Editor’s Note: I am currently working on the issue of fiduciary duty, so I would appreciate receiving material from any of you that have submissions on the subject.There is an article in the Florida Bar Journal this month on this topic. “If a fiduciary has special skills or becomes a fiduciary on the basis of representations of special skills or expertise, the fiduciary is under a duty to use those skills” . P. 22 Florida Bar Journal March, 2010 , “Understanding Fiduciary Duty” by John F Mariani, Christopher W Kammerer and Nancy Guffey Landers. So if a party presents itself to a borrower as a “lender” one would reasonable presume that they employed one or more underwriters who would perform due diligence on the loan, property and viability of the transactions including borrower’s income, affordability etc. A borrower would NOT reasonably presume that the “lender” didn’t care whether or not they would make the payments now or at some time in the future when the loan reset.It is a fascinating subject, but the area I am centering in on, is the presumption of a trusted relationship giving rise to a fiduciary duty where (1) the superior party takes on MORE tasks than called for by the contractual relationship between the two would normally imply, and (2) where the transaction is so complex and the knowledge one of the parties so superior, that the injured party is virtually forced to rely on the superior party.It doesn’t hurt either where the borrower is told not to bother with an attorney (“You can’t change anything anyway,” or “These documents are standard documents using Fannie Mae, FHA, HUD, Freddie Mac forms” etc.). Trust me, nobody who wrote those forms had nominees or MERS in mind when they were prepared.The issue is particularly important when we look at the layers of Trustees (implicit or explicit) in each of the securitized transactions. Whether it is the Trustee on the Deed of Trust who obviously has duties to both the Trustor (homeowner) and beneficiary (?!?), the Trustee for the aggregate pool under the pooling and service agreement, The Trustee of the Structured Investment Vehicle which typically off shore, the so-called Trustee for the SPV (REMIC) that issued the mortgage backed securities, each of whom presumptively is the successor to the “Trustees” before it, we are stuck with layers upon layers of documents that contain discrepancies within the documents and between the provisions of the documents and the actions of the parties.You also have the key issue that the true chronology of events differs substantially from the apparent chronology, starting with the fact that the mortgage backed securities were sold prior to the funding of the loan, the assignment and assumption agreement was executed prior to the borrower being known, and the pooling and service agreement also executed prior to any transaction with the borrower.The use of “close-out” dates and the requirement that assignments be recorded or in recordable form creates another layer of analysis. On the one hand you have clear provisions that explicitly state that the “loan” is not accepted into the alleged “trust” while on the other hand you have the parties acting as though it was accepted into the “trust.”You have entities described as trusts that have no property, tangible or intangible in them, and “trustees” named where the enabling documents chips away relentlessly at the powers and duties of the trustee leaving you with an agent whose powers are so limited they could be described as a candidate to be an agent rather than one with actual agency powers.The laws allowing the borrower to claw back undisclosed fees and profits are obviously based upon the presumption that the party who received those fees had some duty toward the borrower to act in good faith, knowing that the borrower was relying upon them to advise them correctly. Steering them into a loan that is likely or guaranteed to put them into foreclosure is obviously a breach of that trust, and taking compensation to act against the interest of the borrower is exactly what Truth in Lending and deceptive lending laws are all about.The article below clearly highlights the issues. The agent or broker gets paid only upon “closing the sale.” The agent gets paid a standard industry fee for doing so. But when the fee is a yield spread premium or some other form of kickback or rebate undisclosed to the borrower, the debtor ends up in a product that is not easily understood and is probably better for the “ledner” than the loan product that would have been offered if the “lending parties” were acting in good faith.So this article should be read with an eye toward applying similar fact patterns to the securitized loan situation where the loan originator was in many cases not even a bank but looked like a bank to the borrower.In the securities industry the issue is in flux more than the laws applying to mortgages where the investment represents the entire wealth of many borrowers. The stakes are usually much higher than in an individual stock purchase transaction.
Trusted Adviser or Stock Pusher? Finance Bill May Not Settle It
You have probably seen the television commercial, the one where you seem to be watching an intimate conversation between family members. But at the end, you learn that the conversation was actually between a broker and his client.
The advertisement is meant to evoke the idea of financial adviser as confidant, and is part of brokerage firms’ broader effort in recent years to recast their image — from mere stock pushers to trustworthy advisers.
