News, Research & Insights for American Homeowners, Patriots & Constitutional Conservatives
Guilt.
Via Breitbart TV, the controversy du jour. When I first watched the clip, I thought their strategy was to discourage overeating by simply depressing the viewer until he/she has no appetite left. But no, they’re going for something different. I’m just … not sure what. Critics say the ads will further ostracize children such as [...]
O captain, my captain.
Via Verum Serum, so riveting is this that I think it ends up having the opposite of the intended effect. I want to fry a turkey now, just to experience that magical frisson of delight that spreads across Shatner’s face as he peers into his brand new frier. Imagine how succulent a crispy-fried bird must [...]
Well, I’d have to say that the foreclosure crisis jumped the shark today, for me anyway. This unconscionable, tragic and devastating situation has gone from inexplicable to appalling. I mean, my God… look what the bankers in this country have done to us all.
And not one single aspect of this expanding nightmare, whether addressed by a state or federal government program, has even showed us a modicum of competence. You’d think by this point, someone would do something that outperforms ‘spectacular failure’ by accident, if not by design. Like, by now couldn’t we have one program that merely failed, as opposed to spectacularly failed?
If you’re one of those who has been running around trying to spread the blame the borrowers for some part of this nightmare… just shut up, would you… you sound like an idiot at this point. And I don’t care whether you’re at risk of foreclosure or not… this affects you every bit as much as someone who hasn’t made a payment in three years, so let’s see who you want to blame now.
Let’s start on the East Coast and work our way out west, shall we?
Yesterday, the Massachusetts Supreme Judicial Court issued its opinion today in Bevilacqua v. Rodriguez, a case examining the rights of property owners when buying foreclosed homes with toxic titles. In short, they have none.
As shocking as it may be to some, apparently if you start with MERS, mix in some robo-signing, have total disregard for the PSA, and entirely ignore each and every law along the way, well… you end up destroying the foundation of a society. On the positive side of the coin, however, you also end up with more money than Canada.
This ‘Spirit of America’ saga began last January with the landmark Ibanez decision, in which the Massachusetts Supreme Judicial Court invalidated two foreclosures conducted by US Bancorp and Wells Fargo Bank.
The court ruled that the foreclosure sales were invalid because notices of the sales named U.S. Bank and Wells Fargo as the mortgage holders but neither had yet been assigned the mortgages, and “thus had no interest in the mortgages being foreclosed at the time of the publication of the notices of sale or at the time of the foreclosure sales.”
Glenn Russell is a foreclosure defense attorney practicing in Massachusetts who I’ve become friends with over the last couple of years. He represented the La Race family, the other family that was involved in the Ibanez decision, so I called him to get his take on Bevilacqua… and to see if he knew how to pronounce that name, Bev-il-aq-ua… which thankfully he did.
Glenn told me that he views the decision as being the natural extension of the Ibanez decision.
According to Glenn…
“In Massachusetts if the lender or mortgagee doesn’t have the assignment of the mortgage at the time of the first publication of the foreclosure auction, then they’re not a holder of the mortgage and no sale can take place. In this case, US Bank didn’t receive the assignment until after the foreclosure sale, so they didn’t have anything to sell… when they sold it to Mr. Bevilacqua.”
The “try title” statute is the Massachusetts version of “quiet title” and it basically says I’ve got better title than anyone else, but in this case, the buyer never owned it in the first place, so there was nothing to discuss.
The Massachusetts Supreme Judicial Court agreed with, Land Court Judge Keith Long, the same judge who originally heard the Ibanez case, basically saying that since Mr. Bevilacqua never owned the property, he lacked standing to pursue a “try title” action in the state’s Land Court.
Judge Long provided his “Brooklyn Bridge” analogy, which says that if someone records a deed to the Brooklyn Bridge, and then brings a lawsuit to ask the court to uphold his ownership claim… but then the actual owner of the bridge doesn’t show up in court, the title to the bridge doesn’t just magically convey to its new owner.
The court also held that Bevilacqua lacked standing as a “bona fide good faith purchaser for value,” based on much the same rationale.
Judge Long was sympathetic to Mr. Bevilacqua’s situation. Apparently, Bevilacqua put several hundred thousand dollars into the property to convert it into condominiums. Judge Long wrote…
“I have great sympathy for Mr. Bevilacqua’s situation — he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title — but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied.”
Well, that wasn’t too subtle… he’s saying Bevilacqua can go sue US Bank who botched the sale.
Now, the court did say that there were a couple of potential ways to fix the problem, one of which being that the owners could attempt to put their chains of title back together and hold new foreclosure sales in their names to clear their titles. Basically, Bevilacqua would be allowed to foreclose by virtue of having “an equitable assignment” of the mortgage foreclosed on by US Bank.
This approach is said to be quite expensive, but potentially doable, however, a decision in the Eaton v. FNMA case is imminent, and if the court in that case rules that foreclosing parties need to hold both the mortgage and the promissory note when they foreclose, well… that would be the end of the re-foreclosure fix mentioned above.
Another way to fix this problem would be to have US Bank re-do its foreclosure sale, but this approach does allow for the possibility of a competing bid entering the picture, among other things.
The third way to handle this situation would be to find the old owner, in this case Mr. Rodriguez, and get him to sign a quit claim deed and, I’d imagine, a whole pile of waivers of his rights.
Attorney Jeff Loeb, of the prestigious Boston law firm Rich May, appears to be representing Mr. Bevilacqua, but more than likely he was actually retained by Chicago Title, or if not, then another title insurance company.
Smart money says the Jeff will be looking high and low for Mr. Rodriguez to see if he can get him to sign a waiver of his rights… you know for $500… or in this case maybe they’d throw a grand at him, which is I’m told, the standard operating procedure in cases such as this. Nice guys, right?
Chicago Title is part of Fidelity who is the parent of LPS…. so there’s a rich history of doing business the old fashioned way.
If you have lost your home to foreclosure, and it has been sold since then…
Go to the Registry of Deeds and look up the property records to determine when your mortgage was properly assigned, and if it hadn’t yet been assigned at the time of the first publication of the sale, then they bought nothing… so, go get your house back.
In fact, call Glenn Russell and talk to him about it. I happen to know that he’d like to handle such a case.
So, while the Massachusetts Supreme Judicial Court was busy agreeing with Judge Long of the Land Court that the laws governing the transfer of real property actually do apply even to a foreclosure sale and even after the buyer had put a couple hundred grand into the property, the California Court of Appeals was busy ruling that the only law that matters as far as they’re concerned is the law requiring borrowers to make their payments.
In Fontenot v. Wells Fargo, the court ruled that, “MERS‘s status was not reasonably subject to dispute.” And even worse, the court ruled that, there is “overriding basis for rejecting a claim based solely on the alleged invalidity of the MERS assignment.”
And further… “if MERS indeed lacked authority to make the assignment, the true victim was not plaintiff but the original lender, which would have suffered the unauthorized loss of a $1 million promissory note.”
Here’s a brief overview of the story, taken from the court’s decision, which, as if it weren’t bad enough, is certified for publication. (Both this decision and the Massachusetts decision are found at the bottom of this article.)
Plaintiff Arlene Fontenot sued Wells Fargo Bank, Mortgage Electronic Registration Systems, and three other entities after she defaulted on a secured real estate loan and lost the property to foreclosure.
She alleged the foreclosure was unlawful because Wells Fargo had breached an agreement to forbear from foreclosure, and MERS made an invalid assignment of an interest in the promissory note relating to the property.
Wells Fargo and MERS filed demurrers based in part on recorded documents they contended demonstrated plaintiff‘s claims to be without factual foundation. The trial court took judicial notice of the requested documents and sustained the demurrers without leave to amend. We affirm.
In December 2007, MERS assigned the deed of trust to defendant HSBC Bank. Several months later, Wells Fargo was alleged to have foreclosed on the property and sold it, although the complaint otherwise contained no explanation of Wells Fargo‘s relationship to the secured transaction.
The complaint asserted a single cause of action against all defendants for―Wrongful Foreclosure. Within that cause of action, plaintiff alleged several different imperfections in the foreclosure process, including improper or ineffective transfers of the promissory note and security. Plaintiff sought an award of damages, as well as an order voiding the foreclosure sale and her debt.
The court granted MERS‘s request for judicial notice and sustained its demurrer without leave to amend, noting, ―The only apparent grounds for suing MERS are the allegations that the deed of trust improperly named MERS as nominee and beneficiary, and that there was no physical delivery of the note to HSBC. . . . Those claims do not state a cause of action against MERS as a matter of law.
Plaintiff raises four primary grounds for reversing the trial court‘s rulings sustaining the two demurrers.
On review from an order sustaining a demurrer, the court examined the complaint de novo, which has got to mean something like “anew,” to determine whether it alleges facts sufficient to state a cause of action under any legal theory.
Rather, MERS was the beneficiary under the deed of trust because, as a legally operative document, the deed of trust designated MERS as the beneficiary. Given this designation, MERS‘s status was not reasonably subject to dispute. The other matters noticed by the trial court similarly could be inferred from the text or legal effect of the documents themselves, needing no outside confirmation. We find no abuse of discretion.
Plaintiff‘s claim against MERS challenges an aspect of the ―MERS System, a method devised by the mortgage banking industry to facilitate the securitization of real property debt instruments. Members of the MERS System assign limited interests in the real property to MERS, which is listed as a grantee in the official records of local governments, but the members retain the promissory notes and mortgage servicing rights. The notes may thereafter be transferred among members without requiring recordation in the public records.
Ordinarily, the owner of a promissory note secured by a deed of trust is designated as the beneficiary of the deed of trust. Under the MERS System, however, MERS is designated as the beneficiary in deeds of trust, acting as ―nomine for the lender, and granted the authority to exercise legal rights of the lender.
This aspect of the system has come under attack in a number of state and federal decisions across the country, under a variety of legal theories. The decisions have generally, although by no means universally, found that the use of MERS does not invalidate a foreclosure sale that is otherwise substantively and procedurally proper.
Our Courts of Appeal in California have only recently addressed MERS‘s role, but both published decisions have come down on the side of MERS.
As the court reasoned, Civil Code section 2924, subdivision (a)(1), which states that a trustee, mortgagee, or beneficiary, or an agent of any of them, may initiate foreclosure, does not include a requirement that an agent demonstrate authorization by its principal.
The court also found no substantive basis for the challenge, noting, as here, the plaintiff had agreed in the deed of trust that MERS could proceed with foreclosure and non-judicial sale in the event of a default. Because the deed of trust did not require MERS to provide further assurances of its authorization prior to proceeding with foreclosure, the plaintiff was not entitled to demand such assurances.
Plaintiff contends the trial court erred in sustaining Wells Fargo‘s demurrer because she adequately alleged either a claim for wrongful foreclosure, based on Wells Fargo‘s refusal to accept performance under the forbearance agreement as amended by the March letter, or a claim for promissory estoppel. The trial court declined to consider the allegations regarding the March letter because plaintiff did not attach a copy of the letter to the complaint.
Finally, plaintiff contends the deed of trust was ambiguous because it designated MERS as both the ― nominee for the beneficiary‘ and as the ―beneficiary. An entity cannot be, plaintiff argues, both an agent and a principal.
The record does not support the claimed ambiguity. Contrary to plaintiff‘s assertion, the deed of trust did not designate MERS as both beneficiary of the deed of trust and nominee for the beneficiary; rather, it states that MERS is the beneficiary, acting as a nominee for the lender.
There is nothing inconsistent in MERS‘s being designated both as the beneficiary and as a nominee, i.e., agent, for the lender. The legal implication of the designation is that MERS may exercise the rights and obligations of a beneficiary of the deed of trust, a role ordinarily afforded the lender, but it will exercise those rights and obligations only as an agent for the lender, not for its own interests.
Other statements in the deed of trust regarding the role of MERS are consistent with this interpretation, and there is nothing ambiguous or unusual about the legal arrangement. Plaintiff‘s argument appears to be premised on the unstated assumption that only the owner of the promissory note can be designated as the beneficiary of a deed of trust, but she cites no legal authority to support that premise.
There is a further, overriding basis for rejecting a claim based solely on the alleged invalidity of the MERS assignment.
Plaintiff‘s cause of action ultimately seeks to demonstrate that the non-judicial foreclosure sale was invalid because HSBC lacked authority to foreclose, never having received a proper assignment of the debt.
In order to allege such a claim, it was not enough for plaintiff to allege that MERS‘s purported assignment of the note in the assignment of deed of trust was ineffective. Instead, plaintiff was required to allege that HSBC did not receive a valid assignment of the debt in any manner.
Plaintiff rests her argument on the documents in the public record, but assignments of debt, as opposed to assignments of the security interest incident to the debt, are commonly not recorded. The lender could readily have assigned the promissory note to HSBC in an unrecorded document that was not disclosed to plaintiff.
To state a claim, plaintiff was required to allege not only that the purported MERS assignment was invalid, but also that HSBC did not receive an assignment of the debt in any other manner. There is no such allegation.
Prejudice is not presumed from ―mere irregularities in the process. Even if MERS lacked authority to transfer the note, it is difficult to conceive how plaintiff was prejudiced by MERS‘s purported assignment, and there is no allegation to this effect.
Because a promissory note is a negotiable instrument, a borrower must anticipate it can and might be transferred to another creditor. The assignment merely substituted one creditor for another, without changing her obligations under the note.
Plaintiff effectively concedes she was in default… and she does not allege that the transfer to HSBC interfered in any manner with her payment of the note… nor that the original lender would have refrained from foreclosure under the circumstances presented.
If MERS indeed lacked authority to make the assignment, the true victim was not plaintiff but the original lender, which would have suffered the unauthorized loss of a $1 million promissory note.
And there you have it. Ladies and gentlemen… I give you the California Court of Appeals… and that, as they say is that. As I understand it, from an attorney friend of mine, this decision is now essentially the law throughout the State of California.
California courts do not care whether the note was assigned correctly, they do not care about MERS being involved as a beneficiary… all they care about is whether borrowers made their payments or not.
If you’re planning on making either of these arguments in a California court, it better be bankruptcy court because if not… it does not look good. And if someone tells you that you can litigate in California based on an improper assignment or the role played by MERS, just tell them “FonteNOT.”
So… I have a solution for California’s homeowners… move to Massachusetts?
Mandelman out.
Attention Foreclosure Defense Attorneys… It’s time to take it up a notch or two…
Why do I say that?
Well, because Max, along with his faculty of expert guest speakers, will be delivering two specially designed in-depth sessions each one laser focused on the topic of the UCC’s impact on mortgage securitization – and each of the seminars is specifically tailored for California and New York state law respectively.
Why is this topic so important?
Watch this video from Bloomberg… an interview with banking industry and securities expert, Christopher Whalen and it’ll become very clear, very quickly.
When you attend either of the upcoming seminars, you’ll learn about such topics as…
And not only is there much more on the agenda… but that’s only the beginning of what is sure to make these events invaluable to your practice. Just wait until you see whose speaking at each event.
The first one is…
Speakers at the California seminar include:
Richard Shepherd – Former Vice-President and General Counsel for Saxon Mortgage (now Morgan Stanley).
