STANDING: THE CRUX TO DEFENDING FALSE CLAIMS OF SECURITIZATION OF MORTGAGE LOANS

Mortgage foreclosure is the civil equivalent of the death penalty. in criminal cases. Many court decisions have enthusiastically supported that notion and attached much more stringent rules to the enforcement of a mortgage or deed of trust than they use in enforcement of a note. That is, until the last 20 years.

If you begin with the assumption that securitization is false, you start looking at the cover-up. Banks continue to win foreclosures because the truth is counterintuitive. Tactically the homeowner does not need to prove securitization fail in order to block a foreclosure. If that was the goal you would need to know and prove things that are in the exclusive possession, care, custody, and control of documents of third parties who are not even parties to the litigation nor mentioned in correspondence, notices or forms.

Successful defenders know that the securitization is faked and use that knowledge to ferret out relevant grounds to undermine and impeach testimony and documents proffered by lawyers for “stand-ins” called “naked nominees”, “lenders,” successors by merger, attorneys in fact, etc. wherein each such designation represents another layer of obfuscation.

Legal standing requires that the party who brings a foreclosure action must have legal injury resulting solely from nonpayment of the debt. The Federal Practice Manual published by and for Legal Aid describes and analyses gives good guidance that should be followed up with competent legal research of statutes and  cases in your state.

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

I provide advice and consent to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM. A few hundred dollars well spent is worth a lifetime of financial ruin.

PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM WITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.

Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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see Legal Aid Federal Practice Manual on STANDING

Published by the Sargent Shriver National Center on Poverty Rights

Here are some of the more salient quotes from the guide.

The law of standing has its roots in Article III’s case and controversy requirement.1 The U.S. Supreme Court has established a three-part test for standing. The “irreducible constitutional minimum of standing” requires the plaintiff to establish:

First … an “injury in fact”—an invasion of a legally protected interest which is (a) concrete and particularized, and (b) “actual or imminent,” not “conjectural” or “hypothetical.” Second, there must be a causal connection between the injury and the conduct complained of—the injury has to be “fairly … trace[able] to the challenged action of the defendant, and not … th[e] result [of] the independent action of some third party not before the court.” Third, it must be “likely,” as opposed to merely “speculative,” that the injury will be “redressed by a favorable decision.”2

So the ONLY party with standing to bring an action to foreclose on a mortgage is (a) the party who would suffer economic loss if the debt is paid (and the party entitled to payments on the debt) and (b) the party who would actually receive the proceeds of sale in a foreclosure action because they are holding a loan receivable reflecting ownership of the debt relating to the subject mortgage.

Both defense attorneys and judges have made the mistake of confusing standing to collect on a note, which does not necessarily require ownership of a debt, and standing to foreclose or otherwise enforce a mortgage which does require ownership of the debt. This is the law in every state under their adoption of the Uniform Commercial Code (UCC — Article 3 (NOTE) and Article 9 (MORTGAGE).

The cover for this erroneous conclusion is amply provided by the failure of homeowners to object resulting in default foreclosure sales. And further cover is provided by the fact that the delivery of the original note is presumed to be delivery of ownership of the debt. However, this is ONLY true if the execution of the note merged with the debt.

Merger ONLY occurs if the note and the debt are, in fact, the same, i.e., the Payee on the note is the same as the creditor who loaned the money. Banks have engaged in various illusions to cause courts to assume that merger occurred. But in fact, the substance of the loan transaction remains the same as what I wrote 10 years ago, to wit: (1) the sale of certificates naming an issuer without existence on behalf of the “underwriter”/”master servicer” of the nonexistent entity, (2) the underwriter taking the money and using it, in part, to fund loans through pre-purchase agreements (before anyone has even applied for loan) and through form warehouse loans that are in substance pre-purchase of loans.

Hence in all cases the money at the closing table came from the underwriter forwarding the funds to the closing agent. Since the money came from parties intending to be investors, the owner of the debt is (a) a group of investors (b) the underwriter or (c) both the group of investors and the underwriter, with the underwriter acting as agent. But the agency of the underwriter is at the very least problematic.

The underwriter may claim that the agency arises because of the Pooling and Servicing Agreement for the nonexistent “REMIC TRUST” to which the investors agreed. But the investors would be quick to point out (and have done so in hundreds of lawsuits) that the PSA and the “Trust” were sham conduits and fabricated documents to create the illusion that investor money would be entrusted to the named Trustee for administration within a trust, not a blanket power of attorney for the underwriter to use the money anyway they wished. It is the opposite of a power of attorney or agency because it arises by breach of the terms and conditions of the sale of the certificates.

While the standing test is easily stated, it can be difficult to apply. The Supreme Court has observed that “[g]eneralizations about standing to sue are largely worthless as such.”3

The Supreme Court also imposes “prudential” limitations on standing to ensure sufficient “concrete adverseness.”4 These include limitations on the right of a litigant to raise another person’s legal rights, a rule barring adjudication of generalized grievances more appropriately addressed legislatively, and the requirement that a plaintiff’s complaint must fall within the zone of interests protected by the statute at issue.5

The Supreme Court has made it clear that the burden of establishing standing rests on the plaintiff.6 At each stage of the litigation—from the initial pleading stage, through summary judgment, and trial—the plaintiff must carry that burden.7Standing must exist on the date the complaint is filed and throughout the litigation.8 Moreover, standing cannot be conferred by agreement and can be challenged at any time (e.s.) in the litigation, including on appeal, by the defendants or, in some circumstances, by the court sua sponte.9 Finally, plaintiffs must demonstrate standing for each claim and each request for relief.10  There is no “supplemental” standing: standing to assert one claim does not create standing to assert claims arising from the same nucleus of operative facts.11

The Supreme Court has held that, to satisfy the injury in fact requirement, a party seeking to invoke the jurisdiction of a federal court must show three things: (1) “an invasion of a legally protected interest,” (2) that is “concrete and particularized,” and (3) “actual or imminent, not conjectural or hypothetical.”12

In foreclosure cases, trial courts have nearly universally found that a party had standing because of legal presumptions without any proof of ownership of the debt. The good practitioner will drill down on this showing that the “presumption” is conjecture or hypothetical and that there is no harm in making the foreclosing party prove its status instead of relying on presumptions.

One last comment on both judicial and nonjudicial foreclosure. In typical civil cases if the defending party makes it clear that he/she is challenging standing, the party bringing the action must then prove it. In foreclosure cases judges typically adopt the position that the homeowner brought it up and must prove the non-existence of standing. This is the opposite of what is required under Article 3 of the US Constitution.

