Unrhetorical Questions — Money, Lies and Accounting Records: Gander and Goose

Why are our courts routinely accepting allegations and documents from foreclosing banks that they would summarily throw out if the same allegations and documents came from borrowers?

 How can possession of an ALLONGE construed as ownership

of the debt without any other evidence being presented?

Why is the standard definition of “Allonge” ignored?

IF THE COURT IS USING THE TERMS OF “ALLONGE”, “ASSIGNMENT”AND “ENDORSEMENT” INTERCHANGEABLY, WHY DOES ALL THE LITERATURE ON LEGAL DEFINITION AND ELEMENTS SAY OTHERWISE? ARE WE MAKING A NEW UCC?

WHY ARE COURTS ALLOWING ENDORSEMENTS (SHOULD BE SPELLED “INDORSEMENT”) IN BLANK TO TRANSFER THE LOAN WHEN THE BASIS OF THE PROPONENT’S AUTHORITY TO FORECLOSE IS A DOCUMENT THAT FORBIDS ACCEPTANCE OF  ENDORSEMENTS IN BLANK?

 I recently received a question from an old friend of mine who was a solicitor in Canada and who is frustrated with our court system that continues to assume the validity of loans that have already been thoroughly discredited. He has attempted on numerous occasions to get information through a qualified written request or a debt validation letter and has attempted to verify the authority of any party to whom he would address a request for modification of his loan in Florida. While chatting with him online I realized that this information might be of some value to attorneys and borrowers. The principal point of this article is the old expression “what is good for the goose is good for the gander.” For those of you who are unfamiliar with the old expression it means that there should be equality of treatment, all other things being equal. In mortgage litigation is apparent that when an allegation is made or a proffer is made through counsel rather than the introduction of evidence, the courts continue to function from both a misconception and  misapplication of the Rules of Court and the rules of evidence.

 When the case involves one institution against another, the same arguments that are summarily  rejected when they are advanced by a borrower are given considerable traction because the argument was advanced by a financial institution or financial player that identifies itself as a financial institution. In fact, a review of most cases reveals a much heavier burden on the party defending against the loss of their homestead than the party seeking to take it —  which is a complete reversal of the way our justice system is supposed to work.  The burden of proof in both judicial and nonjudicial states is constitutionally required to be on the party seeking affirmative relief and not on the party defending against it.

In the nonjudicial states, in my opinion, the courts are violating this basic constitutional requirement on a regular basis under circumstances where the party announcing a right to enforce a dubious deed of trust, collection on a dubious note, and therefore having the right to sell the property without judicial intervention despite the inability of the foreclosing entity to produce any evidence that it owns the debt, note, mortgage rights,  or even demonstrate a financial interest in the outcome of the foreclosure sale; to make matters worse the courts are allowing trustees on deeds of trust to be appointed or substituted even though they have a direct or indirect financial relationship with the alleged lender.

These trustees are accepting “credit bids” without any due diligence as to whether or not the party making the offer of the credit bid at auction is in fact the creditor who may submit such a credit bid according to the statutes governing involuntary auctions within that state.  In nonjudicial states the burden is put on the borrower to “make a case” and thus obtain a temporary restraining order preventing the sale of the property. This is absurd. These statutes governing nonjudicial sales were created at a time when the lender was easily identified, the borrower was easily identified, the chain of title was easily demonstrated, and the chain of money was also easily demonstrated. Today in the world of falsely securitized loans, the courts have maintain a ministerial attitude despite the fact that 96% of all loans are subject to competing claims by false creditors. The borrower is forced to defend against allegations that were never made but are presumed in a court of law. If anything is a violation of the due process requirements of the United States Constitution and the Constitution of most of the individual states of the union, this must be it.

 In the judicial states,  the problem is even more egregious because the same presumptions and assumptions are being used against borrowers as in the nonjudicial states. Thus in addition to being an unconstitutional application of an otherwise valid law, the judicial states are violating their own rules of civil procedure mandated by the Supreme Court of each such state (or to be more specific where the highest court is not called the Supreme Court, we could say the highest court in the state).  This is why I have strongly suggested for years that an action in mandamus be brought directly to the highest court in each state alleging that the laws and rules, as applied, violate constitutional standards and any natural sense of fairness.

 Here is the question posed by my Canadian friend:

(1)  The documents are phony documents (copies) produced by Ben Ezra Katz. It will cost me several thousand dollars to have a document expert evaluate the documents and then testify if they find them to be copies. At the beginning of this case, The Plaintiff’s attorney (Ben Ezra Katz associate) told the court (I do have a transcript) that they has found the ORIGINAL documents (note, mortgage, etc.) and that they had couriered the ORIGINAL documents to the clerk of Court. They did a Notice of Filing which on its’ face states ORIGINAL documents. I can not afford a document expert, however the AG in S. Florida has an open investigation into this case. Would I be out of line in requesting that they include this case per-se as part of their investigation and accordingly make a determination as to if or if not the subject documents which are on file with the clerk of court are originals or copies ??
(2)  The only nexus that Wells Fargo produces to establish themselves as a real party in interest is a hand filled out allonge (copy attached). Please note that the signer only signs as “assistant secretary” without further specifics. On the basis of what they provide it is virtually impossible to depose this person to determine if she actually did or did not sign this document, and if so what is her authority to do so.  I want to launch some sort of discovery that seeks to discover what else the Plaintiff has which would support the alleged allonge. Things such as any contracts, copies of any consideration, what was the consideration, who authorized the transaction, etc.  Do you have any suggestions in this regard. I bounced this off my attorney and I am not sure that we are on the same page. He wants to go to trial and have the proven phony documents as the main thrust. I agree with that, however I also would feel far better if we were able to cut them off at the knees as to standing such as the alleged allonge is part of the phony documents, and there are no documents that the Plaintiff can produce to support not only its’ authenticity, but its’ legitimate legal function. I do not like to have all of my eggs in one basket.

 And here is my response:

 You are most probably correct in your assessment of the situation. If they lied to the court and filed phony documents you should file motion for contempt. You should also file a motion for involuntary dismissal based on the fact that they have had plenty of time to either come up with the original documents or alleged facts to establish lost documents. The affidavit that must accompany the allegation of lost documents must be very specific as to the content of the documents and the path of the documents and it must the identify the person or records from which the allegations of fact are drawn. They must be able to state with certainty when they last had the original documents if they ever did have the original documents. If they didn’t ever have the original documents then an affidavit from them is meaningless. They have to establish the last party had physical custody of the original documents and establish the reason why they are missing. If they can’t do those things then their foreclosure should be dismissed. The more vague they are in explaining what happened to the original documentation the more likely it is that somebody else has the original documentation and may sue you again for recovery. So whatever it is that they allege should result in your motion to strike and motion to dismiss with prejudice. As far as the attorney general’s office you are correct that they ought to cooperate with you fully but probably incorrect in your assumption that they will do so.

I think you should make a point about the allonge being filled out by hand as being an obviously late in the game maneuver. You can also make a point about the “assistant Sec.” since that is not a real position in a corporation. Something as valuable as a note would be reviewed by a real official of the Corporation who would be able to answer questions as to how the note came into the possession of the bank (through interrogatories or requests for admission) and  what was paid and to whom for the possession and rights to the note, when that occurred and where the records are that show the payment and how Wells Fargo actually came into possession of the note or the rights to collect on the note. As you are probably aware the predecessor that is alleged to have originated the note or alleged to have had possession of the note must account for whether they provided the consideration for the note and what they did with it after the closing. If they say they provided consideration than they should have records showing a payment to the closing agent and if they received consideration from Wells Fargo they should have those records as well.

But the likelihood is that neither Option One nor Wells Fargo ever funded this mortgage which means that the note and mortgage lack consideration and neither one of them has any right to collect or foreclose.   In fact, since they are taking the position that the loan was not securitized and therefore that no securitization documents are relevant,  neither of them can take the position that they are representing the real party in interest as an authorized agent for the real lender.  And the reason you are seeing lawsuits especially by Wells Fargo in which it names itself as the foreclosing party is that the bank knows that Iit ignored and routinely violated essential and material provisions of the securitization documents including the prospectus and pooling and servicing agreement upon which investors relied when they gave money to an investment banker.

In that case, since you seek to modify the loan transaction and determine whether or not it is now or is potentially subject to  a valid mortgage, you should seek to enforce a request for information concerning the exact path of the money that was used to fund the mortgage. And you should request any documentation or records showing any guarantee, payment, right to payment, or anything else that would establish a loan to you where actual money exchanged hands between the declared lender and yourself. The likelihood is that the money was in a co-mingled account somewhere —  possibly Wells Fargo —  which came from investors whose names should have been on the closing and the closing documents.  Those investors are the actual creditors. Or at least they were the actual creditors at the time that the loan money showed up at the alleged “loan closing.” Since then, hundreds of settlements and lawsuits were resolved based upon the bank tacitly acknowledging that it took the money and used it for different purposes than those disclosed in the prospectus and pooling and servicing agreement. These settlements avoid the embarrassing proof problems of any institution since they not only ignored the securitization documents, more importantly, they chose to ignore all of the basic industry standards for the underwriting of a real estate loan because the parties who appeared to be underwriting the loan and funding the loan had absolutely no risk of loss and only had the incentive to close deals in exchange for sharing pornographic amounts of money that were identified as proprietary trading profits or fees.