Margery Golant – Former Assistant General Counsel at Ocwen Financial Corporation and Department Manager of a major plaintiffʼs foreclosure firm.
Jay Patterson – A leading Certified Fraud Examiner and Forensic Accountant.
Eric Clark – A leading consumer bankruptcy attorney in California He has been a panelist at the National Conference of Bankruptcy Judges, the Annual Convention of the National Association of Chapter Thirteen Trustees as well as the Annual NACBA Convention.
Michael G. Doan – He practices on the cutting edge of bankruptcy law, being the first attorney in the entire Southern District of California to file the very first Chapter 7 Bankruptcy and very first Chapter 13 Bankruptcy under the new Bankruptcy Laws which went into effect on October 17, 2005.
David Springer – With over 25 years experience in traditional and mortgage banking, Mr. Springer has served as employee, officer and consultant to some of America’s largest mortgage lenders. His direct experience in subprime loan securitization gives him a revealing eyewitness perspective to this important chapter in American financial history. Mr. Springer discusses in detail the processes, entities, and the management of documents in the lending and securitization process.
The cost to attend is only $1799, and if you’ve previously attended a Max Gardner training seminar you’ll receive a $400 discount!
And the second is…
Speakers at the New York City seminar include:
Judge Arthur Schack – New York Supreme Court Justice who has gained notoriety for taking the unusual stance “If you are going to take away someoneʼs house, everything should be legal and correct.”
Hon. Samuel L. Bufford – a former United States Bankruptcy Judge in the Central District of California, where he served for twenty-five years and presided over nearly 100,000 cases. Widely regarded as one of the foremost scholars of U.S. and comparative insolvency law, his teaching interests include bankruptcy, international and comparative insolvency law, commercial transactions, and international business transactions.”
Tara Twomey – Of Counsel to the National Consumer Law Center and the Amicus Project Director for the National Association of Consumer Bankruptcy Attorneys. She is currently a Lecturer in Law at Stanford, and has previously lectured at Harvard and Boston College Law Schools.
Thomas Cox – The attorney responsible for setting off the temporary freeze against foreclosures.
Richard Shepherd – Former Vice-President and General Counsel for Saxon Mortgage (now Morgan Stanley)
Margery Golant – Former Assistant General Counsel at Ocwen Financial Corporation and Department Manager of a major plaintiffʼs foreclosure firm
Jay Patterson – A leading Certified Fraud Examiner and Forensic Accountant.
The cost to attend is only $1999, and if you’ve previously attended a Max Gardner training seminar you’ll receive a $400 discount!
(I’ll be at both the California and New York events, by the way. Oh, and although it doesn’t happen often, speakers are subject to change without notice.)
That’s Max above… he’s my hero.
HERE’S THE BOTTOM-LINE…
You must attack the secured status of the Trustee of residential mortgage backed securitized trusts and you must challenge the mortgage servicer’s standing to foreclose.
In order to make these types of challenges in court, you must have a thorough understanding of how securitization is supposed to work and then determine whether the proper procedures were followed for your client’s mortgage.
To understand how securitization is supposed to work, you must have a thorough understanding of UCC Articles 3, 9 and 1-302. This session will present the most comprehensive look at the UCC and its impact on foreclosure defense available.
In order for a residential mortgage to be properly securitized within a trust, the note needs to have been properly assigned by ALL parties to the transaction.
By now it should be clear to all involved that, in reality, this rarely occurred during the last decade and Max refers to this as the “Alphabet Problem.”
According to Max and countless others with experience litigating these cases, you will rarely, if ever find that the parties, A, B, C, D etc. made the proper assignments of the mortgage or deed of trust or transfers of the note. What typically happens, however, is that the foreclosing party will “magically” find the “missing” assignment at the last minute before a trial claiming improper assignment from party A to D.
Various Articles of the Uniform Commercial Code cover aspects of how a residential mortgage note in a securitized transaction should be transferred. If you are going to attack the secured status of the Trustee of residential mortgage backed securitized trusts, you must be fluent in “UCC” or as Max might say in the “ABC’s”.
Max is of the opinion that a residential mortgage note is NOT a negotiable instrument under Article 3 of the UCC and that Pooling and Servicing Agreements actually constitute “otherwise agreed” mandatory methods of perfection as permitted by Article 1-302 of the UCC.
According to one of Max’s recent articles…
“A review of all of the recent “standing” and “real party in interest” cases decided by the bankruptcy courts and the state courts in judicial foreclosure states all arise out of the inability of the mortgage servicer or the Trust to “prove up” an unbroken chain of “assignments and transfers” of the mortgage notes and the mortgages from the originators to the sponsors to the depositors to the trust and to the master document custodian for the trust.
As is likely stated in the PSA, however, the parties have represented and warranted that there is “a complete chain of endorsements from the originator to the last endorsee” for the note. And, the Master Document Custodian must file verified reports that it in fact holds such documents with all “intervening” documents that confirm true sales at each link in the chain.”
If you’re serious about winning the battle against foreclosure fraud for your clients don’t miss this opportunity to learn from the some of the top legal minds in the country how to drill down into the details of securitization and the impact of the UCC…
… with each seminar specifically adapted to California and New York state law respectively.
Did you miss Max Gardner when he was in Las Vegas last year with Operation Strike Back? Well, even if you did, you can still get the education by purchasing the event on video. It’s the next best thing to being there.
Oh, and by the way… when you purchase any of Max’s training products here, Mandelman Matters, a California non-profit corporation by the way, will receive 10% of the sale, which will be used to cover production costs of the documentary on the foreclosure crisis we are currently producing for release at the end of this year. So please… if you’re think of buying the Las Vegas Videos, or anything else that Max has to offer, buy it here. Thank you.
A major issue arising in foreclosure defense cases is the homeowner's ability to challenge the foreclosing party's standing based on noncompliance with securitization documentation. Several courts have held that there is no standing to challenge standing on this basis, most recently the 1st Circuit BAP in Correia v. Deutsche Bank Nat'l Trust Company. (See Abigail Caplovitz Field's cogent critique of that ruling here.) The basis for these courts' rulings is that the homeowner isn't a party to the PSA, so the homeowner has no standing to raise noncompliance with the PSA.
I think that view is plain wrong. It fails to understand what PSA-based foreclosure defenses are about and to recognize a pair of real and cognizable Article III interests of homeowners: the right to be protected against duplicative claims and the right to litigate against the real party in interest because of settlement incentives and abilities.
The homeowner is obviously not party to the securitization contracts like the PSA (query, though whether securitization gives rises to a tortious interference with the mortgage contract claim because of PSA modification limitations...). This means that the homeowner can't enforce the terms of the PSA. The homeowner can't prosecute putbacks and the like. But there's a major difference between claiming that sort of right under a PSA and pointing to noncompliance with the PSA as evidence that the foreclosing party doesn't have standing (and after Ibanez, it's just incomprehensible to me how this sort of decision could be coming out of the 1st Circuit BAP with a MA mortgage).
Let me put it another way. Homeowners are not complaining about breaches of the PSA for the purposes of enforcing the PSA contract. They are pointing to breaches of the PSA as evidence that the loan was not transferred to the securitization trust. The PSA is being invoked because it is the document that purports to transfer the mortgage to the trust. Adherence to the PSA determines whether there was a transfer effected or not because under NY trust law (which governs most PSAs), a transfer not in compliance with a trust's documents is void. And if there isn't a valid transfer, there's no standing. This is simply a factual question--does the trust own the loan or not? (Or in UCC terms, is the trust a "party entitled to enforce the note"--query whether enforcement rights in the note also mean enforcement rights in the mortgage...) If not, then it lacks standing to foreclosure.
It's important to understand that this is not an attempt to invoke investors' rights under a PSA. One can see this by considering the other PSA violations that homeowners are not invoking because they have no bearing whatsoever on the validyt of the transfer, and thus on standing. For example, if a servicer has been violating servicing standards under the PSA, that's not a foreclosure defense, although it's a breach of contract with the trust (and thus the MBS investors). If the trust doesn't own the loan because the transfer was never properly done, however, that's a very different thing than trying to invoke rights under the PSA.
I would have thought it rather obvious that a homeowner could argue that the foreclosing party isn't the mortgagee and that the lack of a proper transfer of the mortgage to the foreclosing party would be evidence of that point. But some courts aren't understanding this critical distinction.
Even if courts don't buy this distinction, there are at least two good theories under which a homeowner should have the ability to challenge the foreclosing party's standing. Both of these theories point to a cognizable interest of the homeowner that is being harmed, and thus Article III standing.
First, there is the possibility of duplicative claims. This is unlikely, although with the presence of warehouse fraud (Taylor Bean and Colonial Bank, eg), it can hardly be discounted as an impossibility. The same mortgage loan might have been sold multiple times by the same lender as part of a warehouse fraud. That could conceivably result in multiple claimants. The homeowner should only have to pay once. Similarly, if the loan wasn't properly securitized, then the depositor or seller could claim the loan as it's property. Again, potentially multiple claimants, but the homeowner should only have to pay one satisfaction.
Consider a case in which Bank A securitized a bunch of loans, but did not do the transfers properly. Bank A ends up in FDIC receivership. FDIC could claim those loans as property of Bank A, leaving the securitization trust with an unsecured claim for a refund of the money it paid Bank A. Indeed, I'd urge Harvey Miller to be looking at this as a way to claw back a lot of money into the Lehman estate.
Second, the homeowner had a real interest in dealing with the right plaintiff because different plaintiffs have different incentives and ability to settle. We'd rather see negotiated outcomes than foreclosures, but servicers and trustees have very different incentives and ability to settle than banks that hold loans in portfolio. PSA terms, liquidity, capital requirements, credit risk exposure, and compensation differ between services/trustees and portfolio lenders. If the loans weren't properly transferred via the securitization, then they are still held in portfolio by someone. This means homeowners have a strong interest in litigating against the real party in interest.
I'm not enough of a procedure jock to know if there's a way for a homeowner to force an interpleader among the potential claimants-trust, depositor, seller, etc, but that seems like the right way to handle this. In any event, I think the fact that the homeowner isn't a party to the securitization is kind of beside the point. The homeowner should be able to challenge standing because the homeowner has real legal interests at stake in litigating against the right party.
Just a few years ago, representing homeowners at risk of foreclosure was a tiny niche in the practice of law, and when I say “tiny,” I mean tiny as to be practically nonexistent. Sure, there were a few lawyers out there, primarily in the judicial foreclosure states, handling this sort of legal matter, but it certainly wasn’t the only legal services they offered… there just weren’t enough clients in need to keep lights on at a law office.
Well, what a difference a couple of years makes. Today, foreclosure defense has got to be one of the fastest growing areas in the practice of law, but as those that entered the field a few years ago all readily attest, there’s nothing simple or easy about it.
For one thing, the legal transfer of property rights, thanks to the Wall Street bankers and the advent of securitization, is about as complex a subject as one might imagine. For another, it’s an extremely fluid area of the law, with the cases being filed, the outcome of depositions, the impact of legislation and federal investigations, and decisions by the various courts all combining to keep the landscape in flux as if some sort of primordial pool.
Finding clients is the only aspect of the practice that is not a problem, as a matter of fact it’s pretty much raining homeowners in need, but getting paid by those clients is another matter. By definition, someone who is at risk of foreclosure is struggling financially, and having to litigate against the largest banks in the world on a brown-bag-budget can be a lot like performing a high wire act, sans net and balance bar, while on crutches. Not only do few of the applicable statutes provide for a private right of action, but even fewer allow the winner to receive attorneys’ fees from the loser. Obviously, that’s no accident; will the banking lobby please take a bow.
Over the last three years, as I’ve written hundreds of articles on various aspects the financial and foreclosure crises, I’ve had to rely on the expertise of a large number of legal professionals from all over the country, and with the exception of those receiving salaries as legal aid attorneys, all quite obviously struggle to make ends meet to some degree.
Those that make foreclosure defense their primary focus (and making it your primary focus is likely the only way to do it successfully), do what they do either out of passion for helping those in need, or for the challenge of fighting for the underdog against the evil empire… or some combination of the two. Those that get into it for the money quickly find that they’re working 80-100 hour weeks and there’s not enough money in the world to put in that kind of effort if no other psychic benefit is accruing.
Perhaps the most difficult aspect of operating a law practice focused on foreclosure defense is that today’s courts, often clogged with litigation brought by pro se litigants, are anything but consistent in how they rule on the various matters of law involved. Nationally known foreclosure defense attorney Nick Wooten explains…
“It’s a unique situation because the rule of law arguments are being brought in the context of someone who is not paying their bills, and the law generally does not favor such individuals.”
I recently referred to the phenomena as the “but you didn’t make your payment exemption to the law.” It occurs when judges become wholly uninterested in the matters of law, refusing to look past the obvious… that the homeowner is delinquent as far as his or her mortgage payments are concerned… so, homeowner loses and case closed.
To-date, that is what’s occurred many more times than it hasn’t, but certainly since the robo-signing of documents was brought to light in the fall of 2010, the courts have changed to some degree… well, at least some of them have… some of the time.
MERS and the Owner of the Note…
The variances that exist in decisions by the courts are most readily found in two areas. One involves the Mortgage Electronic Registration Service, or as we’ve all come to know it… MERS, and the other centers around the question of whether the trust, on whose behalf the servicer is seeking to foreclose, does in fact own the note.
Funded by the mortgage banking industry along with the GSEs, Fannie and Freddie, MERS is a company with few employees established to allow mortgages to be registered centrally without recording at county recording offices, as had always been required. The use of MERS was not well researched by the mortgage banking industry and it has brought the chain of title into question, with some saying the result is an irrevocable cloud on millions of titles across the country.
Until MERS entered the picture, you could find out who owned a given property going back to the beginning of this country’s existence. Not anymore… not since MERS.
As to the question of whether the trust actually owns the note, the answer is never simple, but at this point, it’s clear that in many instances the answer is no.
The type of trust used in conjunction with mortgage-backed securities is called a REMIC trust… it’s an acronym that stands for Real Estate Mortgage Investment Conduit… and there are strict rules imposed by both the Internal Revenue Code and the Pooling and Servicing Agreements that govern the transfer of loans into such trusts. Unquestionably, in many instances, many of these rules were not followed.
Depending on the state you’re in, or even the type of court you’re in, the judge’s decision seems just as likely to say MERS is perfectly acceptable as not, and while some judges care about the foreclosing party having standing, or in other words being able to prove the trust does owns the note in question, others are quite blunt in saying that they could care less.
In California, for example, in the appellate court’s decision in Gomes v. Countrywide, the court rejected the plaintiff’s attempt to challenge his non-judicial foreclosure, emphasizing that “under California law MERS may initiate a foreclosure as the nominee, or agent, of the note holder.”
See: Gomes v. Countrywide Home Loans, Inc., No. D057005, 2011 WL 566737 (Cal. Ct. App. 4th Dist. Feb. 18, 2011).
Basically, the high court said that the holder of the Deed of Trust can foreclose, who owns the actual note is essentially irrelevant, and further that assignment by MERS is just fine, absent allegations of fraud… I think that’s most of it anyway… it’s a very technical decision so don’t go basing your plans on what I’ve said about it… check with a lawyer, and maybe even two before doing anything.
