New Mexico Supreme Court Wipes Out Bank of New York

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There are a lot of things that could be analyzed in this case that was very recently decided (February 13, 2014). The main take away is that the New Mexico Supreme Court is demonstrating that the judicial system is turning a corner in approaching the credibility of the intermediaries who are pretending to be real parties in interest. I suggest that this case be studied carefully because their reasoning is extremely good and their wording is clear. Here are some of the salient quotes that I think it be used in motions and pleadings:

We hold that the Bank of New York did not establish its lawful standing in this case to file a home mortgage foreclosure action. We also hold that a borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances” that lenders and courts must consider in determining compliance with the New Mexico Home Loan Protection Act, NMSA 1978, §§ 58-21A-1 to -14 (2003, as amended through 2009) (the HLPA), which prohibits home mortgage refinancing that does not provide a reasonable, tangible net benefit to the borrower. Finally, we hold that the HLPA is not preempted by federal law. We reverse the Court of Appeals and district court and remand to the district court with instructions to vacate its foreclosure judgment and to dismiss the Bank of New York’s foreclosure action for lack of standing.

The Romeros soon became delinquent on their increased loan payments. On April 1, 2008, a third party—the Bank of New York, identifying itself as a trustee for Popular Financial Services Mortgage—filed a complaint in the First Judicial District Court seeking foreclosure on the Romeros’ home and claiming to be the holder of the Romeros’ note and mortgage with the right of enforcement.

The Romeros also raised several counterclaims, only one of which is relevant to this appeal: that the loan violated the antiflipping provisions of the New Mexico HLPA, Section 58-21A-4(B) (2003).[They were lured into refinancing into a loan with worse provisions than the one they had].

Litton Loan Servicing did not begin servicing the Romeros’ loan until November 1, 2008, seven months after the foreclosure complaint was filed in district court.

At a bench trial, Kevin Flannigan, a senior litigation processor for Litton Loan Servicing, testified on behalf of the Bank of New York. Flannigan asserted that the copies of the note and mortgage admitted as trial evidence by the Bank of New York were copies of the originals and also testified that the Bank of New York had physical possession of both the note and mortgage at the time it filed the foreclosure complaint.

{9} The Romeros objected to Flannigan’s testimony, arguing that he lacked personal knowledge to make these claims given that Litton Loan Servicing was not a servicer for the Bank of New York until after the foreclosure complaint was filed and the MERS assignment occurred. The district court allowed the testimony based on the business records exception because Flannigan was the present custodian of records.

{10} The Romeros also pointed out that the copy of the “original” note Flannigan purportedly authenticated was different from the “original” note attached to the Bank of New York’s foreclosure complaint. While the note attached to the complaint as a true copy was not indorsed, the “original” admitted at trial was indorsed twice: first, with a blank indorsement by Equity One and second, with a special indorsement made payable to JPMorgan Chase.

the Court of Appeals affirmed the district court’s rulings that the Bank of New York had standing to foreclose and that the HLPA had not been violated but determined as a result of the latter ruling that it was not necessary to address whether federal law preempted the HLPA. See Bank of N.Y. v. Romero, 2011-NMCA-110, ¶ 6, 150 N.M. 769, 266 P.3d 638 (“Because we conclude that substantial evidence exists for each of the district court’s findings and conclusions, and we affirm on those grounds, we do not addressthe Romeros’ preemption argument.”).

We have recognized that “the lack of [standing] is a potential jurisdictional defect which ‘may not be waived and may be raised at any stage of the proceedings, even sua sponte by the appellate court.’” Gunaji v. Macias, 2001-NMSC-028, ¶ 20, 130 N.M. 734, 31 P.3d 1008 (citation omitted). While we disagree that the Romeros waived their standing claim, because their challenge has been and remains largely based on the note’s indorsement to JPMorgan Chase, whether the Romeros failed to fully develop their standing argument before the Court of Appeals is immaterial. This Court may reach the issue of standing based on prudential concerns. See New Energy Economy, Inc. v. Shoobridge, 2010-NMSC-049, ¶ 16, 149 N.M. 42, 243 P.3d 746 (“Indeed, ‘prudential rules’ of judicial self-governance, like standing, ripeness, and mootness, are ‘founded in concern about the proper—and properly limited—role of courts in a democratic society’ and are always relevant concerns.” (citation omitted)). Accordingly, we address the merits of the standing challenge.[e.s.]

