Wells Fargo Skewered by Federal Judge For Forgery as a Pattern of Conduct

For further information please call 954-495-9867 or 520-405-1688

==============================

http://nypost.com/2015/01/31/ny-federal-judge-slams-wells-fargo-for-forged-mortgage-docs/

COURT FINDS PRESUMPTIONS CAN BE REBUTTED BY A SHOWING OF SOME EVIDENCE THAT THE INSTRUMENT AND/OR SIGNATURE IS NOT AUTHENTIC

What I like about the Federal Judge decisions is that they express the reasons for their orders and judgments with much greater specificity than State Court judges tend to do — probably because they have a lighter case load and when they get promoted it can go pretty high (like the US Supreme Court). So it should come as no surprise that a New York Federal Bankruptcy Judge issued a 30 page opinion that essentially said what people have been saying since 2007 — the entire foreclosure process is an exercise in illegal patterns of conduct to the detriment of the homeowners. Since he also made clear that the debt remains, we have yet to get a definitive opinion from a Judge that questions whether the original closing was valid and enforceable. for that we still need to wait.

But by ruling on the specifics of how to rebut presumptions that are used in cases involving negotiable instruments, this Court has definitely opened the door to requiring the banks to do something that he suspects and I know the banks cannot do — prove the loan transaction, and the loan transfers with actual transactions in which a purchase and sale occurred and money exchanged hands after which there was delivery of the paper. Once THAT cat is out of the bag, the banks are doomed. People are going to start asking the question they have been asking for years — except this time it won’t be a rhetorical question: “If the originator didn’t loan the money then who did? And if there was no consideration for the transfer of the loan documents then whose money was used to originate or acquire the loan?” The answers will surprise even veterans of this war.

see franklin-opinion

Excerpts—

The debtor herein (the “Debtor”) has objected to a claim filed in this case by Wells Fargo Bank,

NA (“Wells Fargo”), Claim No. 1‐2, dated September 29, 2010 (amending Claim No. 1‐1), on the basis that Wells Fargo is not the holder or owner of the note and beneficiary of the deed of trust upon which the claim is based and therefore lacks standing to assert the claim.1 This Memorandum of Decision states the Court’s reasons, based on the record of the trial held on December 3, 2013 and the parties’ pre‐ and post‐trial submissions, for granting the Claim Objection….

(i) how could Wells Fargo or Freddie Mac assert a claim under the Note when the Note was neither specifically indorsed to either of them nor indorsed in blank (and was specifically indorsed to ABN Amro, although ABN Amro had subsequently assigned its interest therein to MERS as nominee for Washington Mutual Bank, FA), and (ii) how could Wells Fargo properly assert any rights under the July 12, 2010 Assignment of Mortgage when the person who signed the Assignment of Mortgage from MERS in its capacity “as nominee for Washington Mutual Bank, FA” to Wells Fargo was an employee of Wells Fargo (as well as of MERS),3 and there was no evidence that Washington Mutual Bank, FA authorized MERS to assign…….

if Freddie Mac was the owner of the loan, as both Wells Fargo and Freddie Mac contended, why was Claim No. 1‐1 filed by Wells Fargo not as Freddie Mac’s agent or servicer, but, rather, in its own name? (The ownership/agency issue had practical as well as possible legal consequences because counsel for Wells Fargo contended that Freddie Mac guidelines precluded Wells Fargo from considering loan modification proposals for the Debtor.)….

the parties engaged in discovery disputes that resulted in an order compelling the deposition of John Kennerty, who by then no longer worked for Wells Fargo, see Kennerty v. Carrsow‐Franklin (In re Carrsow‐Franklin), 456 B.R. 753 (Bankr. D. S.C. 2011), and Wells Fargo’s production of a woefully unqualified initial Rule 30(b)(6) witness…..

Wells Fargo responded that it did not need to be the owner of the loan in order to enforce the Note and a secured claim for amounts owing under it. Instead, Wells Fargo relied, under Texas’ version of Article 3 of the Uniform Commercial Code (the “U.C.C.”), solely on being the “holder” of the Note indorsed in blank by ABN Amro that appeared for the first time as an attachment to Claim No. 1‐2.7…

In a bench ruling on March 1, 2012, memorialized by an order dated May 21, 2012, the Court agreed with Wells Fargo, concluding that, under Texas law, if Wells Fargo were indeed the holder of the Note properly indorsed in blank by ABN Amro, Wells Fargo could enforce the Note and the Deed of Trust even if it was not the owner or investor on the Note or properly assigned of Deed of Trust,8 citing SMS Fin., Ltd. Liab. Co. v. ABCO Homes, Inc., 167 F.3d 235, 238 (5th Cir. 1999) (under Texas law, “[t]o recover on a promissory note, the plaintiff must prove: (1) the existence of the note in question; (2) that the party sued signed the note; (3) that the plaintiff is the owner or holder of the note; and (4) that a certain balance is due and owing on the note”) (emphasis added), and In re Pastran, 2010 Bankr. LEXIS 2237, ….

