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.

__________________________________________________________
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.”

Get a consult! 202-838-6345

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.

—————-

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

 

4th DCA Florida: Exploding the Merger Myth

Achieving standing via merger also requires that the surviving entity prove that it “acquired all of [the absorbed entity’s] assets, including [the] note and mortgage, by virtue of the merger.”Fiorito v. JP Morgan Chase Bank, Nat’l Ass’n, 174 So. 3d 519, 521 (Fla. 4th DCA 2015).

see http://4closurefraud.org/2016/06/07/fl-4th-dca-segall-v-wachovia-bank-na-reversed-wachovia-failed-to-prove-standing-to-foreclose/

Finally the courts are turning back to the simple rules of law that always applied until the era of false claims of securitization. Hopefully this decision will be persuasive authority in all jurisdictions. As stated in other cases, the banks can’t continue to operate using multiple choice assertions. Either their entity is real or it isn’t. Either they acquired the loan or they didn’t — and the fact that there was a merger does NOTHING for them in asserting transfer of the loan. They must show that the subject loan was in fact acquired by the surviving entity in the merger. This was always the law before and now we are simply turning back to it.

California’s New Gieseke Decision-A New Playing Field Emerges Post-Yvanova

 

Charles Marshallby Charles Marshall, Esquire

Gieseke Remand Order 5 20 16 from 9th Circuit

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
On the heels of Sciarratta v. US Bank, in the wake of Keshtgar v. US Bank, under the umbrella of Yvanova v. New Century Mortgage, comes now a unifying decision which applies at a base level at least these California Supreme Court and appellate decisions to the non-judicial firmament throughout the Greater West, that of Gieseke v. Bank of America.

Gieseke is a 9th Circuit decision, thus making itself persuasive if not controlling law in California and 9th Circuit states outside California, including Oregon, Washington, Montana, Idaho, Nevada, Arizona, Alaska, and Hawaii. While it is not mandatory for 9th Circuit Fed Courts in these states to follow Gieseke, due to the causes of action at issue being primarily state-based property claims as opposed to Fed-based claims, the persuasive authority of Gieseke will doubtless be useful and may prove to be compelling in many a future non-judicial foreclosure case in which the ‘borrower’ (never concede even, nay especially, fundamental terms in case pleading) is the Plaintiff.

It is also important to keep in mind that Federal authority is not controlling in a state litigation matter. Nevertheless, the persuasiveness of Fed to State and State to Fed authority must be acknowledged and understood among foreclosure litigants.

One of the reasons Glaski v. Bank of America failed largely to get traction until revived by Yvanova, is that even though it was controlling authority in the 5th Appellate District of California, and very much persuasive authority elsewhere in California, California’s Fed Courts tamped this brave and groundbreaking decision down from an oak to a stump, in a matter of months, following its publication in August of 2013.

Now with Gieseke, the entire 9th Circuit has greatly amplified the already-dramatic impact of Yvanova and its progeny Keshtgar and Sciarratta. Indeed, the way the Gieseke decision came to be is an event of great moment for this long-time foreclosure warrior-attorney. The underlying Gieseke case, which I had filed in the Northern District of California Fed Court on behalf of my clients back in late 2013, and appealed many months ago, was set for oral argument on July 5, 2016 before the 9th Circuit.

The Clerk of the 9th Circuit Court issued an order-to-show-cause (OTS) on May 2, 2016 with the breathtaking directive to the institutional defendants in the case, including Bank of America, to wit: why shouldn’t we the 9th Circuit simply remand this case summarily, in light of the Yvanova decision.

The institutional defendants had their best appellate firm at the ready, Severson Werson, and put forward a shallow but superficially credible case. I ‘marshalled’ (you’ll forgive the pun) my extensive network of resources, putting forward my considerably more credible Neil Garfield-inspired and ready arguments, and awaited the decision which just came down May 20: Gieseke Appellants win summarily, without even having to go to oral argument, which hearing was vacated upon the remand of the case to District Court, where it is to be reconsidered in light of Yvanova and Keshtgar.

Keep in mind that while Yvanova and Sciarratta are both post-auction cases, Keshtgar, and now Gieseke, are pre-auction, post-NOD cases. Which means at this point in California, through the California Supreme Court and now the 9th Circuit, all post-NOD lawsuits will have at least persuasive authority battering the opposition from the moment of filing. Strategically for once, Californians litigating non-judicial foreclosure matters have real options in choosing venue.