And the reason why this is so important is that the mortgage lien could never be perfected in the absence of the legitimate creditor who had advanced actual money to the borrower or on behalf of the borrower. This basic truth undermines the industry and government claims about the $13 trillion in loans that still are alleged to exist (despite multiple payments from third parties in multiple resales, insurance contracts and contracts for credit default swaps). The abundant evidence in the public domain as well as the specific factual evidence in each case negates any allegation of ultimate facts upon which relief could be granted, to wit: the money came from third-party investors who are the only real creditors. The fact that the money went through intermediaries is no more important or relevant than the fact that you are a depository bank is intended to honor checks drawn on your account provided you have the funds available. The inescapable conclusion is that the investors were tricked into making unsecured loans to homeowners and that the entire foreclosure scandal that has consumed our nation for years is based on completely false premises.

Your attorney could pose the question to the court in a way that would make it difficult for the court to rule against you. If the lender had agreed to make a loan provided you put up the property being financed PLUS additional collateral in the form of ownership of a valid mortgage on another piece of property,  would the court accept a handwritten allonge from you as the only evidence of ownership or the right to enforce the other mortgage? I think it is clear that neither the banks nor the court would accept the hand written instrument as sufficient evidence of ownership and right to collect payment if you presented the same instruments that they are presenting to the court.

PRACTICE HINT: In fact, you could ask the bank for their policy in connection with accepting its mortgages on other property as collateral for a business loan or for a loan on existing property or the closing on a new piece of property being acquired by the borrower. You could drill down on that policy by asking for the identification of the individual or committee that would decide whether or not a handwritten allonge would be sufficient or would satisfy them that they had  adequate collateral in the form of a mortgage on the first property and the pledge of a mortgage on a second piece of property.

The answer is self-evident. No bank or other lending institution or lending entity would loan money on the basis of a dubious self-serving allonge.  There would be no deal. If you sued them for not making the loan after the bank issued a letter of commitment (which by the way you should ask for both in relation to your own case and in relation to the template used by the bank in connection with the issuance of a letter of commitment), the bank would clearly prevail on the basis that you provided insufficient documentation to establish the additional collateral (your interest in the mortgage on another piece of property).

The bank’s position that it would not loan money on such a flimsy assertion of additional collateral would be both correct from the point of view of banking practice and sustained by any court has lacking sufficient documentation to establish ownership and the right to enforce. Your question to the court should be “if justice is blind, what difference does it make which side is using an unsupportable position?”

HSBC Hit with Foreclosure Suit; FHA’s $115 Billion Loss Scenario; Return of the Synthetic CDO?
http://www.americanbanker.com/bankthink/hsbc-hit-with-foreclosure-suit-fhas-115-billion-dollar-loss-scenario-1059622-1.html
Massachusetts foreclosures decline 79% as local laws stall the process
http://www.housingwire.com/news/2013/06/05/massachusetts-foreclosures-decline-79-local-laws-stall-process
———————————————–
Money from thin air? If the bank does not create currency or money then where does the money come from? Answer investor deposits into what they thought was an account for a REMIC trust. And if the money came from investors then the banks were intermediaries whether they took money on deposit, or they were the underwriter and seller of mortgage bonds issued from non existent entities, backed by non existent loans. And any money received by the banks should have been for benefit of the investors or the REMIC trust if the DID deposit the money into a trust or fiduciary account.Dan Kervick: Do Banks Create Money from Thin Air?
http://www.nakedcapitalism.com/2013/06/dan-kervick-do-banks-create-money-from-thin-air.html

An Allonge is Not an Assignment: Do the research!

by Danielle Kelley, Esq., Senior Partner, Garfield, Gwaltney, Kelley and White:

I moved to dismiss two cases on several grounds – one that the allonge was not “firmly affixed”.  This will become an issue as the banks scramble to file pleadings under HB87 that show they have the Note.  The 1st DCA has now admitted there is a lack of caselaw in Florida on this issue – I’m hoping that one of these Judges (the one in Marianna who has already dismissed twice on one case) will issue an order agreeing.

1.                  The allonge attached to the Complaint does not meet the legal definition of what an allonge is:  a firmly attached document to the Note, when there is no space on the bottom of the Note for endorsements.  “An allonge is a piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself. Such must be so firmly affixed thereto as to become a part thereof.” Black’s Law Dictionary 76 (6th ed.1990). Florida’s Uniform Commercial Code does not specifically mention an allonge, but notes that “[f]or the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is part of the instrument.” § 673.2041(1), Fla. Stat. (1995). See Booker vs. Sarasota, 707 So.2d 886 (Fla. 1st DCA 1998)(footnote 1).  See also Isaac v. Deutsche Bank Nat. Trust Co., 74 So. 3d 495 (Fla. 4th DCA 2011)(“An “allonge” is a piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself; such must be so firmly affixed thereto as to become a part thereof.”). 

2.                  There is no Florida case on point which provides guidance as to how an allonge must be physically attached to an instrument in order for it to become “firmly affixed” to same.  Recently the First District Court of Appeal took notice of such in Wells Fargo Bank, N.A. v. Bohatka, 1D11-3356, 2013 WL 1715439 (Fla. 1st DCA 2013), stating that “A body of caselaw has developed, primarily in other states and under the UCC, regarding the validity of an allonge and how it must be “affixed” to a note.4”).  In footnote Four to that statement, the First District Court of Appeal wrote:

 “See, e.g., Douglas J. Whaley, Mortgage Foreclosures, Promissory Notes, the Uniform Commercial Code, 39 W. St. U.L.Rev. 313, 318–19 (2012) (noting the “many new cases” that deal with allonges and the meaning of “affixed”). Professor Whaley continues, “It is not enough that there is a separate piece of paper which documents the transfer unless that piece of paper is “affixed” to the note. What does “affixed” mean? The common law required gluing. Would a paper clip do the trick? A staple?” Id. at 319 (footnotes omitted). To our knowledge, no Florida court has explored what type of affixation or annexation of an allonge is legally sufficient, nor has any court addressed the possibility of electronic attachment of allonges. See Patricia Brumfield Fry, James A. Newell, & Michael R. Gordon, Coming To A Screen Near You—“Emortgages”—Starring Good Laws And Prudent Standards—Rated “XML”, 62 Bus. Law. 295, 311 (Nov.2006) (noting that Freddie Mac addressed the possibility “that an electronic allonge be added to all eNotes that contains language addressing both the recourse and transfer warranty issues”).”

 

3.                  Thus, with this issue to date still uncertain, the Court can rely on the plain meaning of the words, “firmly affixed” and the Court may look to decisions of courts in other states for persuasive authority.  To begin, two reasons have been cited for the “firmly affixed” rule:  (1) to prevent fraud; and (2) to preserve a traceable chain of title.  See Adams v. Madison Realty & Development, Inc., 853 F. 2d. 163, 167 (3rd Cir. 1988).  A draft of the 1951 version of the UCC Article 3 included the comment that “[t]he indorsement must be written on the instrument itself or an allonge, which, as defined in Section___, is a strip of paper so firmly pasted, stapled or otherwise affixed to the instrument as to become part of it.”  ALI, Comments & Notes to Tentative Draft No. 1-Article III 114 (1946), reprinted in 2 Elizabeth Slusser Kelly, Uniform Commercial Code Drafts 311, 424 (1984).  More recently, however, courts have held that “stapling is the modern equivalent of gluing or pasting.”  See Lamson v. Commercial Cred. Corp., 187 Colo. 382 (Colo. 1975).  See also Southwestern Resolution Corp. v. Watson, 964 S.W. 2d 262 (Texas 1997)(holding that an allonge stabled to the back of a promissory note is valid so long as there is no room on the note for endorsement but affixed does not include paperclips.).  Regardless of the exact method of affixation, numerous cases have rejected indorsements made on a separate sheet of paper loosely inserted into a folder with the instrument and not physically attached in any way.  See Town of Freeport v. Ring, 1999 Me. 48 (Maine 1999); Adams v. Madison Realty & Development, Inc., 853 F. 2d 163 (3d Cir. 1988); Big Builders, Inc. v. Israel, 709 A. 2d 74 (D.C. 1988).  

Forgery! Now You’ve Got Them, Or Do You?

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Editor’s Analysis: First of all hats off to April Charney, http://www.nakedcapitalism.com and Yves Smith for the article on Forgery (see link below) James M. Kelley as a forensic document examiner — outstanding work!

This is one of the places where the rubber meets the road, but before you start celebrating take a deep breath: proof of forgery will NOT necessarily stop delay or alter the foreclosure. That is why I start with questioning the monetary transactions before I introduce the document deficiencies, fabrications and forgeries.