Perhaps wary of relying on an assignment by the assignee to itself without authorization by the purported assignor, Wells Fargo has waived reliance on the July 12, 2010 Assignment of Mortgage to establish its right to assert Claim No. 1‐2, looking only to its status as a holder of the Note. It indeed appears that Mr. Kennerty’s signature on the Assignment of Mortgage was improper in either of his capacities, as an officer of Wells Fargo or as an officer of MERS, without further authorization from Washington Mutual Bank, FA, because ABN Amro assigned MERS the Deed of Trust solely in MERS’ capacity as nominee for Washington Mutual Bank, FA, without the power of foreclosure and sale in its own right and not for its own successors and assigns as well as Washington Mutual Bank, FA’s; and MERS (through Mr. Kennerty) executed the Assignment of Mortgage solely as nominee for Washington Mutual Bank, FA. Compare Kramer v. Fannie Mae, 540 Fed. Appx. 319, 320 (5th Cir. 2013), cert. denied, 134 S. Ct. 1310, 188 L. Ed. 2d 305 (2014) (MERS could assign deed of trust made out to it that specifically granted MERS the power to foreclose and assign its rights); Silver Gryphon, L.L.C. v. Bank of Am. NA, 2013 U.S. Dist. LEXIS 168950, at *11‐12 (S.D. Tex. Nov. 7, 2013) (same); Richardson v. CitiMortgage, Inc., 2010 U.S. Dist. LEXIS 123445, at *3, *13‐14 (E.D. Tex. Nov. 22, 2010) (same), and Nueces County v. MERSCORP Holdings, Inc., 2013 U.S. Dist. LEXIS 93424, at *20 (S.D. Tex. July 3, 2013); In re Fontes, 2011 Bankr. LEXIS 1792, at *11‐13 (B.A.P. 9th Cir. Apr. 22, 2011); and In re Weisband, 427 B.R. 13, 20 (Bankr. D. Az. 2010) (MERS as mere “nominee” of mortgage holder lacks power to transfer enforceable mortgage)…..

Because it is undisputed that (a) the Debtor signed the Note (and received the loan proceeds)11 and (b) a properly recorded lien on the Property secures the Debtor’s obligation under the Note (albeit that Wells Fargo does not rely independently on the Deed of Trust assigned to ABN AMRO and then

10 See Supplement to Emergency Motion to Reopen and for Leave to Propound Additional Discovery to Defendant for Additional Evidence Withheld Prior to Trial, dated March 11, 2014.

11 See Trial Tr. at 95‐6 (testimony of the Debtor).

9

10-20010-rdd Doc 109 Filed 01/29/15 Entered 01/29/15 11:01:42 Main Document Pg 10 of 30

assigned to MERS as nominee for Washington Mutual Bank, FA (none of which has filed a proof of claim) or the Assignment of Mortgage to sustain its claim), the only issue addressed by the parties is whether Wells Fargo has standing to enforce the Note, and, thus, assert Claim No. 1‐2.12 This is because, as stated above, Texas follows the majority rule that “[w]hen a mortgage note is transferred, the mortgage or deed of trust is also automatically transferred to the note holder by virtue of the common‐law rule that ‘the mortgage follows the note.’” Campbell v. Mortg. Elec. Registration Sys., Inc., 2012 Tex. App. LEXIS 4030, at *11‐12 (Tex. App. Austin May 18, 2012), quoting J.W.D., Inc. v. Fed. Ins. Co., 806 S.W.2d 327, 329‐30 (Tex. App. Austin 1991). See also Kiggundu v. Mortg. Elec. Registration Sys., Inc., 469 Fed. Appx. 330, 332; Richardson v. Ocwen Loan Servicing, LLC, 2014 U.S. Dist. LEXIS 177471, at *13 n.4 (N.D. Tex. Nov. 21, 2014); Nguyen v. Fannie Mae., 958 F. Supp. 2d 781, 790 n.11 (S.D. Tex. 2013); Trimm v. U.S. Bank., N.A., 2014 Tex. App. LEXIS 7880, at *14 (Tex. App. Fort Worth July 17, 2014)…..

Wells Fargo’s right to enforce the Note, and thus its standing to assert Claim No. 1‐2, derives from the Note’s status as a negotiable instrument under Texas’ version of the U.C.C. See Tex. Bus. & Com. Code § 3.104(a). The Debtor has not disputed that the Note is negotiable, and the Note in any event satisfies the requirements of a negotiable instrument under Texas law, as it is “an unconditional promise . . . to pay a fixed amount of money . . . payable to . . . order at the time it [was] issued; . . . payable . . . at a definite time; and does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money” except as permitted by the statute. Id. See also Farkas v. JP Morgan Chase Bank, 2012 U.S. Dist. LEXIS 190194, at *6‐7 (W.D. Tex. June 22, 2012), aff’d, 544 Fed. Appx. 324 (5th Cir. 2013), cert. denied, 134 S. Ct. 628, 187 L. Ed. 411

12 One might argue, although Wells Fargo has not, that the parties’ pre‐bankruptcy course of dealing, including the Loan Modification Agreement signed by the Debtor on February 12, 2008 and attached to Claim No 1‐2 (See also Trial Tr. at 96‐104), would independently support Wells Fargo’s right to assert Claim No. 1‐2; however, if the blank ABN Amro indorsement were forged, the Loan Modification Agreement and course of dealing would ultimately improperly derive from Wells Fargo’s fraudulent assertion of the right to enforce the Note and Deed of Trust.

10

10-20010-rdd Doc 109 Filed 01/29/15 Entered 01/29/15 11:01:42 Main Document Pg 11 of 30

(2013); Steinberg v. Bank. of Am., N.A., 2013 Bankr. LEXIS 2230, at *12‐14 (B.A.P. 10th Cir. May 30, 2013)…..

