

Florida attorney April Charney noticed that a lot of the mortgage foreclosure cases she saw involved affidavits of lost notes. An affidavit of lost note is essentially a sworn statement that says, “we own this debt, but we can’t find any paperwork to prove it, so please just take our word for it”. A bit of investigation revealed that in many cases, the paperwork didn’t exist, or originated at the wrong time, or conflicting interests had been recorded. In some cases, notes had been illegally purchased by pools after they were already in default.

These flaws can bring a mortgage foreclosure action screeching to a halt; Forbes reported on one such homeowner who is still in residence five years after foreclosure actions were commenced.

If you’re facing foreclosure, don’t assume the worst. Get the professional help you need to untangle the paper trail and find out whether you have valid defenses in a forecosure action.

Another simple but important issue to investigate is the Note that the Plaintiff actually attaches (if and when they do attach a copy of the Note). What you want to zero in on are the endorsements on the Note (or usually, the lack thereof). Understanding the securitization process is key in what you’re looking for on the Note. The endorsements should absolutely follow the chain of ownership from Originator to Seller to Sponsor/Master Servicer to Depositor to Trustee. If you’re not seeing at least 3 endorsements on the Note then you know that this is NOT an original Note regardless of what’s alleged and/or claimed as to its authenticity. We know Portfolio Lending is a dinosaur and literally >95% of all residential loans made since the late 1990’s are/were securitized. Given these facts, we know exactly what to look for.

Here’s a real example from an actual SEC Filed Prospectus linked to a real live Trust (called RFMSI Series 2007-S8 Trust) for more context…
1. Homecomings Financial was the original Lender to John Doe. Homecomings Financial is the “Originator” and “Seller” of this loan and they are the actual “Payee” on the Note the borrower signed at closing.
2. Before the loan even closed, Homecomings Financial knew it was selling this loan to a company called “Residential Funding Company, Inc.” (RFC). RFC always appears as the “Sponsor” and “Master Servicer” in the Prospectus filings with the SEC. – I’ve read well over a dozen Prospectus filings regarding RFC and their roles as Master Servicer NEVER deviates.
3. Homecomings Financial sells the loan (in a pool of loans) to RFC. Here is where you should see the FIRST ENDORSEMENT on the last page of the Note. It’s usually a stamped endorsement that says “Pay to the Order of, Without Recourse” and then you’ll see “Residential Funding Company, Inc.” just below that and the signature of an authorized signor for Homecomings Financial. That’s Endorsement #1.
4. Now, RFC isn’t going to hang on to this Note (pool of Notes) for very long. They have already setup an arrangement to sell these loans (Notes) to a company called “Residential Mortgage Securities I, Inc..” well in advance. This company is called the Depositor. They purchase the loans/notes (the entire pool) from RFC.
5. Here’s where you should see the SECOND ENDORSEMENT on the last page of the Note. “Pay to the Order of, Without Recourse” to Residential Mortgage Securities I, Inc.
6. Residential Mortgage Securities I, Inc., as Depositor is now going to Deposit these loans into the Trust and endorse the Notes to the Trustee.
7. US Bank National Association is the Trustee in this transaction as disclosed in the Prospectus, Form 424B5 (which you can actually get online at www.sec.gov by doing a search on EDGAR; if you know the name of the Trust, you can plug that name in exactly as it appears in a Google Search bar surrounded by quotes and you’ll get all the filings on that specific Trust usually)
8. Here’s where you should see the THIRD ENDORSEMENT on the last page of the Note… payable to US Bank National Association.

Now, what’s material here is that in this particular foreclosure case, the Plaintiff was “Residential Funding Company, Inc.” – here’s a short Quiz question, “Who is Residential Funding Company, Inc.?”
Do you think they own this Note? Even if they actually have the original, it doesn’t mean they’re the holder in due course or the real party in interest. But, if you file a Request for Production of Documents in the foreclosure case the Plaintiff probably won’t respond or they ‘ll try to object to your request. Why? Because, if they can find the original Note it will have these Endorsements on it showing the chain of transfers on it and they will have just produced evidence to the court which clearly evidences that they ARE NOT the owner and holder of the Note as they alleged in their Summons and Complaint.

Now, if you can believe it, we have cases where they have produced the note with endorsements on the last page that DIRECTLY contradict their allegations in the complaint. The attorney’s that work for many of these foreclosure mills aren’t very bright nor do they even understand these things often times.

Thus, you can attack this point in the form of misrepresentation or fraud on the court by showing the court the SEC filings from the Trust that this loan was deposited into. The Form 424B5 (Prospectus) will clearly disclose the parties involved, the chain of ownership and their roles. This is your evidence (as an Exhibit) that the Note in question is either not an original or there are some serious issues with its authenticity or that it contradicts their allegations. No opposing counsel will want a judge to get his/her eyes on this and will usually suspend their prosecution of a foreclosure case if you make your case right with them first via phone. We draft a Motion to Dismiss and attach the evidence as an Exhibit (the SEC Filings) and in the Motion to Dismiss will be points and elements outlining the misprepresentation on the part of counsel and the Plaintiff. My wife will then send this to opposing counsel first and find out what they want to do…

Lastly, often times we’ll see some endorsement(s) on a separate page (not on the last page of the Note) or an “allonge” to the Note. This can be attacked as well. An allonge is easy to create after the fact as it is not an actual part of the Note. Check your state statutes but most states will require endorsements to be on the last page of the Note as long as there is room on the last page. You can easily fit 4-5 endorsements on the last page of a Note.

When the law firm gets a new case, our goal is to raise enough doubt to survive Summary Judgment. Once you survive any motion for Summary Judgment, these cases get dropped off the map. We also request a jury trial in every case along with a Request for Production. If the Plaintiff doesn’t produce what we request (and they usually won’t) for reasons stated above, you’ve got yourself a case. Hope this helps all you folks out there trying to figure out how best to fight these boys at their own game.