You have to put yourself in the Judge’s seat (or more properly, bench). A simple example will suffice to make my point. Suppose I loaned you $100 and you didn’t pay it back the way we agreed. Later I sue you and produce a promissory note you know you never signed but it looks like your signature, but you’ve admitted you owe the $100 and you admit you defaulted. Under those circumstances your evidence of forgery might be excluded from evidence –— because it is already established you owe the money and defaulted. In fact it should be excluded because it is no longer relevant to the proceedings. The debt is not the not — and vica versa.

The note is only evidence of the debt and taking that out of the equation still leaves the admissions, presumptions and witnesses by which the authenticity of the debt and default have already been taken as agreed and irrefutable. Some people look askance as Judges who apply the rules of evidence and accuse them of stupidity or dishonesty. But the truth is the forged fabricated note is at most corroborative evidence of something that is no longer a material issue of fact in dispute. The Judge has little choice but to rule in favor of the forecloser at that point. Hence, we keep pounding on DENY AND DISCOVER.

If you are filing the lawsuit you should, along with the initial summons and and complaint, file whatever discovery requests you have at the same time which all amount to “who are you, what are you doing here, why are you seeking collection of this debt, and by what authority.

Admitting the debt, note, mortgage etc can be either direct (“I admit that”) or indirect/tacit (“I understand what you are saying Judge but there is ample evidence of skullduggery here”). In most cases, either one is enough, especially with a Judge who is already assuming that the bank wouldn’t be there if there was no debt, note and mortgage and the presence of a default.

The borrower, who knows they did get money on loan, knows they did sign papers and knows they didn’t pay, naturally assumes that it is pointless to deny the basic elements of the foreclosure — the debt between the borrower and the forecloser, the note, which is evidence of the debt, and the mortgage, assignments and other instruments used by the banks to get you pointed in the wrong direction. AND THAT is where the defense goes off the deep end every time there is a “bad” decision.

The Judge is going to be looking for admissions by the borrower (not the forecloser) because of a very natural presumption that at one time was a perfectly reasonable assumption — that the bank would not waste time and money enforcing a debt that didn’t exist and a note that was never valid, nor a mortgage that was never perfected.

And the Judge is going to see any avoidance of enforcement on the basis of paperwork as a tacit admission that the debt is real, the default is real, and the note and mortgage were properly executed under proper circumstances —- because that is what banks do! Maybe it isn’t “fair” but it is perfectly understandable why we encountered a mindset that treated borrowers as lunatics when they first came up with the notion that the paperwork was missing, lost, fabricated, forged, robo-signed etc.

The study by Katherine Ann Porter, the San Francisco study and the studies in Massachusetts and Maryland and Massachusetts all point to a credit bid being submitted at foreclosure auction by a party who wasn’t a creditor at all. The San Francisco study said 65% of the credit bidders were strangers to the transaction and strange is the word to use in court. Did it change anything? No!

So where does that leave you? In order to be able to show the relevance of the forgery or fabrication you must attack the debt itself. Where would I be if I sued you on the $100 loan, produced a fabricated, forged note and you DIDN’T admit the debt or the default. The burden falls back on me to prove I gave you the $100.

What if I didn’t give you the $100 but I know someone else did. That doesn’t give me standing to sue you because I am not injured party. Can any of you state with certainty that the loan money you received came from the originator disclosed on the TILA, settlement and closing documents? Probably not because the ONLY way you would know that is if you had seen the actual wire transfer receipt and the wire transfer instructions.

Thus if you don’t know that to be true — that the originator in your mortgage loan was funded by the originator and was not a table-funded loan (which accounts for about 95%-96% of all loans during the mortgage meltdown), why would you admit it, tacitly, directly or any other way?

As a defense posture the first rule is to deny that which you know is untrue and to deny based upon lack of information or deny based upon facts and theory that are contrary to the assertions of the forecloser. Deny the debt. THAT automatically means the note can’t be evidence of anything real, because the note refers to a loan between the originator and the borrower where the borrower unknowingly received the money from a third or fourth party (table funded loan, branded “predatory” by TILA and reg Z).

Your defense is simply “we don’t know these people and we don’t know the debt they are claiming. We were induced to sign papers that withheld vital information about the party with whom I was doing business and left me with corrupt title. The transaction referred to in the note, mortgage, assignments, allonges etc. was never completed. The fact that we received a loan from someone else does not empower this forecloser to enforce the debt of a third party with whom they have had no contact or privity.”

THEN HAMMER THEM WITH THE FORGERY BUT USE SOMEONE AS GOOD AS KELLEY TO DO IT. WATCH OUT FOR CHARLATANS WHO CAN CONVINCE YOU BUT NOT THE COURT. THUS THE DEFICIENT DOCUMENTS CORROBORATE YOUR MAIN DEFENSE RATHER THAN SERVE AS THE CORE OF IT.

Practice Pointer: At this point either opposing counsel or the Judge will ask some questions like who DID give the loan or what proof do you have. If you are at the stage of a motion to dismiss or motion for summary judgment, your answer should be, if you set up case correctly and you have outstanding discovery, that those are evidential questions that require production of witnesses, testimony, documents and cross examination. Since the present hearing is not a trial or evidential hearing and was not noticed as such you are unprepared to present the entire case.

The issues on a motion to dismiss are solely that of the pleadings. At a Motion for Summary Judgment, it is the pleadings plus an affidavit. Submit several affidavits and the Judge will have little choice but to deny the forecloser’s motion for summary judgment.

Attack their affidavit as not being on personal knowledge (voir dire) and if you are successful all that is left is YOUR motion for summary judgment and affidavits which leaves the Judge with little choice but to enter Summary Final Judgment in favor of the homeowner as to this forecloser.

http://www.nakedcapitalism.com/2013/02/expert-witnesses-starting-to-take-on-forgeries-in-foreclosures.html

Alabama Appeals Court Slams U.S. Bank Down on “Magic” Fabricated Allonge

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NY Trust Law — PSA Violation is FATAL

RE: Congress (yes that is really her name) versus U.S. Bank 2100934

Alabama Court of Civil Appeals

Editor’s Comment:

Yves Smith from Naked Capitalism has it right in the article below and you should not only read it but study it. The following are my comments in addition to the well written analysis on Naked Capitalism.

  1. Alabama is a very conservative state that has consistently disregarded issues regarding the rules of evidence and civil procedure until this decision from the Alabama Court of Civil Appeals was handed down on June 8, 2012. Happy Birthday, Brother! This court has finally recognized (a) that documents are fabricated shortly before hearings and (b) that it matters. They even understand WHY it matters.
  2. Judges talk to teach other both directly and indirectly. Sometimes it almost amounts to ex parte contact because they are actually discussing the merits of certain arguments as it would effect cases that are currently pending in front of them. I know of reports where Judges have stated in open Court in Arizona that they have spoken with other Judges and DECIDED that they are not going to give relief to deadbeat borrowers. So this decision in favor of the borrower, where a fabricated “Allonge” was used only a couple of days before the hearing is indicative that they are starting to change their thinking and that the deadbeats might just be the pretender lenders.
  3. But they missed the fact that an allonge is not an instrument that transfers anything. It is not a bill of sale, assignment or anything else like that. It is and always has been something added to a previously drafted instrument that adds, subtracts or changes terms. See my previous article last week on Allonges, Assignments and Endorsements.
  4. What they DID get is that under New York law, the manager or trustee of a so-called REMIC, SPV or “Trust” cannot do anything contrary to the instrument that appointed the manager or trustee to that position. This is of enormous importance. We have been saying on these pages and in my books that it is not possible for the trustee or manager of the “pool” to accept a loan into the pool if it violates the terms expressly stated in the Pooling and Servicing Agreement. If the cut-off date was three years ago then it can’t be accepted. If the loan is in default already then it cannot be accepted. So not only is this allonge being rejected, but any actual attempt to assign the instrument into the “pool” is also rejected.
  5. What that means is that like any contract there are three basic elements — offer, consideration and acceptance. The offer is clear enough, even if it is from a party who doesn’t own the loan. The consideration is at best muddy because there are no records to show that the REMIC or the parties to the REMIC (investors) ever funded the loan through the REMIC. And the acceptance is absolutely fatal because no investor would agree or did agree to accept loans that were already in default.
  6. The other thing I agree with and would expand is the whole notion of the burden of proof. In this case we are still dealing with a burden of proof on the homeowner instead of the pretender lender. But the door is open now to start talking about the burden of proof. Here, the Court simply stated that the burden of proof imposed by the trial judge should have been by a preponderance (over 50%) of the evidence instead of clear and convincing (somewhere around 80%) of the evidence. So if it is more likely than not that the instrument was fabricated, the document will NOT be accepted into evidence. The next thing to work on is putting the burden of proof on the party seeking affirmative relief — i.e., the one seeking to take the home through foreclosure. If you align the parties properly, all of the other procedural problems disappear. That will leave questions regarding admissible evidence (another time).
  7. Keep in mind that this decision will have rumbling effects throughout Alabama and other states but it is only persuasive, not authoritative. So the fact that this appellate court made this decision does not mean you win in your case in Arizona.
  8. But it can be used to say “Judge, I know how the bench views these defenses and claims. But it is becoming increasingly apparent that the party seeking to foreclose is now and always was a pretender. And further, it is equally apparent that they are submitting fabricated and forged documents. 
  9. ‘More importantly, they are trying to get you to participate in a fraudulent scheme they pursued against the investors who advanced money without any proper documentation. This Alabama Appellate Court understands, now that they have read the Pooling and Servicing Agreement, that it simply is not possible for the investors to be forced into accepting a defaulted loan long after the cut-off date established in the PSA.
  10. ‘If you rule for the pretender creditor here you are doing two things: (1) you are providing these pretenders with the argument that there is a judicial ruling requiring the innocent investors to take the defaulted loan and suffer the losses when they never had any interest in the loan before and (2) you are allowing and encouraging a party who is not a creditor and never was a creditor to submit a credit bid at auction in lieu of cash thus stealing the property from both the homeowner and in violation of their agency or duty to the investors.
  11. ‘This Court and hundreds of others across the country are reading these documents now. And what they are finding is that pension funds and other regulated managed funds were tricked into buying non-existent assets through a bogus mortgage bond. The offer and promise made to these investors, upon whom millions of pensioners depend to make ends meet, was that these were industry standard loans in good standing. None of that was true and it certainly isn’t true now. Yet they want you to rule that you can force investors from another state or country to accept these loans even though they are either worthless or worth substantially less than the amount represented at the time of the transaction where the investment banker took the money from the investor and put it into a giant escrow fund without regard to the REMIC’s existence.