the Romeros argue that none of the Bank’s evidence demonstrates standing because (1) possession alone is insufficient, (2) the “original” note introduced by the Bank of New York at trial with the two undated indorsements includes a special indorsement to JPMorgan Chase, which cannot be ignored in favor of the blank indorsement, (3) the June 25, 2008, assignment letter from MERS occurred after the Bank of New York filed its complaint, and as a mere assignment

of the mortgage does not act as a lawful transfer of the note, and (4) the statements by Ann Kelley and Kevin Flannigan are inadmissible because both lack personal knowledge given that Litton Loan Servicing did not begin servicing loans for the Bank of New York until seven months after the foreclosure complaint was filed and after the purported transfer of the loan occurred. 
[NOTE BURDEN OF PROOF]

(“[S]tanding is to be determined as of the commencement of suit.”); accord 55 Am. Jur. 2d Mortgages § 584 (2009) (“A plaintiff has no foundation in law or fact to foreclose upon a mortgage in which the plaintiff has no legal or equitable interest.”). One reason for such a requirement is simple: “One who is not a party to a contract cannot maintain a suit upon it. If [the entity] was a successor in interest to a party on the [contract], it was incumbent upon it to prove this to the court.” L.R. Prop. Mgmt., Inc. v. Grebe, 1981-NMSC-035, ¶ 7, 96 N.M. 22, 627 P.2d 864 (citation omitted). The Bank of New York had the burden of establishing timely ownership of the note and the mortgage to support its entitlement to pursue a foreclosure action. See Gonzales v. Tama, 1988-NMSC- 016, ¶ 7, 106 N.M. 737, 749 P.2d 1116

[THE DIFFERENCE BETWEEN REMEDIES ON THE NOTE AND REMEDIES ON THE MORTGAGE]

(“One who holds a note secured by a mortgage has two separate and independent remedies, which he may pursue successively or concurrently; one is on the note against the person and property of the debtor, and the other is by foreclosure to enforce the mortgage lien upon his real estate.” (internal quotation marks and citation omitted)).

3. None of the Bank’s Evidence Demonstrates Standing to Foreclose

{19} The Bank of New York argues that in order to demonstrate standing, it was required to prove that before it filed suit, it either (1) had physical possession of the Romeros’ note indorsed to it or indorsed in blank or (2) received the note with the right to enforcement, as required by the UCC. See § 55-3-301 (defining “[p]erson entitled to enforce” a negotiable instrument). While we agree with the Bank that our state’s UCC governs how a party becomes legally entitled to enforce a negotiable instrument such as the note for a home loan, we disagree that the Bank put forth such evidence.

a. Possession of a Note Specially Indorsed to JPMorgan Chase Does Not Establish the Bank of New York as a Holder

{20} Section 55-3-301 of the UCC provides three ways in which a third party can enforce a negotiable instrument such as a note. Id. (“‘Person entitled to enforce’ an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the [lost, destroyed, stolen, or mistakenly transferred] instrument pursuant to [certain UCC enforcement provisions].”); see also § 55-3-104(a)(1), (b), (e) (defining “negotiable instrument” as including a “note” made “payable to bearer or to order”). Because the Bank’s arguments rest on the fact that it was in physical possession of the Romeros’ note, we need to consider only the first two categories of eligibility to enforce under Section 55-3-301.

{21} The UCC defines the first type of “person entitled to enforce” a note—the “holder” of the instrument—as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” NMSA 1978, § 55-1-201(b)(21)(A) (2005); see also Frederick M. Hart & William F. Willier, Negotiable Instruments Under the Uniform Commercial Code, § 12.02(1) at 12-13 to 12-15 (2012) (“The first requirement of being a holder is possession of the instrument. However, possession is not necessarily sufficient to make one a holder. . . . The payee is always a holder if the payee has possession. Whether other persons qualify as a holder depends upon whether the instrument initially is payable to order or payable to bearer, and whether the instrument has been indorsed.” (footnotes omitted)). Accordingly, a third party must prove both physical possession and the right to enforcement through either a proper indorsement or a transfer by negotiation. See NMSA 1978, § 55-3-201(a) (1992) (“‘Negotiation’ means a transfer of possession . . . of an instrument by a person other than the issuer to a person who thereby becomes its holder.”). [E.S.] Because in this case the Romeros’ note was clearly made payable to the order of Equity One, we must determine whether the Bank provided sufficient evidence of how it became a “holder” by either an indorsement or transfer.

Without explanation, the note introduced at trial differed significantly from the original note attached to the foreclosure complaint, despite testimony at trial that the Bank of New York had physical possession of the Romeros’ note from the time the foreclosure complaint was filed on April 1, 2008. Neither the unindorsed note nor the twice-indorsed

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note establishes the Bank as a holder.