But in interviews, former and current brokers said the ad told only part of the story. All said their jobs depended less on giving advice and more on closing sales. The more money they brought in, the more they, and their firms, would earn.
“I learned a lot about being a good salesman at Merrill,” said David B. Armstrong, who left Merrill Lynch after 10 years and with partners started an advisory firm in Alexandria, Va. “The amount of training I sat through to properly evaluate investment opportunities was almost nonexistent relative to the training I got on how to sell them.”
While the issue of broker responsibility is not new, it has resurfaced as Congress has been considering financial overhaul legislation. In his original draft, Senator Christopher J. Dodd, chairman of the Senate Banking Committee, proposed requiring brokers to put their customers’ interests first — what is known as fiduciary duty — when providing investment advice. But in recent weeks, the chances of this proposal’s making it into the bill began to dim.
Senator Tim Johnson, a South Dakota Democrat on the Banking Committee, has proposed an 18-month study of the brokerage and investment advisory industries, an effort that would replace Senator Dodd’s provision.
Imposing a fiduciary requirement could have an impact on investment firms’ profits. Guy Moszkowski, a securities industry analyst at Bank of America Merrill Lynch, said that the impact of a fiduciary standard was hard to determine because it would depend on how tightly the rules were interpreted. But he said it could cost a firm like Morgan Stanley Smith Barney as much as $300 million, or about 6 to 7 percent of this year’s expected earnings, if the rules were tightly defined. “It’s very nebulous, but I think that is a reasonable estimate,” he added.
In a research report about Morgan Stanley last year, Mr. Moszkowski wrote, “Financial advisers will be expected to take into account not just whether a product or investment is suitable for the client, but whether it is priced favorably relative to available alternatives, even though this could compromise the revenue the financial adviser and company could realize.”
Technically speaking, most brokers (including those who sell variable annuities or the 529 college savings plans) are now only required to steer their clients to “suitable” products — based on a customer’s financial situation, goals and stomach for risk.
But Marcus Harris, a financial planner who left Smith Barney 10 months ago to join an independent firm in Hunt Valley, Md., said the current rules leave room for abuse. “Under suitability, advisers would willy-nilly buy and sell investments that were the flavor of the month and make some infinitesimal case that they were somehow appropriate without worrying,” he said.
Kristofer Harrison, who spent a couple of years at Smith Barney before leaving to work as an independent financial planner in Clarks Summit, Pa., said the fact that brokers were paid for investments — but not advice — also fostered the sales mentality.
“The difficulty I had in the brokerage industry” he said, “is that you don’t get paid for the delivery of financial advice absent the sale of a financial product. That is not to say the advice I rendered was not of professional quality, but in the end, I always had the sales pitch in the back of my mind.”
Mr. Armstrong, Mr. Harris and Mr. Harrison all said they had decided to become independent because they felt constrained by their firms’ emphasis on profit-making and their inability to provide comprehensive advice.
A current branch manager of a major brokerage firm who did not want to be identified because he did not have his employer’s permission to speak to the media, confirmed that “you are rewarded for producing more fees and commissions.” While he said that “at the end of the day, I think that the clients’ interests are placed first and foremost by most advisers,” he added that “we are faced with ethical choices all day long.”
Brokers are typically paid a percentage of fees and commissions they generate. The more productive advisers at banks and big brokerage firms could collect 50 percent of the fees and commissions they generate, said Douglas Dannemiller, a senior analyst at Aite Group, a financial services research group.
The firms may also make money through other arrangements, including what is known as revenue sharing, where mutual fund managers may, for instance, agree to share a portion of their revenue with the brokerage firm. By doing this, the funds may land on the brokerage firm’s list of “preferred” funds. Some brokerage firms, including Merrill Lynch and Morgan Stanley Smith Barney disclose their revenue sharing information on their Web sites, or at the point of sale. Edward Jones discloses it as well, as the result of a settlement of a class-action lawsuit. UBS and Wells Fargo Advisors declined to comment on whether it discloses this information.
Unlike fiduciaries, brokers do not have to disclose how they are paid upfront or whether they are have incentives to push one investment over another. “The way the federal securities law regulates brokers, it does not require the delivery of information other than at the time of the transaction,” said Mercer E. Bullard, an associate professor at the University of Mississippi School of Law who serves on the Securities and Exchange Commission’s investment advisory committee.