The party who “brought it up” is the foreclosing party. It manifestly wrong to shift the burden to the homeowner just because the foreclosing party asserts, or as in many cases, implies standing, In fact, in my opinion, nonjudicial foreclosure is constitutional but NOT in the way it is applied — by putting an impossible burden on the homeowner that makes it impossible for the homeowner to confront his/her accusers.

WHAT HAPPENS TO THE DEBT IF THE COURTS APPLY THE LAW? The debt still exists in the form of a liability at law and/or in a  court of equity. The creditor is a group of investors who have constructive or direct rights to the debt, and potentially the note and mortgage. The difference is that decisions on settlement and modification would be undertaken by the creditors — or designated people they currently trust. And that  means the creditors would be maximizing their financial return instead of minimizing it through intermediaries. But there is also the possibility that the investors have in fact been paid or have accepted payment in the form of settlements with the underwriters. Those settlements preserve the illusion of the status quo. In that case it might be that the underwriter is the actual creditor, if they can prove the payment.

HOW CAN THE NOTE BE TRANSFERRED WITHOUT THE DEBT?

Here is an analogy that might help this counterintuitive process.

Assume I own a car. I enter into an agreement with my friend Jane to sell the car to her. I sign the title and give it to her. Afterwards we both decide we didn’t want to do that. Jane pays nothing for the car. Jane does not get the car. Jane never uses the car. I still have and use the car and both Jane and I disregard the fact that I gave her a signed title. She does nothing with the title. Later in a loan application she lists the car as an asset. Then the car is stolen from me.

Who gets the insurance proceeds? The question is whether the title represents an actual agreement to buy the car. And all courts that would boil down to whether or not Jane paid me. She didn’t. I get the insurance proceeds because I lawfully applied for a duplicate title and received it.

But Jane still has one copy of the title signed by me in original form. She has also made copies of it that can be printed out with the appearance of an original. So far, she has sold the car 42 times and taken out 7 loans on the car.

One of the people that received the title records it with the DMV. There is a problem with that. I still have title and possession of the car. The gullible person who “bought” the car has a title signed by Jane, who has produced evidence that she received title from me. One Jane’s lenders on car stops receiving payments from Jane’s Ponzi scheme.

They “repo” the car and we go to court. The lender to Jane has no legal title even though they have what looks like an original title that is facially valid. Do I get my car back or does the lender” get to keep it.

One step further: if jane’s lender was actually a co-conspirator who accepted the false title and never gave a loan, does that change anything? I ask because this is exactly what is happening in nearly all foreclosures. The named “successor” in title engaged in no transaction to acquire the debt.

Transfer of the note was without regard to transferring the debt because neither the grantor nor grantee owned the debt. If the truth comes out, the transfer of the note will be seen as a sham paper transfer and the debt will be owned by whoever has money in the loan deal. Hence transfer of the note is not transfer of the debt. By denying the transfer of the note, the burden of proof should be on the would-be foreclosing party to show it was part of a real transaction.

NY Monroe Case: Default entered against homeowner — CASE DISMISSED on Standing — US Bank Never refiled.

multiple choice robo-pleading

NO PLEADING: HOMEOWNER WON ANYWAY

I have held off on discussing this case until some time passed. As far as I now know US Bank, like several cases I won, has not refiled for foreclosure. There is a good reason for that. US Bank is not the Plaintiff. The Plaintiff is named as a REMIC Trust, for which the attorneys claim that US Bank is the Trustee.

As such the Plaintiff does not own nor have any interest in the loan either as owner or servicer. Hence the named trustee (U.S. Bank) is named but it has nothing to do since the trust is nonexistent and in all events no attempt has ever been made to entrust the subject mortgage into the fiduciary hands of U.S Bank.

And THAT is because the only party with an equitable interest in the debt is a group of investors whose money was used to fund the origination or acquisition of the loan. The investors meanwhile think that their money was placed in trust and then used to purchase, not originate, loans.

Every once in a while a wily judge catches on from the face of the documentation. This judge ruled against US Bank as Trustee for a named REMIC Trust because he didn’t believe US Bank or the Trust was actually related to the subject loan. He gave them a chance to correct their pleading, but apparently out of fear of perjury, the lawyers for the nonexistent trust backed off, apparently permanently.

Let us help you plan your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

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Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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see Memorandum and Order – USBank Trust NA as Trustee for LSF9 MPT v Monroe

Quoting from the complaint field by lawyers for their supposed client, a nonexistent trust with a completely denuded trustee, the court includes their own allegation in its ruling:

2 (“Plaintiff is the owner and holder of the subject Note and Mortgage or has been delegated authority to institute this Mortgage foreclosure action by the owner and holder of the subject Note and Mortgage.”);

What does that even mean? This is a perfect example of multiple choice robo-pleading. Either the Plaintiff is the owner and holder of the subject note or mortgage or they are not. If they own the debt,  they don’t say as much and certainly didn’t offer any proof at their uncontested hearing on damages. It’s pretty hard to lose an uncontested hearing but US Bank has done it multiple times, as reported in this case.

If they have been delegated authority by the owner and holder of the subject note and mortgage, they fail to say who delegated that authority and how the delegation occurred. Since the express purpose of the trust was to own the debt, note and mortgage and make payments to investors based upon the trust’s ownership of the debt, note and mortgage, Demoting the trust to the status of a conduit or agent would be completely adverse to the express wording and authority granted in the trust.

Actually that kind of wording is exactly what enables the players to claim interest in notes and mortgages adverse to the interests of the parties whose money was directly used to fund the origination and acquisition of loans.

 

Here are some revealing quotes from the District Judge:

The Complaint does not contain any details concerning U.S. Bank’s role as trustee or the powers it has over the trust property (including the mortgage here). (e.s.)

The party asserting subject matter jurisdiction carries the burden of proving its existence by a preponderance of the evidence. E.g., Makarova, 201 F.3d at 113; Augienello v. FDIC, 310 F. Supp. 2d 582, 587–88 (S.D.N.Y. 2004). This is true even on a motion for default judgment, since the principle that a default deems the well-pleaded allegations of the complaint to be admitted is inapplicable when a court doubts the existence of subject matter jurisdiction. Transatlantic Marine, 109 F.3d at 108.

2 While some of these issues were discussed elsewhere by U.S. Bank’s counsel, e.g., Dkt. No. 7, they were not included in the affidavit filed in support of default judgment.