Bankruptcy courts in California, on the other hand, at times have been far more critical of MERS, the need to record the assignment of the Deed of Trust, and even proving ownership of the note. No far-reaching precedents exist as yet, and all of the lawyers I asked told me that the outcome depends on which judge hears the case… not all that reassuring, I would agree.
In other states, and most recently Nevada, Massachusetts, and New York immediately come to mind, MERS has not been not doing well at all. Several judges in those states have recently written scathing opinions of MERS… perhaps most memorable was U.S. Bankruptcy Judge Robert E. Grossman out of New York, who wrote:
“MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law.”
I covered the decision at the time under the headline, “New Bankruptcy Court Decision Sounds the Alarm… The U.S.S. MERS is Going Down.” (I even included new lyrics to the “Good Ship Titanic” song we all learned as kids.) As consumer super-attorney Max Gardner, referring to Judge Grossman’s decision, said:
“This case may well be the final dagger in the deep dark heart of the MERS business model.
Maine foreclosure defense attorney Tom Cox, the lawyer who uncovered the robo-signing at GMAC during a deposition last fall, had the following to say about Judge Grossman’s decision:
“He (Judge Grossman) does the most thorough and competent analysis of the MERS charade that I have seen, basically concluding that the entire MERS business model does not comply with our laws, and that he will no longer accept MERS mortgage assignments in his court room.”
“It’s a decision that was a delight to see.”
But… not so fast, because look back just a couple of months and it’s easy to find cases where judges ruled in favor of MERS. For example, in the case of In re: Lopez, No. 09-10346, 2011 WL 576820 (Bankr. D. Mass. Feb. 9, 2011), Judge William C. Hillman upheld the validity of MERS serving as “nominee” when he granted a servicer’s motion for relief from stay in a Chapter 13 bankruptcy proceeding.
Judge Hillman said that “the Mortgage specifically identified MERS as the mortgagee under the instrument and granted it and its ‘successors and assigns’ a power of sale.” Judge Hillman went on to uphold MERS’ assignment of the mortgage as “nominee,” saying…“though MERS never held the Note, it could, by virtue of its nominee status, transfer the Mortgage on behalf of the note holder.”
Similarly, In the recent case of In re: Martinez, No. 10-7027, 2011WL 489905 (Bankr. D. Kan. Feb. 11, 2011), Judge Janice Miller Karlin granted motions for summary judgment filed by MERS and the originator, Countrywide Home Loans, Inc., rejecting claims out of hand that challenged MERS’ business model.
In this case, the plaintiffs said that because they owed the debt to the originator (who also still held the promissory note), and not to MERS, no one was allowed to enforce the mortgage that plaintiffs executed to MERS. Judge Karlin, however, held that MERS was properly acting as Countrywide’s agent.
Relying on language found in the mortgage instrument, MERS’ Terms and Conditions, and state agency law, Judge Karlin held:
Based upon this evidence, the Court concludes that MERS was clearly acting as an agent for Countrywide at all relevant times. MERS held the Mortgage as “nominee” for Countrywide, and agreed to act on Countrywide’s behalf and at Countrywide’s direction with respect to the Mortgage. The fact that MERS and Countrywide chose to use the word “nominee,” rather than “agent,” does not alter the underlying relationship between the two parties. There is no requirement that parties to an agency relationship specifically refer to the agent by the name “agent.”
So, for me at least… MERS has become a lot like eggs for breakfast. At first eggs were good for me, but then they were bad for me… and then they were good for me again… and now I have no idea what the deal is with eating eggs for breakfast… so I eat oatmeal.
Abigail Field, who writes about the financial and foreclosure crises for Daily Finance and Fortune Magazine, and with whom I have only just recently become acquainted, I’m embarrassed to say, has an excellent piece titled: “The Meaning of MERS,” in which, after covering the issues from A-to-Z, she makes a darn fine case for legislating MERS out of existence. I highly recommend reading it specifically, and her in general. Her blog is “Reality Check,” and I’m about to link to it as one of my favorites.
The bottom-line is that over the last couple of years, hardly a month has passed without another decision that either somehow further emboldens homeowners or threatens to cause despair en masse. Overall, I would have to say that this past year, more homeowners have won out in key areas than have banks, and certainly the robo-signing scandal hasn’t helped the banks’ case in the court of public opinion, but other than sporadic wins in certain pockets, most if not all states still lack anything definitive on these issues.
The good news is that more and more Americans are coming to realize that what’s happened economically in this country has not been the fault of irresponsible homeowners, and that’s certainly good news. But with foreclosure laws largely being state laws, it looks like it could be a while before we see any consistency among the various courts of potential jurisdiction, much less across state lines.
I tried it before and it didn’t work…
I talk to foreclosure defense attorneys from all over the country just about every single day, so I have a fairly large picture window into what’s going on around the country, and I’ve started to notice something taking hold among some attorneys… NOT ALL, by any means, but some.
It appears to me that it’s some sort of fatigue, and it’s often embodied in the phrase: I tried it before, and it didn’t work.
It seems that, having spent the last couple of years getting beat up by judges who at the beginning of the foreclosure crisis only wanted to hear three words before deciding the case: Borrower is delinquent… some lawyers are exhibiting signs of battle fatigue.
Battle fatigue is a very real medical condition, the United States Army recognizes it as such, and its manuals state that even moderate cases are “too much of a burden to remain with their unit.” I looked up the symptoms in the Army’s field manual and several seem like they might apply here:
1. Hyper-alertness – No question about this one… after handling a few dozen homeowners, many lawyers become hyper-something for sure.
2. Irritability – This one’s hard to tell… they’re always nice to me, but then they are lawyers so under the right circumstances they become irritable… but is that a symptom of fatigue or just part of the personality that wants to become a lawyer in the first place? Not sure, too big a question… let’s move on…
3. Inertia, indecision and tiredness – Some of these lawyers have become poster children for inertia, indecision and tiredness… and who could blame them. Theirs is not an easy job and it’s easy to see how eventually it would become hard to know exactly which way to turn.
Of course, I struggle with these symptoms as well, and I’m not a lawyer. I think it’s because this battle on behalf of homeowners has already been long and hard, and for whatever reason, maybe because it changes so quickly, it takes over your entire life if your not careful. I mean, just blogging about it will kill you, as evidenced by the fact that the only exercise I’ve gotten over the last couple of years has been jumping to conclusions and side-stepping authority.
4. Inability to Concentrate – Weren’t we just talking about a chicken?
5. Insomnia and Terror Dreams – I don’t know about the lawyers, but I routinely post articles at 4:00 am, only to find that Yves Smith over at Naked Capitalism just posted at 3:30 am. And as to Terror Dreams, I had a dream recently that my Option Arm exploded… no, I mean literally exploded and took out an entire city block like a nuclear bomb.
6. Depression – Lawyers… depressed? After hearing 100 judges in a row tell you the only security they care about involves an alarm system, and that the only note they’re interested in hearing is a B flat… I suppose it could get a little depressing, sure… why not?
7. Anxiety – Ya’ think? You ever seen a dog that someone hit with a rolled up newspaper one too many times. I mean, look at a few of the state Attorneys General. Like the month of March, they came to their investigation of the mortgage servicers like lions and they’re going out like lambs. Today, there’s a few AGs that look like they’d agree to settle with the banks in exchange for a toaster oven and free checking.
8. Memory Loss – I may have noticed this, I just don’t recall. (I know, I know… but I couldn’t help it.)
9. Tension – Hard to assess tension in some lawyers without removing the yardstick from their posterior, if you know what I mean. A good friend of mine that happens to be a lawyer actually minored in Tension as an undergrad.
Okay, so enough fun… the point is that lately, when I call a lawyer to discuss something I’ve heard about or read, the answer comes back loud and clear on many occasions: “I’ve tried it before and it didn’t work.” It’s really a dangerous aspect of battle fatigue… especially when fighting a war where the rules of engagement are changing almost every day.
I mean, can you imagine the battle fatigue that the civil rights attorneys were feeling after decades spent going up against a United States Supreme Court continuing to uphold Jim Crow laws and the separate but equal doctrine, which had been established by the high court in Plessy v. Ferguson, 163 U.S. 537 (1896)… and continued for some 60 years until Brown v. Board of Education, 347 U.S. 483 (1954)? You talk about tired and beat up… I can’t even imagine.
And what if Oliver Brown and his daughter Linda had gone to see one of these battle fatigued attorneys on the wrong day asking for his help. Mr. Brown might have said, “But my daughter should be allowed to go to the school that’s only a few blocks away from her home. Will you represent us?”
And the lawyer, tired of getting his or her butt kicked over the issue, might have replied, “I’m sorry, I tried it before and it didn’t work.”
And where would we be today, I ask you? Okay, maybe exactly where we are now, as the Brown case really was a class action and there were many others involved, but just think how you as a lawyer would feel knowing that you missed that kind of opportunity because at the time you were just that sure that nothing else could be done, or done differently.
Vermont Says Standing Matters…
As to the issue of whether the trust can show that it actually owns the note, Vermont’s Supreme Court on July 22, 2011, sent US Bankcorp packing when the bank failed to show credible evidence that it had standing, or in other words, something that proved it had the right to foreclose.
The case started back in 2009, when US Bank waltzed into court with an assignment from MERS signed by… wait for it… none other that Jeffrey Stefan, the infamous robo-signer from GMAC who the assignment said was a “Duly Authorized Agent and Vice President of MERS.”
My new friend, Abigail Field, who writes for Fortune Magazine, covered the story in some depth, under the headline, “VT Sup CT: Yes, US Bank, You Have to Prove Standing,” and I just know she wanted to finish that headline with an expletive, but like me is far too dignified and erudite to sink to such a level. (We leave that sort of thing to Tiabbi over at RS.)
(Hey, shut up over there, I heard what you’re thinking… but look, she’s a new friend and we don’t have to tell her everything about Mandelman Matters all at once, now do we? We don’t want to scare her away.)
Here’s just a skosh (which is either slightly more or less than a smidgeon), of what Abigail had to say about the case on her blog… Reality Check…
“Six months later, Kimball received two letters contradicting US Bank’s claims. First, Kimball’s mortgage servicer, Homecomings Financial sent a letter that saying that GMAC was taking over servicing her mortgage. Second, GMAC sent a letter not only confirming the change but noting that it was servicing the mortgage on behalf of Residential Funding Corporation, not US Bank.”
“After Kimball pointed out the contradiction to the court, US Bank tried again. The bank produced a new version of the Kimball note, a copy specifically endorsed Accredited to Residential to US Bank and supported by an affidavit signed by…Jeffrey Stephan as “Limited Signing Officer for GMAC.” However, as the Supreme Court noted, at the time US Bank made no claim in the affidavit or otherwise as to when those endorsements were made. The trial court found the evidence that US Bank had the note prior to starting the foreclosure inadequate and dismissed the foreclosure.”
You know where this is going, don’t you? It’s a lot like the Ibanez case in Massachusetts this past year, once the banksters start down the rabbit hole, there’s no stopping them. Like my mother, and as I found out years later, Sir Walter Scott both used to like saying, “Oh, what a tangled web we weave when first we practice to deceive.” (And no, it wasn’t Billy Shakespeare, but thank you for playing.)
So, after presenting to the court just about as many conceivable fraudulent iterations of the required documents as could be imagined, US Bancorp tried a highly technical approach known in legal circles as “begging and pleading,” but the court wouldn’t have it and told the bank it would have to start all over if it wanted to foreclose on the property… and even though the bank would be passing GO, it would not be permitted to collect its $200… or maybe I just imagined that last part.
Then, US Bankcorp’s lawyers said something to the justices about their decision being somehow “wasteful,” which just goes to show you that among the bankster class, hubris has no bounds… and the high court replied…
“While we are sympathetic to the desire to avoid wasteful and duplicative litigation, the source of the unnecessary proceedings in this case was not an overly wooden application of the rules, but US Bank’s failure to abide by them. It is neither irrational nor wasteful to expect the foreclosing party be actually in possession of its claimed interest in the note and have the proper supporting documentation in hand when filing suit. Nor is it irrationally demanding to expect the foreclosing party to provide adequate, satisfying proof…What should have been here a straightforward, if not summary, proceeding under the rules was rendered inefficient by US Bank’s failure to marshal its case before compelling the homeowner and the court to waste time and resources, twice, by responding to what could not be proven.”
To which I would have to say… Oooh, SNAP!
The court then ordered that the trial court consider awarding Vermont Legal Aid its fees for all the time spent dealing with US Bankcorp’s fraudulent papers. I know what you’re thinking…. Oh no they didn’t… but, oh yes, they very much did.
Now, I feel like I should clarify that Vermont has both judicial and non-judicial foreclosure statutes, and although I’m not entirely sure, the way I read it residential foreclosures are handled via the judicial process. Regardless, this case is just another shining example of banksters, unable to prove that the trust owns the loan, and trying to correct the problem by committing fraud and forgery, among other crimes I’m quite sure.
Of course, I’m absolutely certain that Tom Deutsch of the American Securitization Forum, will praise the decision as being nothing short of fabulous for the future of foreclosures and securitization itself, while banking industry lobbyists will once again declare this case to be only an isolated incident and not representative of a larger problem, but… well… to those statements I can only say: Hahahahahahahahaha… (Was that too subtle?)
Horace Hears a Woo(ten)…
Another case that should cause foreclosure defense lawyers everywhere to realize that no one knows what tomorrow will bring is Horace v. La Salle, which was brought by Alabama foreclosure defense attorney Nick Wooten. The judge in Atlanta this past April, ruled that the homeowner was an intended third party beneficiary of the Pooling and Servicing Agreement (“PSA”)? (And if you like apples, how do you like them apples?)
It’s true… the judge found that the securitization process as described in the PSA, was not followed and therefore Horace’s loan was never transferred into the trust that was now trying to foreclose. (I recently produced a podcast with Nick Wooten and if you haven’t already listened to it, you really should try to make the time. It’s titled “No Friend to the Banksters.”)
According to HousingWire, and I love quoting them because they are definitely a Hampster-friendly website, so what they say always makes the banks look as good as possible.
“The ruling prevents defendant LaSalle Bank – as the trustee holding the plaintiff’s securitized mortgage – from proceeding with a foreclosure because the trust failed to follow its own pooling and servicing agreement, and did not follow applicable New York law when trying to “obtain assignment of Horace’s note and mortgage,” according to the court order.
Without proof the mortgage had been assigned to the trust, in this case a Bear Stearns-related mortgage trust, the trustee lacked standing to foreclose, the court found.”
Nick Wooten’s a rock star foreclosure defense lawyer, one of the best in the country by any measure, but he’s lost his share of cases that perhaps he should have won just like every other lawyer involved in this fight has, and in fact I happen to know that Nick had just lost the U.S. Bank v. Congress case going into Horace v. La Salle… so we should all be thankful that Nick wasn’t so fatigued that he told Mr. Horace… “I tried it before and it didn’t work,” and instead went right back into court swinging for the fences… and as a result hit one right out of the park for Mr. Horace.
Of course, not all lawyers are exhibiting such signs of fatigue, in fact there are many that continue to raise the bar by bringing litigation that challenges the status quo. You can find many among those that make up Max Gardner’s Boot Camp Army of more than 800 lawyers, all trained by Max and his other experts in the fine art of beating banksters in one way or the other.