{23} Possession of an unindorsed note made payable to a third party does not establish the right of enforcement, just as finding a lost check made payable to a particular party does not allow the finder to cash it. [E.S.]See NMSA 1978, § 55-3-109 cmt. 1 (1992) (“An instrument that is payable to an identified person cannot be negotiated without the indorsement of the identified person.”). The Bank’s possession of the Romeros’ unindorsed note made payable to Equity One does not establish the Bank’s entitlement to enforcement.

We are not persuaded. The Bank provides no authority and we know of none that exists to support its argument that the payment restrictions created by a special indorsement can be ignored contrary to our long-held rules on indorsements and the rights they create. See, e.g., id. (rejecting each of two entities as a holder because a note lacked the requisite indorsement following a special indorsement); accord NMSA 1978, § 55-3-204(c) (1992) (“For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument.”).

[COMPETENCY OF WITNESS]

the Bank of New York relies on the testimony of Kevin Flannigan, an employee of Litton Loan Servicing who maintained that his review of loan servicing records indicated that the Bank of New York was the transferee of the note. The Romeros objected to Flannigan’s testimony at trial, an objection that the district court overruled under the business records exception. We agree with the Romeros that Flannigan’s testimony was inadmissible and does not establish a proper transfer.

Litton Loan Servicing, did not begin working for the Bank of New York as its servicing agent until November 1, 2008—seven months after the April 1, 2008, foreclosure complaint was filed. Prior to this date, Popular Mortgage Servicing, Inc. serviced the Bank of New York’s loans. Flannigan had no personal knowledge to support his testimony that transfer of the Romeros’ note to the Bank of New York prior to the filing of the foreclosure complaint was proper because Flannigan did not yet work for the Bank of New York. See Rule 11-602 NMRA (“A witness may testify to a matter only if evidence is introduced sufficient to support a finding that the

9

witness has personal knowledge of the matter. [E.S.] Evidence to prove personal knowledge may consist of the witness’s own testimony.”). We make a similar conclusion about the affidavit of Ann Kelley, who also testified about the status of the Romeros’ loan based on her work for Litton Loan Servicing. As with Flannigan’s testimony, such statements by Kelley were inadmissible because they lacked personal knowledge.

[OBJECTION TO HEARSAY BUSINESS RECORDS REVERSED AND SUSTAINED]

When pressed about Flannigan’s basis of knowledge on cross-examination, Flannigan merely stated that “our records do indicate” the Bank of New York as the holder of the note based on “a pooling and servicing agreement.” No such business record itself was offered or admitted as a business records hearsay exception. See Rule 11-803(F) NMRA (2007) (naming this category of hearsay exceptions as “records of regularly conducted activity”).

The district court erred in admitting the testimony of Flannigan as a custodian of records under the exception to the inadmissibility of hearsay for “business records” that are made in the regular course of business and are generally admissible at trial under certain conditions. See Rule 11-803(F) (2007) (citing the version of the rule in effect at the time of trial). The business records exception allows the records themselves to be admissible but not simply statements about the purported contents of the records. [E.S.] See State v. Cofer, 2011-NMCA-085, ¶ 17, 150 N.M. 483, 261 P.3d 1115 (holding that, based on the plain language of Rule 11-803(F) (2007), “it is clear that the business records exception requires some form of document that satisfies the rule’s foundational elements to be offered and admitted into evidence and that testimony alone does not qualify under this exception to the hearsay rule” and concluding that “‘testimony regarding the contents of business records, unsupported by the records themselves, by one without personal knowledge of the facts constitutes inadmissible hearsay.’” (citation omitted)). Neither Flannigan’s testimony nor Kelley’s affidavit can substantiate the existence of documents evidencing a transfer if those documents are not entered into evidence. Accordingly, Flannigan’s trial testimony cannot establish that the Romeros’ note was transferred to the Bank of New York.[E.S.]

[REJECTION OF MERS ASSIGNMENT]

We also reject the Bank’s argument that it can enforce the Romeros’ note because it was assigned the mortgage by MERS. An assignment of a mortgage vests only those rights to the mortgage that were vested in the assigning entity and nothing more. See § 55-3-203(b) (“Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course.”); accord Hart & Willier, supra, § 12.03(2) at 12-27 (“Th[is] shelter rule puts the transferee in the shoes of the transferor.”).