We don’t deny the existence of an obligation, but we do deny that this trickster should be given the proceeds of ill-gotten gains. The actual creditors should be given an opportunity to reject non-conforming loans that are submitted after the cut-off date and are therefore indispensable parties to this transaction.”

Alabama Appeals Court Reverses Decision on Chain of TitleCase, Ruling Hinges on Question of Bogus Allonges

In a unanimous decision, the Alabama Court of Civil Appeals reversed a lower court decision on a foreclosure case, U.S. Bank v. Congress and remanded the case to trial court.

We’d flagged this case as important because to our knowledge, it was the first to argue what we call the New York trust theory, namely, that the election to use New York law in the overwhelming majority of mortgage securitizations meant that the parties to the securitization could operate only as stipulated in the pooling and servicing agreement that created that particular deal. Over 100 years of precedents in New York have produced well settled case law that deems actions outside what the trustee is specifically authorized to do as “void acts” having no legal force. The rigidity of New York trust has serious implications for mortgage securitizations. The PSAs required that the notes (the borrower IOUs) be transferred to the trust in a very specific fashion (endorsed with wet ink signatures through a particular set of parties) before a cut-off date, which typically was no later than 90 days after the trust closing. The problem is, as we’ve described in numerous posts, that there appears to have been massive disregard in the securitization for complying with the contractual requirements that they established and appear to have complied with, at least in the early years of the securitization industry. It’s difficult to know when the breakdown occurred, but it appears that well before 2004-2005, many subprime originators quit bothering with the nerdy task of endorsing notes and completing assignments as the PSAs required; they seemed to take the position they could do that right before foreclosure. Indeed, that’s kosher if the note has not been securitized, but as indicated above, it is a no-go with a New York trust. There is no legal way to remedy the problem after the fact.

The solution in the Congress case appears to have been a practice that has since become troublingly become common: a fabricated allonge. An allonge is an attachment to a note that is so firmly affixed that it can’t travel separately. The fact that a note was submitted to the court in the Congress case and an allonge that fixed all the problems appeared magically, on the eve of trial, looked highly sus. The allonge also contained signatures that looked less than legitimate: they were digitized (remember, signatures as supposed to be wet ink) and some were shrunk to fit signature lines. These issues were raised at trial by Congress’s attorneys, but the fact that the magic allonge appeared the Thursday evening before Memorial Day weekend 2011 when the trial was set for Tuesday morning meant, among other things, that defense counsel was put on the back foot (for instance, how do you find and engage a signature expert on such short notice? Answer, you can’t).

The case was ruled in favor of the US Bank, in a narrow and strained opinion (which was touted as significant by reliable securitization industry booster Paul Jackson). It argued that the case was an ejectment action (the final step to get the borrower out after the foreclosure was final) so that, per securitization expert, Georgetown law professor Adam Levitin,

..the question of ownership of the note was not an issue of standing, but an affirmative defense for which the homeowner had the burden of proof…Crazy or not, however, this meant that the homeowner wasn’t actually challenging the trust’s standing. From there it was a small step for the court to say that the homeowner couldn’t invoke the terms of the PSA because she wasn’t a party to it…..

The case has been remanded back to trial court, and the judges put the issue of the allonge front and center.

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ALLONGES, ASSIGNMENTS AND ENDORSEMENTS: THE REAL DEAL

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ALLONGES, ASSIGNMENTS AND INDORSEMENTS

Excerpt from 2nd Edition Attorney Workbook, Treatise and Practice Manual

AND Subject Matters to be Covered in July Workshop

ALLONGE: An allonge is variously defined by different courts and sources. But the one thing they all have in common is that it is a very specific type of writing whose validity is presumed to be invalid unless accompanied by proof that the allonge was executed by the Payor (not the Payee) at the time of or shortly after the execution of a negotiable instrument or a promissory note that is not a negotiable instrument. People add all sorts of writing to notes but the additions are often notes by the payee that are not binding on the Payor because that is not what the Payor signed. In the context of securitization, it is always something that a third party has done after the note was signed, sometimes years after the note was signed.

A Common Definition is “An allonge is generally an attachment to a legal document that can be used to insert language or signatures when the original document does not have sufficient space for the inserted material. It may be, for example, a piece of paper attached to a negotiable instrument or promissory note, on which endorsements can be written because there isn’t enough room on the instrument itself. The allonge must be firmly attached so as to become a part of the instrument.”

So the first thing to remember is that an allonge is not an assignment nor is it an indorsement (UCC spelling) or endorsement (common spelling). This distinction was relatively unimportant until claims of “securitization” were made asserting that loans were being transferred by way of an allonge. By definition that is impossible. An allonge is neither an amendment, nor an assignment nor an endorsement of a loan, note, mortgage or obligation. Lawyers who miss this point are conceding something that is basic to contract law, the UCC and property law in each state.

It is important to recognize the elements of an allonge:

  1. By definition it is on a separate piece of paper containing TERMS that could not fit on the instrument itself. Since the documents are prepared in advance of the “closing” with the borrower, I can conceive of no circumstances where the note or other instrument would be attached to an allonge when there was plenty of time to reprint the note with all the terms and conditions. The burden would then shift to the pretender lender to establish why it was necessary to put these “terms” on a separate piece of paper.
  2. The separate piece of paper must be affixed to the note in such a manner as to demonstrate that the allonge was always there and formed the basis of the agreement between all signatories intended to be bound by the instrument (note). The burden is on the pretender lender to prove that the allonge was always present — a burden that is particularly difficult without the signature or initials of the party sought to be bound by the “terms” expressed in the allonge.
  3. The attached paper must contain terms, conditions or provisions that are relevant to the duties and obligations of the parties to the original instrument — in this case the original instrument is a promissory note. The burden of proof in such cases might include foundation testimony from a live witness who can testify that the signor on the note knew the allonge existed and agreed to the terms.
  4. ERROR: An allonge is not just any piece of paper attached to the original instrument. If it is being offered as an allonge but it is actually meant to be used as an assignment or indorsement, then additional questions of fact arise, including but not limited to consideration. In the opinion of this writer, the reason transfers are often “documented” with instruments called an “allonge” is that by its appearance it gives the impression that (1) it was there since inception of the instrument and (2) that the borrower agreed to it. An additional reason is that the issue consideration for the transfer is avoided completely if the “allonge” is accepted as a document of transfer.
  5. As a practice pointer, if the document contains terms and conditions of the loan or repayment, then it is being offered as an allonge. But it is not a valid allonge unless the signor of the original instrument (the note) agreed to the contents expressed on the allonge, since the proponent of this evidence wishes the court to consider the allonge part of the note itself.
  6. If the instrument contains language of transfer then it is not an allonge in that it fails to meet the elements required for proffering evidence of the instrument as an allonge.

ASSIGNMENT: All contracts require an offer, acceptance and consideration to be enforced. An assignment is a contract. In the context of mortgage loans and litigation, an assignment is a document that recites the terms of a transaction in which the loan, note, obligation, mortgage or deed of trust is transferred and accepted by the assignee in exchange for consideration. Within the context of loans that are subject to securitization claims or claims of assignment the documents proffered by the pretender lender are missing two out of three components: consideration and acceptance. The assignment in this context is an offer that cannot and in fact must not be accepted without violating the authority of the manager or “trustee” of the SPV (REMIC) pool.

Like all contracts it must be supported by consideration. An assignment without consideration is probably void, almost certainly voidable and at the very least requires the proponent of this instrument as evidence to be admitted into the record to meet the burden of proof as to foundation.

The typical assignment offered in foreclosure litigation states that “for value received” the assignor, being the owner of the note described, hereby assigns, transfers and conveys all right, title and interest to the assignee. The problem is obvious — there was no value received if the loan was not funded by the assignee or was being purchased by the assignee at the time of the alleged transfer. A demand for records of the assignor and assignee would show how the parties actually treated the transaction from an accounting point of view.