One California lawyer I’ve gotten to know pretty well over the last couple of years is Nathan Fransen of Fransen & Molinaro in Corona, California. Nathan has four or five cases headed for trial this fall that could positively impact the landscape for homeowners in California.
One such case, seeks to cancel the Trustee’s Deed Upon Sale… based on the argument that the foreclosing party, a trustee, didn’t have the authority to foreclose because the assignment of the Deed of Trust from the originating lender to MERS was invalid, as the originating lender had already transferred the note to the trust.
It gets confusing, I realize, but basically the case is saying that an entity cannot assign what it never had in the first place. The homeowner’s residence, in this case, has already gone back to the bank, but if the homeowner prevails, Fransen says there are a range of possible outcomes, including the potential for an award that includes punitive damages.
Also recently, I saw a great example of a law firm going the extra mile when a lawyer from the firm, Mitchell J. Stein & Associates in Calabasas, California, representing a homeowner in Unlawful Detainer Court, of all places, won by arguing that Deutsche Bank lacked standing. Had I not seen and heard it first hand, I don’t think I would have believed it.
As a matter of fact, that case was part of what motivated me to write this article in the first place. California is a non-judicial foreclosure state in which, as its been explained to me, there is no requirement that the party foreclosing prove they have standing. In California, as far as standing goes, you can basically foreclose on someone’s home using a Snickers’ bar wrapper.
And, you have to understand, I’ve come to recognize UD Court as the end of the road… because that’s what I’ve always been told by the California foreclosure defense lawyers I’ve asked. It’s the court where they tell you to be out of the house in 30 days, or whatever… so, it’s the last stop on the foreclosure train and these days, it takes at least a couple of years before you get there. After UD Court you just try to forget the nightmare ever happened, and hopefully start realizing that there is life after foreclosure.
Frankly, it can sometimes be hard to even get a lawyer to accompany you to UD Court in California… that’s how little there is for them to do there… usually.
But in this case, a Mitchell J. Stein & Associates attorney by the name of George Baugh, went into UD Court with his client, argued that Deutsche Bank lacked standing… and sent the bank packing instead of the homeowner. I tell you, I wanted to stand up and cheer… I didn’t… but I wanted to. (I am learning how to moon walk just for those situations, however, and once I can pull it off… well, watch out.)
Apparently, and I had to ask Mitch to explain this to me like three times before I really got it… the combination of the non-judicial foreclosure state with the summary nature of the UD proceeding, deprives the homeowner due process if not allowed to argue standing. (Again, please don’t take what I just said to court, but it’s at least close to being correct, so if it seems applicable, I’d certainly run it by your lawyer if UD court is in your immediate future, or if you’re a lawyer defending homeowners in these types of situations call Stein’s office and ask him about it yourself.)
And another Southern California lawyer I know quite well, Barbara Gilbert, has been using the Consent Orders that were released by the OCC this past April at the conclusion of the regulator’s investigation that began in the fall of 2010 following the robo-signing scandal. Gilbert prefers basing her arguments on the “nuts and bolts facts” established by the OCC’s investigation and has had a significant amount of success doing so.
The Threat of the Dreaded FREE HOUSE…
Now, let’s not pretend we don’t all know the real issue here… it’s the threat of the dreaded FREE HOUSE that’s causing members of the judiciary to rule with decisiveness one might expect from a Christian Scientist with appendicitis. I mean… if the judge follows the law, someone might get a free house… or at least that’s the rumor.
The phrase “free house” is a relative newcomer to the American lexicon. Up until this past year or so, I don’t think I’ve ever heard the two words used together, in fact I don’t even remember a game show offering the chance to win such a thing. A free car… perhaps, but a free house… why apparently that’s just plain wrong under any circumstances as far as millions of Americans are concerned. And I have to admit… I would never have guessed the idea would be so objectionable to so many.
Some have come to think that a “free house” is the goal of today’s homeowner who is threatened by foreclosure and therefore is either suing or being sued by their bank, and the idea that someone who couldn’t make their mortgage payments could possibly end up owning their home free and clear seems capable of transforming otherwise peaceful suburbanites into bloodthirsty revolutionaries. The idea is so eminently capable of inciting people to riot, it makes me wonder if despots have used the concept before to unite people against a common enemy.
I don’t speak German. Do you suppose those speeches by Joseph Goebbels, filmed by Leni Reifenstahl implied that Jews were getting free houses? And many of the people, upon hearing of the free house conspiracy, started supporting The Final Solution? It sounds silly on its face, but after witnessing the power of the phrase first hand, I’m not so sure there isn’t something there.
Homeowners didn’t start the “free house” discussion, and as I’ve said many times before, it would likely never have come up had the banks done what they said they’d do… what they contracted with the federal government to do… modify mortgage payments when in the best financial interests of the investors that own the loans. They didn’t do that, however, at least not in sufficient number, and not only that… they disrespected and even outright abused people because they didn’t care about homeowners or the federal government… they only cared for themselves and even then, only for themselves in the very short term.
I think the idea of someone being awarded a house sans mortgage started with discussions as to what would happen were it determined that the REMIC trust did not own the loans because they were not properly transferred in compliance with the PSA (“Pooling and Servicing Agreement”) and the IRC (“Internal Revenue Code”). Some said were it not done properly it would be a “nullity,” which was another word with which I was not familiar, but that seemed to mean the mortgage would be null and void.
Others weighed in… no, it could not be possible… someone had to own the loan… there was no such thing as a free house. But that only intensified the debate, and over a very short period of time, the free house debate was in full swing, and the more egregious the servicers’ behavior became, the more people were drawn to the idea as being representative of justice in light the indignities they had been forced to endure at the hands of the banksters.
I actually understand the thinking… I can’t stand what the mortgage servicers have been allowed to do to people… I’ve seen it up close and personal, seen the impact they’ve had on senior citizens among others, and I can say without reservation that I never imagined that Americans would be treated as the servicers have treated them without riots in the streets.
As someone who hears from homeowners all over the country every single day… people are way beyond pissed off… they are flat out enraged. The simple fact is that the decisions made by those in the Obama Administration, whatever one might claim they accomplished, have also caused us to lose a part of our country that we will never get back.
So, next thing you know, the idea of getting a free house started becoming worthy of serious discussion in some circles… various websites fanned the flames, and marketers no doubt played the idea up… and I suppose all of that is better than people sitting around having lost all hope trying to figure out how to most definitively regain their personal power. But, regardless, homeowners are not trying to get free houses… they simply wanted their loans modified so they could stay in their homes… like President Obama said they’d be able to, by the way.
It’s also worth noting that it’s the bank attorneys that perpetuate the rumor about homeowners wanting free houses because they want judges, politicians and those in the mainstream media to believe that’s the potential outcome if servicers were to be held to the letter of the law… a free house for someone who wasn’t making their mortgage payments. The horror, you say.
It’s almost as if the bank’s lawyers say to the judge… “Your Honor, don’t listen to what the other side has to say… all their trying to do is get a free house.” And then, regardless the facts, the homeowner loses because the potential of a free house clearly represents a grossly inequitable resolution.
Kathrine Porter, recently writing on the blog, Credit Slips, titled her post, “The Myth of the Free House.” Her main point was that just because it were deemed that a trust did not own a given loan… someone owns it and so the homeowner would have to pay that entity. I commented on Katie’s post, pointing out that although she was undoubtedly correct as a matter of law… as a practical matter, there are other dynamics involved.
So, what happens if a court rules that a trust doesn’t own a loan and therefore cannot foreclose, but no one else shows up to claim ownership of the loan?
You see, the key components that make the securitization scheme work are the REMIC trusts, with their pass-through tax status, and the off-balance-sheet Special Purpose Vehicle or SPV, which allows the banks to get the loans off of their books.
Similar to a Sub-chapter ‘S’ corporation, the REMIC trust pays no taxes on investment gains, rather the payments pass through to the investors who own the “pass through certificates,” which one can think of as being like a bond or other debt security, and the investors pay taxes as individuals. Without the REMIC trust, therefore, the payment streams resulting from people making mortgage payments would be taxed twice, once when received by the trust and again as income to the investor, and that would significantly reduce the percentage returns available to investors.
As far as loans remaining on a bank’s balance sheet as opposed to being transferred off into an SPV, were that the case the bank would have to set aside funds in a special reserve account to cover potential future losses. The reserve account is commonly referred to as the ALLL, which stands for Allowance for Loan and Lease Losses, and the bottom-line is that money in that account reduces the amount available for bonuses… and all bankers hate that.
The simple fact is that when you take the REMIC trust out of the equation, I’m not at all sure that the other parties involved, such as the “bank-as-securitization-sponsor” or “bank-as-loan-originator”… wants the loan… or the house that goes with it for that matter. In fact, I’m pretty sure that neither does, and if that’s the case it may just be that the homeowner could end up with a loan for which no one wants to be repaid.
You see, the bank coming forward to claim such an orphaned loan once it’s been determined that it was not properly transferred into the REMIC trust… assuming the bank-as-sponsor or originator is still in business and not long gone into bankruptcy… would trigger at least five events that would make it not worth claiming.
1. For one thing, the sponsor or originator claiming the loan would now have a loan on their books and therefore the bank would have to reserve for the potential losses. Because these are loans that were in foreclosure, the amount to be reserved would be substantial.
2. Without the REMIC trust, the loan would become a taxable asset so the bank would have to pay roughly 30% tax on the income stream received from the loan, assuming the borrower pays the payments.
3. As the new owner of the loan, the bank would have to pay the costs of foreclosing on the delinquent homeowner, and bringing the house up to code so that it can be put back on the market and hopefully sold in the bank president’s lifetime… and that may not be the case. Depending on the property, it may not be worth doing.
4. Showing up and claiming the loan is kind of an admission that the bank failed to properly negotiate the loan into the trust in the first place, and they’ll likely get sued for that or at a minimum forced to buy back the loan from the trust. If the bank does nothing, it may be difficult for the investors to establish that the loan was ever supposed to be in their specific trust for the same reason the court ruled it was not and therefore couldn’t foreclose.
5. Remember… the bank securitized the loan already… they may have done it wrong or badly, but regardless… they’ve already been paid for the loan. Why bother showing up to claim it in light of the above mentioned facts, when the bank has already been paid for the loan in question.
And then there’s the reality that in many cases, the bank-as-sponsor and bank-as-loan-originator will both be long gone into bankruptcy, as would be the case with Washington Mutual, IndyMac, Lehman Bros., Bear Stearns, et al. So, then what?
So, as a practical matter, once a loan is found to not have been properly negotiated into a REMIC trust by the closing date as specified in the PSA, even though there may be a sponsor or loan originator who could theoretically claim to be the rightful owner of the loan… my guess would be that neither will… there’s simply no percentage in it.
So, what happens then? Does the homeowner then have a “free house,” since that’s the term du jour? Can the homeowner seek adverse possession of the property? Or are they forced to live under the uncertainty of not knowing what tomorrow will bring indefinitely?
It’s a bizarre situation, to be sure… but it’s not one in which the homeowner is involved in any way. It’s the bank that securitized their bed, and they should not be allowed to lie in it.
So, it’s like a riddle… When does a homeowner get a “free house?”
Answer: When whoever is owed doesn’t want to be repaid?
In Closing…
Let me be blunt about something… There have been no private securitizations of debt to speak of in this country since July of 2007. That means no secondary mortgage market, so today the federal government is essentially the only mortgage lender in the country… 96-97% of all mortgages originated in this country are from Fannie, Freddie or FHA…. and in case you haven’t noticed, all three of them are technically bankrupt.
Until we have private securitizations being purchased by investors around the world, we are in deep kimchi economically speaking, because our banks are going to be technically insolvent for years and years to come, and even if a bank were to decide to start lending again, credit requirements will remain so tight for so long that it won’t matter. By then our country will look and feel very different than it does even today, to say nothing of what it was like a decade ago.
Investors all over the world were badly burned by Wall Street’s banksters as they circled the globe pedaling CDOs, synthetic CDOs, synthetic CDOs-squared and even cubed… and there’s only one way they’ll ever consider such investments again… if they see that we are a nation of laws, and that we uphold those laws regardless of whether it’s inconvenient that we do so.
There are many examples of when upholding the rule of law has a objectionable outcome. The murderer or drug dealer who is caught red-handed, but as a result of an illegal search, comes to mind. No one likes such an outcome, but as responsible Americans we recognize that it is more important that we are protected by our constitutional rights, and if it means that someone that should not go free, does go free… well then, so be it.
We all are protected from illegal search and seizure by the fourth amendment to the U.S. Constitution, and that’s not something we should ever compromise.
Well, now we are facing an economic challenge such that our nation has never had to face before and the entire world is watching. Will we rise to the occasion and follow the rule of law regardless of the outcome, or will we show the world that we are not what we’ve claimed to be all these years? Is this a country in which no one is above the law, or do we have a privileged class to whom our laws do not apply? Do we only follow the laws we think we can afford to follow, and leave behind those that we see as too costly?
These are the questions being asked and answered every day ever since the global credit crisis began in July of 2007, when investors around the world lost trust in the credit ratings of our debt securities and stopped investing in them as a result. Just over a year later it became clear that Wall Street’s banks were insolvent, that the U.S. housing market was in a free fall, and that our nation was entering an economic downturn the likes of which had not been seen in 70 years.
Almost three years later, although thus far we have avoided much pain, we haven’t cured the disease by any means. Going forward, however, we’re going to have to answer some tough questions… make some hard choices… endure difficult times… it’s not about a “free house,” it’s about whether we are the country we’ve said we are all these years, or whether we’ve become something less.
Do the laws apply to Wall Street’s bankers or don’t they? Will we protect them from punishment as the world suffers from their bad acts? Is this a land of justice for all, or is justice only for the privileged few?
And how come it’s okay for our banksters to profit from destroying the global financial system, using taxpayer dollars to pay themselves billions in bonuses as the country’s economy slides off a cliff, but many seem to more offended because Charlie Smith over in Tampa hasn’t made his mortgage payment since last October?
Wake up people, we’re running out of time. We need to do better and that means we need to get smarter. And since I still have faith that our laws will prevail, we’ll be needing our nation’s lawyers to help get us through this, so stay with us… as has been the case in our past, only united will we stand.
Mandelman out.
If I have to introduce Alabama foreclosure defense attorney Nick Wooten to you, then you’re not much of a foreclosure crisis news junkie, because Nick has made headlines for his lawsuits against the banksters on behalf of homeowners as much as anyone, and a lot more than most. Most recently Nick was kicking the crap out of LPS or Lender Processing Services, but he’s also leading a coordinated attack against MERS, and recently he won a very high profile case in Alabama, Horace v. LaSalle Bank, in which the judge agreed with his argument that the note was not properly endorsed and negotiated into the trust and therefore the trust could not foreclose.
According to Nick, Judge Albert Johnson had recently been assigned to learn a great deal about securitization so he could deal with an unrelated matter having to do with a defaulting bond, so he knew a lot more than today’s judges, and in addition, the Pooling and Servicing Agreement in the case was very specific, which made it easier to establish that its rules were not followed. According to the judge’s order… ”… the endorsement chain … does not comply with that required by the PSA.” He granted summary judgement and permanently enjoined LaSalle from foreclosing on the property.