“When a default is entered, the defendant is deemed to have admitted all of the well- pleaded factual allegations in the complaint pertaining to liability.” Bravado Int’l Grp. Merch. Servs., Inc. v. Ninna, Inc., 655 F. Supp. 2d 177, 188 (E.D.N.Y. 2009) (citing Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)). “While a default judgment constitutes an admission of liability, the quantum of damages remains to be established by proof unless the amount is liquidated or susceptible of mathematical computation.” Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974); accord, e.g., Bravado Int’l, 655 F. Supp. 2d at 190. “[E]ven upon default, a court may not rubber-stamp the non-defaulting party’s damages calculation, but rather must ensure that there is a basis for the damages that are sought.” United States v. Hill, No. 12-CV-1413, 2013 WL 474535, at *1 (N.D.N.Y. Feb. 7, 2013)

In the past year, U.S. Bank’s attorneys—Gross Polowy—have repeatedly failed to secure default judgments in similar foreclosure cases before this Court. E.g., U.S. Bank Tr., N.A. v. Dupre, No. 15-CV-558, 2016 WL 5107123 (N.D.N.Y. Sept. 20, 2016) (Kahn, J.); Nationstar Mortg. LLC v. Moody, No. 16-CV-279, 2016 WL 4203514 (N.D.N.Y. Aug. 9, 2016) (Kahn, J.); Nationstar Mortg. LLC v. Pignataro, No. 15-CV-1041, 2016 WL 3647876 (N.D.N.Y. July 1, 2016) (Kahn, J.); cf. Ditech Fin. LLC v. Sterly, No. 15-CV-1455, 2016 WL 7429439, at *4 (N.D.N.Y. Dec. 23, 2016) (denying a motion for default judgment due to a defective notice of pendency); OneWest Bank, N.A. v. Conklin, No. 14-CV-1249, 2015 WL 3646231, at *4 (N.D.N.Y. June 10, 2015) (same). In each case, Gross Polowy’s motion was denied for one of two reasons: either the complaint failed to sufficiently allege subject matter jurisdiction, e.g., Dupre, 2016 WL 5107123, at *2–5, or the motion for default judgment failed to meet the requirements of the Court’s Local Rules, e.g., Moody, 2016 WL 4203514, at *2. Here, both of these failures are present.

The Complaint also includes no allegations concerning U.S. Bank’s ability to proceed under its own citizenship, despite bringing this case on behalf of the “LSF9 Master Participation Trust.” Compl.

While U.S. Bank is the nominal plaintiff in this case, it is longstanding federal law that “court[s] must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy.” Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980). “Where an agent acts on behalf of a principal, the principal, rather than the agent, has been held to be the real and substantial party to the controversy. As a result, it is the citizenship of the principal—not that of the agent—that controls for diversity purposes.” Hilton Hotels Corp. v. Damornay Antiques, Inc., No. 99-CV-4883, 1999 WL 959371, at *2 (S.D.N.Y. Oct. 20, 1999) (citing Airlines Reporting Corp. v. S&N Travel, Inc., 58 F.3d 857, 862 (2d Cir. 1995)). At issue here is the application of this rule in lawsuits brought by a trustee on behalf of a trust. —3 Gross Polowy should be aware of this rule because they were “foreclosure counsel” for the plaintiff-appellee in Melina, 827 F.3d at 216–17, though in fairness it seems they were replaced by Hogan Lovells for both the subject matter jurisdiction issue and the subsequent appeal, id. at 216; OneWest Bank, N.A. v. Melina, No. 14-CV-5290, 2015 WL 5098635 (E.D.N.Y. Aug. 31, 2015), aff’d, 827 F.3d 214.

In Navarro, the Court held that trustees can be the real parties in controversy—regardless of the type of trust—provided that they “are active trustees whose control over the assets held in their names is real and substantial.” 446 U.S. at 465; see also Carden v. Arkoma Assocs., 494 U.S. 185, 191 (1990) (noting that, if the trustees are “active trustees whose control over the assets held in their names is real and substantial,” they are brought “under the rule, ‘more than 150 years’ old, which permits such trustees ‘to sue in their own right, without regard to the citizenship of the trust beneficiaries’” (quoting Navarro, 446 U.S. at 465–66)). The continued validity of this rule was endorsed by the Court in Americold. 136 S. Ct. at 1016.

If U.S. Bank wishes to proceed in federal court, it must, within thirty (30) days, move to amend its Complaint to address the deficiencies identified in this order. This motion to amend must be prepared in accordance with Local Rule 7.1(a)(4), which establishes the form for such a motion and lists the required papers. With that motion, to resolve the Court’s doubts concerning subject matter jurisdiction, U.S. Bank must also provide its articles of association (along with any other documentation required to establish the location of its main office), the trust instrument for the LSF9 Master Participation Trust,4 and any other documentation required to show that U.S. Bank’s control over the trust assets is real and substantial. Failure to comply with this Memorandum-Decision and Order when moving to amend the Complaint may result in the denial of the motion or sanctions. L.R. 1.1(d).

 

4 In the Dupre case discussed above, U.S. Bank also was instructed to file the trust instrument for the LSF8 Master Participation Trust (presumably another securitization vehicle for mortgage debt) in order to establish subject matter jurisdiction. 2016 WL 5107123, at *2. When it did file the trust instrument, “the text . . . was almost entirely redacted,” and the only visible portion seemed to oppose the notion that U.S. Bank was an active trustee with real and substantial control over the trust assets. Id. at *2, *4. This failure should not be repeated here, and filing documents under seal or with redactions requires advance permission of the Court. L.R. 83.13; see also Lugosh v. Pyramid Co. of Onondaga, 435 F.3d 110, 119–20 (2d Cir. 2006) (describing the standard for restricting public access to judicial documents).

 

Trustee v Active Trustee US Bank Fails to show or even attempt to show it is an active trustee

CASE DISMISSED,WITH LEAVE TO AMEND. US BANK DECLINED TO AMEND. CASE DISMISSED.

Even where there is a clerk’s default “The burden is on the plaintiff to establish its entitlement to recovery.” Bravado Int’l, 655 F. Supp. 2d at 189.

Here is an example of how lawyers purport to represent US Bank when in fact they are creating the illusion that they represent a trust and in reality they are representing a subservicer who is receiving orders from a master servicer of a nonexistent trust. As Trustee of the nonexistent trust USB had no active role in the nonexistent trust. As the inactive Trustee for a nonexistent Trust, no right, title or interest in the debts of homeowners were within any scope of authority of any servicer, subservicer or master servicer. Each foreclosure is a farce based upon assumptions and presumptions that are exactly opposite to the truth.

Given the opportunity to amend the complaint, lawyers for USB chose not to amend — because they could not plead nor prove the required elements of an active trustee. Because of that USB lacked standing to bring the action except as agent for an active trust or on behalf of the trust beneficiaries. But where the certificates show that the certificate holders do NOT have any interest in a mortgage or note (true in about 70% of all cases), then they too lack of standing. And if the Trust is not an active Trust owning the debt, note or mortgage then it too lacks standing.