In the same way as we look at the bookkeeping records of the “payee” on the original note to determine if the payee was in fact the “lender” as declared in the note and mortgage, we look to the books and records of the assignor and assignee to determine the treatment of the transaction on their own books and records.

The highest probability is that there will be no entry on either the balance sheet categories or the income statement categories because the parties were already paid a fee at the inception of the “loan” which was not disclosed to the borrower in violation of TILA. At most there might be the recording of an additional fee for “processing” the “assignment”. At no time will the assignor nor the assignee show the transaction as a loan receivable, the absence of which is powerful evidence that the assignor did not own the loan and therefore conveyed nothing, and that the assignee paid nothing in the assignment “transaction” because there was no transaction.

Any accountant (CPA) should be able to render a report on this limited aspect. Such an accountant could recite the same statements contained herein as the reason why you are in need of the discovery and what it will show. Such a statement should not say that the evidence will prove anything, but rather than this information will lead to the discovery of admissible evidence as to whether the party whose records are being produced was acting in the capacity of servicer, nominee, lender, real party in interest, assignee or assignor.

The foundation for the assignment instrument must be by way of testimony (I doubt that “business records” could suffice) explaining the transaction and validating the assignment and the facts showing consideration, offer and acceptance. Acceptance is difficult in the context of securitization because the assignment is usually prepared (a) long after the close out date in the pooling and servicing agreement and (b) after the assignor or its agents have declared the loan to be in default. Both points violate virtually all pooling and servicing agreements that require performing loans to be pooled, ownership of the loan to be established by the assignor, the assignment executed in recordable form and many PSA’s require actual recording — a point missed by most analysts.

If we assume for the moment that the origination of the loan met the requirements for perfecting a mortgage lien on the subject property, the party managing the “pool” (REMIC, Trust etc.) would be committing an ultra vires act on its face if they accepted the loan, debt, obligation, note, mortgage or deed of trust into the pool years after the cut-off date and after the loan was declared in default. Acceptance of the assignment is a key component here that is missed by most judges and lawyers. The assumption is that if the assignment was offered, why wouldn’t the loan be accepted. And the answer is that by accepting the loan the manager would be committing the pool to an immediate loss of principal and income or even the opportunity for income.

Thus we are left with a Hobson’s choice: either the origination documents were void or the assignments of the origination documents were void. If the origination documents were void for lack of consideration and false declarations of facts, there could not be any conditions under which the elements of a perfected mortgage lien would be present. If the origination was valid, but the assignments were void, then the record owner of the loan is party who is admitted to have been paid in full, thus releasing the property from the encumbrance of the mortgage lien. Note that releasing the original lien neither releases any obligation to whoever paid it off nor does it bar a judgment lien against the homeowner — but that must be foreclosed by judicial means (non-judicial process does not apply to judgment liens under any state law I have reviewed).

INDORSEMENTS OR ENDORSEMENTS: The spelling varies depending upon the source. The common law spelling and the one often used in the UCC begins with the letter “I”. They both mean the same thing and are used interchangeably.

An indorsement transfers rights represented by the instruments to another individual other than the payee or holder. Indorsements can be open, qualified, conditional, bearer, with recourse, without recourse, requiring a subsequent indorsement, as a bailment (collection), or transferring all right title and interest. The types of indorsements vary as much as human imagination which is why an indorsement, alone, it frequently insufficient to establish the rights of the parties without another evidence, such as a contract of assignment.

The typical definition starts with an overall concept: “An indorsement on a negotiable instrument, such as a check or a promissory note, has the effect of transferring all the rights represented by the instrument to another individual. The ordinary manner in which an individual endorses a check is by placing his or her signature on the back of it, but it is valid even if the signature is placed somewhere else, such as on a separate paper, known as an allonge, which provides a space for a signature.” Another definition often appearing in cases and treatises is “ the act of the owner or payee signing his/her name to the back of a check, bill of exchange, or other negotiable instrument so as to make it payable to another or cashable by any person. An endorsement may be made after a specific direction (“pay to Dolly Madison” or “for deposit only”), called a qualified endorsement, or with no qualifying language, thereby making it payable to the holder, called a blank endorsement. There are also other forms of endorsement which may give credit or restrict the use of the check.”

Entire books have been written about indorsements and they have not exhausted all the possible interpretations of the act or the words used to describe the writing dubbed an “indorsement” or the words contained within the words described as an indorsement. As a result, courts are justifiably reluctant to accept an indorsed instrument on its face with parole evidence — unless the other party makes the mistake of failing to object to the foundation, and in the case of the mortgage meltdown practices of fabrication, forgery and fraud, by failing to deny the indorsement was ever made except for the purposes of litigation and has no relation to any legitimate business transaction.

Once the indorsement is put in issue as a material fact that is disputed, then the discovery must proceed to determine when the indorsement was created, where it was done, the parties involved in its creation and the parties involved in the execution of the indorsement, as well as the circumstantial evidence causing the indorsement to be made. A blank indorsement is no substitute for an assignment nor is it evidence that any transaction took place win which consideration (money) exchanged hands. Further blank indorsements might be yet another violation of the PSA, in which the indorsement must be with recourse and be unqualified naming the assignee.

A “trustee” of an alleged SPV (REMIC) who accepts such a document would no doubt be acting ultra vires (acting outside of the authority vested in the person purported to have acted) and it is doubtful that any evidence exists where the trustee was informed that the proposed indorsement or assignment involved a loan and a pool which was five years past the cutoff, already declared in default and which failed to meet the formal terms of assignment set forth in the PSA. A deposition upon written questions or oral deposition might clear the matter up by directing the right questions to the right person designated to be the person who represents the entity that claims to manage the SPV (REMIC) pool. In order to accomplish that, prior questions must be asked and answered as to the identity of such individuals and entities “with sufficient specificity such that they can be identified in subsequent demands for discovery or the issuance of a subpoena.”

Throughout this process, the defender in foreclosure must be ever vigilant in maintaining control of the narrative lest the other side wrest control and redirect the Judge to the allegation (without any evidence in the record) that the debt exists (or worse, has been admitted), the default occurred (or worse, has been admitted) and that the pretender is the lender (or worse, has been admitted as such).

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Editor’s Comment:

As I have reported on past occasions I have sources from the securities and more specifically the securitization industry that provide comments and information on the promise that I will keep their identities anonymous. This one in particular caught my attention. The source is from a Southeastern state who packaged and sold pools of loans of all types and qualities.

I believe regardless of whether the note and mortgage / deed of trust was assigned or not, it can be demonstrated they did not move as a unit, unless the price paid was the payoff value of the loan and/or value of property. [Editor’s Note: The importance of this fellow’s statement cannot be overstated. And his method for determining the true nature of an assignment, allonge or indorsement transaction is extremely helpful. While there are contrary arguments to his contention, they are a stretch to accept]

A different price (which I have hitting on this theme) would indicate the two are not a unit, because the value of the promissory note is not related to the actual security value.  Also how the transaction was booked and valued on the bank’s accounts would reveal the same.  I am guessing that they were valuing notes at a price much higher than the market value of the home. [Editor’s Note: Yes and as I have already been seen informed with documentation, the transactions were never booked as accounting transactions because from the standpoint of the assignor or assignee no transaction took place. These were assignments of convenience. They do not show on the balance sheet of the either the assignor or the assignee as a loan receivable. If they come to court claiming ownership or that someone else acquired ownership through them, they are doing so contrary to their own admissions in the own bookkeeping. THIS is where confidence and knowledge in motion practice and confidence and knowledge in discovery will put the homeowner in either extreme jeopardy or in a winning position — because the loan was never owned by ANY of the intermediaries who acted as conduits]

I believe the key is to assert the note as a ‘financial asset.’  That there is a market or exchange in which it trades.  In fact on many of the bank’s annual reports, they speak that the primary business is originating loans for sale/securitization, i.e. a market exists.  Along with pricing, this will be an easy case to make. [Editor’s Note: Read this carefully — it proves the point by reference to information in the public domain — and it is not subject to attack as being opinion or questionable fact or standing to raise the issue. What I believe he is telling me here is that even if there was ($10.00, or other valuable consideration), there are only three values that conceivably be used — the principal due on the note, the value of the collateral or the fair market value of the loan as determined by the freely traded secondary market. In nearly all cases the “traders” never even pretended that this was a real transaction and so there was no exchange of money at all. But if there was an exchange of money, this index could be used to prove that the transaction was a sham because it never met the elements of a reasonable business transaction. Judge Shack in New York asked the question himself — why and under what terms would anyone buy a loan that is in default? How could a loan declared in default be assigned into an investor pool where the investors were promised that they would at least initially receive performing loans. And how could they receive any loan after the 90 day cutoff period included in the PSA and the REMIC statute? The collateral  question that Judge Shack might have asked is why anyone would pay a price different than the price set on the secondary market regardless of the principal stated on the note or the current fair market value?]

Here is the kicker:  SECTION 36‑8‑406. Obligation to notify issuer of lost, destroyed, or wrongfully taken security certificate.