The legislative language on fiduciary responsibility was one part of the financial overhaul bill aimed at protecting consumers’ interests. Another part, setting up an independent consumer protection agency, may also be watered down.
The study proposal by Senator Johnson may be included in the actual bill, which means it would not be subject to debate. And consumer advocates contended that the study would stop regulators from making any incremental consumer-friendly changes until the study was completed. The study would also require the S.E.C. to go over territory already covered in a 228-page study, conducted by the RAND Corporation in 2008 at a cost of about $875,000, the advocates said.
“In my opinion, the Johnson study is a stalling tactic that will either substantially delay or totally prevent a strong fiduciary standard from being applied,” said Kristina Fausti, a former S.E.C. lawyer who specialized in broker-dealer regulation.
“The S.E.C. has been studying issues related to investment-adviser and broker-dealer regulation and overall market conditions for over 10 years,” she said. “It’s puzzling to me why you would ask an agency to conduct a study when it is already an expert in the regulatory issues being discussed.”
Even after the study was completed, legislation would still need to be passed to give the S.E.C. authority to create a fiduciary standard for brokers who provide advice. “As we all know, the appetite for doing this in one or two years is certainly not going to be what it is today,” said Knut Rostad, chairman of the Committee for the Fiduciary Standard, a group of investment professionals advocating the standard. His group circulated an analysis that tried to illustrate where answers to the study’s questions could be found.
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: agent, assignments, attorney, borrower, close-out, fiduciary duty, Florida Bar Journal, Kammerer, Landers, loan originator, Mariani, Ny Times, recordable, REMIC, SIV, special skills or expertise, SPV, TARA SIEGEL BERNARD, TILA, trust, trustee, undisclosed fees and profits |
to Zurenarrh:
Sounds to me like they did that “re-appointment of trustee” bit because somebody figured out that the line of authority to do the proposed Sale was all screwed up and they wanted to make sure they would not end up either stopped by you or sued later.
But it does raise the question: does the party doing the “re-appointment” have the authority to do an appointment? And if there was a lapse of appointment, then who was minding the store while matters were lapsed?
All fertile grounds for lawsuits, of course. Hey, this is America.
My case involves something I have not seen anywhere else–a document called “re-appointment of trustee.” All it appeared to do was to “re-appoint” the trustee who was already named as trustee in my Deed of Trust. Recontrust Company was the original trustee in my Deed of Trust yet BAC Home Loans felt the need to file this “re-appointment” of Recontrust.
They did the re-appointment in conjunction with and on the same day as they did the assignment and the notice of sale. All three of these documents: notice of sale, re-appoint of trustee, and assignment from MERS to BAC were signed by the same person as an “assistant secretary” of all three companies.
Other than apparently acknowledging that at some point Recontrust stopped being the trustee of my Deed of Trust, anybody have a clue what this “re-appointment of trustee” document is for?
A very important question posed by Mr. Garfield – and that is the role of the “fiduciary trustee”. Seems to be a clear conflict with the TILA, in which the stated “lender” is the creditor. And, the amendment revolves around this issue.
I have had many conversations with state banking commission regarding this issue. Their answer is always “the state lender on your documents is your creditor/lender” – and that this is relevant for TILA. If this is so, then how can an assignment to a “fiduciary” ever be the lender/creditor – since the lender/creditor must always be clearly identifiable to the borrower. This is not just for “contract” origination – but also for claims of violation in which the “assignee steps into the shoes of the assignor”. Trustee for security investment holders (who have no full investment in your particular loan – and never qualified for you the loan) can never be viewed as the creditor/lender under the TILA. We have few laws to go by. Focus on the TILA – and the role of the “fiduciary” – no where does the TILA bring up the “fiduciary”. In foreclosures, bringing counterclaims for TILA are very important. Most cases available toss out for statute of limitations. Equitable tolling for non-discoverable fraud is not consistent and appears unresolved in courts.
My opinion, and I am not a lawyer – only for educational purposes etc. etc. – fiduciary role and TILA connection are the key.. Have to use what is already there.
Dave
“It might also give rise to determine whether secured collateral (the subject property in the foreclosure) was used to back another obligation (CDO) as security for that obligation. (If the homeowner pledged his house as collateral on another obligation … that would be considered a felony; but it’s okay for the lender to do it so long as the rights of assignment and laws of agency continue to maintain full disclosure and due diligence on behalf of both the borrower and the investors who own the portfolio?)”