Nick has been suing LPS for something like three years now, mostly for their illegal fee splitting scheme with foreclosure mill lawyers, and LPS has been on the ropes for some time. Personally, my money’s on Wooten… I’m hoping for a KO, but I’ll take the technical decision… either way, LPS is not getting away from Nick without taking some fatal blows.
Nick is a graduate of Max Gardner’s Boot Camp… a star pupil to be sure. I’ve gotten to know Nick over the last couple of years and he’s flat out one of my favorite people on the planet. We’ve been talking about doing a podcast for a few months now, but between his schedule and mine, it wasn’t easy. But, I caught up with him late the other night, around 11:00 PM his time… he was in New York City at a hotel and meeting with a group of investors… potential clients… the next day. By the time we hung up, it was almost 2:00 AM… and I’d tell you what he is planning to sue a servicer for, but its on the podcast and he’s so much fun to listen to, I’d only spoil it. I will tell you this… I bet you haven’t heard about it before…
There’s nothing really bad in it, just a small amount of off-color language, the ‘F’ word is used once, but is said softly at a very appropriate moment, so I can’t imagine it would offend anyone. But, just in case… if that would offend you… well, you have been warned.
And a huge hat tip to MM reader, Jake, for sending in this index to the podcast.
3:15….Intro…The Discovery of Foreclosure Defense
7:15….”You didn’t make your payment” vs. “The Gospel of the Free House”
16:00….The Foreclosure Cartel
22:00….Theft for Profit in a Broken System
34:00….The Tranche Scam and Securitization Fail
42:00….The Great Economic Reality Disconnect
46:30…..Target LPS and the Declaration of War
56:00…..The Risks of the Uncertainty of Title Integrity
1:01:00….Recent Court Decisions…Are things getting better?
1:20:00…Social Costs, Client Demographics, and the Political Overview
Mandelman out.
Yves Smith does an excellent job of breaking down an important loss that the foreclosure defense community took in a recent Alabama case. So why are we taking time to broadcast and talk about a loss? Well, sometimes you learn more from losses than you do with cases that are won…..and as Yves analyzes the “loss” you will see important avenues for attack that are opened up. The bottom line is most of the mortgages that are being foreclosed on are governed by the PSA which is governed by New York Trust law. Now we know that the plaintiffs and foreclosure mills are just ignoring all sorts of procedural elements in their rush to foreclose, just slinging assignments and slaping on endorsements to meet the requirements of each case….regardless of the underlying facts. As an example of this, read carefully the order below and the detailed allegations regarding fraud. But the larger point is even when they’re doctoring the facts and forging and faking assignments and endorsements, they’ve got to follow the requirements of the PSA and they’ve got to fulfill the requirements of New York trust law….which they almost never do.
Most Plaintiffs if they have the original note proceed by way of a blank endorsement and there’s real question about whether the PSA or New York trust law even allow blank endorsement. (The requirement may be to proceed by way of a specific endorsement, which is never, ever done.)
Now the real take away from all this is just how screwed up the wizards of Wall Street have made what was for hundreds of years a very simple matter. Borrower borrowed money; lender owed money. We’re all light years away from those simple times…with disastrous consequences. I have no pity or sympathy for the banks. All they had to do was do their job correctly and stop all the lying and fraud. They did not do their job correctly and the fix our courts are now in is a large part because of the fraud and the games they’ve been getting away with. Still coming is the fallout when title insurers fail to accept the title to these properties…then what?
So read the Order:
50074488-US-Bank-v-Congress-Order
Then wander over to Nekkid’ Capitalism for some awesome analysis
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The pooling and servicing agreement (PSA) is a contract that should govern the terms under which trillions of dollars worth of equity in the land of the United States of America was flung around the world. These contracts should govern how disputes over ownership and interest in the land that was the United States of America should be resolved. Pretty simple stuff, right? I mean if I’m a millionaire big shot New York Lawyer working for big shot billionaire Wall Street Investors and banks, then I’d do my job as a lawyer to make sure the contract was right and that all the i’s were dotted and the t’s were crossed right?
But that’s not at all what’s happened. In our scraggly street level offices, far below the big fancy marble encased towers of American law and finance, simple dirt lawyers defending homeowners started actually reading these contracts. We ask lots of questions about just what all those fancy words in their big shot contracts mean. Invariably, the big shot lawyers and the foreclosure mills tell us, “Don’t you worry about all them words you scraggly, simple dirt lawyer. Those words aren’t important to you.”
But increasingly judges recognize that the words really do mean something. Take note of the following statements from the recent Ibanez Ruling:
I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets.
The Ibanez decision underscores the fact that it is important for all of us to know and understand how the pooling and servicing agreements directly impact what is occurring in the courtroom. And for assistance with understanding the PSA and how to find it, more commentary from Michael Olenick at Legalprise:
Overview of PSA’s
Securitized loans are built into securities, which happen
to look and function virtually identically to bonds but are
categorized and called securities because of some legal restrictions
on bonds that nobody seems to know about.
The securities start with one or more investment banks, called the
Underwriter (should be called the Undertaker), that seems to disappear
right after cashing in lots of fees. They create a prospectus that
has different parts of the security that they are proposing. Each of
these parts is called a tranche. There are anywhere from a half-dozen
to a couple dozen tranches. Each one is considered riskier.
Each tranche is actually a separate sub-security, that can and is
traded differently, but governed by the same PSA, listed in the
Prospectus. Similar tranches from multiple loans were often bundled
together into something called a Collateralized Debt Obligation, or
CDO. So besides the MBS there might also be one or more CDO’s made up
of, say, one middle tranche of each MBS. Each tranche is considered
riskier, usually based a combination of the credit-scores of the
people in the tranche and the type of loans (ex: full/partial/no doc,
traditional/interest-only/neg am, first or secondary lien, etc…).
CDO’s were eligible for a type of “insurance” in case their price went
down called a Credit Default Swap, or CDS (also known as “synthetic
CDO’s”). There was actually no need to own the CDO to buy the
insurance and many companies purchased the insurance, that paid out
handsomely. [That's what the AIG bailout was for, because they didn't
keep adequate reserves to pay out the insurance policies.]
Later, investors could also purchase securities made up of multiple
CDO’s, much the same way that CDO’s were made up of tranches of
multiple MBS’s. These were called “CDO’s squared.” Not surprisingly,
there were also a few “CDO’s cubed,” CDO’s of CDO’s squared. CDO’s
were virtually all written offshore so little is known about who owns
them, except that they were premised on the idea that since there was
collateralized mortgage debt at their base they could not collapse.
Their purpose was to spread the various of risks of mortgages which,
back then, meant prepayment of high interest debt and default.
Investors were actually way more obsessed with prepayment because they
thought the whole country could not default; to make sure of that
MBS’s and all their gobbly gook were spread around the country; you
can see where in the prospectus. They were almost more concerned with
geographic dispersion than credit dispersion.
After that it’s the the servicers/trustee/document custodian scheme
we’re all familiar with. OK .. with that too-strange-to-make-up explanation means let’s dive
into how to find one’s loan:
1. Find the security name: it will be a year (usually the year of
origination), a dash, two letters, then a number. It will be
somewhere in one of your filings. For this we’ll use a random First
Franklin loan, 2005-FF1. [Note; they would just sequentially number
them, so the first security First Franklin floated in 2005 would be
FF1, then FF2, etc...]
1. Go to the SEC’s new search engine:
http://www.sec.gov/edgar/searchedgar/companysearch.html
2. Click the first link, Company or fund name…
3. Choose the radio button marked “contains” and type in the ticker;
that is 2005-FF1
4. There will be multiple filings but one of them will be marked
424B5. Click that, it’s the prospectus.
If you really want to have fun, and want to know what happened after
2008 when these all disappeared, type the ticer (again, 2005-FF1) into
the full text link from the first search page. There you’ll see lots
and lots of filings as pieces and parts of the security are blasted
everywhere. To track yours you have to find which tranche you ended
up in. Sometimes it’s in the filing but, if not, you can usually
figure it out from the prospectus if you know basic origination info
(credit-score, type of loan, where the house is, etc…); some even
list loan amounts.
One warning on those secondary filings, servicers and trusts both
break them out as assets. How one loan can be reported as an asset in
two places is a mystery, but considering this doesn’t even cover the
CDO’s and CDS’s dual reporting doesn’t seem to strange. You’ll see
your loan keep wandering through the financial system, with one
exception (next paragraph), right up to the present day. You can even
see how much the investment banks thinks that its worth over time
since they report out both original amount and fair market value.
The exception — when your loan really does disappear — is when it
was eaten up by the Federal Reserve’s Toxic Loan Asset Facility, TALF.
But you can look that up to and see how the government purchased your
loan for full-price, when investors on the open market were only
willing to pay a few cents on the dollar. If your loan went to TALF
you can find it in the spreadsheet here:
http://www.federalreserve.gov/newsevents/reform_talf.htm Your loan
will be in the top spreadsheet and the genuine lender in the bottom.
Michael Olenick
Legalprise, Inc.
305 Puritan Rd.
W. Palm Beach, FL 33405
olenick@legalprise.com
Office: 561-847-3443
Mobile: 561-699-5056
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Frankly, I don’t know where to begin. There’s just so much to say. It’s like a cornucopia of… well, lots of stuff to say. Bankers everywhere must be walking in circles, muttering to themselves, perhaps breaking out in hives. And I have to imagine that banking industry lobbyists are in some kind of trouble with their masters today, with phones being slammed down after CEOs have screamed:
“Damn it, how could you have let this happen? We gave you an open checkbook filled with blank checks… and you couldn’t even scare off, or buy off, the Arizona Senate… the Republican controlled Senate? And you call yourselves lobbyists?”
SLAM!
You see, the Arizona State Senate has passed Senate Bill 1259, sponsored by Michele Reagan, which would require the lenders that didn’t originate a loan to produce the full chain of title, or risk the foreclosure sale being voided. The bill now goes to the House for a vote, but with the Senate having passed it by an overwhelming margin of 28-2, it would seem that its passage is a fait accompli.
According to the Arizona Senate’s FACT SHEET FOR S.B.1259, foreclosures; proof of ownership, the Bill’s purpose is as follows:
“Provides a chain of ownership during foreclosure proceedings and allows reimbursement of lawyer fees for injunctions or court cases that fail to prove ownership.”
Well, I’ll be a monkey’s uncle. A Republican dominated Senate, you say?
You don’t say. Are you sure?
Quite sure.
So, are these Republicans in any way related to the Republicans in Washington D.C. or is the word “Republican” pronounced differently in Arizona and there’s no relation between the two groups?
(That was originally intended to be a rhetorical question, but if anyone feels capable of actually answering it, please… by all means… write to me… because I’m so confused.)
And attorneys fees to be awarded to the victor as well? Well, I’ll say… so, very good then. That means that homeowners who believe there is cause for a challenge to the servicer’s chain of title assertions, will have a much easier time finding and funding their legal representation, I would think that would be the case, anyway, don’t quote me…. or, no… go ahead and quote me, why the heck not?
And, in a related story… Arizona’s foreclosure defense plaintiff’s attorneys have been spotted across the state dancing in the streets with some of the state’s distressed homeowners. Many observers of this admittedly unusual phenomenon claim that for the most part, the attorneys and homeowners were doing the Hokey Pokey, with several people reporting that after rolling down their windows as they drove by, they heard the dancers exclaim: “That’s what it’s all about!”
The Senate’s S.B. 1259 FACT SHEET also listed five key “Provisions” of the bill:
1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.
2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.
3. Stipulates that failure to properly record the summary document that demonstrates evidence of title for the foreclosing beneficiary as of the date of the trustee’s sale will result in a voidable sale.
4. Allows any person with an interest in the trust property to file an action to void the trustee’s sale for failure to comply and is entitled to an award of attorney fees and damages, to include an award of attorney fees for any injunction or other provisional remedy related to the claim.
5. Becomes effective on the general effective date.
So, get this… I’m as curious as the bankers must be as to how in the world something like this happened. I mean, I’ve been accusing our country’s politicians of perpetual kowtowing to the banking lobby, and of having no first hand knowledge of what’s going on in real life, as far as the foreclosure crisis goes… and then the Arizona’s political types go and pass something like this? I mean… go figure, right?
So… how did it happen?
Well, funny story… it seems that State Senator Michele Reagan, a Republican of all things, who was first elected to serve in the Arizona House of Representatives in 2002, and in 2010 was elected to the Arizona State Senate… and who is Vice-Chairman of the Banking and Insurance Committee, and Chairman of the Committee on Economic Development and Jobs Creation… well it seems that she and her husband were sued by their servicer, Texas-based Colonial Savings FA, when they sent the bank a letter last July stating that they were planning to rescind their loan due to violations of the Truth in Lending Act or TILA .
According to Bloomberg’s story on the bill’s passage:
“They claim that the bank failed to disclose certain fees, and that the underwriter of their loan inflated their income by 12%, which violates the Truth in Lending Act.”
Colonial Savings then asked the court to declare that the couple were not entitled to rescind the loan, it should go without saying.
Reagan and her husband, David Gulino filed their own counter claim type lawsuit, in which they argued that they were manipulated into accepting an adjustable-rate mortgage, and that Colonial Savings, in true servicer-style, won’t tell them who owns their loan.
According to Bloomberg, Janet Walter, a spokeswoman for Colonial Savings, declined to comment, so I see no point in ringing her myself. And, Reagan’s attorney Beth Findsen, who told Bloomberg that she also helped write the bill, said the following:
“It makes Michele mad that the bank servicers will not disclose to a borrower the true noteholders,”
Findsen said. “She was taken aback that such basic information was not readily available.”
And I can imagine she would be taken aback. I know I would be… and in fact was… when I was first exposed to the problems being caused by Servicers, and I remain taken aback to this day.
Again, quoting from the Bloomberg story…
“If you foreclose on somebody you should have to tell them who owns the property,” Michele Reagan, who sponsored Senate Bill 1259, said in a telephone interview. “People have the right in this country to face their accusers.”
I like the way she thinks, don’t you? Even though, if I were to be picky about it, I’m not entirely sure that the reason for passing a law that requires the banksters to produce or report on all of the specific beneficiaries comprised in the Chain of Title has anything to do with our right to confront one’s accuser, as described in the Sixth Amendment to the U.S. Constitution, but if that’s what works, then let’s by all means run with it.
Strong opposition to the bill’s passage is coming from the Arizona Bankers Association, the Arizona Trustees Association, and Merscorp Inc., three great tastes that taste great together. MERS, in case you’ve been incarcerated in a Turkish prison over this past year, is an industry-owned organization that maintains a database containing more than 50% of all mortgages, that claims to be able to represent the trustees that conduct foreclosure auctions on behalf of lenders. Many vehemently disagree.
Paul Hickman, chief executive officer of the Arizona Bankers Association in Phoenix, showed up in the Bloomberg article, to issue the banking industry’s standard WARNING & THREAT package… the one they draw like a gun every time anything might change that affects them in any way.
“If Arizona passes this, it will be the only state in the union that will require a production of chain of title. States that pass these types of laws will be riskier environments to lend in and more difficult environments to get a loan in.”