[MERS CAN NEVER ASSIGN THE NOTE]

As a nominee for Equity One on the mortgage contract, MERS could assign the mortgage but lacked any authority to assign the Romeros’ note. Although this Court has never explicitly ruled on the issue of whether the assignment of a mortgage could carry with it the transfer of a note, we have long recognized the separate functions that note and mortgage contracts perform in foreclosure actions. See First Nat’l Bank of Belen v. Luce, 1974-NMSC-098, ¶ 8, 87 N.M. 94, 529 P.2d 760 (holding that because the assignment of a mortgage to a bank did not convey an interest in the loan contract, the bank was not entitled to foreclose on the mortgage); Simson v. Bilderbeck, Inc., 1966-NMSC-170, ¶¶ 13-14, 76 N.M. 667, 417 P.2d 803 (explaining that “[t]he right of the assignee to enforce the mortgage is dependent upon his right to enforce the note” and noting that “[b]oth the note and mortgage were assigned to plaintiff.

[SPLITTING THE NOTE AND MORTGAGE]

(“A mortgage securing the repayment of a promissory note follows the note, and thus, only the rightful owner of the note has the right to enforce the mortgage.”); Dunaway, supra, § 24:18 (“The mortgage only secures the payment of the debt, has no life independent of the debt, and cannot be separately transferred. If the intent of the lender is to transfer only the security interest (the mortgage), this cannot legally be done and the transfer of the mortgage without the debt would be a nullity.”). These separate contractual functions—where the note is the loan and the mortgage is a pledged security for that loan—cannot be ignored simply by the advent of modern technology and the MERS electronic mortgage registry system.

[THE NOBODY ELSE IS CLAIMING ARGUMENT IS EXPLICITLY REJECTED]

Failure of Another Entity to Claim Ownership of the Romeros’ Note Does Not Make the Bank of New York a Holder

{37} Finally, the Bank of New York urges this Court to adopt the district court’s inference that if the Bank was not the proper holder of the Romeros’ note, then third-party-defendant Equity One would have claimed to be the rightful holder, and Equity One made no such claim.

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{38} The simple fact that Equity One does not claim ownership of the Romeros’ note does not establish that the note was properly transferred to the Bank of New York. In fact, the evidence in the record indicates that JPMorgan Chase may be the lawful holder of the Romeros’ note, as reflected in the note’s special indorsement.

[HOLDER MUST PROVE ENTITLEMENT TO ENFORCE — NO PRESUMPTION ALLOWED]

Because the transferee is not a holder, there is no presumption under Section [55-]3-308 [(1992) (entitling a holder in due course to payment by production and upon signature)] that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the transferee and the transferee must account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired it.

[LENDER’S OBLIGATION TO ASSURE THAT THE LOAN IS VIABLE]

B. A Lender Must Consider a Borrower’s Ability to Repay a Home Mortgage Loan in Determining Whether the Loan Provides a Reasonable, Tangible Net Benefit, as Required by the New Mexico HLPA

{39} For reasons that are not clear in the record, the Romeros did not appeal the district court’s judgment in favor of the original lender, Equity One, on the Romeros’ claims that Equity One violated the HLPA. The Court of Appeals addressed the HLPA violation issue in the context of the Romeros’ contentions that the alleged violation constituted a defense to the foreclosure complaint of the Bank of New York by affirming the district court’s favorable ruling on the Bank of New York’s complaint. As a result of our holding that the Bank of New York has not established standing to bring a foreclosure action, the issue of HLPA violation is now moot in this case. But because it is an issue that is likely to be addressed again in future attempts by whichever institution may be able to establish standing to foreclose on the Romero home and because it involves a statutory interpretation issue of substantial public importance in many other cases, we address the conclusion of both the

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Court of Appeals and the district court that a homeowner’s inability to repay is not among “all of the circumstances” that the 2003 HLPA, applicable to the Romeros’ loan, requires a lender to consider under its “flipping” provisions:

No creditor shall knowingly and intentionally engage in the unfair act or practice of flipping a home loan. As used in this subsection, “flipping a home loan” means the making of a home loan to a borrower that refinances an existing home loan when the new loan does not have reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan and the borrower’s circumstances.

Section 58-21A-4(B) (2003); see also Bank of N.Y., 2011-NMCA-110, ¶ 17 (holding that “while the ability to repay a loan is an important consideration when otherwise assessing a borrower’s financial situation, we will not read such meaning into the statute’s ‘reasonable, tangible net benefit’ language”).

[DOOMED LOANS — WHO HAS THE RISK?]

We have been presented with no conceivable reason why the Legislature in 2003 would consciously exclude consideration of a borrower’s ability to repay the loan as a factor of the borrower’s circumstances, and we can think of none. Without an express legislative direction to that effect, we will not conclude that the Legislature meant to approve mortgage loans that were doomed to end in failure and foreclosure. Apart from the plain language of the statute and its express statutory purpose, it is difficult to comprehend how an unrepayable home mortgage loan that will result in a foreclosure on one’s home and a deficiency judgment to pay after the borrower is rendered homeless could provide “a reasonable, tangible net benefit to the borrower.”