Let us draft your motions and do the research necessary to draw the attention of the court to the fraud taking place under their noses. 202-838-6345
Get a consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

Hat tip Bill Paatalo

see Memorandum and Order – USBank Trust NA as Trustee for LSF9 MPT v Monroe

See Judgment – USB Trust for LSF9 v Monroe –

While this case discusses diversity and other issues concerning US Bank “as trustee” the reasoning and ruling clearly expose the truth about pleading irregularities by attorneys who purport to represent US Bank or a REMIC Trust.

A debt is an asset to anyone who owns it. Industry practice requires that for transfer of ownership, there must be an agreement or other document providing warranty of title, confirmation of the existence and ownership of the debt and proof of authority of the person executing the document. Go into any bank and try to borrow money using a note as collateral. The bank will require, at a minimum, that the debt be confirmed (usually by the purported debtor) and that each party in the chain show proof of purchase.

Without consideration, the assignment of mortgage or endorsement of the note is just a piece of paper.

When there is an assertion of ownership of the loan, what the banks and so-called servicers are actually saying is that they own the paper (note and mortgage) not the debt. In the past this was a distinction without a difference. In the era of patently f false claims of securitization, the debt was split off from the paper. The owner of the debt were without knowledge that their money was not under Trust management nor that their money was being used to originate or acquire loans without their knowledge.

The securitization sting is accomplished because the owners of the debt (the investors who sourced the funds) are unaware of the fact that the certificate they are holding is merely a promise to pay from a nonexistent trust that never was utilized to acquire the debts and whose ownership of the paper is strictly temporary in order to foreclose.

The failure to make that distinction between the real debt and the fake paper is the principal reason why so many people lose their homes to interlopers who have no interest in the loan but who profit from the sale of the home because a judgment was entered in favor of them allowing them to conduct a foreclosure sale. 

This case also sets forth universally accepted legal doctrine even where there is a clerk’s default entered against the homeowner. The Judge cannot enter a judgment for an alleged debt without proving the debt — even if the homeowner doesn’t show up.

“When a default is entered, the defendant is deemed to have admitted all of the well- pleaded factual allegations in the complaint pertaining to liability.” Bravado Int’l Grp. Merch. Servs., Inc. v. Ninna, Inc., 655 F. Supp. 2d 177, 188 (E.D.N.Y. 2009) (citing Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)). “While a default judgment constitutes an admission of liability, the quantum of damages remains to be established by proof unless the amount is liquidated or susceptible of mathematical computation.” Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974); accord, e.g., Bravado Int’l, 655 F. Supp. 2d at 190. “[E]ven upon default, a court may not rubber-stamp the non-defaulting party’s damages calculation, but rather must ensure that there is a basis for the damages that are sought.” United States v. Hill, No. 12-CV-1413, 2013 WL 474535, at *1 (N.D.N.Y. Feb. 7, 2013)

“The burden is on the plaintiff to establish its entitlement to recovery.” Bravado Int’l, 655 F. Supp. 2d at 189.

 

Delaware Supreme Court rules Holder must prove it owns Note: Shrewsbury v. The Bank of NY Mellon

 

The Delaware Supreme Court has ruled you must own note and mortgage in order to foreclose — which is what I have been saying for 12 years.  A lot of good that will do the millions of people who lost their homes to parties that did not have ownership of the note and mortgage.  The days of creating the illusion of standing are approaching their end-  but how about the families who were illegally foreclosed by parties who had no standing to do so?

http://www.delbizcourt.com/recent-news/id=1202792240324/Standing-in-Foreclosure-Actions-Requires-Holding-Both-Mortgage-and-Note?mcode=1202615314751&curindex=1&slreturn=20170606142623

In Shrewsbury v. The Bank of New York Mellon, No. 306, 2016 (Del. Apr. 17, 2017), the Delaware Supreme Court ruled that a mortgage assignee must be entitled to enforce the underlying obligation that the mortgage secures in order to foreclose on the mortgage.

The decision enforces that the mortgage holder in a foreclosure action must also prove that it owns the underlying note. The majority opinion held that best practice for plaintiff’s counsel in a foreclosure action where a mortgage has been assigned would be to include an averment that the note, as well as the mortgage, was assigned to the plaintiff.

The Shrewsburys executed a promissory note in favor of Countrywide Home Loans and a mortgage that secured the note in favor of Mortgage Electronic Registration Systems (MERS) as nominee for the lender.  MERS assigned the mortgage to The Bank of New York.  The Shrewsburys “defaulted” on the note (remember there is no default if the servicer made advances), and the bank filed a mortgage complaint seeking to foreclose. The Shrewsburys responded alleging that the note had not been assigned to the bank, it did not have the right to enforce the underlying debt, and therefore the Bank of New York could not prove it had the right to foreclose.

The bank moved to dismiss on summary judgment, which was predictably granted by the Delaware Superior Court. The Superior Court held that under Delaware law, a mortgagee or the assignee of a mortgagee’s interest had standing to pursue foreclosure, citing 10 Del. C. Section 5061(a). In this case, the assignment of the mortgage was deemed valid because it conveyed all rights and interest of the assignor, was attested to by a credible witness, and was properly notarized. As a valid assignee of the mortgage, the bank was a proper party to enforce the note even though the bank did not produce the note or claim to be the holder of the note. The Shrewsburys appealed the decision to the Supreme Court.

On appeal, the bank argued that under Delaware law, a mortgagee’s right to foreclose derives from the mortgage, not the note. Ownership of the related promissory note is irrelevant to the mortgage holder’s right to foreclose on the mortgage.

In reaching its decision, the court looked to statute 10 Del. C. Section 5061 which provides that upon breach of the condition of a mortgage by nonpayment of the “mortgage money,” the mortgagee or the mortgagee’s assignee may sue out a writ of scire facias requiring the mortgagor to show cause why the mortgaged premises ought not to be seized and taken in execution for payment of the mortgage money.

The court noted that “mortgage money” refers to the note or debt that is secured by the mortgage. The only defenses available in a mortgage foreclosure action were payment of the mortgage money, satisfaction, or a plea to avoidance to avoid the mortgage based on the validity or illegality of the mortgage documents.

The court concluded that a mortgage does not create a debt or obligation, but merely secures one. An underlying debt or obligation is essential to a mortgage’s enforceability. An assignment of the note carries the mortgage with it, while an assignment of the mortgage alone is a nullity.

If the holder of the mortgage is not the one entitled to enforce the underlying debt—the “mortgage money” or note—the mortgage holder suffers no injury by the mortgagor’s nonperformance. Thus, a mortgage holder must be a party entitled to enforce the obligation that the mortgage secures in order to foreclose.  Since the bank had not produced the note or claimed to be the holder of the note or entitled to enforce it, a question of fact existed that should have resulted in the denial of the bank’s motion for summary judgment. Accordingly, the decision of the Superior Court was reversed.