     If a security certificate has been lost, apparently destroyed, or wrongfully taken, and the owner fails to notify the issuer of that fact within a reasonable time after the owner has notice of it and the issuer registers a transfer of the security before receiving notification, the owner may not assert against the issuer a claim for registering the transfer under Section 36‑8‑404 (wrongful registration) or a claim to a new security certificate under Section 36‑8‑405 (replacement of a lost, destroyed or wrongfully taken security certificate).

I wonder out loud why I should not reregister my note.   Imagine the bank now arguing all the points of having to present an actual note, etc in order to change ownership.

The next big thing I am digging into is whether an owner/purchaser of a security has any authority to electronically register and transfer ownership.  I believe, but cannot find exact wording, that such is only limited to the issuer.  On the entire face, MERs may not even be allowed because the issuer of the note, the homeowner, never authorized them to keep track.

Think of why there are laws that require lenders to notify borrowers when their mortgage is sold, it is because the issuer needs a record.  Worse case is that the bank argues the issuer under Chapter 8 is the one who ‘becomes responsible for, or in place of, another person described as an issuer in this section.’   That is still not the bank, but the county registrar.

J CURLEY AZ BKR CT: “No Docs To Show Ownership Of Loan Or Standing”

ONE ON ONE WITH NEIL GARFIELD ONE ON ONE WITH NEIL GARFIELD

COMBO ANALYSIS TITLE AND SECURITIZATION

EDITOR’S COMMENT: Judge Curley has been wrestling with these issues for more than 2 years. She has heard every argument, seen every memorandum, Expert Declaration (mine) and considered everything else possible. She was led to the inescapable conclusion that BOA’s position was a farce. She denied the Motion to Lift Stay, which effectively puts into question whether BAC or BOA is a creditor at all. In this well-reasoned and extremely well-written opinion, she outlines her analysis and reasoning. IN plain language, we are a nation of laws and civil procedure and not a nation of men and power. Not even the largest Bank on Earth can escape the requirements of our laws.

Arizona Bankruptcy Court Denies BAC “No Docs To Show Ownership Of Loan Or Standing” In re: ZITTA

Arizona Bankruptcy Court Denies BAC “No Docs To Show Ownership Of Loan Or Standing” In re: ZITTA

In re MIKE ZITTA AND IRENA ZITTA, Debtors.
BAC HOME LOANS SERVICING, LP FKA COUNTRYWIDE HOME LOANS
SERVICING LP, its assignees and/or successors in interest, Movant,
v.
MIKE ZITTA AND IRENA ZITTA, Respondents.

No. 09-bk-19154-SSC

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA

DATED: January 21, 2011.

Not for Publication-Electronic Docketing ONLY

AMENDED1 MEMORANDUM DECISION

I. PRELIMINARY STATEMENT
This Court recently received a Notice of Appeal filed by BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P.(“BAC”) on December 23, 2010. The Notice of Appeal concerns the Court’s denial of a Motion for Reconsideration filed by BAC relating to its Motion for Relief from Stay in the Chapter 11 bankruptcy case of Mike and Irena Zitta (“Debtors”). Because BAC may have prematurely filed its Notice of Appeal, and because this Court had anticipated an opportunity to execute some sort of Order, with an appended memorandum decision on the issues presented, this Court will amplify its reasoning in denying the Motion for Reconsideration and clarify the record so that the Motion for Reconsideration may be heard on appeal.

BAC filed its Motion for Relief from Stay on August 30, 2010.2 Copies of the interest-only promissory note (“Note”), along with an allonge (“Allonge”), the recorded deed of trust (“Deed of Trust”), and the Broker’s price opinion were attached to the Motion.3 BAC also filed a declaration in support of the Motion.4 However, no assignment of the Deed of Trust from any entity to BAC was included. The Debtors filed a response/objection to the relief requested.5 The Court denied BAC’s Motion by Minute Entry Order issued on October 20, 2010 (the “Minute Entry Order”), because BAC had failed to provide a copy of an assignment of the Deed of Trust with its Motion.6 The October 20 Minute Entry Order was not executed by this Court.

On October 29, 2010, BAC filed a Motion for Reconsideration of the Minute Entry Order, asserting that under Arizona law, an assignment of the Deed of Trust was not necessary to establish standing to move for relief from the automatic stay.7 The Court heard the Motion for Reconsideration on December 15, 2010, and denied the requested relief. BAC never submitted a form of order denying the Motion for Reconsideration, and although a minute entry order was generated that same day outlining briefly the Court’s denial of the Motion, the minute entry order was never executed by this Court.8 Rather than wait for an appropriate form of order to be entered, BAC chose to file a Notice of Appeal on December 23, 2010.

In this Memorandum Decision, the Court has set forth its findings of fact and conclusions of law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. The issues addressed herein constitute a core proceeding over which this Court has jurisdiction. 28 U.S.C. §§ 1334(b) and 157(b) (West 2010).

II. FACTUAL DISCUSSION
In the Motion for Relief from Stay filed on August 30, 2010, BAC asserted that it was the “holder in due course” and that it was the “payee and a holder in due course under that certain Promissory Note dated March 20, 2007.”9 The Note attached to the Motion for Relief from Stay stated that GreenPoint Mortgage Funding, Inc., had provided the financing to the Debtors so that the Debtors could acquire the real property located at 5100 East Blue Jay Lane, Flagstaff, Arizona (“Property”).10 The Note further stated that anyone taking the Note “by transfer and who [was] entitled to receive payments under [the] Note [was] called the “Note Holder.”11 The Allonge, dated March 20, 2007, stated as follows: “Pay to the Order of BAC Home Loans Servicing, LP f/k/a Countrywide Home Loan Servicing, LP without recourse.”12 GreenPoint Mortgage Funding, Inc. had executed the Allonge, although the signature is difficult to discern.13 The Deed of Trust attached to the Motion for Relief from Stay stated that GreenPoint Mortgage Funding, Inc. was the lender and that MERS was the nominee for the lender. Specifically, the Deed of Trust stated:

(E) “MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument.14

The Deed of Trust stated that the Debtors acknowledged or executed the document on March 21, 2007, although the Allonge and the Note had an execution date of March 20, 2007. Finally, the Declaration submitted in support of the Motion for Relief from Stay stated that “[it] is in the regular course and scope and business for BAC Home Loans Servicing, LP f/k/a Countrywide Home Loans Servicing LP to prepare and maintain books and records relating to the status of the servicing of Movant’s Deed of Trust.”15 The Declaration also stated that “Movant is the payee under that certain Promissory Note dated March 20, 2007…. Further, Movant is the present holder and owner of that certain First Deed of Trust of same date…. securing said Note against Debtors’ property….”16 Thus, BAC’s Declaration creates an ambiguity as to whether BAC is the servicer of the loan or whether it is the Note Holder who is entitled to payments under the Debtors’ Note obligation. The documentation presented by BAC also includes a security agreement, granting BAC a security interest in the Note.17

A review of the Motion for Relief from Stay reflects the myriad problems that this and other Courts are facing in attempting to handle the tremendous volume of such motions that are filed in the numerous bankruptcy cases that are pending across the country. First, the Motion that was filed in this case appears to be a form that may have been imperfectly tailored to the facts of this case. For instance, the Motion for Relief from Stay alleges that GreenPoint Mortgage Funding, Inc. “was the original lender on the subject Note and Deed of Trust. Thereafter, GreenPoint Mortgage Funding, Inc. assigned all of its rights, title and interest in and to said [N]ote and Deed of Trust to BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P. by way of an Allonge….”18 However, as noted previously, the Declaration seems to indicate that BAC was acting as a servicer. If BAC was simply the servicer, then for whom was BAC receiving payments under the Note? If BAC was holding the Note as the servicer, for whom was it acting? If BAC was the Note Holder, as defined in the Note, then why does the Declaration state that BAC operates as a servicer? Another way to state the problem is that the Motion for Relief from the Stay and the Declaration seem to reflect imperfectly the transfer of the various interests in the Note and Deed of Trust. Given the posture of the record presented to the Court, and the lack of clarity, the Court denied the Motion for Relief from Stay by Minute Entry Order on October 20, 2010. Rather than clarify the record by filing the appropriate assignment, a further declaration or affidavit, or some other documentation, BAC filed its Motion for Reconsideration. BAC chose to provide no further information to the Court from a factual standpoint.

III. LEGAL DISCUSSION
The Motion for Reconsideration

As outlined above, part of the problem with the issues to be decided is the context in which the matters have been presented to the Court. When a motion for relief from stay is filed, the Bankruptcy Code, the Rules of Bankruptcy Procedure, and the Local Rules of this Court are immediately applicable or implicated.