Where the focus of a case is directed to wrongful foreclosure and quiet title, state courts may be the better venue, since Yvanova and Keshtgar are controlling authority in all State Courts at this point. On the other hand, where rescission is an important cause of action in a compliant, a Federal venue using Gieseke for non-rescission state-based claims litigated in the same Federal venue may be the best way to frame a case.

Remember, Federal authority is persuasive, not mandatory, when applied to state claims. On the other hand, the breakthrough case of Jesinoski v. Countrywide Home Loans is controlling authority throughout the US on the issue of rescission (always a Fed-based issue vis a vis the TILA Federal law), as the decision came out of the US Supreme Court.

One might reasonably anticipate at this juncture to wonder what might one expect in light of the above cases, in trying to move a given plaintiff’s foreclosure case forward. Here follows a primer: For starters, from case inception, when facing a sale date, TROs will be much more readily granted. Be mindful that the standard applied to granting a preliminary or permanent restraining order, and derivatively a TRO, is whether the movant for an injunction is likely to prevail on the merits in the litigation at issue.

Before Yvanova, getting TROs in foreclosure-related matters was fraught with difficulty, though still doable in a number of cases, depending upon the district, the court, etc, although winning the preliminary injunction hearing to follow was another matter typically. With Keshtgar and Gieseke (pre-auction holdings), a TRO and preliminary injunction movant is likely to find getting the relief requested is much more straightforward and readily available. Also take note that TROs and their kindred hearings are much more easily brought, procedurally, in state courts, as opposed to Federal courts, at least in California.

As a still-relatively new lawsuit moves forward in the new dispensation of our post-Yvanova foreclosure world, plaintiffs will likely face as before, a surfeit of demurrer filings from the usual-suspect institutional servicers and sales trustees, such as Chase and Quality Loan Service Corp. Do not be feint of heart. New playing field, to which our opposition will have trouble adjusting much more than our side will. The new field largely benefits us, and will doubtless delimit and one hopes eventually demoralize our opposition. Can’t wait for the role reversal.

If California courts, state or Federal, are working properly, demurrers in this new litigation climate should routinely be overruled where the proper causes of action are pled, such as wrongful foreclosure, various Homeowner Bill of Rights statutory sections such as California Civil Code 2924.17 and 2923.55, and quiet title—this latter cause of action I believe will see a great revival with our side finally getting standing to present our arguments.

Equally important in this new terrain, is of course to plead void not voidable, when it comes to addressing the broken chain of assignments, the front-dating, back-dating, and robo-signing associated with same assignments.

Expect to see many motions for summary judgment, and the occasional judgment on the pleadings, from our not-so-friendly and often ruthless defendants, who will resort to these at present little-used devices to try and get out of a case they are no longer able to exit via a demurrer.

So yes, be heartened as a plaintiff when you see the opposition file an Answer as opposed to a demurrer (State level) or motion to dismiss (Fed). Do be cautious though, as a motion for summary judgment may soon follow.

Which brings us to discovery: This aspect of our litigation will grow dramatically, as our cases move to trial, instead of being snuffed in a proverbial litigation crib. More about the useful tool of discovery in a future blog post. Also on deck for a future blog post: Trial practice in our foreclosure cases, and appellate practice.

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California-licensed attorney Charles T. Marshall (CA Bar # 176091) earned his Juris Doctorate in 1992 from the University of San Diego School of Law. His practice includes Foreclosure Relief, Civil Litigation, Bankruptcy, Immigration, Estate Planning and all facets of Personal Financial Management.

Charles Marshall can be contacted at:

415 Laurel Street, Suite 405 San Diego CA 92101 US
+1.530.888.9600
Charles@MarshallLawCa.com

Website:  http://www.marshalllawca.com/home.html

 

 

The Neil Garfield Radio Program: James “Randy” Ackley Recording

Listen Here: https://youtu.be/jOeAe9zT5D0

Yesterday, attorney James “Randy” Ackley appeared on the Neil Garfield Radio Show.  The show was a fascinating discussion about banks’ creating the illusion of standing when a bank is unable to demonstrate they have the right to foreclose.

Neil and Randy addressed why the courts were allowing loan servicers to present evidence that was hearsay, often fraudulent and did not comply with the rules of evidence. Ackley stated that, “The court is allowing evidence to be introduced that would not be admitted in any other type of case.” The discussion brought up the fact that courts are making erroneous presumptions in favor of the banks despite the fact that there is now a public record of banks fabricating evidence, robosigning documents, false notarizations and bank employees testifying under oath about facts they know nothing about.

To learn more about Randy Ackley at: http://4closurefraud.org/2016/04/05/james-r-ackley-responding-to-disaster-a-contemporary-approach-to-foreclosure-defense

 

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