In this particular lawsuit, the homeowners didn’t need need to delve into issues of securitization, it was enough to challenge the assignment of the note (or lack of) and to attack the servicer’s affiant who lacks sophisticated knowledge of the business records.

Bank of NY Mellon v. Anderson: Standing must be Established

In the Bank of N.Y. Mellon v Anderson, the New York Supreme Court Appellate court got it right by ruling that submitting an affidavit to support a motion is insufficient to establish standing when the affiant cannot swear they are familiar with the servicer’s record keeping practices and procedures.
The mere attachment of a copy of a note to the verified complaint also failed to demonstrate that the servicer had physical possession of the note when the action was commenced, and was ruled insufficient to establish standing.

If every court in the United States demanded proof of standing before a suit is allowed to proceed, foreclosures would come to a screeching halt.  It is concerning that the Bank of NY Mellon was able to proceed in the first place, and the decision says a lot about the lower courts abuse of erroneous presumptions and lack of concern for jurisdiction.

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The Bank of N.Y. Mellon v Anderson 2017 NY Slip Op 05349 Decided on June 30, 2017 Appellate Division, Fourth Department Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on June 30, 2017 SUPREME COURT OF THE STATE OF NEW YORK Appellate Division, Fourth Judicial Department
PRESENT: CENTRA, J.P., LINDLEY, DEJOSEPH, NEMOYER, AND TROUTMAN, JJ.
831 CA 17-00205

Appeal from an amended order of the Supreme Court, Monroe County (Ann Marie Taddeo, J.), entered February 22, 2016. The amended order, insofar as appealed from, granted plaintiff’s motion for summary judgment.

It is hereby ORDERED that the amended order insofar as appealed from is unanimously reversed on the law without costs and plaintiff’s motion is denied.

Memorandum: In this residential foreclosure action, defendants-appellants (defendants) appeal from an amended order insofar as it granted plaintiff’s motion for summary judgment and an order of reference. Plaintiff commenced this action by summons and verified complaint to which plaintiff attached, inter alia, a copy of the note endorsed in blank and a copy of the mortgage. In their answer, defendants asserted general denials and affirmative defenses including a defense that plaintiff lacked standing to commence the action. Plaintiff thereafter moved for summary judgment and submitted, inter alia, the affidavit of an authorized signatory of Caliber Home Loans, Inc. (Caliber), plaintiff’s loan servicer.

We conclude that Supreme Court erred in granting plaintiff’s motion because plaintiff failed to establish standing. It is well settled that a plaintiff moving for summary judgment in a mortgage foreclosure action establishes its prima facie case by submitting a copy of the mortgage, the unpaid note and evidence of default (see Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d 683, 684; HSBC Bank USA, N.A. v Spitzer, 131 AD3d 1206, 1206-1207). Where the defendant has asserted lack of standing as an affirmative defense, the plaintiff also must establish standing as an additional requirement of its prima facie case (see Deutsche Bank Natl. Trust Co., 142 AD3d at 684; HSBC Bank USA, N.A. v Baptiste, 128 AD3d 773, 774). Where the note is endorsed in blank, the plaintiff may establish standing by demonstrating that it had physical possession of the original note at the time the action was commenced (see Deutsche Bank Natl. Trust Co., 142 AD3d at 684-685; see generally Aurora Loan Servs., LLC v Taylor, 25 NY3d 355, 361). The plaintiff may do so through an affidavit of an individual swearing to such possession following a review of admissible business records (see Aurora Loan Servs., 25 NY3d at 359-361; JPMorgan Chase Bank, N.A. v Weinberger, 142 AD3d 643, 644-645; see generally CPLR 4518 [a]).

We agree with defendants that the affidavit submitted by plaintiff in support of its motion was insufficient to establish standing. The Caliber employee who authored the affidavit stated that Caliber maintains plaintiff’s books and records pertaining to the mortgage account; plaintiff [*2]had physical possession of the original note before the action was commenced and remained in physical possession of the original note as of the date of the motion; and he was personally familiar with Caliber’s record-keeping practices. However, plaintiff failed to demonstrate that its records pertaining to defendants’ account were admissible as business records (see CPLR 4518 [a]), inasmuch as the affiant did not swear that he was personally familiar with plaintiff’s record-keeping practices and procedures (see Aurora Loan Servs., LLC v Baritz, 144 AD3d 618, 619-620; Deutsche Bank Natl. Trust Co., 142 AD3d at 685).

Contrary to plaintiff’s contention, the mere attachment of a copy of the note to the verified complaint does not demonstrate that plaintiff had physical possession of the original note when the action was commenced (see generally Deutsche Bank Natl. Trust Co., 142 AD3d at 684-685), and thus is insufficient to establish standing.

Entered: June 30, 2017

Frances E. Cafarell

Clerk of the Court

2d Florida DCA Knocks Down CitiMortgage – PennyMac Dance

“In order to establish its entitlement to enforce the lost note, PennyMac could establish standing “through evidence of a valid assignment, proof of purchase of the debt, or evidence of an effective transfer.” BAC Funding Consortium, 28 So. 3d at 939. PennyMac’s filings in support of its motion for summary judgment did not present evidence of any of these things. In the absence of such evidence, the order of substitution standing alone was ineffective to establish PennyMac’s entitlement to enforce the lost note. See Geweye v. Ventures Trust 2013-I-H-R, 189 So. 3d 231, 233 (Fla. 2d DCA 2016); Creadon v. U.S. Bank, N.A., 166 So. 3d 952, 953-54 (Fla. 2d DCA 2015); Sandefur v. RVS Capital, LLC, 183 So. 3d 1258, 1260 (Fla. 4th DCA 2016); Lamb, 174 So. 3d at 1040-41.”

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https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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See http://stopforeclosurefraud.com/2017/02/16/houk-v-pennymac-corp-fl-2dca-pennymac-failed-to-meet-its-burden-of-showing-the-nonexistence-of-a-genuine-issue-of-material-fact-regarding-its-entitlement-to-enforce-the-lost-note/

The Second  District Court of Appeal in Florida has issued an opinion that diligently follows the law and the facts. This decision should serve as the blue print of foreclosure defense in all cases involving the dance between CitiMortgage and PennyMac. It is a shell game and the Court obviously is growing weary of the claims of “immunity” issued by the banks in foreclosure cases.

It all starts with self serving proclamations of owning the note, the mortgage or both. It NEVER starts with an allegation or assertion of ownership of the debt because they don’t own the debt. When the note was made payable to someone other than the owner of the debt, there could be no merger wherein the debt became merged into the note. And the reason for all this is that the mega banks were engaged in the a program of institutionalizing theft from investors.