“The presumption rests upon the fact that in ordinary experience forged or unauthorized signatures are very uncommon, and normally any evidence is within the control of, or more accessible to, the defendant.”15 Official Comment to Tex. Bus. & Com. Code § 3.308 (“Off. Cmt.”). The presumption is effectively incorporated into Fed. R. Evid. 902(9), which provides that no extrinsic evidence of authenticity is required to admit “[c]ommercial paper, a signature on it, and related documents, to the extent allowed by general commercial law,” and it is loosely analogous to the rebuttable presumption of the prima facie validity of a properly filed proof of claim under Fed. R. Bankr. P. 3001(f).

While Tex. Bus. & Com. Code §§ 3.308(a) and 1.206(a) provide that the presumption of an authentic signature applies “unless and until evidence is introduced that supports a finding of nonexistence,” they do not state the quantum of evidence to overcome the presumption. The Official Comment to § 3.308, however, refers to “some evidence” and to “some sufficient showing of the grounds for the denial before the plaintiff is required to introduce evidence,” and then states, “[t]he defendant’s evidence need not be sufficient to require a directed verdict, but it must be enough to support the denial by permitting a finding in the defendant’s favor.” Off. Cmt. 1 to § 3.308.16 This suggests that the required evidentiary showing to overcome the presumption is similar to that needed to defeat a summary judgment motion: the introduction of sufficient evidence so that a reasonable trier of fact in the context of the dispute could find in the defendant’s favor. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587‐88 (1986); 11 Moore’s Fed. Prac. 3d § 56.22[2] (2014). Because of the general factual context described in the Official Comment, which recognizes that “in ordinary experience forged or unauthorized signatures are very uncommon,” Off. Cmt. 1 to § 3.308, courts have nevertheless required a significant amount of evidence to overcome the presumption. See In re Phillips, 491 B.R. 255, 273 n. 37 (Bankr. D. Nev. 2013) (“This evidence was inconclusive at best. Against this background, the court is prepared to believe that it is more likely that [the claimant] negligently failed to copy the Note and First Allonge when it filed its [first] Proof of Claim rather than it forged the First Allonge later on. In short, when both are equally likely, the court picks sloth over venality.”); see also Congress v. U.S. Bank. N.A., 98 So. 3d 1165, 1169 (Civ. App. Ala. 2012) (referring to requirement of substantial, though not clear and convincing, evidence to rebut the presumption under U.C.C. §§ 3‐308(a) and 1‐206(a), although directing trial court on remand to apply preponderance‐of‐ the‐evidence standard to whether the presumption was overcome)….

See People v. Richetti, 302 N.Y. 290, 298 (1951) (“A presumption of regularity exists only until contrary substantial evidence appears. . . . It forces the opposing party (defendant here) to go forward with proof but, once he does go forward, the presumption is out of the case.”). Thus, in In re Phillips, 491 B.R. at 273 n. 37, quoted above, if the presumption had been overcome by a preponderance of the evidence and the burden shifted and forgery and negligence were found to be equally likely, the holder of the note should lose.

Because Wells Fargo does not rely on the Assignment of Mortgage to prove its claim, the foregoing evidence is helpful to the Debtor only indirectly, insofar as it goes to show that the blank indorsement, upon which Wells Fargo is relying, was forged. Nevertheless it does show a general willingness and practice on Wells Fargo’s part to create documentary evidence, after‐the‐fact, when enforcing its claims, WHICH IS EXTRAORDINARY…..

Wells Fargo has not carried that burden. To do so, it offered only Mr. Campbell’s testimony and, through him, certain exhibits copied from Wells Fargo’s loan file. That testimony was not helpful to it. Mr. Campbell was not involved in the administration of the Debtor’s loan until he became a potential witness in 2013. Trial Tr. at 37. He was not involved in the preparation of Claim No 1‐2. Id. at 37. He had nothing to say about the circumstances under which the blank ABN Amro indorsement appeared on the Note attached to Claim No. 1‐2, with the exception that he located the earliest entry in the electronic loan file where that version of the Note was recorded, pulled up its image and compared it to the original shown him by Wells Fargo’s counsel. Id. at 33, 36, 49‐50. He was offered, therefore, only to qualify Wells Fargo’s proposed exhibits, copied from Wells Fargo’s loan file, as falling within Fed. R. Evid. 803(6)’s business records exception to a hearsay objection under Fed. R. Evid. 802 and to testify that a copy of the Note with the blank ABN Amro indorsement appears in Wells Fargo’s electronic records before the preparation of Wells Fargo’s initial proof of claim in this case….

In large measure, Mr. Campbell was not up to that task (and Wells Fargo offered no other evidence to meet that standard, were the Court to impose it). Mr. Campbell did not know whether there was any person overseeing the accuracy of how the records in the system were stored and maintained. Id. at 32, 40, 42‐3. He did not know who controlled access to the system or the procedure for limiting access, except to say “[A]ccess is granted as needed.” Id. at 40‐1. He did not know of any procedures for backing up or auditing the system. Id. at 42. He stated, “I am not a technology person” and was not able to answer what technology ensures the accuracy of the date and time stamping of the entry of documents into the imaging system. Trial Tr. at 22. In his deposition, he testified that he did not know whether the dates and times of the entry of documents in the system could be changed, but at trial he stated that, after his deposition, “I attempted to look into this, and, to my knowledge, I am not aware of any way to change or remove attachments into the imaging system,” id. at 43, which, given his general lack of knowledge about how the system works and failure to explain the basis for his assertion, did not inspire confidence….