More to it , maintain to NOT disclose is the real problem, Correct? So where do we go from here. Everyday it seems like new information actions of recourse is divulged, but the culprits seem to be three steps ahead.Perhaps we need state by state groups/organizations to start demanding this information at the legislative/goverment level.
In my humble opinion the people need to get going here, we can no longer wait around for individual cases to be won in court.
As I’m reading this … the legislation is a day late and a dollar short.
The book I’m working on focuses on agency relationships and assignments because this is what determines whether security interests are indeed perfected. I just sent notes off to a California auditor about the fiduciary relationship between Wells Fargo Home Mortgage Services and Wells Fargo Bank NA. If the Home Mortgage Services has received the right to service the loan by assignment … then produce the assignment so the court can examine whether it is limited in its specific performance (to collect payments only and nothing else) or whether it has full rights and duties to foreclose. An assignment by contract is still a contract and all 5 elements of that contract must be present, do they not?
PARALEGAL ASSUMPTIONS ON ASSIGNMENT …
“f) Treatment of servicer
(1) In general
A servicer of a consumer obligation arising from a consumer credit transaction shall not be treated as an assignee of such obligation for purposes of this section unless the servicer is or was the owner of the obligation.
(2) Servicer not treated as owner on basis of assignment for administrative convenience
A servicer of a consumer obligation arising from a consumer credit transaction shall not be treated as the owner of the obligation for purposes of this section on the basis of an assignment of the obligation from the creditor or another assignee to the servicer solely for the administrative convenience of the servicer in servicing the obligation. Upon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, with the name, address, and telephone number of the owner of the obligation or the master servicer of the obligation.”
If Wells Fargo Home Mortgage Services can be delineated from Wells Fargo Bank NA, through verification at the Secretary of State’s office / Corporations Section; including dates, officers, functions, etc.; then from a paralegal point of view, it must be then determined through discovery, under Production of Documents, what specific relationship the two entities have where “specific performance” is concerned? In other words, does the Home Mortgage Services entity as the “servicer” according to the Code, have the right to act in the stead of the beneficiary- owner Wells Fargo Bank NA, which was given to it by assignment; or are its actions as a servicer limited in nature. It must also be determined whether Wells Fargo Bank NA conducted proprietary trading of the note and assigned away its full rights and fiduciary duties to another entity, who legally owns the note, even if it’s part of another portfolio that Wells Fargo Bank NA might have proprietarily traded.
The treatment of the servicer in a court of law can be limited as to capacity if there exists a contract between the two entities that creates assignment for the purpose of specific performance; otherwise, Wells Fargo Home Mortgage Services, in its official capacity, would lack standing and capacity to bring an action on behalf of the owner of the note, Wells Fargo Bank NA. It would have to be determined what specific performance is required and whether all the elements of the contract exist (there are 5 elements to a contract, of which an assignment could also be included).
From a foreclosure defense litigation standpoint, the servicer can tell the obligor anything it wants to and then tell the court that this was to the best of their “knowledge and belief” and still lie through their teeth unless forced by the court to produce the assignment. Until the actual “administrative assignment” is examined under discovery can it be ascertained whether the Home Mortgage Services entity also carries with its assigned duties the specific performance and capacity to foreclose on behalf of the true creditor.
NOTE: If the loan has been securitized and this can be proven, any assignment given to “Wall Street” entities in possession of the securitized instrument could be limited to the promissory note only.
It might also give rise to determine whether secured collateral (the subject property in the foreclosure) was used to back another obligation (CDO) as security for that obligation. (If the homeowner pledged his house as collateral on another obligation … that would be considered a felony; but it’s okay for the lender to do it so long as the rights of assignment and laws of agency continue to maintain full disclosure and due diligence on behalf of both the borrower and the investors who own the portfolio?)
Go Figure.
J in CO
You have that right.
“Something is fishy but no one can get the proof.
Does anyone have an actual CDS or Derivative contract that can be reviewed?”
I am not in the financial industry but have been seeking the same information, and came across a software company “Loan Performance” a data software program/supplier that seems to have some of this information available. It is used at hedge funds and traders, where as information on individual loan’s, I am assuming in MBS pools is available. It is expensive to subscribe to with most likely a term commitment, year or more.