11 U.S.C. §362 (d) states that the bankruptcy court may, for instance, terminate, modify, or condition the automatic stay (1) “for cause, including the lack of adequate protection of an interest in property of such party in interest,” or (2) “with respect to a stay of an act against
property under subsection (a) of this section if-(A) the debtor does not have an equity interest in such property; and (B) such property is not necessary to an effective reorganization.”19 Section 362(g) states that the party requesting relief from the automatic stay has the burden of proof of whether the debtor has any equity in the property at issue.20 The Local Rules of the Arizona Bankruptcy Court further require that a party filing a motion for relief from the automatic stay be able to provide some support for the relief requested. For instance, if the party is stating that it is a secured creditor requesting relief from the automatic stay to pursue a trustee’s sale under Arizona law, the secured creditor should be able to provide support in the motion that it has a perfected security interest in property of the estate in which the debtor or debtor in possession also has an interest.21

In reviewing the sufficiency of any motion for relief from the automatic stay, the court must also consider under what provision of the Bankruptcy Code the debtor has filed. For instance, if the individual debtor has filed a chapter 7 petition, a trustee in bankruptcy is appointed that must collect and liquidate property of the estate, that has not been claimed exempt by the debtor, for distribution to the debtor’s creditors, according to the priorities set forth in the Bankruptcy Code.22 The trustee in bankruptcy may increase the amount of property of the estate available for distribution to creditors by exercising certain avoidance powers enumerated, inter alia, in Bankruptcy Code Sections 544, 547, and 548.23 An individual debtor may acquire the same duties and responsibilities of a trustee in bankruptcy by filing a chapter 11 petition, seeking to reorganize or to file a plan of liquidation.24 Because the debtor in possession is vested with the same powers of the trustee, the debtor in possession may pursue avoidance actions as well.25 In this case, the individual Debtors filed a chapter 11 petition seeking to reorganize, and no bankruptcy trustee has yet been appointed in this case. As a result, the Debtors exercise the rights of a bankruptcy trustee concerning the ability to avoid certain transfers or transactions.

Because of the avoidance powers of the bankruptcy trustee or the debtor in possession, this Court requires that if a party seeking relief from the automatic stay asserts a perfected security interest in any property of the estate, that moving party must be able to present at least a prima faciecase that it has such a perfected security interest under applicable law.26 The fact that the transaction is not avoidable between the parties to the underlying loan transaction is not dispositive of whether the transaction may be avoided by third parties that are, for instance, bona fidepurchasers.27

Turning to the standards of a motion for reconsideration, the moving party must show a manifest error of fact, a manifest error of law, or newly discovered evidence. School Dist. No. 1J Multnomah County, OR v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993); In re Gurr, 194 B.R. 474 (Bankr. D. Ariz. 1996). A motion for reconsideration is not specifically contemplated by the Federal Rules. To the extent it is considered by the Court, it is under Fed. R. Civ. P. 59(e) to alter or amend an order or judgment. In re Curry and Sorensen, Inc., 57 B.R. 824, 827 (Bankr. 9th Cir. 1986). Because BAC presented no new evidence to this Court and has not outlined any manifest error of fact, the sole basis for the BAC Motion for Reconsideration must be a manifest error of law by this Court. BAC has outlined several bases for what it believes is this Court’s manifest error of law.

 

(A) Is the Movant the Real Party in Interest?

A colleague in the Arizona Bankruptcy Court has stated that a party that brings a motion for relief from the automatic stay must first establish a “colorable claim.” “In order to establish [such a claim], a movant…. bears the burden of proof that it has standing to bring the motion.” In re Weisband, 427 B.R. 13, 18 (Bankr. D. Ariz. 2010) (citing In re Wilhelm, 407 B.R. 392, 400 (Bankr. D. Idaho 2009)). In the Weisband decision, the Court states that the moving party may establish standing by showing that it is a “real party in interest.”28 The Weisband Court next states that a holder of a note is a “real party in interest” under FRCP 17 because, under the Arizona Revised Statute (“ARS”) § 47-3301, the note holder has the right to enforce it. Weisband at 18. Relying on a decision from a bankruptcy court in Vermont, the Weisband Court next opines that “[b]ecause there is no federal commercial law which defines who is a note holder, the court must look to Arizona law to determine whether [movant] is [such] a holder.” Id. (citing In re Montagne, 421 B.R. 65, 73 (Bankr. D. Vt. 2009)). Finally, the Weisband Court states that under Arizona law, a holder of a note is defined as, inter alia, “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.” Id. (citing ARS § 47-1201(B)(21)(a)).

BAC’s citation to Weisband fails to address this Court’s concerns. In the Motion for Relief, BAC contends that it is the “payee and a holder in due course.” However, the Declaration that it filed appears to reflect that BAC is the servicer for some other party. Obviously there is a difference. A servicer acts pursuant to a separate agreement with the Note Holder and is paid a separate fee to determine what payments have been made, or not made, by a given borrower. However, the servicer would not normally list the loan on its balance sheet as one of its assets. The Note Holder, according to the definition in the Note, is the party that is entitled to receive the payments under the Note, because it has arguably paid some consideration for the transfer of the obligation to it, and has listed the obligation as an asset in its books and records.29 BAC has not provided any additional facts to clarify whether it is the servicer pursuant to an agreement with the Note Holder, or contrary to its Declaration, it actually acquired the loan and has placed the loan on its balance sheet as one of its assets.

From the documentation provided by BAC, it appears that GreenPoint provided the original funding for the loan to the Debtors so that they could acquire the Property. Yet, at the time of the closing, GreenPoint immediately assigned its interest in the Note to BAC. The Declaration submitted by BAC, however, seems to indicate that BAC is only in the business of servicing loans-perhaps for some other entity associated or related to BAC. If BAC Home Loans Servicing, LP, is acting as the servicer of a Bank of America entity, for which entity is it acting? Conversely, if GreenPoint transferred the Debtors’ loan from its books and records to some other entity, was it BAC? If BAC alleges in its Motion for Relief from the Stay that it is the Note Holder, is it, in fact, the one legally entitled, because of the purchase of the Debtors’ obligation, to receive the Debtors’ payments?

As a part of its prima faciecase, BAC should have provided the Court with more factual information in support of its position. As a result, this Court may deny the Motion for Reconsideration, and the underlying Motion for Relief from the Stay, on the basis that BAC has failed to provide sufficient documentation to this Court so that the Court may ensure that BAC is the proper Note Holder, or servicer if appropriate, to pursue such a Motion for Relief from the Stay.

Thus, the focus of the BAC’s Motion for Reconsideration does not consider all of the factual and legal issues that it should. It does not address whether BAC, in this matter, has presented an appropriate factual and legal basis to proceed on this loan concerning the Debtors and their Property. BAC could have easily supplemented the record to provide the appropriate documentation to proceed, but chose not to do so.

(B) Has BAC Set Forth a Prima Facie Case That It Has
A Perfected Security Interest in the Property Given the Status
Of the Debtors As Debtors In Possession?

In its Motion for Reconsideration, BAC relies on ARS § 33-817, which states, “The transfer of any contract or contracts secured by a trust deed shall operate as a transfer of the security for such contract or contracts.” ARS § 33-817. BAC further points out that the Supreme Court of Arizona has held that a mortgage is a “mere incident to the debt,” and its “transfer or assignment does not transfer or assign the debt or the note,” but “the mortgage automatically goes along with the assignment or transfer” of the note. Hill v. Favour, 84 P.2d 575, 578 (Ariz. 1938) (emphasis added). However, at the hearing on December 15, 2010, the Court expressly stated its concern about the ability of BAC to proceed given that it had not provided any information as to a recorded assignment of the Deed of Trust. The Court asked counsel how her analysis was appropriate given (1) the status of the Debtors as Debtors in Possession who had objected to the relief requested, and (2) ARS § 33-818 which provides, in pertinent part, as follows:

[A]ssignment of a beneficial interest under a trust deed,… shall from the time of being recorded impart notice of the content to all persons, including subsequent purchasers and encumbrancers for value.
As outlined above, the Debtors, as Debtors in Possession, acquire the status of a bona fide purchaser and are able to set aside any real estate transaction, concerning their Property, for which the creditor has not taken appropriate steps under Arizona law. See 11 U.S.C. § 544(a)(3) (West 2010). Arizona law requires that if a secured creditor with a lien on the Debtors’ Property wishes to ensure that said interest is not subject to the claims of a bona fide purchaser, that said secured creditor record an assignment of its interest with the Recorder in the County where the Debtors’ Property is located. If notice of the assignment has not been provided, through recordation, the secured creditor may have its interest avoided by a bona fide purchaser. See Rodney v. Arizona Bank, 836 P.2d 434, 172 Ariz. 221 (Ariz. App. Div. 2 1992) (Unless and until the transferee of the beneficial interest in the deed of trust records an assignment of the deed of trust, the security interest in the real property remains unperfected.)

At the time of the hearing on the Motion for Reconsideration, BAC’s counsel agreed that although vis-a-vis the original parties to the transaction, no assignment of the Deed of Trust need be produced or recorded, because of the Debtors’ filing of a bankruptcy petition, ARS § 33-818 required that an assignment be prepared and properly recorded given the new status of the Debtors as Debtors in Possession.30 It is unclear why BAC has not simply supplemented the record to provide the assignment of the Deed of Trust.