The aim of the game is to get a court to enter an order which then raises the presumption that everything that preceded the entry of the order was legal — a presumption that is hard to rebut. So the strategic path for borrowers is to show that the program or scheme is not legal before the foreclosure is entered or to attack for damages based upon fraud after the foreclosure judgment or sale is entered.

In this decision lies the foundation for most cases involving foreclosure defense. The reader is encouraged to use the above link to read and then reread the decision. My comment on the highlights follows:

“In order to establish its entitlement to enforce the lost note, PennyMac could establish standing “through evidence of a valid assignment, proof of purchase of the debt, or evidence of an effective transfer.” BAC Funding Consortium, 28 So. 3d at 939.

COMMENT: Merely alleging that it was the holder of a note when it was lost is insufficient to assume standing to enter a judgment on behalf of the foreclosing party (in this case PennyMac). In the absence of physical possession of the note standing can be established by (1) EVIDENCE of (2) a VALID assignment or (3) PROOF of PURCHASE OF THE DEBT or (4) evidence of “effective” transfer.

The steamrolling presumptions that buried millions of homeowners are now hitting the wall. The main point here is that an allegation is not enough and most importantly standing to file suit does NOT mean that the party has standing for the entry of judgment in favor of the foreclosing party.

The error that both courts and lawyers for litigants have consistently made for the last 10 years is their assumption that a sufficient allegation that a party has legal standing at the time suit is filed (or notice of sale, notice of default, notice of acceleration) means that the party has proven standing with evidence. It does not. Like any other allegation it is subject to being discredited or rebutted. AND it requires proof, which places the burden of persuasion upon the party making that allegation. It is neither the law of the case nor subject to any twisted notion of res judicata to assume that matter is proven when merely alleged.

The 2d DCA shows it has a firm grasp of this basic fact. The fact that standing was challenged in an unsuccessful motion to dismiss does NOT mean the matter is resolved or has been litigated.

Fundamentally the issue in all these cases is about money. The question of foreclosure should always have been a secondary issue of much less importance. American jurisprudence is filled with recitations of how foreclosure was a severe remedy that requires greater scrutiny by the court. Up until about 15 years ago, Judges would sift through the paperwork and deny foreclosure even if it was uncontested if the paperwork raises some unanswered questions. That tradition follows centuries of tradition and doctrine.

Thus the 2d DCA has placed purchasing of the debt and ownership of the debt in the center of the table. In the absence of a party who owns the actual debt, it is possible for a party to seek enforcement of the note, the mortgage or both — but that can only be true if the foreclosing party has indeed acquired the right to enforce the instrument from an instrument signed by the owner of the debt; simply alleging that one is owner of the note has no effect at trial or summary judgment as to evidence of ownership of the debt. And without evidence of the true owner of the debt being the payee on the note, the grant of authority through Powers of Attorney, Servicing agreements or anything else is evidence of nothing.

The use of the word “effective” (i.e., effective transfer) in this decision also opens the door to the rescission debate that was actually settled by the unanimous decision of the Supreme Court of the United States in Jesinoski v Countrywide. What does it mean that something is effective? Reviewing court decisions and legislative histories it is clear that “effective” means that the event or thing has already happened at the moment of its rendering. Thus the court here is talking about an effective assignment (not just a piece of paper entitled “assignment”), meaning that all the elements of a proper assignment had been met, and NOT just the writing or execution of the instrument. It is not effective if the elements are missing. And the elements are missing if the proponent of the assignment does not prove the elements — not just allege them.

There is a difference between pleading and proof.

In the absence of such evidence, the order of substitution standing alone was ineffective to establish PennyMac’s entitlement to enforce the lost note. See Geweye v. Ventures Trust 2013-I-H-R, 189 So. 3d 231, 233 (Fla. 2d DCA 2016); Creadon v. U.S. Bank, N.A., 166 So. 3d 952, 953-54 (Fla. 2d DCA 2015); Sandefur v. RVS Capital, LLC, 183 So. 3d 1258, 1260 (Fla. 4th DCA 2016); Lamb, 174 So. 3d at 1040-41.”

COMMENT: This addresses the musical chairs tactics that have perplexed the Courts, borrowers and attorneys for nearly 2 decades. The court here is presenting for consideration the notion that substitution of parties does not confer anything on the apparent successor or new foreclosing party. What it DOES accomplish is removing the original party from having any legal standing for judgment to be entered in its favor. The claim of “succession”must be proven by the party making the claim — not by the party defending. What it does NOT accomplish is bootstrapping the allegations of standing from the original plaintiff or foreclosing party to a new party also having standing to pursue the judgment.

In all events therefore, the party alleging and/or asserting standing must prove it before the homeowner is required to rebut or even cross examine it.

 

 

NM and Fla Judges Express Doubt Over Whether Loans Ever Made it Into trust

Judges are thinking the unthinkable — that none of the trusts ever acquired anything and that the foreclosures were and are a sham.

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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It isn’t “theory. It is facts, or rather the absence of facts.

As shown in the two articles by Jeff Barnes below, we are obviously reaching the tipping point. First, the presentation of a Trust instrument means nothing if there is no proof the trust was active — and in particular actually purchased the subject loan. And Second, Judges will deny all objections to discovery and will rule for the borrower if the Trust did not acquire the loan.

In ruling this way the two Judges — thousands of miles apart — are obviously recognizing that the long standing bank objection to borrowers’ defenses based upon lack of legal standing absolutely do not apply. It is not a matter of whether the borrower has “standing” to bring up the PSA, it is a matter of whether the trust was party to any real transaction with relation to the subject mortgage. The answer is no. And no amount of extra paper, powers of attorney, assignments, or endorsements can change that.

Judges are thinking the unthinkable — that none of the trusts ever acquired anything and that the foreclosures were and are a sham.

It is probably worth re-publishing this portion from a long article by Adam Levitin written shortly after the Ibanez decision was reached in Massachusetts. Note how he points out that the vast majority of PSAs that are offered as evidence are neither executed nor do they have a mortgage loan schedule that is “reviewable.” The real problem — and the reason why the SEC-filed PSA documents do not have any signatures and why there is no mortgage loan schedule is that there was no transaction in which the Trust acquired the loans. Virtually all assignments are backdated and virtually none of the assignments relate back to any ACTUAL transaction in which the Trust was involved. The banks have been winning on fumes generated by legal inapplicable presumptions. —

It seems to me that any trust with Massachusetts loans that doesn’t have a publicly filed, executed PSA with a reviewable loan schedule should be on a downgrade watch. Very few publicly filed PSAs are executed and even fewer have publicly filed loan schedules. That doesn’t mean they don’t exist, but somewhere off-line, but if I ran a rating agency, I’d want trustees to show me that they’ve got those papers on at least a sample of deals. Of course should and would are quite different–the ratings agencies, like the regulators, are refusing to take the securitization fail issue as seriously as they should (and I understand that it is a complex legal issue), but I think they ignore it at their (and our) peril

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Excerpts from Barnes’ articles:

A Florida Circuit Judge has gone on the record requiring Wells Fargo, as the claimed “trustee” of a securitized mortgage loan trust, to show that the mortgage loan which WF is attempting to enforce actually went into the PSA, and if not, the standing requirement has not been met and the case will fall on summary judgment. The homeowner is represented by Jeff Barnes, Esq.