Or, in other words… pass this bill and none of you in AZ will ever buy a home again because there will be no credit available to you. Hickman didn’t add the popular refrain about how the change will also paralyze the housing market, which will derail the recovery and basically end the world as we know it. Oooooo… scary bedtime stories for legislators.
And by the way, Mr. Hickman… the whole chain of title thing is already the law in Arizona and elsewhere. This new law just requires your membership to follow the existing laws and actually make sure the chain of title is not destroyed by banker incompetence or blatant disregard for the law.
So, why would your banker buddies having to follow the law transform a geographic locale into a “riskier environment?” Riskier for whom, exactly? Just tell the bankers that they may have to work past three and actually care about doing things in compliance with the law from now on, and everything will be fine… see… risk gone. Happy now?
Also, appearing alongside Hickman, the president of the Arizona Trustees Association in Phoenix, Richard Chambliss… I prefer to call him “Dick,” echoed the industry’s message as well:
“Reagan’s bill has both technical and conceptual problems, and could add to uncertainty over title.
Lenders that don’t file mortgage assignments with county recorders offices could face borrower challenges if the bill passes, even though the assignments weren’t required by state law.”
Dick Chambliss went on… sounding to me like he was getting a bit hot under the collar as he did…
“Is this bill intended to punish the lenders and screw up the process or address the problem that needs to be solved?”
Actually, two out of three, Dicky my boy… it’s definitely intended to punish the lenders, although nowhere near as severely as they should be punished, and now that we can all see how it upsets you and your peer group, we’re more confident than ever that it will also go a long way towards solving a couple of key problems inherent to the foreclosure crisis to-date as a result of servicer practices…
1. That servicers and lenders will actually have to follow the laws related to the chain of title, and therefore won’t be bringing fraudulent documents into court anymore.
2. That servicers that haven’t followed the laws and therefore that have broken the chain of title will now have an incentive to modify loans, instead of perpetuating illegal foreclosures.
But, look at the bright side… think of the money you’ll save on robo-signers, depositions, the creation of garbage alonges… you’ll come out ahead, I just know it.
Dick had yet another question to pose…
“What is it accomplishing by requiring that the history from the birth of the deed of trust to 20 assignments down the road have to be fully identified?”
Ooohh.. ohoo… I know this one, can I answer this one?
It’s a law to make sure that bankers tell the truth and follow our state and federal laws when foreclosing on someone’s home. Is that not an easy thing to see and understand? Even the banksters see the writing on the proverbial wall this time out, which is undoubtedly why they are so distressed at the prospect of the bill passing the House of Representatives and becoming law in Arizona.
See what I mean? Doesn’t “Dick” fit him better than Richard. For sure, right? I don’t even know the guy and I can tell from the way he talks that he’s definitely a “Dick”.
With Arizona being a non-judicial foreclosure state, meaning that property can be legally repossessed there without a court order, the banksters are not used to being asked such questions related to foreclosure and therefore are likely to be nowhere near as prepared to create fraudulent documents as they have been in the judicial foreclosure states where they appear to have a rich history of forgery going back many years.
Most mortgages that were originated during the last ten years were securitized and therefore supposedly assigned to trusts, with “pass-through certificates” entitling their holders to receive a percentage of the payment streams generated by the mortgages in the pool offered for sale to investors. As a result, many, many of these loans were sold more than three times before ever getting into the trust, assuming they ever arrived.
Banks using the Merscorp’s system typically don’t file assignments because the says that the ownership information is tracked electronically, whatever that actually means. Numerous judges don’t agree, most notably of late, Federal Bankruptcy Court Judge Grossman in New York whose opinion a few weeks ago, although non-binding for several reasons, removed all uncertainty as the argument as to whether MERS should be allowed to foreclose. He says, clearly… not a chance.
Walter E. Moak, who is apparently a bankruptcy attorney in Chandler, Arizona, was quoted in the Bloomberg story, saying that this Arizona legislation would make it easier for borrowers to negotiate loan workouts, and depending on the details, I might even agree. But, then the story quotes this bankruptcy lawyer as saying something that I would have to take issue with…
“Servicers often reject modification requests because the borrower doesn’t meet investor guidelines, even as they refuse to identify the investors,” Moak said.
“The person who has decision-making power is not the servicer, it’s the investors,” he said.
I realize that servicers say this a lot… I realize that many people believe this to be the case… I know that intellectually it may even makes sense … and I’ll even allow for some small percentage of cases where this statement is accurate to whatever degree… BUT… for the most part, Mr. Moak’s statements are at best incomplete, and in many instances wrong.
When a servicer tells a homeowner that they are unable to modify their loan due to something about not meeting investor guidelines or because the investor said they won’t modify loans… well, I’m sorry Mr. Moak, but assuming the loan has been securitized… it’s almost never true. At least nine times out of ten, they’re just plain old lying… or shall we say they’re embroidering… or perhaps we should call it, embellishing… no, let’s go back to just plain lying.
Pooling and Servicing Agreements, in the vast majority of cases, do not prohibit servicers from modifying a loan that is at risk of imminent default, and besides that… servicers don’t have a relationship with the investors… they report to a Master Servicer, who in turn reports to a Trustee, and that trustee could theoretically contact investors, but even that is extremely unlikely as the investors we’re talking about are often pension plans, insurance companies and sovereign wealth funds… not exactly the kind of investors you just pick up the phone and call… and then you would have to reach some sort of a majority… I mean… it’s just a ridiculous proposition.
Georgetown Law Professor, Adam Levitin, in conjunction with Tara Twomey of National Consumer Law Center, two of the country’s leading experts in the intricacies of mortgage servicing as related to loan modifications, have just published a 90-page research paper that represents “the first comprehensive overview of the residential mortgage servicing business,” and although the subject is nothing if not complex, some things are clear.
(I actually know Tara from the judicial conference held last April for the 9th Circuit judges… she and I were on the same panel speaking to the judges about the foreclosure crisis and the impacts of securitization.)
From the Levitin/Twomey research paper on mortgage servicing:
Mortgage servicing has begun to receive increased scholarly, popular, and political attention as a result of the difficulties faced by financially distressed homeowners when attempting to restructure their mortgages amid the home foreclosure crisis. In particular, the mortgage servicing industry has been identified as a central factor in the failure of the various government loan modification programs.
No one has a firm sense of the frequency of contractual limitations to modification for PLS. A small and unrepresentative sampling by Credit Suisse indicates that nearly all PLS PSAs permit modification when a loan is in default or default is reasonably foreseeable. Almost 60% of the sampled PSAs had no other restrictions to modification. Of the PSAs with additional restrictions, 27% capped loan modifications at 5% of the loan pool, either by count or balance.
The PSA sets forth two exceptions to this general limitation on loan modification. First, for defaulted loans, the PSA provides that the servicer may write down principal or extend the term of the loan. Thus, it appears that the servicer may write down the principal on a defaulted or distressed loan or may extend the term of the loan.
Look, the fact is that servicers lie all the time to the homeowners who apply to have their loans modified, and I’ve got a front row seat to that behavior almost every single day. They want to foreclose because they make more money when they foreclose, and if they can say something to get a homeowner to give up, they will… and they do… all the time. I can’t count the number of times when I’ve told a homeowner to not give up and the result has been a modified loan.
If a servicer tells me that the sky is blue, I go outside and check for myself… and that’s all I have to say about that.
See why I have to check for myself?
Here’s the conslusion from the Levitin/Twomey paper…
Conclusion
This Article presents the first comprehensive overview of the residential mortgage servicing business and shows that mortgage servicing suffers from an endemic principal-agent conflict between investors and servicers.
Securitization separates the ownership interest in a mortgage loan and the management of the loan. Securitization structures incentivize servicers to act in ways that do not track investors‘ interests, and these structures limit investors‘ ability to monitor servicer behavior. Monitoring proxies, such as ratings agencies and trustees, are themselves subject to perverse incentives and are limited in their ability to monitor servicer behavior.
As a result, servicers are frequently incentivized to foreclose on defaulted loans rather than restructure the loan, even when the restructuring would be in the investors‘ interest. The costs of this principal-agent conflict are not borne solely by MBS investors. The principal-agent conflict in residential mortgage servicing also has an enormous negative externality for homeowners, communities, and the housing market.
The principal-agent problem in residential mortgage servicing could be addressed by restructuring servicing compensation. Other types of securitizations use measures that mitigate the principal-agent conflict between servicers and investors.
There are costs to applying these measures to residential mortgage securitization, which are likely to be borne partly by borrowers in the form of higher mortgage costs. Yet, correcting the principal agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.
And if I can wrap that conclusion up in a tidy little package with a bow on top, it says that it’s the mortgage servicers who are letting our nation down and causing unfathomable amounts of pain to our country’s homeowners across all socio-economic demographic segments.
The Bloomberg story also quoted Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City, who said that he thought the legislation would, “test the completeness and accuracy of bank records. The law could also have the unintended consequence of pushing more lenders to modify loans rather than face a voided sale.”
“I like it because it forces the financial institution into providing information about who owns loans and rebuild transparency,” Peterson said. “It makes it significantly more difficult to foreclose if they don’t have good records of the history of ownership of the loan.”
A FEW CLOSING THOUGHTS I HOPE YOU’LL CONSIDER…
1. In its simplest form, this is a bill that would create a law that would say that bankers have to follow our existing laws before foreclosing on someone’s home. And yet the bankers don’t like it and say that if they were forced to follow our laws, we would have a harder time getting loans.
2. And to that I would say: Fine… if we have a harder time getting loans, then it occurs to me that we’ll owe less money and you bankers will have a harder time making as much money. So who’s really going to suffer here if this becomes a law?
3. Bankers argued throughout the last 20 years that no laws should restrict sub-prime lending because then lower income Americans wouldn’t have access to credit, which is a lot like saying that poor neighborhoods need access to LOAN SHARKS.
4. Why wouldn’t every state in the country have a law like this one on the books? It’s a law that makes banks follow the law. How could that be a bad thing? I’d like to encourage everyone to write to their state representatives and tell them that you want them to enact such a law.
5. The only reason this bill is being pushed through the Arizona legislature is that one of that state’s senators actually tried to rescind her own predatory loan and found out first hand what it’s like to have to deal with a servicer. Is she an irresponsible borrower? I don’t hear anyone calling her names, asking her if she’s living beyond her means. WHY NOT?
6. What should we do, wait for more of our elected representatives to fall fare enough down the economic ladder so that they too have the experience of dealing with a servicer? And only then we should stop the pain and suffering being caused by the foreclosure crisis. I’ve said it before, but our elected representatives have long-since forgotten what it’s like to not be rich. They need to be reminded…
I have a call in to Sen. Michele Reagan’s office in Phoenix and I hope to hear back from her. But until I do, there’s only one thing that’s making me feel uneasy about S.B. 1259… and here it is…
Remember the first and second provisions I listed, from the FACT SHEET:
1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.
2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.
Yeah, well you see the 800lb. gorilla now, right? Is this bill saying that all the bankers will be required to do under the new law is type up a list of what shouldn’t happen but didn’t… without having to prove anything? Because if that’s the case, then I just wasted a huge amount of time writing about something that will soon be proven useless, and I’m not happy about that possibility at all.
I mean, typing up a chronology of what was supposed to happen and when, even though it didn’t… strikes me as being much easier than having a robo-signer sign 10,000 lost note affidavits each month
So, all I can say is… I’m going to find out for sure tomorrow by talking to the Senator’s office, and until then I’m going to pretend that I never even noticed that little issue, and pray like hell that this isn’t just another Charlie Brown run at that same stupid football.
From the Bloomberg article:
Matthew Benson, a spokesman for Arizona Governor Jan Brewer, a Republican, said she doesn’t comment on legislation until it reaches her desk.
Mandelman out.
EDITOR’S NOTE: Lest people think I invented this whole field of law just because I’m loudest about it, here is a post from Max Gardner, who only a few days after I started this blog had already figured out everything I had figured out and was already doing something about it.
Monday, November 5th, 2007
Every time I file a civil action against a mortgage servicer the very first document I want is a copy of the “Pooling and Servicing Agreement.” This is the legal document that creates the securitized trust of mortgage loans and also strictly provides for the duties of all entities who are assigned the responsiblity of servicing loans for the Trust.
For all “public placements” or “public offerings,” the Pooling and Servicing Agreement is always filed on Form 8-K with the Securities and Exchange Commission. All such documents can be found by conducting a search of the SEC’s website through an internal search engine known as “Edgar.” But, what is a PSA? Why do I want to see it? What can be found in the PSA? Kevin Byers, a forensic accountant, who works with me on these cases, has assisted me in developing the following list of reasons why any consumer must have the PSA. The reasons are as follows:
Pooling and Servicing Agreements (PSA)Top Twenty Reasons to Request ProductionKevin Byers and O. Max Gardner III
In no particular order, these are some of reasons you need to request through formal discovery in any mortgage-related case the PSA Agreement and why it is relevant:
1. It is a contractual document naming the parties to any given securitization, important for standing issues. The document will list the Sponsor, the Trustee for the Securitized Trust, the Master Servicer, and all primary and secondary servicers.
2. It provides address for all necessary parties including “notice” addresses for the service of legal process. 3. It outlines the specific duties of the Servicer and/or the Master Servicer as well as the Trustee on behalf of a respective trust. 4. It contains the representations and warranties of all parties to the agreement, including the Servicer and/or Master Servicer.
5. It includes all representations provided by the Depositor of the loans into the trust as the same relate to important consumer protection issues related to the underwriting and origination of the loan, such as conformity with anti-predatory lending laws, full-file credit reporting, title insurance coverage, and validity and content of individual loan files.
6. It gives the conditions under which a prepayment penalty may be waived or modified by the Servicer and/or Master Servicer. 7. It oftentimes will outline specific loss mitigation and foreclosure avoidance measures available to the Servicer, including, for example, forbearance and loan modification, principal reductions, interest reductions and interest changes.
8. It defines a “defective mortgage loan” and describes the circumstances and process by which the lender must repurchase a loan.
9. It establishes the rights of the Trustee under the Trust to force the Depositor/Originator of any loan to repurchase a loan under the recourse provisions. 10. It describes the specific process by which a delinquent loan can be charged off and the subsequent servicing party and procedures that apply to such charged-off loan. 11. It provides guidelines on loan-level advances that must be paid by the servicer. 12. It provides details regarding the mechanics of how the Servicer must go about foreclosing on property, what documents need to be requested and/or recorded and what authorizations need to be granted to foreclose, and in whose name the foreclosure must be filed. 13. It provides guidance on the fees a Servicer may retain as compensation in the administration of the loans, for example, NSF fees, late fees, loan modification or assumption fees.
14. It will contain the Mortgage Loan Schedule, important to verify the ownership of the loan on behalf of the Trust.
15. It details the requirements for mortgage assignments and when these will or will not be recorded and the implications of the failure to record such assignments. 16. It details the specific loan documents contained in each loan file that will be delivered to the Trustee or Document Custodian on behalf of the trust, establishing who holds the original Note and where it may be found.
17. It describes the credit enhancements that have been deployed to enhance the rating of the most secure certificates of investment in the Trust.