[LENDER’S OBLIGATION TO MAKE SURE IT IS A VIABLE TRANSACTION] a lender cannot avoid its own obligation to consider real facts and circumstances [E.S.] that might clarify the inaccuracy of a borrower’s income claim. Id. (“Lenders cannot, however, disregard known facts and circumstances that may place in question the accuracy of information contained in the application.”) A lender’s willful blindness to its responsibility to consider the true circumstances of its borrowers is unacceptable. A full and fair consideration of those circumstances might well show that a new mortgage loan would put a borrower into a materially worse situation with respect to the ability to make home loan payments and avoid foreclosure, consequences of a borrower’s circumstances that cannot be disregarded.

if the inclusion of such boilerplate language in the mass of documents a borrower must sign at closing would substitute for a lender’s conscientious compliance with the obligations imposed by the HLPA, its protections would be no more than empty words on paper that could be summarily swept aside by the addition of yet one more document for the borrower to sign at the closing.

[THE BLAME GAME]

Borrowers are certainly not blameless if they try to refinance their homes through loans they cannot afford. But they do not have a mortgage lender’s expertise, and the combination of the relative unsophistication of many borrowers and the potential motives of unscrupulous lenders seeking profits from making loans without regard for the consequences to homeowners led to the need for statutory reform. See § 58-21A-2 (discussing (A) “abusive mortgage lending” practices, including (B) “making . . . loans that are equity-based, rather than income based,” (C) “repeatedly refinanc[ing] home loans,” rewarding lenders with “immediate income” from “points and fees” and (D) victimizing homeowners with the unnecessary “costs and terms” of “overreaching creditors”).

[FEDERAL PREEMPTION CLAIM FROM OCC STATEMENT DOES NOT PROVIDE BANK OF NEW YORK ANY PROTECTION]

 

While the Bank is correct in asserting that the OCC issued a blanket rule in January 2004, see 12 C.F.R. § 34.4(a) (2004) (preempting state laws that impact “a national bank’s ability to fully exercise its Federally authorized real estate lending powers”), and that the New Mexico Administrative Code recognizes this OCC rule, neither the Bank nor our administrative code addresses several actions taken by Congress and the courts since 2004 to disavow the OCC’s broad preemption statement.

 

Applying the Dodd-Frank standard to the HLPA, we conclude that federal law does not preempt the HLPA. First, our review of the NBA reveals no express preemption of state consumer protection laws such as the HLPA. Second, the Bank provides no evidence that conforming to the dictates of the HLPA prevents or significantly interferes with a national bank’s operations. Third, the HLPA does not create a discriminatory effect; rather, the HLPA applies to any “creditor,” which the 2003 statute defines as “a person who regularly [offers or] makes a home loan.” Section 58-21A-3(G) (2003). Any entity that makes home loans in New Mexico must follow the HLPA, regardless of whether the lender is a state or nationally chartered bank. See § 58-21A-2 (providing legislative findings on abusive mortgage lending practices that the HLPA is meant to discourage).

CAl. S. Ct: You can’t Fool All the People All the Time

“The Pendergrass limitation finds no support in the language of the statute codifying the parol evidence rule and the exception for evidence of fraud. It is difficult to apply. It conflicts with the doctrine of the Restatements, most treatises, and the majority of our sister-state jurisdictions. Furthermore, while intended to prevent fraud, the rule established in Pendergrass may actually provide a shield for fraudulent conduct. Finally, Pendergrass departed from established California law at the time it was decided, and neither acknowledged nor justified the abrogation. We now conclude that Pendergrass was ill- considered, and should be overruled.”

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What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Analysis and Practice Tips: In the decision Riverside Cold v Fresno-Madera the California Supreme Court stopped the banks dead in their tracks. Whereas they were able to prevent the borrower from introducing parole evidence (events outside the four corners of a document) the banks are now to be confronted in California and other states that will follow with the probability that their lies and illegal steering people into foreclosure are going to haunt them and defeat them.

We have heard for years how servicers and banks told homeowners to stop making their mortgage payments in order to qualify for mortgage modification. Then comes the lost papers 4-5 times and then comes the inevitable denial of a the mortgage modification — as though anyone had ever considered it and as though the investors were contacted for feedback. The fact is, as the future litigation will point out and reveal in all its splendor, the foreclosers were out to foreclose — not to settle, modify or otherwise resolve the situation.