The Judge specifically stated as follows:

“…but what I want plaintiff’s counsel to understand, that what you submitted to me with regards to the pooling and servicing agreement still does not have the actual mortgages that went into that pooling and servicing agreement…So at some point you’re going to have to show that this mortgage and note certainly went into that pooling and servicing agreement, which is what I have requested before. …  So I’m just asking you that before we get too far out, please make sure that’s there, or its going to be taken out on summary judgment. … In other words, if you’re a trustee for that pooling and servicing agreement, and the mortgage and note are not in that pooling and servicing agreement, you don’t have standing.”

This ruling not only directly confirms the proof requirements for standing in a securitization case, but supports the production of discovery on the issue as well.


DISCOVERY IS KEY.

The borrower thus requested 53 categories of documents from BAC, including securitization documents. BAC filed a Motion for Protective Order which claimed that public information on the SEC website was “confidential”; that the securitization-related discovery was “irrelevant”; and that it was essentially entitled to withhold discovery because it “has the original note” and has moved for summary judgment on the “relevant” issues.

The Court disagreed, denying BAC’s Motion in its entirety and commanding full responses to the borrower’s discovery request (including production of all responsive documents) within 30 days. The Court found BAC’s Motion to be “sparse”; not in compliance with New Mexico court rules as to discovery; and against New Mexico’s case law which provides for liberal discovery in foreclosure actions so that all of the issues are fully developed and a fair trial is had.

 

A New Mexico District Judge yesterday denied BAC Home Loan Servicing’s Motion for Protective Order which it filed in an attempt to avoid producing documentary discovery to a homeowner who BAC has sued for foreclosure. The loan was originated by New Mexico Bank and Trust, was sold to Countrywide, and thereafter allegedly “assigned” first to MERS and then by MERS to BAC.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

The Adam Levitin Article on Ibanez and Securitization fail:

Ibanez and Securitization Fail

posted by Adam Levitin

The Ibanez foreclosure decision by the Massachusetts Supreme Judicial Court has gotten a lot of attention since it came down on Friday. The case is, not surprisingly being taken to heart by both bulls and bears. While I don’t think Ibanez is a death blow to the securitization industry, at the very least it should make investors question the party line that’s been coming out of the American Securitization Forum. At the very least it shows that the ASF’s claims in its White Paper and Congressional testimony are wrong on some points, as I’ve argued elsewhere, including on this blog. I would argue that at the very least, Ibanez shows that there is previously undisclosed material risk in all private-label MBS.

The Ibanez case itself is actually very simple. The issue before the court was whether the two securitization trusts could prove a chain of title for the mortgages they were attempting to foreclose on.

There’s broad agreement that absent such a chain of title, they don’t have the right to foreclose–they’d have as much standing as I do relative to the homeowners. The trusts claimed three alternative bases for chain of title:

(1) that the mortgages were transferred via the pooling and servicing agreement (PSA)–basically a contract of sale of the mortgages

(2) that the mortgages were transferred via assignments in blank.

(3) that the mortgages follow the note and transferred via the transfers of the notes.

The Supreme Judicial Court (SJC) held that arguments #2 and #3 simply don’t work in Massachusetts. The reasoning here was heavily derived from Massachusetts being a title theory state, but I think a court in a lien theory state could easily reach the same result. It’s hard to predict if other states will adopt the SJC’s reasoning, but it is a unanimous verdict (with an even sharper concurrence) by one of the most highly regarded state courts in the country. The opinion is quite lucid and persuasive, particularly the point that if the wrong plaintiff is named is the foreclosure notice, the homeowner hasn’t received proper notice of the foreclosure.

Regarding #1, the SJC held that a PSA might suffice as a valid assignment of the mortgages, if the PSA is executed and contains a schedule that sufficiently identifies the mortgage in question, and if there is proof that the assignor in the PSA itself held the mortgage. (This last point is nothing more than the old rule of nemo dat–you can’t give what you don’t have. It shows that there has to be a complete chain of title going back to origination.)

On the facts, both mortgages in Ibanez failed these requirements. In one case, the PSA couldn’t even be located(!) and in the other, there was a non-executed copy and the purported loan schedule (not the actual schedule–see Marie McDonnell’s amicus brief to the SJC) didn’t sufficiently identify the loan. Moreover, there was no proof that the mortgage chain of title even got to the depositor (the assignor), without which the PSA is meaningless:

Even if there were an executed trust agreement with the required schedule, US Bank failed to furnish any evidence that the entity assigning the mortgage – Structured Asset Securities Corporation [the depositor] — ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale.

So Ibanez means that to foreclosure in Massachusetts, a securitization trust needs to prove:

(1) a complete and unbroken chain of title from origination to securitization trust
(2) an executed PSA
(3) a PSA loan schedule that unambiguously indicates that association of the defaulted mortgage loan with the PSA. Just having the ZIP code or city for the loan won’t suffice. (Lawyers: remember Raffles v. Wichelhaus, the Two Ships Peerless? This is also a Statute of Frauds issue–the banks lost on 1L contract issues!)

I don’t think this is a big victory for the securitization industry–I don’t know of anyone who argues that an executed PSA with sufficiently detailed schedules could not suffice to transfer a mortgage. That’s never been controversial. The real problem is that the schedules often can’t be found or aren’t sufficiently specific. In other words, deal design was fine, deal execution was terrible. Important point to note, however: the SJC did not say that an executed PSA plus valid schedules was sufficient for a transfer; the parties did not raise and the SJC did not address the question of whether there might be additional requirements, like those imposed by the PSA itself.

Now, the SJC did note that a “confirmatory assignment” could be valid, but (and this is s a HUGE but), it:

cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time. Where there is no prior valid assignment, a subsequent assignment by the mortgage holder to the note holder is not a confirmatory assignment because there is no earlier written assignment to confirm.”

In other words, a confirmatory assignment doesn’t get you anything unless you can show an original assignment. I’m afraid that the industry’s focus on the confirmatory assignment language just raises the possibility of fraudulent “confirmatory” assignments, much like the backdated assignments that emerged in the robosigning depositions.