18. It provides rules and procedures for the rights of the Master Servicer or the Primary Servicer to accept a deed-in-lieu of foreclosure or a short sale of the property so as to avoid a foreclosure.
19. It describes the rights the Originator/Depositor may retain the Residual Value of the Trust and the extent to which the residuals may be used as credit enhancements.
20. It will name a default servicer and describe when a loan is considered to be in default and outline the process for the transfer of servicing rights.
O. Max Gardner IIIHistoric Webbley House
August 20, 2010 by Barry Nilson:
Posted by Ann
Editor’s Note: These go up either because someone else posts them or I run across the work of a lawyer that I liked. No guarantees, no magic bullets.
Florida – Before hiring a lawyer, check his credential at the Florida Bar website member seach:
http://www.floridabar.org/names.nsf/mesearch?openform.
Go to the Court House and ask the Court Clerk to give you some cases handled by the lawyer. Ask the lawyer to show you some of his winning cases. Question him about Trustee, assignments, affirmative defenses, Pooling Service Agreement (PSA), April Charney, Mortgage securization etc.
Some excellent Florida Foreclosure Defense Lawyers :
Miami/Broward – Dillon Graham Esq.
Broward – Carol Asbury Esq.,
Palm Beach – Thomas Ice Esq.
North Florida – Chip Parker, Matt Weidner, Wasylik Esq.
Can’t afford a lawyer ? Read http://www.foreclosureprose.com
EDITOR’S NOTE: Glad to see that April is doing what the rest of us are doing — going deeper and deeper. There are two things you need — the loan specific title search with analysis and the securitization search, report and analysis. One tracks the chain of title the other tracks the chain of money. You must track both in order to avoid the “proffers” and bogus representations of opposing counsel. The only thing I would add is that the Prospectus, Assignment and Assumption Agreement, Distribution reports and “re-stated” agreements tell a long tale as well.
The search for the securitization documents is not as simple as you might think. The claim of some “Trustee” for a “pool” is never backed up by documents showing the full chain of title of the loan, because the receivables were assigned, not the loan. More than one pool can often be found claiming “ownership” of a loan that meets MOST of the characteristics of your loan, but not all of them. It is these inconsistencies that enable you to chip away at the credibility of the pretender lenders.
COMBO TITLE and SECURITIZATION Search, Report, Documents and Comprehensive Analysis
You must realize that while the original PSA is a good starting point, it isn’t the ending point. That is because of the the dissolution of hundreds if not thousands of these special purpose vehicles which was easy because they were never officially formed in the first place. You must realize that the point of fact is that there is a “claim” that the loan is in a “pool” which may or may not have ever existed, but that the the documentary trail shows it was never really assigned tot he pool. So the money trail leads us to those people who have an actual interest in the loan — only after you can make the point that ALL transactions by or relating to the “pool” must be accounted for and allocated to individual loans.
My opinion, is that the the money people, if they can be found, have an interest that can imposed by equity and not by law. Everyone else is simply out to line their own pockets without ever having invested a dime in the loan transaction.
FROM APRIL CHARNEY—–
“You have to get the PSA and the mortgage loan purchase agreement and the hearsay bogus electronic list of loans before the court. You have to educate your judge about the lack of credibility or effect of the lifeless list of loans as the Uniform Electronic Transactions Act specifically exempts Residential Mortgage-Backed Securities from its application. Also, you have to get your judge to understand that the plaintiff has given up the power to accept the transfer of a note in default and under the conditions presented to the court (out of time, no delivery receipts, etc). Without the PSA you cannot do this.
Additionally the PSA becomes rich when you look at § 1-302 (b) which says that the obligations of good faith, diligence, reasonableness and care prescribed by the code may not be disclaimed by agreement, but may be enhanced or modified by an agreement which determine the standards by which the performance of the obligations of good faith, diligence reasonableness and care are to be measured. These agreed to standards of good faith, etc. are enforceable under the UCC if the standards are “not manifestly unreasonable.”
The PSA also has impact on when or what acts have to occur under the UCC because § 1-302 (c) allows parties to vary the “effect of other provisions” of the UCC by agreement.
Through the PSA, it is clear that the plaintiff cannot take an interest of any kind in the loan by way of an “A to D” assignment of a mortgage and certainly cannot take an interest in the note in this fashion.
Without the PSA and the limitations set up in it “by agreement of the parties”, there is no avoiding the mortgage following the note and where the UCC gives over the power to enforce the note, so goes the power to foreclose on the mortgage.
So, arguing that the Trustee could only sue on the note and not foreclose is not correct analysis without the PSA. Likewise, you will not defeat the equitable interest “effective as of” assignment arguments without the PSA and the layering of the laws that control these securities (true sales required) and REMIC (no defaulted or nonconforming loans and must be timely bankruptcy remote transfers) and NY trust law and UCC law (as to no ultra vires acts allowed by trustee and no unaffixed allonges, etc.).
The PSA is part of the admissible evidence that the court MUST have under the exacting provisions of the summary judgment rule if the court is to accept any plaintiff affidavit or assignment.
If you have been successful in your cases thus far without the PSA, then you have far to go with your litigation model. It is not just you that has “the more considerable task of proving that New York law applies to this trust and that the PSA does not allow the plaintiff to be a “nonholder in possession with the rights of a holder.””
FROM A READER IN COLORADO ANSWERING “ANONYMOUS”
You raise a good point as to the servicer keep all the payments. As it has been proven in the two WAMU cases I have, the servicer(JPM not Chase Home Finance) is compelling the action under a bogus POA for the trustee. The trustee does not have control if the operation as the PSA has always shown the servicer was responsible for the foreclosure.
That however is the crux of the issue. The certificate holders put up money to gain an income stream although they thought they were backed by the notes which were never deposited. This scam was different than typical bank bond holder deals that were present before this mess started.
The servicer is in control of the “limited” replacement loans that need to go into the trust if one or two loans default but once the pool is shown to be failing the status is void and the default swap pays in to cover the “event”
I would say that the default swaps may have been multiple and created to cover multiple things. One swap may cover the income stream which is why the trusts still exist and the other covers the principle balance which under REMIC is not allowed to be placed back into the trust mid stream. This leaves the servicer and master servicer in control of it all.
The master servicer controls the REO and the Payout from the default swap covering the principle balance effectively holding the total balance of the top tier certificates and the REO valued at maybe 50%. Since they are prohibited from depositing the money back to allow the certificate holders to recoup their money under the IRS code they reinvest it most likely in buying the certificates that are valued at 5 cents on the dollar from the holders that got screwed.
This will lead to a huge windfall when they weather the storm with the tax payer money such as TALF which is so much more than the TARP money and effectively allows the banks to pledge the top level junk they hold for real time cash.
The trusts stay open as they are trying to bridge over the issue and play the inevitable boom bust history they have made us live in forever. The income stream comes from a separate swap that keeps the dividends paying but the value is shot to nothing making the bond holders want to sell and get out and the bank uses their money owed to buy them out and screw them another time.
The servicer is then charging “special servicing” fees at a huge rate while body dragging the homeowners intentionally inflicting emotional distress so they want to walk away. This helps break their spirit and helps eat up the payments that are coming in that they pocket since the dividends are paid from the other swap contract.
The servicer is the key as they have always and will always control everything and the homeowner gets intentionally abused and the investor has no clue. They want everyone to bailout and walk away from the houses and the investments because they have a plan to use that to make another round of huge bonuses. This is why they value the fraudulent loans at nothing because they are yet the real value of what is being laundered is the servicing rights and the collection of the REO.
Lender Processing Services was funded in 2008 by JP and BoA so that they could perpetuate the fraud of collecting zeroed out loans and now the big law firms that receive the f/c files are going public set to retain huge pools of mortgage notes and continue the game.
If anyone can say that this problem is happenstance and not premeditated racketeering at its most egregious I would say they are certainly fit to be judges or negative bloggers. The entire “foreclosure industry” was planned from the start in the late nineties and this is just part of the cycle they expect us to sit through. It is too well planned with the legislature passing all the little changes in law in preparation.
Conspiracy theory or real conspiracy coming to fruition? I know where I stand.
I created a coin phrase for this….compartmentalized fraud which goes well with plausible deniability and this cannot happen without a master mind that lays out the plan….who might that be?
By Collete McDonald
Editor’s Note: Ms. McDonald hits the nail on the head with this article. You should incorporate it word for word in any relevant memoranda. Why is this important?
Because most of the “notes” (assuming they were the real notes and were timely indorsed and not back-dated) are presented as having been indorsed “without recourse.” Your opposition is counting on the fact that you don’t know the UCC, and you don’t know anything about indorsements.
This is another case where the instrument could appear valid on its face but for the fact that it is a fake. In this case the words “without recourse” on a note (executed as evidence of an obligation on a home loan) is contradicted by the very instrument that authorizes the indorsement — the PSA (Pooling and Servicing Agreement). The PSA ALWAYS provides for conditions, terms and provisions that are exactly the opposite of “without recourse.” These conditions have a negative effect on the negotiability of the instrument. So not only do we have a case where the “assignment” or indorsement” was merely an offer that was never accepted (and could not be accepted as per the terms of the PSA) but you also have an instrument that could not be negotiated under the terms expressed on it.
WHAT ARE THE CONDITIONS EFFECTING THE INDORSEMENT “WITHOUT RECOURSE?”: Well the main one is that the pooling and servicing agreement states that if the loan becomes non-performing, the assignor must replace it with either cash or another performing loan. Nothing could be more clear that the indorsement was WITH RECOURSE.
The bottom Line: Most if not all “assignments” or “indorsements” are without effect, which means that the party having legal title to the instrument is the party named on it. And THAT means that each time the opposition attempts to establish authority under the chain of securitization, they are actually making the case that they have no such authority. You can’t come to court and say I am the Trustee for asset backed Pool XYZ which has ownership of this loan” and then turnaround and say you also have authority (legal authority supporting the power of sale in non-judicial states and the standing to foreclose in judicial states) to represent the “lender.” Not if the “lender” is named on the note as payee and on the mortgage or deed of trust as the lender.
If they want to establish some equitable right to enforce the note, they MUST file a judicial action.
WITHOUT RECOURSE:
A phrase used by an endorser (a signer other than the original maker) of a negotiable instrument (for example, a check or promissory note) to mean that if payment of the instrument is refused, the endorser will not be responsible.
An individual who endorses a check or promissory note using the phrase without recourse specifically declines to accept any responsibility for payment. By using this phrase, the endorser does not assume any responsibility by virtue of the endorsement alone and, in effect, becomes merely the assignor of the title to the paper.
A without recourse endorsement is governed by the laws of commercial paper, which have been codified in Article 3 of the Uniform Commercial Code (UCC). The UCC has been adopted wholly or in part by every state, establishing uniform rights of endorsers under UCC § 3-414(1).
A without recourse endorsement is a qualified endorsement and will be honored by the courts if certain requirements are met. Any words other than “without recourse” should clearly be of similar meaning. Because the payee’s name is on the back of the note, he is presumed to be an unqualified endorser unless there are words that express a different intention. The denial of recourse against a prior endorser must be found in express words. An implied qualification, based on the circumstances surrounding the endorsement to a third party, will not be recognized by the courts. An assignment of a note is generally regarded as constituting an endorsement, and the mere fact that an instrument is assigned by express statement on the back does not make the signer a qualified endorser.
The qualification without recourse, or its equivalent, is limited to the immediate endorsement to which it applies. It may precede or follow the name of the endorser, but its proximity to the name should be such as to give a subsequent purchaser reasonable notice of the endorsement to which it applies.
A person might agree to accept a check without recourse if the person believes she could collect the money in question. Often the purchaser of such a note will acquire it at a substantial discount from the face value of the note, in recognition that the purchaser can only seek to collect the money from the original maker of note.
An example of a without recourse note is a personal check written by A, the maker, to B, the payee. B, in turn pays off a debt to C by endorsing the check and adding the without recourse phrase. If A’s bank refuses to pay C the check amount because A has insufficient funds in his checking account, C cannot demand payment from B. C will have to attempt to collect the money from A.
submitted by Raja
Investor /Trustee on MERS Record
Please use this small sentence for these thieves who have multi roles,
“”You cannot be a Trustee or investor or own the note, lest it become a partnership with the certificate holders”
FOR ALL THOSE WHO HAVE DEUTSCHE BANK.
a). Investor and Trustee as per MERS member Org. ID # 1001425. Deutsche Bank cannot be a trustee and investor. If it has both then it has a partnership with the Certificate holders.
b).. Interim Funder and Trustee as per MERS member Org, ID # 1002959
c). Document Custodian, Trustee and Collateral Agent as per MERS member Org. ID # 1000649
d). Investor and Trustee as per MERS member ORG. ID # 1001426
e). Servicer, Subservicers, Investor, Document Custodian, Trustee, Collateral Agent as per MERS member Org. ID # 1000648
The address of Deutsche Bank from “ a-e” above is the same 1761 East St. Andrew Pl. Santa Ana CA 92705-4934
Deutsche Bank is also acting under the various layers 424(b) (5) Prospectus, Pooling & Servicing Agreement (PSA) filed by the THIEVES with the SEC.of Trustees, without any specific description, where One Trustee ends and other Trustee Begins. It is classic obfuscation and musical chairs Note that Deutsche Bank is identified “as trustee” but the usual language of “under the terms of that certain trust dated….etc” are absent. This is because there usually is NO TRUST AGREEMENT designated as such and NO TRUST. In fact, as stated here it is merely an agreement between the co-issuers and Deutsche Bank, which it means that far from being a trust it is more like the operating agreement of an LLC)
DEUTSCHE BANK cannot be a Trustee or investor or own the note, less, it becomes a partnership with the certificate holders(Who bought the certificates and invested money).
See special-offer-on-getting-securitization-report-on-your-mortgages
Jake is a former player in the trading of debt securities, so he knows what he is talking about. Here he writes about the PSA (Pooling and Service Agreement). The process he now goes through is tedious and sometimes inconclusive, but he gets about as close as anyone can under the current circumstances.
Matt Weidner is obviously one of the better lawyers who “gets it.”
The new service that we have launched and which is being tested thoroughly this weekend, takes the guess work out of it, gives you the right pointers, access to the right documents and a commentary from me, Jake and other experts on our panel on what the salient points are that you might use in your battle against the pretender lender.
See special-offer-on-getting-securitization-report-on-your-mortgages
Submitted by Jake Naumer
Finding Pooling and Servicing Agreements is Key to
Killing Your Foreclosure Case!
Jake Naumer Fri, May 28, 2010 at 6:47 AM
To: jenniferacoke , Stephen Pope ,
Stephen Pope <stevelpope@gmail.com>, modification.llc@gmail.com
Finding Pooling and Servicing Agreements is Key to Killing Your
Foreclosure Case!
Today, May 28, 2010, 40 minutes ago | Matthew D. Weidner, Esq.
If you’re being sued by any entity acting as a trustee, i.e. “US BANK
as trustee for the HP Series 2006-c Certificate Holders”, you need to
be aware of a variety of issues that may be helpful in your case. I
will start another series of video blog posts on the “Capacity
Argument”, because this argument works in nearly every case, but it is
particularly appropriate in cases where Plaintiff is an exotic,
alphabet soup Foreclosure Frankenstein.