Moreover, in addition to the fact that the specially indorsed version of the Note appears on its own in the file on March 27, 2007, and not as part of an “origination file,” Wells Fargo has offered no explanation, let alone evidence, of who else, if not Wells Fargo, held the original of the Note with the blank ABN Amro indorsement before December 28, 2009, if, in fact, such a version then existed. The file provided by the transferor should have included it, if it did exist during that period, because Washington Mutual Bank, FA would not have been able to enforce the Note, either, without the blank indorsement, and the Assignment of Deed of Trust attached to the proofs of claim states that both the Note and Deed of Trust were transferred to MERS as nominee for Washington Mutual Bank, FA on June 20, 2002, effective November 16, 2001. In other words, why would only an outdated and unenforceable version of the Note have been logged in by Wells Fargo when it took over the file in February 2007 if the only enforceable version of the Note had in fact existed at that time (and should have existed since 2002)? The far more likely inference, instead, is that when the loan was transferred to Wells Fargo, the Note with the blank ABN Amro indorsement did not exist.

Why would the Note with the blank ABN Amro indorsement have appeared in Wells Fargo’s file only on December 28, 2009, twenty‐two months later? Wells Fargo has not provided an explanation, supported by evidence, replying only that the question is irrelevant. All that matters, Wells Fargo contends, is that the enforceable document was imaged into its records before the Debtor’s counsel started raising questions about Claim No 1‐1.

 

MERS Assignments VOID

For further information please call 954-495-9867 or 520-405-1688

===========================

see http://www.msfraud.org/law/lounge/mers-auroraslammed.pdf
While there are a number of cases that discuss the role of Mortgage Electronic Registration Systems (MERS), this tells the story in the shortest amount of time. MERS was only a nominee to track the off-record claims from multiple parties participating in what we call the securitization of loans. It now appears that the securitization in most cases never took place but the banks and their affiliates are foreclosing in the name of REMIC trusts anyway, relying on “presumptions” to “prove” that the Trust actually purchased and took possession of the alleged loan. In every case I know of  where the homeowner was allowed to probe deeply into the issues of whether the Trust actually received the loan, it has either been determined that the Trust didn’t own the loan, or the case was settled before the court could announce that ruling.

Decided in April of last year, this case slams Aurora, who was and remains one of the worst offenders in the category of fraudulent foreclosures. The Court decided that since the basis of the claim was an assignment from MERS who had no interest int he debt, note or mortgage, there were no “successors.” This logic is irrefutable. And as regular readers know from reading this blog I believe the same logic applies to any other party who has no interest in the debt, note or mortgage — like an unfunded “originator” whose name appears on not only the Mortgage, like MERS, but also on the note.

Judges have trouble with that analysis because in their minds they think the homeowner is trying to get a free house. Even if that were true, it doesn’t change the correct application of law. But the opposite is true. The homeowner is trying to stop the foreclosing party from getting a free house and the homeowner is trying  to find his creditor. I actually had a judge yesterday rule that the source of funds, ownership and balance was essentially irrelevant. Discovery on nearly all issues was blocked by his ruling, leaving the trial to be a very short affair since the defenses have been eliminated by that Judge by express ruling.

The attorney representing the bank basically argued that the case was simple and that anything that happened prior to the alleged default was also irrelevant. The Judge agreed. So when a trial judge makes such rulings, he or she is basically narrowing the issue down to when we were just starting out in 2007 in what I call the dark ages. The trial becomes mostly clerical in which the only relevant issues are whether the homeowner received a loan and whether the homeowner stopped paying. All other issues are treated as irrelevant defenses, including the behavior of the “servicer” whose authority cannot be questioned (because of the presumption raised by an apparently facially valid instrument of virtually ANY sort).

The moral of the story is persistence and appeal. I believe that such rulings are reversible potentially even as interlocutory appeals as to affirmative defenses and discovery. If anyone files a lawsuit they should be required to answer all potential questions about that that lawsuit in good faith. That is what discovery is for. The strategy of moving to strike affirmative defenses is meant to cut off discovery to the point where no defenses can be raised or proven. And cutting off discovery is what the foreclosers need to do or they will face sanctions, charges of fraud, perjury and worse when the real facts are revealed.

Maine Moving toward the Truth About the Mortgages, MERS and Foreclosures

submitted by anonymous reader:

LinkedIn Twitter Facebook
The Maine Supreme Court has been active in the last few months – issuing several decisions that will likely impact foreclosure actions in that state. The decisions covered a full range of foreclosure issues, from whether a lender can establish standing when it holds an assignment of the mortgage from Mortgage Electronic Registration Systems, Inc. (“MERS”) to the amount a borrower must pay to cure a default. If you originate and/or service RESIDENTIAL MORTGAGE LOANS in this state, you may want to review these recent cases. This alert focuses on the court’s holdings in one of these cases, Bank of America, N.A. v. Greenleaf, — A.3d —-, 2014 WL 2988236 (Me., July 3, 2014) (Review the Maine Supreme Court Opinion.)