We also have been reviewing the duties of the trustee of the SPV to act in a manner that is fiscally prudent to gain the best possible return for the certificate holders. This comes into play as the trustee has the duty to enforce provisions of the SPV PSA such as the repurchase obligation of the depositor or the originator through the depositor.
Why would they foreclose on a house that is worth half of the loan balance rather than enforce the warranties and representation breach of a fraudulent loan? The repurchase would gain the complete balance and the cost of the repurchase such as tax liability etc.
The certificate holders are confirmed to only be getting 8 cents on the dollar for the bonds now that they are junk and are barely getting any of the income stream. Where do the CDS and Derivative contracts pay the benefit to?
Also, it seems that successor or replacement trustees have some vested stake in the foreclosures, could that be in the order of them buying the certificates that the lender had at a discount in order to make them follow along with the fraudulent game?
It seems to me that the trustee would only misrepresent themselves to have standing to foreclose and breach the duty to the certificate holders if they were getting paid some incentive. That again is a breach of duty.
Something is fishy but no one can get the proof.
Does anyone have an actual CDS or Derivative contract that can be reviewed?
COULD NOT AGREE MORE!!!!
“It is a fascinating subject, but the area I am centering in on, is the presumption of a trusted relationship giving rise to a fiduciary duty where (1) the superior party takes on MORE tasks than called for by the contractual relationship between the two would normally imply, and (2) where the transaction is so complex and the knowledge one of the parties so superior, that the injured party is virtually forced to rely on the superior party.”
WITH EMPHASIS ON,
“(1) the superior party takes on MORE tasks than called for by the contractual relationship between the two would normally imply”
Have been thinking about how this very issue could be a violation of the 10th amendment and used in a legal proceeding. Thank you for putting it in plain language.
As this “man-made ” disaster drags on , of which is compounded by fraudulent “public policy” reinvented daily in Washington & Wall Street, more and more people are being sucked into the abyss, are in danger of losing their homes not due to sub-prime exotic lending/borrowing, but through job lose & under employment, due to the previous fraudulent “public policy” which cased this problem in the first place!
Here’s a job posting on a foreclosures mill website. The Florida Default Law idiots…
Foreclosure Specialist – Miami Office
Job Description
The Foreclosure Specialist is responsible for files in various states of the foreclosure process. Duties to include but not limited to: Service of Process, Preparing Affidavits, Notice of Hearings for the Motion for Summary Judgment hearing, preparing defaults and following up with clerk and court on defaults, preparing the Final Summary Judgment review, preparing the Notice of Sale, following up on Hearing results, Sale dates and conformed copies of judgments, preparing Notice of Cancellations and Motion/Order to Vacate Judgment, Proofing Notice of Sales, preparing bid and bidding instructions, disbursements of funds and Certificate of Title. The Foreclosure Specialist is also responsible for updating the client’s database with current status of the files in their portfolio as required by the client requirements.
Job Requirements / Preferences
Education: High School Degree or equivalent required; higher education degree a plus. Paralegal Studies preferred but not required.
Technical: Proficiency in MS Office, including Word, Excel, Internet and Email (Outlook). Capable of learning new systems quickly.
Other: Knowledge of Florida Foreclosure process preferred. Possess excellent customer service skills; excellent written and verbal communication skills; financial aptitude desired. Must be organized, ability to multi task, meet deadlines and prioritize in a fast pace, high volume office environment. Capable of making independent decisions. Enjoys working in a team environment. Must have good research and investigation skills and understand legal terms.
Contact information
Interested candidates should please follow the steps below to apply for the above position:
1. Please visit the link below to submit an online application for the intended position of interest: https://www.adpselect.com/apps/olaSel?cst=1316898
2. Please email a current resume to Human Resources at the following email address: jobs@defaultlawfl.com. Also, please reference that you have already submitted an online application as required.
**NO PHONE CALLS PLEASE**
Question- does a securities trustee have powers that supercede the trustee named on the recorded documents, such as deed of trust? Especially since the securities trustee is unknown, generally, by the borrower (homeowner) and since the borrower did not know about any mortgage pool or securities trust?
If the securities trustee has more power than the trustee named on the recorded documents, what impact could that have on any lawsuits to fight off
a foreclosure?