The request that an assignment be recorded is not a burdensome requirement. MERS, through its registration system, keeps track of the transfers of the beneficial interests, under a deed of trust, from member to member in the system. When there is some type of default under the loan transaction, MERS generally prepares an assignment of the beneficial interest in the deed of trust for signature and then records the assignment with the appropriate state authority, which in Arizona would be the Recorder in the County where the real property that is subject to the secured creditor’s lien is located. This recordation of the assignment provides the requisite notice to third parties, as required under Arizona law.

Although BAC relies on the decision of Rodney v. Arizona Bank, 836 P.2d 434, 172 Ariz. 221 (Ariz. App. Div. 2 1992), the decision actually supports this Court’s understanding of the importance of the recordation of the assignment of the deed of trust. In Rodney, the borrowers were the Vasquezes, who received purchase money financing from the initial lender, Hal Clonts (“Clonts”), to purchase real property (“Property”) located in Mohave County. The Vasquezes executed a promissory note and deed of trust in favor of Clonts to provide him with a lien on their Property to secure repayment of the note. It is important to keep in mind that the Vasquezes remained the borrowers throughout a series of subsequent transactions that only affected the lender or the party that had a security interest in the promissory note and deed of trust.

Clonts transferred his interest to the Fidlers through an assignment of the beneficial interest in the promissory note and deed of trust. Id. at 435. However, on April 11, 1985, the Fidlers entered into a separate loan transaction in which they borrowed money from a third party, State Bank, later called Security Pacific Bank Arizona (“Security Pacific”). The Fidlers provided security to Security Pacific for their loan transaction by pledging “all monies” received by the Fidlers in “Escrow # 85-02-9290.” Id. Security Pacific immediately notified the title company, for the subject escrow, as to Security Pacific’s interest in the escrow funds. In September 1986, the Fidlers again transferred their beneficial interest in the promissory note and deed of trust to Theron Rodney (“Rodney”). The Fidlers received $20,000 from Rodney for the transfer of their interest. The Fidlers executed an assignment of the beneficial interest under the deed of trust. Rodney recorded his interest in the deed of trust with the Mohave County Recorder’s Officer where the Property was located. Not surprisingly, Security Pacific and Rodney disagreed as to the priority of their respective security interests in the loan proceeds. Security Pacific argued that the interest in the loan proceeds could only be perfected pursuant to the Uniform Commercial Code. Conversely, Rodney argued that the real property provisions of Arizona law were applicable. Id. at 436.

The sole issue to be addressed by the Appellate Court was whether Article Nine of the Uniform Commercial Code (as adopted in Arizona) applied to the creation and perfection of a security interest in a promissory note when the note itself was secured by a deed of trust in real property. Id. Before considering the analysis by the Court, let’s diagram the various loan transactions.

+——————————————————————————————————–+———————————————+
| The Vasquezes |                                                                                                                                                  Clonts |
| —- | |
+——————————————————————————————————–+———————————————+
| initial borrowers purchase money financing |                                                                                     initial lender |
+——————————————————————————————————–+——————————————————————+
| Vasquezes continue to pay on the original note and deed of trust to the title company, as escrow agent | (1) transfer of the interest in the note and deed of trust for consideration to the Fidlers |
|                                                                                                                                                                                                                   | (2) separate loan to the Fidlers–security interest in the note and deed of trust given to Security Pacific-consideration given to Fidlers |
|                                                                                                                                                                                                                   | (3) Fidlers again seek financing–security interest in the note and deed of trust given to Rodney |
|                                                                                                                                                                                                                   | for $20,000. |
+——————————————————————————————————–+——————————————————————–+
| | |
+——————————————————————————————————–+——————————————————————–+

Thus, it is only the parties on one side of the initial loan transaction that are in disagreement as to the priority of their security interests. Noting that Security Pacific only wanted to obtain a perfected security interest in the promissory note proceeds, the Court stated “we find that Security Pacific received a corollary security interest in the real property evidenced by the deed of trust, along with its interest in the note, although the corollary interest remained unperfected.” Id. The Court then stated that Security Pacific need not have a perfected security interest in the real property, because Security Pacific’s interest was only in the note which was a security interest in personal property under ARS § 47-1201(37). Id. at 436-37. The Court concluded that “Arizona case law holds that a mortgage note and the debt evidenced thereby are personal property (citing to Hill v. Favour, 52 Ariz. at 571, 84 P.2d at 579). Article Nine of the UCC applies to security interests in personal property….” Id. at 437. However, Article Nine of the Uniform Commercial Code does not apply to obtaining a lien on real property. In considering the somewhat murky area of “realty paper,” the Court relied on Commentators J White and R. Summers, who described “realty paper” as follows:

B mortgages his real estate to L. L gives B’s note and the real estate mortgage to Bank as security for a loan. Article Nine does not apply to the transaction between L and B, but does apply to that between L and Bank.

Id.31 Turning to the facts of this case, BAC is arguing that its security interest in the Note and Deed of Trust is perfected as to all others, rather than to just other mortgagees. It has forgotten the other side of the transaction, which is the “mortgagor” in the White and Summers analysis, or someone that may acquire an interest from the mortgagor, such as a bona fide purchaser. To perfect its interest as to the “mortgagor,” which would be the Zittas, or someone who may acquire an interest in the Property from the Zittas, BAC needed to record its assignment in the Deed of Trust, as required under real property law, such as ARS § 33-818 (West 2010). BAC has not shown this Court that any such assignment exists, so its Motion for Reconsideration must be denied as a matter of law.

BAC also relies on In re Smith, 366 B.R. 149 (Bank. D. Colo. 2007), which is inapposite. The debtor had been in a chapter 13 proceeding, but had converted his case to one under chapter 7. Id. at 150. Bank of New York, N.A. (“Bank of New York”) subsequently requested relief from the automatic stay as to the real property owned by the debtor. The debtor did not oppose the motion, and a foreclosure sale, pursuant to Colorado law, subsequently occurred. Bank of New York then recorded a deed upon sale as to the debtor’s real property. Without seeking any stay of the foreclosure proceedings, the debtor filed an adversary proceeding with the bankruptcy court. The debtor asserted that the Bank of New York was not the real party in interest, and therefore, it was unable to proceed with a foreclosure of his real property. The bankruptcy court reviewed the evidence presented and determined that Bank of New York was the holder of the promissory note at the time it commenced its foreclosure sale. The court stated that Countrywide Home Loans, Inc., which had originally provided the financing to the debtor, had endorsed the promissory note in blank. Under Colorado law, such a blank endorsement allowed the promissory note to become “payable to bearer.” However, Bank of New York did submit a Certification of Owner and Holder of the Evidence Debt, which allowed the Colorado court to conclude that Bank of New York was the “holder of the original evidence of debt.” The court then reviewed the deed of trust, determining that it was recorded at approximately the same time as the loan closing between the debtor and Countrywide Home Loan, Inc. The bankruptcy court then concluded that the promissory note was assigned to the Bank of New York. As such, once the promissory note was assigned to the Bank of New York, MERS then functioned as the nominee for the Bank of New York. Id. at 151. Presumably, as a result of MERS nominee status, the bankruptcy court concluded, sub silentio, that no additional action needed to be taken by Bank of New York vis-a-vis the debtor.

This Court questions the analysis by the Smith court.32 Although the Smith court relies on a 2002 decision from the Colorado Supreme Court, the court does not analyze the concept of “realty paper” or discuss White and Summers. As noted by this Court supra, the lender in the original loan transaction or a party that may subsequently obtain a security interest in the promissory note, as a result of a separate loan transaction, may be protected, but this Court is viewing the transaction from a different viewpoint: that of the Debtors in Possession that acquire the status of bona fide purchasers. There is no discussion, in Smith, as to how Colorado law would treat such third parties. Moreover, it is unclear whether Colorado has a similar provision as Arizona’s ARS § 33-818 that focuses on the separate requirements of a creditor that may have a beneficial interest under a deed of trust assigned to it.

In considering the ability of the debtor to pursue a claim under 11 U.S.C. § 544, the Colorado court concludes that the debtor does not have the standing of the bankruptcy trustee. Smith at 152. Such an analysis is correct, since the debtor pursued his claim against the Bank of New York only after he had converted his case to one under chapter 7. The chapter 7 trustee also failed to join with the debtor in the adversary proceeding or to pursue the claim separately.33 However, as to the facts before this Court, the Debtors, as Debtor in Possession, in this chapter 11 proceeding do have the standing to pursue claims under Section 544.34 Thus, this Court must reject the analysis in the Smith case.

This Court concludes that given the summary nature of motions for relief from the automatic stay, 35 the general requirements in the case law and the Local Rules of this Court36 that a creditor alleging a security interest in certain property of the debtor and/or the bankruptcy estate at least set forth a prima facie case as to its perfected security interest, 37 BAC should have provided an assignment of the Deed of Trust. It failed to do so; however, the Motion for Relief from the Automatic Stay was denied without prejudice. BAC still has the opportunity to refile the Motion with the appropriate documents as exhibits thereto.

IV. CONCLUSION
For the foregoing reasons, the Court denies BAC Home Loans Servicing, LP’s Motion for Reconsideration of this Court’s Denial of the Motion for Relief from the Automatic Stay. The Court

SARAH SHARER CURLEY, Bankruptcy Judge

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