Assignment from MERS May Only Transfer Right to Record Mortgage

The Maine Supreme Court’s decision in Greenleaf may require lenders to make some changes before they initiate FORECLOSURE actions in this state in which the mortgage identifies MERS as the nominee for the lender. This case presented some simple basic facts, but the court’s holdings may raise concerns. In 2006, Scott Greenleaf executed a promissory note for $385,000 to RESIDENTIAL MORTGAGE Services, Inc. (“RMS”) and signed a mortgage securing the debt. The note was endorsed in blank. The mortgage listed RMS as the lender and MERS as the nominee for the lender.
In 2011, Bank of America, N.A. (“BofA”) initiated FORECLOSURE proceedings against Greenleaf. It was undisputed that Greenleaf had failed to make payments on the loan since 2008. Although some interim drama played out in the FORECLOSURE proceeding, a trial was held in 2013. BofA presented the following documents to the court: the original note, the mortgage, and a document recorded in 2011 reflecting the assignment of the mortgage from MERS to BAC Home Loans Servicing, LP (“BAC”), an entity that subsequently merged with BofA. The court entered a judgment of FORECLOSURE IN favor of BofA and Greenleaf appealed.
Greenleaf alleged, among other things, that BofA lacked standing to seek foreclosure of the property since BofA did not have an interest in both the promissory note and the mortgage securing that note. Since the note was endorsed in blank and BofA had possession of the note, the Maine Supreme Court held that BofA met the first prong of the standing test. However, the court found that BofA failed to establish the second prong of the test, ownership of the mortgage.
The court struggled with the 2011 assignment of the mortgage by MERS to BAC. The court focused on one sentence in the 2006 mortgage that specifically provided that MERS was the mortgagee of record for purposes of recording the mortgage. The court held that this provision of the mortgage only granted MERS the right to record the mortgage as the lender’s nominee. When MERS then assigned its interest to BAC, the court held that it granted BAC only the right that it possessed, the right to record the mortgage as nominee for the lender. When BAC then merged with BofA, BofA only obtained the right that BAC had possessed, the right to record the mortgage as nominee. The court also noted that there was no separate and independent assignment of the mortgage from RMS to MERS, BAC, or BofA. As such, the court held that the record only demonstrated a series of assignments of the right to record the mortgage as nominee. In the absence of evidence that BofA owned the Greenleaf mortgage, the Maine Supreme Court held that BofA lacked standing to seek foreclosure and vacated the lower court’s judgment of foreclosure.
Since similar “right to record” language is included in many mortgage forms, lenders and servicers should pay particular attention to whether they are relying on assignments from MERS before initiating a foreclosure action in this state. Unless a lender holds or can obtain an assignment of the mortgage from the originating lender (and many of this lenders may no longer be in business), a lender may need to explore other options for establishing the second prong of the standing test in Maine. A mortgage assignment by MERS, standing alone, may not be sufficient to prove an assignment of a mortgage.
In response to the Greenleaf decision, many of the title insurers in the state have issued guidance regarding title issues under various scenarios in which MERS had assigned the mortgages. At least one title insurer has indicated that if MERS assigned the mortgage in a pending foreclosure action, an assignment from the original lender to the FORECLOSING mortgagee will be required in order for title to be insured without exception.

No Adjustments to Disclosed Payoff Amount Permitted During Cure Period

The Greenleaf court also defined the amount a borrower can be required to pay to cure a default. The notice of default and right to cure sent to Greenleaf included an itemization of all past due amounts and identified the total amount required to be paid by Greenleaf to cure the default. This total amount included a footnote reference that Greenleaf should “[c]ontact the servicer to obtain an up to date figure for outstanding attorney fees, unpaid taxes and costs before sending payment” and the notice also separately provided that Greenleaf should contact BAC at a prescribed telephone number “to obtain an up to date figure before sending payment.” Similar disclosures are generally included in the right to cure notices provided by many lenders and servicers.
Me. Rev. Stat. Ann. tit. 14, § 6111 provides that the contents of the notice of default and right to cure must include, among other things, an itemization of all past due amounts causing the loan to be in default and an itemization of any other charges that must be paid in order to cure the default. Greenleaf argued that the addition of the “call for updated information” references did not meet the statutory requirement that the notice itself must provide an itemization of other charges that must be paid in order to cure the default. The Maine Supreme Court agreed with Greenleaf and held that state law effectively freezes additions to the payoff amount during the cure period.
As such, the amount stated in the notice of default and right to cure is the only amount the borrower can be required to pay to cure the default during the 35 day cure period. Any attorneys’ fees incurred in continuing efforts to recover on the loan and advances made for property taxes or insurance during the cure period – none of these amounts can be added to the amount a borrower may be required to pay to cure the default. The court noted that the incorrect “call for updated information” references in the cure notice were an independent basis on which they could have vacated the lower court’s foreclosure judgment.

Changing Landscape?

Lenders and servicers should work closely with their foreclosure counsel to ensure they can establish standing before initiating a foreclose action in Maine. Lenders and servicers may also want to work with the title insurers to address any title issues that may arise in connection with MERS assignments. With certain changes in their foreclosure practices, lenders and servicers should still be able to prove up ownership of each mortgage sufficient to pass the Greenleaf court’s standing scrutiny. In addition, lenders and servicers should review their cure notice form templates used in this state and any corresponding policies and procedures to ensure that a borrower is never advised or required to pay more than the total amount due as disclosed in the cure notice. The Greenleaf court may have stirred the lobster pot – but lenders and services have options to adapt to the court’s recipes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

9th Circuit (Federal) Allows Quiet Title and Damages for Wrongful Filing of False Documents

Hat Tip to Beth Findsen who is a good friend and a great lawyer in Scottsdale, Az and who provided this case to me this morning. I always recommend her in Arizona because her writing is spectacular and her courtroom experience invaluable.