They would string the borrower along until so many months of non-payment had  piled up that between principal interest, taxes and insurance all but the most frugal borrower would be short on money and unable to reinstate. The result has been far lower proceeds from foreclosure than any other means of mitigating damages, and far more foreclosures than there needed to be. And it all started with misrepresentation, lies, deceit and fraud at closing, during he foreclosure process, during the so-called modification process and during the sale at auction, which prevented the homeowner from redeeming the property because the true balance was never disclosed.

All that changes with this very well-reasoned opinion. The Court clearly is beginning to see that the the without strict adherence to all the rules and all considerations of due process, the court system is being used as a vehicle for theft, fraud, forgery, fabrication and the destruction of people’s lives and livelihood.

Banks Trying to Get Bill Through Congress Protecting MERS

Editor’s Comment: It is no small wonder that the banks are scared. After all they created MERS and they control MERS and many of them own MERS. The Washington Supreme Court ruling leaves little doubt that MERS is a sham, leaving even less doubt that an industry is sprouting up for wrongful foreclosure in which trillions of dollars are at stake.

The mortgages that were used for foreclosure are, in my opinion, and in the opinion of a growing number of courts and lawyers and regulatory agencies around the country, State and Federal, were fatally defective and that leads to the conclusion that (1) the foreclosures can be overturned and (2) millions of dollars in damages might be payable to those homeowners who were foreclosed and evicted from homes they legally owned.

But the problem for the megabanks is even worse than that. If the mortgages were defective (deeds of trust in some states), then the money collected by the banks from insurance, credit default swaps, federal bailouts and buyouts and other hedge instruments pose an enormous liability to the large banks that promulgated this scam known as securitization where the last thing they had in mind was securitization. In many cases, the loans were effectively sold multiple times thus creating a liability not only to the borrower that illegally had his home seized but a geometrically higher liability to other financial institutions and governments and investors for selling them toxic waste.

There is a reason that that the bailout is measured at $17 trillion and it isn’t because those are losses caused by defaults in mortgages which appear to total less than 10% of that amount. The total of ALL mortgages during that period that are subject to claims of securitization (false claims, in my opinion) was only $13 trillion. So why was the $17 trillion bailout $4 trillion more than all the mortgages put together, most of which are current on their payments?

The reason is that some bets went well, in which case the banks kept the profits and didn’t tell the investors about it even though it was investor with which money they were betting.

If the loan went sour, or the Master Servicer, in its own interest, declared that the value of the pool had been diminished by a higher than expected default rate, then the insurance contract and credit default contract REQUIRED payment even though most of the loans were intact. Of course we now know that the loans were probably never in the pools anyway.

The bets that ended up in losses were tossed over the fence at the Federal Government and the bets that were “good” ended up with the insurers (AIG, AMBAC) having to pay out more money than they were worth. Enter the Federal Government again to make up the difference where the banks collected 100 cents on the dollar, didn’t tell the investors and declared the loans in default anyway and then proceeded to foreclose.

The banks’ answer to this knotty problem is predictable. Overturn the Washington Supreme Court case and others like it appellate and trial courts around the country by having Congress declare that the MERS transactions were valid. The biggest hurdle they must overcome is not a paperwork problem —- it is a money problem.

In many if not most cases, neither MERS nor the named payee on the note nor the “lender” identified on the note and mortgage had loaned any money at all. Even the banks are saying that the loans are owned by the “Trusts” but it now appears as though the trusts were never funded by either money or loans and that there were no bank accounts or any other accounts for those pools.

That leaves nothing but nominees for unidentified parties in all the blank spaces on the note and mortgage, whose terms were different than the payback provisions promised to the investor lenders. And THAT means that much of the assets carried on the books of the banks are simply worthless and non-existent AND that there is a liability associated with those transactions that is geometrically higher than the false assets that the banks are reporting.

So the question comes down to this: will Congress try to save MERS? (I.e., will they try to save the banks again with a legal bailout?). Will the effort even be constitutional since it deals with property required to be governed under States’ rights under the constitution or are we going to forget the Constitution and save the banks at all costs?

When you cast your ballot in November, remember to look at the candidates you are considering. If they are aligned with the banks, we can expect slashed pension benefits next year along with a whole new round of housing and economic decline.

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MAINE HIGH COURT FINDS GMAC CONDUCT DISTURBING AND REPREHENSIBLE BUT REFUSES TO HOLD GMAC IN CONTEMPT

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EDITOR’S COMMENT: While finding that the affidavits were false and agreeing the conduct was disturbing and reprehensible the Court held that GMAC should not be held in contempt. What? The dissenting opinion is correct. Neither the trial Judge nor the Supreme Court should have even considered the question without a hearing in which evidence was submitted.