So what does this mean? There’s still a valid mortgage and valid note. So in theory someone can enforce the mortgage and note. But no one can figure out who owns them. There were problems farther upstream in the chain of title in Ibanez (3 non-identical “true original copies” of the mortgage!) that the SJC declined to address because it wasn’t necessary for the outcome of the case. But even without those problems, I’m doubtful that these mortgages will ever be enforced. Actually going back and correcting the paperwork would be hard, neither the trustee nor the servicer has any incentive to do so, and it’s not clear that they can do so legally. Ibanez did not address any of the trust law issues revolving around securitization, but there might be problems assigning defaulted mortgages into REMIC trusts that specifically prohibit the acceptance of defaulted mortgages. Probably not worthwhile risking the REMIC status to try and fix bad paperwork (or at least that’s what I’d advise a trustee). I’m very curious to see how the trusts involved in this case account for the mortgages now.

The Street seemed heartened by a Maine Supreme Judicial Court decision that came out on FridayHarp v. JPM Chase. If they read the damn case, they wouldn’t put any stock in it.

In Harp, a pro se defendant took JPM all the way to the state supreme court. That alone should make investors nervous–there’s going to be a lot of delay from litigation. Harp also didn’t involve a securitized loan. But the critical difference between Harp and Ibanez is that Harp did not involve issues about the validity of chain of title. It was about the timing of the chain of title. Ibanez was about chain of title validity. In Harp JPM commenced a foreclosure and was subsequently assigned a loan. It then brought a summary judgment motion and prevailed. The Maine SJC stated that the foreclosure was improperly commenced, but it ruled for JPM on straightforward grounds: JPM had standing at the time it moved (and was granted) summary judgment. Given the procedural posture of the case, standing at the time of summary judgment, rather than at the commencement of the foreclosure was what mattered, and there was no prejudice to the defendant by the assignment occurring after the foreclosure action was brought, because the defendant had an opportunity to litigate against the real party in interest before judgment was rendered. The Maine Supreme Judicial Court also indicated that it might not be so charitable with improperly foreclosing lenders that were not in the future; JPM benefitted from the lack of clear law on the subject. In short, Harp says that if the title defects are cured before the foreclosure is completed, it’s ok. There’s a very limited cure possibility under Harp, which means that the law is basically what it was before: if you can’t show title, you can’t complete the foreclosure.

What about MERS?

The Ibanez mortgages didn’t involve MERS. MERS was created in part to fix the problem of unrecorded assignments gumming up foreclosures in the early 1990s (and also to avoid payment of local real estate recording fees). In theory, MERS should help, as it should provide a chain of title for the mortgages. Leaving aside the unresolved concerns about whether MERS recordings are valid and for what purposes, MERS only helps to the extent it’s accurate. And that’s a problem because MERS has lots of inaccuracies in the system. MERS does not always report the proper name of loan owners (e.g., “Bank of America,” instead of “Bank of America 2006-1 RMBS Trust”), and I’ve seen lots of cases where the info in the MERS system doesn’t remotely match with the name of either the servicer or the trust bringing the foreclosure. That might be because the mortgage was transferred out of the MERS system, but there’s still an outstanding record in the MERS system, which actually clouds the title. I’m guessing that on balance MERS should help on mortgage title issues, but it’s not a cure-all. And it is critical to note that MERS does nothing for chain of title issues involving notes.

Which brings me to a critical point: Ibanez and Harp involve mortgage chain of title issues, not note chain of title issues. There are plenty of problems with mortgage chain of title. But the note chain of title issues, which relate to trust law questions, are just as, if not more serious. We don’t have any legal rulings on the note chain of title issues. But even the rosiest reading of Ibanez cannot provide any comfort on note chain of title concerns.

So who loses here? In theory, these loans should be put-back to the seller. Will that happen? I’m skeptical. If not, that means that investors will be eating the loss. This case also means that foreclosures in MA (and probably elsewhere) will be harder, which means more delay, which again hurts investors because there will be more servicing advances to be repaid off the top. The servicer and the trustee aren’t necessarily getting off scot free, though. They might get hit with Fair Debt Collection Practices Act and Fair Credit Reporting Act suits from the homeowners (plus anything else a creative lawyer can scrape together). And mortgage insurers might start using this case as an excuse for denying coverage. REO purchasers and title insurers should be feeling a little nervous now, although I doubt that anyone who bought REO before Ibanez will get tossed out of their house if they are living in it. Going forward, though, I don’t think there’s a such thing as a good faith purchaser of REO in MA.

You can’t believe everything you read. Some of the materials coming out of the financial services sector are simply wrong. Three examples:

(1) JPMorgan Chase put out an analyst report this morning claiming the Massachusetts has not adopted the UCC. This is sourced to calls with two law firms. I sure hope JPM didn’t pay for that advice and that it didn’t come from anyone I know. It’s flat out wrong. Massachusetts has adopted the uniform version of Revised Article 9 of the UCC and a non-uniform version of Revised Article 1 of the UCC, but it has adopted the relevant language in Revised Article 1. There’s not a material divergence in the UCC here.
(2) One of my favorite MBS analysts (whom I will not name), put out a report this morning that stated that Ibanez said assignments in blank are fine. Wrong. It said that they are not and never have been valid in Massachusetts:

[In the banks’] reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages. Their concession is appropriate. We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment.”

A similar line is coming out of ASF. Courtesy of the American Banker:

Perplexingly, the American Securitization Forum issued a press release hailing the court’s ruling as upholding the validity of assignments in blank. A spokesman for the organization could not be reached to explain its interpretation.

ASF’s credibility seems to really be crumbling here. It’s one thing to disagree with the Massachusetts SJC. It’s another thing to persist in blatant misstatements of black letter law.

(3) Wells and US Bank, the trustees in the Ibanez case, immediately put out statements that they had no liability. Really? I’m not so sure. Trustees certainly have very broad exculpation and very narrow duties. But an inability to produce deal documents strikes me as such a critical error that it might not be covered. Do they really want to litigate a case where the facts make them look like such buffoons? Do they really want daylight shed on the details of their operations? Indeed, absent an executed PSA, I don’t think the trustees have any proof of exculpation. They might be acting, unwittingly, as common law trustees and thus general fiduciaries. I think they’ll settle quickly and quietly with any investors who sue.
Finally, what are the ratings agencies going to do?

It seems to me that any trust with Massachusetts loans that doesn’t have a publicly filed, executed PSA with a reviewable loan schedule should be on a downgrade watch. Very few publicly filed PSAs are executed and even fewer have publicly filed loan schedules. That doesn’t mean they don’t exist, but somewhere off-line, but if I ran a rating agency, I’d want trustees to show me that they’ve got those papers on at least a sample of deals. Of course should and would are quite different–the ratings agencies, like the regulators, are refusing to take the securitization fail issue as seriously as they should (and I understand that it is a complex legal issue), but I think they ignore it at their (and our) peril

 

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