This case needs to be analyzed further. Robert Hager (CONGRATULATIONS TO HAGER IN RENO, NV) et al has succeeded in getting at least a partial and significant victory over the MERS system, and voiding robosigned documents as being forged per se. I disagree that a note and mortgage, once split, can be reunified by mere execution of an instrument. They are avoiding the issue just like the “lost note” issue. The rules of evidence and pleading have always required great factual specificity on the path of transactions leading up to the point where the note was lost or transferred. This Court dodged that bullet for now. Without evidence of the trail of ownership, the money trail and the document trail all the way through the system, such a finding leaves us in the dark. The case does show what I have been saying all along — the importance of pleading and admitting to NOTHING. By not specifically stating that there was no default, the court concluded that Plaintiffs had failed to establish the elements of wrongful foreclosure and left open the entire question about whether such a cause of action even exists.

But the more basic issue us whether the homeowner can sue for quiet title and damages for slander of his title by the use and filing of patently false documentation in Court, in the County records etc. The answer is a resounding YES and will be sustained should the banks try to move this up the ladder to the U.S. Supreme Court. This opinion changes again my earlier comments. First I said you could quiet title, then I said you first needed to nullify title (the mortgage) before you could even file a quiet title action. Now I revert to my prior position based upon the holding and sound reasoning behind this court decision. One caveat: you must plead facts for nullification, cancellation of the instrument on the grounds that it is void before you can get to your cause of action on quiet title and damages for slander of the homeowner’s title. My conclusion is that they may be and perhaps should be in the same lawsuit. This decision makes clear the damage wrought by use of the MERS system. It is strong persuasive authority in other jurisdictions and now the law for all courts within the 9th Circuit’s jurisdiction.

Here are some of the significant quotes.

Writing in 2011, the MDL Court dismissed Count I on four grounds. None of these grounds provides an appropriate basis for dismissal. We recognize that at the time of its decision, the MDL Court had plausible arguments under Arizona law in support of three of these grounds. But decisions by Arizona courts after 2011 have made clear that the MDL Court was incorrect in relying on them.
First, the MDL Court concluded that § 33-420 does not apply to the specific documents that the CAC alleges to be false. However, in Stauffer v. U.S. Bank National Ass’n, 308 P.3d 1173, 1175 (Ariz. Ct. App. 2013), the Arizona Court of Appeals held that a § 33-420(A) damages claim is available in a case in which plaintiffs alleged as false documents “a Notice of Trustee Sale, a Notice of Substitution of Trustee, and an Assignment of a Deed of Trust.” These are precisely the documents that the CAC alleges to be false.
[Statute of Limitations:] at least one case has suggested that a § 33-420(B) claim asserts a continuous wrong that is not subject to any statute of limitations as long as the cloud to title remains. State v. Mabery Ranch, Co., 165 P.3d 211, 227 (Ariz. Ct. App. 2007).
Third, the MDL Court held that appellants lacked standing to sue under § 33-420 on the ground that, even if the documents were false, appellants were still obligated to repay their loans. In the view of the MDL Court, because appellants were in default they suffered no concrete and particularized injury. However, on virtually identical allegations, the Arizona Court of Appeals held to the contrary in Stauffer. The plaintiffs in Stauffer were defaulting residential homeowners who brought suit for damages under § 33-420(A) and to clear title under § 33-420(B). One of the grounds on which the documents were alleged to be false was that “the same person executed the Notice of Trustee Sale and the Notice of Breach, but because the signatures did not look the same, the signature of the Notice of Trustee Sale was possibly forged.” Stauffer, 308 P.3d at 1175 n.2.
“Appellees argue that the Stauffers do not have standing because the Recorded Documents have not caused them any injury, they have not disputed their own default, and the Property has not been sold pursuant to the Recorded Documents. The purpose of A.R.S. § 33-420 is to “protect property owners from actions clouding title to their property.” We find that the recording of false or fraudulent documents that assert an interest in a property may cloud the property’s title; in this case, the Stauffers, as owners of the Property, have alleged that they have suffered a distinct and palpable injury as a result of those clouds on their Property’s title.” [Stauffer at 1179]
The Court of Appeals not only held that the Stauffers had standing based on their “distinct and palpable injury.” It also held that they had stated claims under §§ 33-420(A) and (B). The court held that because the “Recorded Documents assert[ed] an interest in the Property,” the trial court had improperly dismissed the Stauffers’ damages claim under § 33-420(A). Id. at 1178. It then held that because the Stauffers had properly brought an action for damages under § 33-420(A), they could join an action to clear title of the allegedly false documents under § 33-420(B). The court wrote:
“The third sentence in subsection B states that an owner “may bring a separate special action to clear title to the real property or join such action with an action for damages as described in this section.” A.R.S. § 33-420.B. Therefore, we find that an action to clear title of a false or fraudulent document that asserts an interest in real property may be joined with an action for damages under § 33-420.A.”
Fourth, the MDL Court held that appellants had not pleaded their robosigning claims with sufficient particularity to satisfy Federal Rule of Civil Procedure 8(a). We disagree. Section 33-420 characterizes as false, and therefore actionable, a document that is “forged, groundless, contains a material misstatement or false claim or is otherwise invalid.” Ariz. Rev. Stat. §§ 33-420(A), (B) (emphasis added). The CAC alleges that the documents at issue are invalid because they are “robosigned (forged).” The CAC specifically identifies numerous allegedly forged documents. For example, the CAC alleges that notice of the trustee’s sale of the property of Thomas and Laurie Bilyea was “notarized in blank prior to being signed on behalf of Michael A. Bosco, and the party that is represented to have signed the document, Michael A. Bosco, did not sign the document, and the party that did sign the document had no personal knowledge of any of the facts set forth in the notice.” Further, the CAC alleges that the document substituting a trustee under the deed of trust for the property of Nicholas DeBaggis “was notarized in blank prior to being signed on behalf of U.S. Bank National Association, and the party that is represented to have signed the document, Mark S. Bosco, did not sign the document.” Still further, the CAC also alleges that Jim Montes, who purportedly signed the substitution of trustee for the property of Milan Stejic had, on the same day, “signed and recorded, with differing signatures, numerous Substitutions of Trustee in the Maricopa County Recorder’s Office . . . . Many of the signatures appear visibly different than one another.” These and similar allegations in the CAC “plausibly suggest an entitlement to relief,” Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009), and provide the defendants fair notice as to the nature of appellants’ claims against them, Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
We therefore reverse the MDL Court’s dismissal of Count I.
[Importance of Pleading NO DEFAULT:] The Nevada Supreme Court stated in Collins v. Union Federal Savings & Loan Ass’n, 662 P.2d 610 (Nev. 1983):
An action for the tort of wrongful foreclosure will lie if the trustor or mortgagor can establish that at the time the power of sale was exercised or the foreclosure occurred, no breach of condition or failure of performance existed on the mortgagor’s or trustor’s part which would have authorized the foreclosure or exercise of the power of sale. Therefore, the material issue of fact in a wrongful foreclosure claim is whether the trustor was in default when the power of sale was exercised…. Because none of the appellants has shown a lack of default, tender, or an excuse from the tender requirement, appellants’ wrongful foreclosure claims cannot succeed. We therefore affirm the MDL Court’s of Count II.
[Questionable conclusion on “reunification of note and mortgage”:] the Nevada Supreme Court decided Edelstein v. Bank of New York Mellon, 286 P.3d 249 (Nev. 2012). Edelstein makes clear that MERS does have the authority, for purposes of § 107.080, to make valid assignments of the deed of trust to a successor beneficiary in order to reunify the deed of trust and the note. The court wrote:
Designating MERS as the beneficiary does . . . effectively “split” the note and the deed of trust at inception because . . . an entity separate from the original note holder . . . is listed as the beneficiary (MERS). . . . However, this split at the inception of the loan is not irreparable or fatal. . . . [W]hile entitlement to enforce both the deed of trust and the promissory note is required to foreclose, nothing requires those documents to be unified from the point of inception of the loan. . . . MERS, as a valid beneficiary, may assign its beneficial interest in the deed of trust to the holder of the note, at which time the documents are reunified.
We therefore affirm the MDL Court’s dismissal of Count III.