Nevertheless the Court’s opinion is further ratification of what we have been saying on these pages. The fraudulent foreclosures (26,000 of them in Essex County, Mass alone) are a cancer growing on our society. The corruption of title registries is already taking its toll, but we have only seen the tip of the iceberg.

The interesting thing about this case is off the record. GMAC dropped the foreclosure and the homeowner is still in her home. It goes without saying that her title is corrupted by the fraudulent foreclosure. Perhaps she has a cause of action for slander of title, quiet title and other claims? The point is that by paying attention to details it was obvious that the papers being used to foreclose were false and GMAC couldn’t fix it because they were simply not true.

Third party reports and analyses will help you get your point across. That is why I created the COMBO TITLE and SECURITIZATION REPORT. (see above for link)

Maine high court declines to hold GMAC in contempt over ‘robo-signing’ of foreclosure records

  • THE ASSOCIATED PRESS

PORTLAND, Maine — Maine’s highest court has declined to find GMAC Mortgage in contempt for signing off on home foreclosures without first verifying documents — a practice referred to as “robo-signing.”

In a 5-1 decision, the Supreme Judicial Court upheld a decision by a lower court last year. A district judge stopped short in that ruling of finding GMAC in contempt, though he did find that the company submitted a foreclosure affidavit on behalf of Fannie Mae in bad faith.

The case involved a Maine woman who fell behind on mortgage payments after losing her job.

During the lawsuit, her attorneys deposed a GMAC employee in Florida who testified that he signed 8,000 documents a month without personally verifying the mortgage information.

The deposition helped to spur investigations by all 50 states into allegations that mortgage companies mishandled documents and broke laws in thousands of foreclosures.

Writing for the majority, Justice Ellen Gorman didn’t mince words in her criticism, but she noted that there’s no precedent for a contempt finding under the circumstances.

“The affidavit in this case is a disturbing example of a reprehensible practice. That such fraudulent evidentiary filings are being submitted to courts is both violative of the rules of court and ethically indefensible,” she wrote in Tuesday’s ruling. The conduct, she added, “displays a serious and alarming lack of respect for the nation’s judiciaries.”

One of the justices, Jon Levy, issued a dissenting opinion, writing that the district judge should have conducted a full hearing into the contempt issue before rendering his decision.

Thomas Cox, who represented the woman who nearly lost her home, said it was satisfying to shed light on GMAC’s practices but disappointing that the court didn’t require a fuller inquiry and whether those practices were egregious enough to warrant a contempt finding.

“The issue has been exposed and it’s out in the open but to have the supreme court not act more strongly is a disappointment,” Cox said Wednesday.

As for the plaintiff, GMAC ultimately dropped its foreclosure action against Nicolle Bradbury, who remains in her Denmark, Maine, home, Cox said.

GMAC’s lawyer, John J. Aromando, had no immediate comment Wednesday. Gina Proia, spokeswoman for GMAC’s parent company, Ally Financial in New York, said the company is pleased with the court ruling but had no further comment. The company remains the target of a separate class-action lawsuit brought on behalf of Maine homeowners.

 

Briefs Submitted for Oral Argument in Arizona

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COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE

CV110091CQ Brief [Plaintiff Vasquez]

CV110091CQ Brief filed by Defendants

CERTIFIED QUESTIONS SUBMITTED FOR SUPREME COURT REVIEW

AMICUS BRIEFS REPORTEDLY BEING FILED BY ARIZONA AG AND OTHERS

A lot of buzz being generated about this time in  Arizona Supreme Court. The Court has scheduled oral argument in an auditorium and it will be broadcast, from what I understand on September live on September 22, 2011.

The big question of course is whether we will take a step forward or a step backward. The certified questions are straightforward and the greater weight of the law clearly supports Vasquez. If the banks lose this one, as they have on appellate review, they will once again be forced backward on 5 million foreclosures, many of which were in Arizona. My position is simple: if the law is applied and substance is more important than a procedure (non-judicial foreclosure) that in the current environment is questionable at best, then the Court will issue a ruling and opinion that will require Judges to make inquiry as to the truth of the matters asserted by the banks. If it is true, they can foreclose, If it is false they can’t. The fact that the decision could have large ramifications should not stop the court from doing the right thing.

As for the large ramifications, they run both ways. A decision for the banks will mean that title will be forever corrupted and uncertainty will be introduced into the marketplace that was never permitted or even contemplated. A decision for the borrowers will put the borrowers back into the driver’s seat to reclaim their home, damages for wrongful foreclosure and it will create a huge opportunity for community banks and credit unions to pick up the pieces of what is left of the megabanks when their balance sheets are revealed as nothing more than the emperor’s new clothes. A decision for banks will continue to stifle the economy that is already choking on foreclosures, unemployment and lack of capital or income to fuel economic growth. A decision for the borrowers will inject capital back into the economic equation and allow homeowners to recover with some money in or wealth in their pockets that can fueled the stimulus needed for the economy, employment and increased tax revenue for the states and federal government.