Individual mortgages originated by lenders like New Century and Argent
were pooled into groups of approximately 8,000 mortgages from around
the country to form a Mortgage Trust which held mortgages which had
(on paper at least) cumulative values of between 10-12 million
dollars. These mortgages that were grouped together and given a name
like “HSI ASSETT SECURITIZATION CORPORATION TRUST 2006-OPT2C.
Interests in these mortgage trusts were then sold to teachers unions,
investment funds and other institutional sources around the world.
Before selling the interests in these trusts, the institutional
investors were required to prepare the contract that would govern the
rights between the depositor of the mortgages, trustee of the new
trust and the company that would be responsible for collecting
payments from homeowners and sending those payments out to those who
had invested in the trust. This contract is called the Pooling and
Servicing Agreement. The important thing about the Pooling and
Servicing Agreement is you will find in virtually every case that all
of the parties who are involved violate nearly every provision of
their own Pooling and Servicing Agreement. This has important
consequences that we will talk more about later, but the Securities
and Exchange Commission rules requires these trusts to provide
important other reporting information that was widely ignored or
worse, falsified by the entities in control of these trusts. Finding
such information can be a key to defending your case.
The Securities and Exchange Commission Edgar Database can be found
here. You can also put the name of your Frakenstein, Alphabet Soup
Trust into quotes, “The IXIX 2006-A Trust” into a straight google
search and see what comes up. Here are Step-By-Step instructions:
Finding Pooling And Servicing Agreements (PSA’s)
For Securitized Mortgage Loans
The “Pooling and Servicing Agreement” is the legal document that contains the
5/28/2010 Gmail – Finding Pooling and Servicing A…
https://mail.google.com/mail/?ui=2&ik… 1/5
responsibilities and rights of the servicer, the trustee, and others
over a pool of mortgage
loans. The Pooling and Servicing Agreement can be a stand-alone
document or it can be
part of another paper, usually called the “Prospectus.” If the
securitization is public,
these documents must be filed with the Securities and Exchange
Commission (SEC), and
will be available to the public at www.sec.gov. Locating a Pooling
and Servicing
Agreement on the SEC website can be a challenge. The most important
information you will
need to find the Pooling and Servicing
Agreement is the name of the original lender and the title of the pool
of loans. We will
work through an example below. Assume that the lender is Ameriquest
Mortgage Co.
We don’t know the name of the pool that the homeowner’s mortgage ended
up in, but we
do know that the mortgage was made on June 1, 2002.
Step One:
Go to www.sec.gov and click on “Search for Company Filings” under
“Filing & Forms
(EDGAR).” Under “General-Purpose Searches,” click on “Companies &
other filers.”
Then, in the “Enter your search information” box, type in “Ameriquest”
next to “Company name” and click on the “Find Companies” button.
Step Two:
The page you are now looking at shows a long list of the names of
securitized pools of
loans. We know the mortgage was made on June 1, 2002. Look for the
entry titled
“AMERIQUEST MORT SEC INC ASS BK PAS THR CERTS SER 2002 2.” The
document number is CIK 0001175125. Click on that number. We selected
this entry
because it said 2002 on it and the loan in question was made in 2002.
There may be
several other pools of mortgage loans that Ameriquest securitized in
2002 but this is the
first one we come to on this list (when reviewed in late February
2007) so we will pull it
up.
Step Three:
Now you see a list of documents filed with the SEC that are related to
this pool of loans.
Scroll down to the bottom and you will see a document titled
“Prospectus.” This is the
document that will likely be the one you want, assuming that the
mortgage loan you are
concerned about is in this pool. We can only make an educated guess,
unless you know
the name of the securitized pool in advance (which is unlikely). Click
5/28/2010 Gmail – Finding Pooling and Servicing A…
https://mail.google.com/mail/?ui=2&ik… 2/5
on either “htm or text”
next to this document and the Prospectus will appear. Now,
bookmark this document on your web browser, so you can come back to it
easily in the future.
Step Four
Is this likely to be the document you want? Scroll down to page S-2
and you will see a
Table of Contents. Included in that is the “Pooling and Servicing
Agreement” which
starts on page S-76. Also, scroll down one more page, past the Table
of Contents, and
you will see a “Summary of Prospectus Supplement.” Certain important
information is
listed there, including the cut-off and closing dates for loans that
will be included in this
pool. The closing date is June 7, 2002. Based on this information,
you can assume that
this document governs the responsibilities of the servicer of the
mortgage loan in
question, unless that servicer tells you otherwise and can back it up
with a reference to a
different agreement or pool. Other important information listed in
this Summary includes
the title of the pool, and the
identity of the servicer and trustee. The servicing rights may have
been sold since this
document was filed and the current servicer may be a different company
but the trustee
(the legal holder of the mortgage) should be accurate.
Step Five:
Go the Pooling and Servicing Agreement to find what you need to know. It should
describe how the servicer is paid and by how much, who keeps late and
other fees, what
authority it has to modify the loan or engage in workouts with
homeowners, and its
obligations to pass mortgage payments on to the trustee.
Some of the best information I get comes from intrepid consumer
researchers out there who care enough to dig into these things.
Perhaps the most powerful thing about this and other online forums is
the ability for consumers and advocates to share what they’ve found.
In my estimation, what this pro-se Defendant found is enough to blow
the lid off his foreclosure caseN..read on:
I was served Lis Pendens last month, (April 2010), naming the
plaintiff Deutsche Bank National Trust Company, As Trustee for HSI
ASSETT SECURITIZATION CORPORATION TRUST 2006-OPT2 MORTGAGE
PASS-THROUGH CERTIFICATES, SERIES 2006-OPT2
I looked into the records for that entity in the SEC EDGAR online
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database and discovered that the last annual report was filed in 2007,
contemporaneously with a FORM 15 filing.That Form 15 filing claimed a
standing under 15d-6 of the 1934 SEC regulations which exempts the
entity of filing an annual report, whereby the number of claimed
investors had fallen below the SEC registration and reporting
threshold of 300 persons. ( To my understanding, the same Form 15
filing is also used when a registered, reporting, entity is
dissolved.)
I then began looking at many other securitized trusts in the EDGAR
database. Literally dozens and dozens of these securitized trusts have
done exactly the same thing. he trust is established and appropriate
SEC documents are filed for a period of time, usually 1 or 2 years.
The trust then files a Form 15 claiming exemption of the obligation to
file reports with the SEC under 15d-6
The paper trail for the Trust with the SEC thereby *ends* Many of
these trusts have not filed anything with the SEC for years. Many as
far back as 2005 and 2006
Some of the SEC Form 15d-6 filings disclosed as few as 15 or less
investors. Bear in mind, these are for trusts that purportedly hold
well over $1 BILLION in mortgages, and there are dozens and dozens of
these trusts with a mere hand full of investors! I also noted that the
“agent of record” of many of these trusts have changed many times, and
are very infrequently “named”, but list only an address and phone
number, (usually in New York). In several of the cases I’ve looked at
in the EDGAR database, I actually called some of the phone number
listed at 3:00am EST and got the voicemail of someone at a bank in
N.Y. Note that the answering party was NEVER a bank listed as the
Trustee, (as Deutsche Bank is in my case), or the trust
“administrator” as listed in the PSA or any subsequent SEC filings.
I actually got the voicemail of some fellow at HSBC Bank who was the
“anonymous” contact in my case! My point is this;
Has anyone actually verified that the securitized trusts claimed to be
under the trusteeship of some of these banks still ACTUALLY EXIST?
We’ve been so focused on the NOTE and the fraudulent paper being slung
about for assignment of those notes, and whether or not the
“plaintiff” has standing to bring the foreclosure action, has anyone
thought to see if the “plaintiff trust” is even still active or not?
Were many of these trusts actually dissolved after payouts from credit
default swaps and TARP funds and the actual investors now long gone?
We have no records to show whether they are alive or dead. Most of
these trusts haven’t filed anything with anyone in years as far as I
can tell.
Certainly, as in my case, Deutsche Bank, (as Trustee), still exists,
but can these plaintiff securitized trusts be made to *prove* they
still exist?
What happens to a foreclosure case if the plaintiff entity,(the
securitized trust, *not* the Trustee for it), no longer exists or
cannot prove it exists?
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IT’S TIME FOR ME TO GET BACK TO AN ISSUE THAT I HAVEN’T TALKED ABOUT
FOR A WHILE AND IT IS THIS CAPACITY ISSUENBECAUSE IT STRIKES AT THE
HEART OF THESE CASES. SIMPLY PUT, A TRUSTEE CANNOT MAINTAIN AN ACTION
ON BEHALF OF A TRUST THAT DOESN’T EXIST.
STAY TUNED AND GREAT WORK FROM THE PRO SE WHO SHARED THIS INFORMATION.
–
Jake Naumer Union Capital
Licensed Financial Advisor
3187 Morgan Ford
St Louis Missouri 63116
314 961 7600
Fax Voice Mail 314 754 9086
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So the question is how would you allocate third party payments and what difference will that make to a Judge hearing the case.
ASSUMPTION: XYZ Investment Banking Holding company has received a total of $50 billion in third party payments from insurance, counterparties, credit enhancements (moving money from one tranche to another within the SPV “Trust”), and federal assistance or bailout. Each one of these is subject to separate analysis, but for simplicity we will treat them all the same.
A very similar allocation procedure would be appropriate for the top quality performing loans under the theory of identity theft. Without using these high FICO credit-worthy people’s identity and loan score they would not have had the golden cover to the heap of dog poop stinking underneath.
That NOTICE OF DEFAULT is probably not what it appears. It is probably an unauthorized document based upon incorrect financial data, and fabricated or useless documents.
That ASSIGNMENT might look good on its face but it probably has no legal effect.
California Reconveyance is suspect for the following reasons
Editor’s Note: The primary reason for foreclosing on the wrong house is that the wrong party (not the creditor) is initiating the foreclosure and therefore lacks sufficient information about the loan, the property or the debtor.
These events are corroboration of stories previously published showing that loans were placed in “pools” even though they never closed and therefore didn’t exist. The mere application of a loan was sufficient for “assignment” of the “loan.” And let’s not forget that the “assignment” typically violates even the terms of the PSA either as to time cut-off or the requirement of recording or recordable form.
Home foreclosures: The opposite of the American dream. Photo: Corbis
A Pittsburgh woman is suing the Bank of America after it wrongfully foreclosed on her home, ransacking her possessions, cutting power lines, padlocking her doors, and confiscating her pet parrot. Angela Iannelli, 46—who was away when repo men made off with her beloved blue macaw, Luke—says she’s now “afraid to set foot in her house.” She’s filed a civil suit claiming that bank representatives refused to reveal Luke’s “whereabouts” and told her they “were tired of hearing from her.” (Watch an ABC report about Angela Iannelli’s foreclosed home.) Here, four more victims of erroneous repossession:
They took her wedding dress
Last December, Nilly Mauck, 31, came home to find her décor brutally simplified. Contractors assigned to repossess condo No. 1156 had mistakenly emptied No. 1157, her Las Vegas apartment of two years. Though she’s demanded “$100,000 to $200,000″ in compensation for them taking, well, everything (including her wedding dress), the Realtor has offered only $5,000. Mauck says she’s seeking legal advice and learning “to live with the clothes on her back.”
Wrong house, but thanks for rotten halibut
Dr. Alan Schroit got a “putrid” surprise when he arrived at his Galveston, Texas, vacation home last October. Bank of America (“with which he has neither a relationship nor a mortgage”) had repossessed his home and turned off the utilities, leaving 75 pounds of frozen salmon and halibut (spoils of an Alaskan fishing trip) to rot in the fridge. Schroit, who’d been planning to grill the fish for 30 guests the next night, is suing the bank.
Luckily, he was not in a mood to swim
Kissimmee, Fla., resident Denroy Bell was living in London, England, when a confused Kissimmee bank attempted to foreclose on his Florida home in 2008. The sloppy institution, Citi-Residential, changed the locks and drained the swimming pool. “It was like an army came up and took over the house,” said Esther Goshop, Bell’s neighbor. Unusually gracious, Bell has asked only that Citi-Residential refill his pool and restore his locks.
Promises, promises …
A jury punished Countrywide Home Loans in January 2009 for failing to notice that it was repossessing and selling the wrong Las Vegas condo back in 2003. Sgt. Gerald Thitchener and his wife, Katrina, absent at the time, were awarded $3.4 million in damages. “[Countrywide] never even said they were sorry,” noted one juror, “[though they did say] it would never happen again.”
The report of the ruling below by this Federal Judge has several implications:
This ruling could ultimately end up being the demise of ALL foreclosure actions involving securitized loans. One thing is clear in that the federal court identifies the investors as the owners of the loan and is so doing the court also recognizes that the servicer/intermediaries/pretender lender have no authority to do ANYTHING in the way of enforcement, modification, collection through legal means such as a foreclosure action because they simply have no standing (the alleged debt is not owed to anyone other than the investors).
Just because a secret deal between Wall Street, servicers, banks and MERS occurred to obscure the ownership and the transfers of mortgages doesn’t mean their deal will hold up under the careful eye of diligent judge who understands AND cares about the law being upheld.
* Federal judge lacks jurisdiction, moves case to states
* Loan modifications can hurt mortgage investors
NEW YORK, Aug 20 (Reuters) – A federal judge has ruled that Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) cannot have a lawsuit by investors seeking to force it to buy back mortgages heard in federal court, saying he lacks jurisdiction to decide the case.
Tuesday’s ruling by Judge Richard Holwell of the U.S. District Court in Manhattan means the case will move to state court. Holwell did not decide the merits of the case.
“Congress passed two statutes within a year of each other to address the mortgage crisis,” the judge wrote. “In neither of these statutes did Congress federalize the case.”
The ruling is a win for investors, to the extent that Holwell rejected a claim by the bank’s Countrywide Financial Corp unit that new federal laws to encourage loan modifications to help struggling borrowers stay in their homes govern this case.
Countrywide had argued that the laws negated obligations it might have had to buy back modified loans. In 2008, Countrywide agreed with some 11 state attorneys general to modify $8.4 billion of loans made to roughly 400,000 borrowers.
Investors who own mortgage securities typically receive interest and principal payments. If servicers modified the underlying loans to reduce borrower obligations, investors would be harmed because they would receive lower payments.
Holwell did rule that investors bear the burden of showing that pooling and servicing agreements for their loans, taken “as a whole,” require Countrywide to buy back the loans.
Bank of America could not immediately be reached for comment. A published report said a spokeswoman agreed that the court did not rule on the merits of the plaintiffs’ claims.
The current case was brought by two investment funds holding Countrywide mortgages, Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC.
These investors complained they would be harmed if Countrywide shifted the burdens of loan modifications to 374 trusts into which loans had been repackaged and securitized.
These investors would rather Countrywide repurchase modified loans for the full unpaid amounts.
Countrywide had been the largest U.S. mortgage lender before Bank of America acquired it last July for $2.5 billion.
The case is Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC v. Countrywide Financial Corp, U.S. District Court, Southern District of New York (Manhattan), No. 08-11343. (Reporting by Jonathan Stempel, with additional reporting by John Tilak in Bangalore)
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