Here is the full opinion:

Opinion on MDL

For further information or assistance, please call 520-405-1688 on the West Coast and 954-495-9867 on the East Coast.

New Mexico Supreme Court Wipes Out Bank of New York

bony-v-romero_nm-sup.ct.-reverses-with-instruction_2-14

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

7

note establishes the Bank as a holder.

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

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

[COMPETENCY OF WITNESS]

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

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

9

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

[OBJECTION TO HEARSAY BUSINESS RECORDS REVERSED AND SUSTAINED]

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

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

[REJECTION OF MERS ASSIGNMENT]

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

[MERS CAN NEVER ASSIGN THE NOTE]

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

[SPLITTING THE NOTE AND MORTGAGE]

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

[THE NOBODY ELSE IS CLAIMING ARGUMENT IS EXPLICITLY REJECTED]

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

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

11

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

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

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

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

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

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

12

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

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

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

[DOOMED LOANS — WHO HAS THE RISK?]

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

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

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

[THE BLAME GAME]

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

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

 

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

 

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

Rhode Island Supreme Court Steps Forward for Borrowers

Slowly but surely it seems that the court system are now taking notice of the fact that there is something intrinsically wrong with both the mortgages and the foreclosure process. In this case the Rhode Island Supreme Court specifically found the grounds that could establish that the mortgage was not validly assigned. This case was about whether or not the homeowners case should have been dismissed. The Supreme Court decided that the homeowners case should not have been dismissed.

But in this case the court affirmatively stated that defects in the assignment process would void the assignment and thus defeat the foreclosure.

Paragraph 12 of the complaint alleges: “On or about September 10, 2010, MERS attempted to assign this Mortgage to Aurora. * * * Theodore Schultz signed. Theodore Schultz had no authority to assign.” Thus, the plaintiffs have alleged that the one person who signed the mortgage assignment did not have the authority to do so. This allegation is buttressed by other allegations in the complaint. Paragraph 13 states that “Theodore Schultz was an employee of Aurora, not a Vice-President or Assistant Secretary of MERS.” Paragraph 17 alleges that “MERS did not order the assignment to Aurora.” Finally, paragraph 19 contends that “[n]o power of attorney from MERS to either Theodore Schultz or Aurora is recorded and referenced in the subject assignment.” These allegations, if proven, could establish that the mortgage was not validly assigned, and, therefore, Aurora did not have the authority to foreclose on the property.(e.s.)

SEE Chhun v. Mortgage Elec Registration Sys Inc.

The court also addressed the issue of standing and of course the related issues of standards for review on appeal. In view of decisions like this that are becoming increasingly frequent, the new strategy of the banks is to file for foreclosure in the name of the originator or some remote controlled entity of the broker-dealers. Bank of America has spawned numerous new banks and other entities (e.g. EverBank and Urban Lending Solutions)  In order to put distance between BOA and the irregularities of both the mortgage closing and the foreclosure; and BOA has filed numerous actions where it initially stated that it was the servicer for an undisclosed third-party owner of the loan and then later retracted the allegations of its complaint stated that it was in fact the lender at all times material to the mortgage and the foreclosure.