AS FOR THE FREE HOUSE STORY: It’s true. Someone is going to get a free house. Will it be the disinterested non-creditor banks who misbehaved and lied in the process of lending and documenting the alleged loans, and withheld accounting from third party payments made without subrogation? Or will it be the homeowner who has down payments, monthly payments, maintenance, taxes and insurance, as well as furnishings and home improvements in the home? Will there be a windfall? Yes. Either to the banks who don’t have anything to lose except an opportunity to get a free house or to the homeowner who had more left on his obligation than the value of his claims against the bank for wrongful foreclosure, predatory lending, fraudulent lending etc.

 

Pro Se Litigant’s Eloquence on MERS Split of Note and Mortgage

A pattern with Wells Fargo that we have seen is that they make the representation that they are the holder of the note and the investor,which is a blatant lie in most cases. Then AFTER they get the order they want, they admit that through “inadvertence” they misrepresented the facts to the court. Then they say it is not a material misrepresentation and they produce some additional fabricated documents like a limited power of attorney which upon close reading grants nothing to anyone, is subject to many conditions that are not readily determinable and is signed by party of dubious authority and dated under questionable circumstances (if the document existed before why didn’t they use it?).Editor’s Note: I think the following addresses the MERS and nominee issue very well. The entire proceedings can be seen at delasallemtdargument.

The very basic question that ought to be asked is why any of these intermediaries exist. When you think about it, there can only be one reason: to hide what they are really doing and to provide a mechanism to diminish the possibility of multiple claims from multiple participants in the securitization chain. Nobody needed MERS or any of these other foreclosure entities when the identity of the creditor/lender was clear.

Now they don’t want it clear. The success of foreclosure in both non-judicial and judicial states depends entirely on creating the appearance of propriety through a maze of unnecessary entities whose sole purpose is to provide plausible deniability to the pretender lenders if and when it comes to light that the wrong party is attempting to foreclose and they are doing it contrary tot he interests of the real creditors (investors) and contrary to the interests of the homeowners who are now subject to financial double or multiple jeopardy.

A pattern with Wells Fargo that we have seen is that they make the representation that they are the holder of the note and the investor,which is a blatant lie in most cases. Then AFTER they get the order they want, they admit that through “inadvertence” they misrepresented the facts to the court. Then they say it is not a material misrepresentation and they produce some additional fabricated documents like a limited power of attorney which upon close reading grants nothing to anyone, is subject to many conditions that are not readily determinable and is signed by party of dubious authority and dated under questionable circumstances (if the document existed before why didn’t they use it?).

“The note and the mortgage are inseparable. The former as essential, the latter as an incident. An assignment of the note carries the mortgage with it. An assignment of the latter is a nullity.”
MERS, Your Honor, has corrupted this basic black letter law of mortgages that makes a split of the security instrument from the note impermissible.
First, it names itself as the beneficiary of the deed of trust, thus splitting the deed of trust from the note, and then it attempts to rectify the split by stating that it is acting in some form of restricted agency relationship solely as the nominee for the lender.
In doing this, MERS attempts to do two things that are inconsistent at the same time, and it is this ambiguous contradictory language that fails the title. Why?
First, because as the beneficiary of the deed of trust, MERS has suffered no default. Only the current holder of the note has suffered a default, and only the current holder can enforce the note.
And secondly, even if it could be argued that MERS is the agent for the original lender, America’s Wholesale Lender — and Your Honor, it is important to note that within the four corner of the document, within the four corners of the deed of trust, there is nothing that establishes that agency relationship.
But again, even if you argue that it exists, there’s nothing that establishes an agency relationship between MERS and the alleged current owner of the note according to the bank servicer, Bank of America; U.S. Bank as trustee for the structured adjustable rate mortgage, 19 excess 2005. They are apparently, allegedly, they are the current holder of the note.
Yet, MERS takes the position that through the deed of trust all of these agency relationships are implied, and that it can go forward based upon these implications and foreclose even though the four corners of that document, of the deed of trust, carries only one signature, mine, not the signatures of MERS, nor its principals.
They seem to contend that with this implied agency agreement that is in violation of the statute of fraud that the U.S. Supreme Court ruling of Carpenter v. Longan prohibiting
the splitting of a mortgage from the note can somehow be ignored.
Your Honor, it cannot. It cannot be ignored without the U.S. Supreme Court going back and reversing Carpenter v. Longan.

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