 

New Bank Strategy: There was no securitization — IRS AMNESTY FOR REMICs

Reported figures on the financial statements of the “13 banks” that Simon Johnson talks about, make it clear that around 96% of all loans originated between 1999 and 2009 are subject to claims of securitization because that is what the investment banks told the investors who advanced money for the purchase of what turned out to bogus mortgage bonds. So the odds are that no matter what the appearance is, the loan went through the hands of an investment banker who sold “bonds” to investors in order to originate or acquire mortgages. This includes Fannie, Freddie, Ginny, and VA.

The problem the investment banks have is that they never funded the trusts and never lived up to the bargain — they gave title to the loan to someone other than the investors and then they insured their false claims of ownership with AIG, AMBAC, using credit default swaps and even guarantees from government or quasi government agencies. Besides writing extensively in prior posts, I have now heard that the IRS has granted AMNESTY on the REMIC trusts because none of them actually performed as required by law. So we can assume that the money from the lender-investors went through the investment banks acting as conduits instead of through the trusts acting as Real Estate Mortgage Investment Conduits.

This leads to some odd results. If you foreclose in the name of the servicer, then the authority of the servicer is derived from the PSA. But if the trust was not used, then the PSA is irrelevant. If you foreclose in the name of the trustee, using a fabricated, robo-signed, forged assignment backdated or non dated as is the endorsement, you get dangerously close to exposing the fact that the investment banks took a chunk out of the money the investors gave them and booked it as trading profit. One of the big problems here is basic contract law — the lenders and the borrowers were not presented with and therefore could not have agreed to the same terms. Obviously the borrower was agreeing to pay the actual amount of the loan and was not agreeing to pay the overage taken by the investment bank. The lender was not agreeing to let the investment bank short change the investment and increase the risk in order to make up the difference with loans paying higher rates of interest.

When we started this whole process 7 years ago, the narrative from the foreclosing entities and their lawyers was that there was no securitization. Their case was based upon them being the holder of the note. Toward that end they then tried lawsuits and non-judicial foreclosures using MERS, the servicer, the originator, and even foreclosure servicer entities. They encountered problem because none of those entities had an interest in the loan, and there was no consideration for the transfer of the loan. Since they were filing in their own name and not in a representative capacity there were effectively defrauding the actual creditor and having themselves designated as the creditor who could buy the property at foreclosure auction without money using a “credit bid.”

Then we saw the banks change strategy and start filing by “Trustee” for the beneficiaries of an asset backed (securitized) trust. But there they had a problem because the Pooling and Servicing Agreement only gives the servicer the right to enforce, foreclose, or collect for the “investor” which is the trust or the beneficiaries of the asset-backed trust. And now we see that the trust was in fact never used which is why the investment banks were sued by nearly everyone for fraud. They diverted the money and the ownership of the loans to their own use before “returning” it to the investors after defaults.

Now we are seeing a return to the original strategy coupled with a denial that the loan was securitized. One such case I am litigating CURRENTLY shows CitiMortgage as the Plaintiff in a judicial foreclosure action in Florida. The odd thing is that my client went to the trouble of printing out the docket periodically as the case progressed before I got involved. The first Docket printed out showed CPCA Trust 1 as the Plaintiff clearly indicating that securitization was involved. Then about a year later, the client printed out the docket again and this time it showed ABN AMRO as trustee for CPCA Trust-1. Now the docket simply shows CitiMortgage which opposing counsel says is right. We are checking the Court file now, but the idea advanced by opposing counsel that this was a clerical error does not seem likely in view of that the fact that it happened twice in the same file and we never saw anything like it before — but maybe some of you out there have seen this, and could write to us at neilfgarfield@hotmail.com.

Our title and securitization research shows that ACCESS Mortgage was the originator but that it assigned the loan to First National which then merged with CitiCorp., whom opposing counsel says owns the loan. The argument is that CitiMortgage has the status of holder and therefore is not suing in a representative capacity despite the admission that CitiMortgage doesn’t have a nickel in the deal, and that there has been no financial transaction underlying the paperwork purportedly transferring the loan.

Our research identifies Access as a securitization player, whose loan bundles were probably underwritten by CitiCorp’s investment banking subsidiary. The same holds true for First National and CPCA Trust-1 and ABN AMRO. Further we show that ABN AMRO acquired LaSalle Bank in a reverse merger, as I have previously mentioned in other posts. Citi has reported in sworn documents with the SEC that it merged with ABN AMRO. So the docket entries would be corroborated as to ABN AMRO being the trustee for CPCA Trust 1. But Citi says ABN AMRO has nothing to do with the subject loan. And the fight now is what will be allowed in discovery. CitiMortgage says that their answer of “NO” to questions about securitization should end the inquiry. I obviously take the position that in discovery, I should be able to inquire about the circumstances under which CitiMortgage makes its claim as holder besides the fact that they physically possess the note, if indeed they do.

Some of this might be revealed when the actual court file is reviewed and when the clerk’s office is asked why the docket entries were different from the current lawsuit. Was there an initial filing, summons or complaint or cover sheet identifying CPCA Trust 1? What caused the clerk to change it to ABN AMRO? How did it get changed to CitiMortgage?

Follow

Get every new post delivered to your Inbox.

Join 3,674 other followers

%d bloggers like this: