MASSACHUSETTS: IBANEZ IS SHOT HEARD AROUND THE WORLD

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

COLLATERAL BENEFIT REPLACES COLLATERAL DAMAGE

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Concluding that neither institution had proved it had the right to evict the borrowers, the Supreme Judicial Court voided the foreclosures, returning ownership of the properties to the borrowers and opening the door to other foreclosure do-overs in the state.

Foreclosures are supposed to occur only when lenders can prove they own the note underlying the property.

While it is common now for borrowers to question whether banks moving to seize their properties have the right to do so, in 2007, most borrowers assumed that the institutions foreclosing on them were acting properly.

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EDITORIAL COMMENT: The only thing wrong with these articles is two presumptions:

  1. That the notes and mortgages are valid.
  2. That securitization was real and that the loans were in fact bundled and sold.

The notes invariably describe a transaction that never existed and thus had no consideration. The mortgage thus secures a non-existent obligation since it refers to the note. The real obligation was never described in the note or mortgage. Thus the creation of the note, created a second obligation without consideration, while the real transaction was never reduced to writing. Thus there IS an obligation, but the attempt to use a fatally defective written instrument as evidence of the obligation is what is failing.

The law knows how to deal with a creditor that fails to perfect their security interest. None of those options were pursued because the real creditor didn’t even know what transactions were in dispute.

As for securitization — the bundling of mortgages and selling off pieces — it never happened. The money moved as though it happened, and there are issues about that which can only be answered in a solid broad-based audit. But the obligation never moved. The obligation could not move because it was never reduced to writing in the first place. The movement of the paperwork that was prepared and executed described a fictitious obligation.

The pools are and always were empty. The obligation arising between the investor and the borrower arises in equity. The intermediary agents of the investors who received payment in full multiple times never gave credit or payment to the investors and thus never reduced the obligation to reflect the payment. Thus the default, balance due and notices based upon that were all defective because they came from unauthorized agents and because they were factually wrong.

In any case, the net result of any serious analysis of these issues can lead to only one conclusion — that legally the obligation is neither documented nor secured.

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Massachusetts Ruling on Foreclosures Is a Warning to Banks

By GRETCHEN MORGENSON

The highest court in Massachusetts ruled Friday that U.S. Bancorp and Wells Fargo erred when they seized two troubled borrowers’ properties in 2007, putting the nation’s banks on notice that foreclosures cannot be based on improper or incomplete paperwork.

Concluding that neither institution had proved it had the right to evict the borrowers, the Supreme Judicial Court voided the foreclosures, returning ownership of the properties to the borrowers and opening the door to other foreclosure do-overs in the state.

Legal experts said that while this ruling did not set a precedent for other states, the outcome will be closely watched across the country because it is the first such ruling from a state’s highest court. Investors viewed the ruling as negative for banks; an index of financial company shares fell almost 1 percent on the day.

“The broad implication is you’ve got to dot your i’s and cross your t’s,” said Kathleen G. Cully, an expert in bankruptcy and lender regulatory law in New York. “You need a proper chain of title, and in both of these cases there was a gap in the chain.”

The case dates to 2007, when Wells Fargo and U.S. Bancorp began foreclosure proceedings against delinquent borrowers on two separate properties. Neither borrower fought the proceedings — the courts in Massachusetts are not obligated to oversee foreclosures — and both banks quickly seized the properties.

The banks’ problems began in the fall of 2008, when Wells Fargo and U.S. Bancorp sought judgments from the Massachusetts Land Court that would have given them clear title to the properties. In 2009, the court rejected the banks’ arguments, ruling that the banks had not been assigned the mortgages before they foreclosed, as is required. Instead, the banks had acquired the mortgages after they had begun foreclosure proceedings.

The ruling on Friday upheld that decision.

Foreclosures are supposed to occur only when lenders can prove they own the note underlying the property.

While it is common now for borrowers to question whether banks moving to seize their properties have the right to do so, in 2007, most borrowers assumed that the institutions foreclosing on them were acting properly.

Since then, lenders’ foreclosure practices have come under intense scrutiny. Borrowers’ advocates have argued that lenders flouted private property rights in their rush to foreclose on troubled borrowers. As lenders and Wall Street firms bundled thousands of mortgage loans into securities, banks often failed to record each link in the chain of documents demonstrating ownership of a note and a property.

Attorneys general in all 50 states are investigating foreclosure improprieties, which include forged signatures on legal documents and other dubious practices meant to patch up holes in loan documentation.

Both mortgages in the Massachusetts case had been bundled into securities and sold to investors. The banks that foreclosed on the borrowers were acting as trustees, bringing the actions on behalf of investors in the trusts, which held the properties at the time of the ruling.

In a statement, Steve Dale, a U.S. Bancorp spokesman, said: “Our role in this case is solely as trustee concerning a mortgage owned by a securitization trust. This judgment has no financial impact on U.S. Bancorp. The issues addressed by the court revolved around the process of the servicing of the loan on behalf of the securitization trust, which was preformed in this case by the servicer, American Home Mortgage Servicing.”

Vickee J. Adams, a Wells Fargo spokeswoman, said: “The loans at issue in the court’s ruling were not originated, owned, serviced or foreclosed upon by Wells Fargo. As trustee of a securitized pool of loans, Wells Fargo expects the entities who service these loans to abide by all applicable state laws, including those laws that govern foreclosure sales.”

Paul R. Collier III, a lawyer in Cambridge, Mass., represented Antonio Ibanez, one borrower in the case. “It’s been pretty clear and becoming ever more clear that the securitization industry has behaved as though it were immune from consumer protection laws, state homeowner protection laws and real estate regulations in its underwriting, securitization and foreclosure practices,” Mr. Collier said. “I am quite confident that this is merely the first petal off the rose with regard to predatory foreclosure practices.”

A special education teacher in Brookline, Mr. Ibanez and his wife moved out of the house and are now living in a rental condominium, his lawyer said. U.S. Bancorp, as trustee, will either have to pay Mr. Ibanez to buy a deed from him, Mr. Collier said, or walk away from the property, leaving it to Mr. Ibanez.

The loss on the property will be taken by investors in the trust that had claimed ownership of the mortgage.

The other borrowers whose foreclosure was overturned — Mark and Tammy LaRace — are still living in the home. They could not be reached.

The banks involved in the matter had asked the Massachusetts court to make its ruling prospective, meaning that it would affect only new foreclosures. The court declined to do so, allowing foreclosure cases that have been completed to be reopened and brought under scrutiny.

Mr. Collier said he had a dozen similar cases. In a legal brief presented to the Massachusetts court, representatives of the real estate industry said there were thousands of foreclosure cases in the state with facts like those in the Ibanez matter.

17 Responses

  1. dny

    see post to John.

  2. Rhode Island Attorney George E.Babcock with using Ibanez case from Massuchusetts today on special MERS Calendar in Superior Court in Rhode Island stops foreclosure dead in its tracks..: http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.babcocklawoffices.com%2F&h=911e4
    There will be many more to come!

  3. “TBTF MoRTGaGe FuBaR

    I just came across this hypothetical scenario presented by John Carney (CNBC NetNet Blog). It is a great example of how last week’s Ibanez decision will put a severe monkey in the works of the TBTF fraudclosure mills.

    You will smile when you read this and you will laugh when you think about what it is like to deal with thousands of scenarios resembling this one.

    This comes pretty close to the perfect definition of a TBTF FUBAR.”

    http://www.zerohedge.com/article/imagining-tbtf-mortgage-fubar-0

  4. To Bob, need more info however if you are in a non-judicial state and signed a sell clause at closing then in my opinion… yes

  5. John,

    “Converted” is simply an accounting term. Re — Enron. Securitization “converts” current cash receivables (on balance sheet) to off-balance sheet SPE conduits – in the form of securities — which are sold to stated security underwriters. (and M. Soliman’s answer as to Safe Harbor — does not affect valid and legal mortgage title and valid and legal foreclosure claims by proper party).

    One of the biggest problems of the set -up SPVs — is that no where – in the chain — does it demonstrate that the loans were first sold to parent corporation of the security underwriters (which they were!!!) We know this because the security underwriter purchases the certificates — before any resale of pass-through security investments to CDO holders or otherwise. But, security underwriters cannot “convert” receivables— only the parent corporation can convert the receivables — which is what was done — and why the banks have been in such trouble. AND, THIS IS THE CONVERSION — sale of loans to parent security underwriter — which by the securitization, converts to off-balance sheet “certificates” purchased by the security underwriters. This is the process — and long established by investigation of Goldman Sachs — and other investment banks.

    Repeal of Glass-Steagall — allowed banks to do multiple activities —- lend, purchase loans — and securitize receivables — REPEAT — securitization of synthetic derivative (contract) cash flows –is not part of original MBS trust).

    Hearing comments today regarding Ibanez case in MA. Investment groups/attorneys coming out with blazing comments to downplay. Consensus by these entities is that “banks” (not really the banks- as collection rights have already been passed on elsewhere) will be able to get their documents in order — and that Ibanez is not a problem.

    This is false. The focus in Ibanez is on “confirmatory assignments.” If nothing was done properly to begin with — there is nothing to confirm. And, THAT is the big issue regarding Ibanez.

    Quote from Ibanez — “A confirmatory assignment, however, cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time. See Scaplen v. Blanchard, 187 Mass. 73, 76 (1904) (confirmatory deed “creates no title” but “takes the place of the original deed, and is evidence of the making of the former conveyance as of the time when it was made”). 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 this case, based on the record before the judge, the plaintiffs failed to prove that they obtained valid written assignments of the Ibanez and LaRace mortgages before their foreclosures, so the postforeclosure assignments were not confirmatory of earlier valid assignments.”

    There is no way confirmatory assignment will be able to be done without perjury by some party. This is the issue in NJ. You cannot go back and try to confirm something that was never done in the first place.. THIS IS THE ISSUE. And, no attorneys will sign affidavits to confirm — (this is also issue in NJ) — they will not risk their license as to false statements.

    No one knows where the loans went at origination — and no one knows where the loans are now. Government has only supported foreclosures because they know — they need distressed debt buyer/hedge funds to purchase collection right (and because they under political/lobbying pressure to clear market with foreclosures). Many loan collection rights were sold before they were ever documented in any so called trust. The fraud is massive. Need remittance ledgers — as Marie McDonnell points out in amicus curiae brief to MA court. Everyone should read her brief.

    MA is a big step. Need more. Need AGs. Need Government to recognize that economy will not recover without addressing the fraud.
    But — we are on the right track — and have them running scared.

    Need to stand together.

  6. ANONYMOUS: I’ll stand by what I wrote (typos an all).

    Again you are describing securitization. Forget securitization for a moment.

    Isn’t a “Mortgage Loan Purchase” agreement an agreement to purchase mortgage loans? “All right, title and interest”, etc.? If the “mortgage loan purchase” agreement says D buys “all right, title and interest in mortgage loans 1-1000” from C, then A comes into court to foreclose on one of the mortgage loans the agreement should show the chain of title and who “owns” the mortgage loans. That’s the way they SAID they were going to do it anyway.

  7. dny

    Simply put –securitization is the removable of mortgage loan RECEIVABLES from balance sheets — to off balance sheet conduits. Securitization MUST involve CURRENT RECEIVABLE cash flows ONLY. You cannot securitize anything that is NOT current — and does not have a cash flow. This is all that Mortgage Loan Purchase Agreements intended to do. No agreements exist for securitization of the mortgage lien itself — this is because the mortgage lien is not a current cash flow.

    While old legal case law addresses mortgages following the note — and vice versa — this is old case law — that did not address securitization. I repeat — securitization is for current receivables ONLY.

    Now — are there other current cash flows that can be securitized??? Yes. anything with a current cash flow can be securitzed. BUT — these cash flow securitizations are NOT mortgage backed securities as defined by Securities and Exchange Act law. Securitzation of cash flows as to derivative contracts (such as default swaps) which are contracts — are not part of the original securitization of MBS receivables. And, instead contracts that remove (swap out) receivable (collection rights) from original trust — and — the original trust certificates holders are not entitled to any cash proceeds. This is the complication that is just not being understood by parties here. (and, I add, securitization of cash flows derived from derivative contracts — including CDOs and credit default swaps — are synthetic — and not valid MBS securities.) This is the major source of investor fraud — for which rating agencies falsely rated derivatives as Triple A.

    To SF_Dan, — Fannie/Freddie played many roles — and you cannot get a straight answer from any clerks. Fannie/Freddie – 1) directly purchased loans 2) guaranteed loans 3) purchased MBS securities 4) purchased derivative contracts.
    Trying to get an honest answer from Freddie/Fannie — is impossible.

  8. @ Zoe

    This is a lingering question concerning FNMA who is, according to the servicer, the “investor” but not identified in the recorded chain of title, and yet required to hold the note – in blank – with a custodian per the trust indenture FNMA. As such, a servicer(s) is recorded though assignment(s) on the deed of trust. But how does the servicer derive the standing to foreclose without FNMA’s involvement as holder of the note?

    Has anyone else got a clearer understanding as it relates to FNMA as “investor” but not in the recordings as a link in the chain of title?

  9. ANONYMOUS – You state: “Mortgage Loan Purchase agreement — is simply that — an agreement for pass-through of “loan” receivables.”

    Yet, what is it about the words, “Mortgage Loan Purchase” imply that the agreement is NOT about “purchasing mortgage loans” but instead “an agreement for pass-through of “loan” receivables.” Regardless of whether anybody reads the following pages of the “agreement,” isn’t the “intent” right there in the title of the agreement in rather plain English?

    Neil, thoughts on this ongoing dispute between you and ANONYMOUS?

  10. ANONYMOUS, on January 10, 2011 at 9:01 am said:
    The MA case touches upon this — “Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone’s home or farm and must be treated as such.”

    The point I want to make is that of the word “converted”. I have spoken out on this as it came up in the ‘Mortgage Fraud Seminar’ Securitization: The Big Picture by the Texas Office of the Attorney General on June 5, 2009.

    They referenced the Federal Register, Friday Jan. 7, 2005 which brought up the word “converted” in that the NOTE is converted into a securitized instrument, meaning a bond or a certificate. The value of the instrument was based upon the value of the Pooled Notes. Once the value of the Instrument was determined and then purchased by an Investor there was no longer any value in the Note. Money changed hands from the Investor who received the Instrument and the Trust received the money, which left the Note valued at nothing….

    Forensic Mortgage Audits and Foreclosure Defense
    Quiet Title Actions
    oliver@ipa.net
    john

  11. To Lost in Translation….Check out #3 about false docs being signed…..http://livinglies.wordpress.com/2009/03/25/8th-circuit-comes-down-heavy-for-homeowners-on-tila-rescission/

  12. While I agree with Neil on this — still have to emphasize that security investors are not the creditor. Mortgage Loan Purchase agreement — is simply that — an agreement for pass-through of “loan” receivables. While a mortgage may be “delivered” to trusts for “safe-keeping” (yeah right) — the lien itself is not passed onto security investors. This is why the Fed Res clearly states security investors are not the creditor. A mortgage is not a financial instrument — and cannot be made into one. While there may be some case law that states the mortgage follows the note and vice versa — it has become apparent — this did not happen.

    The MA case touches upon this — “Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone’s home or farm and must be treated as such.”

  13. The new lawsuit for the future–bringing a lawsuit after the fact of the foreclosure. There are going to be hundreds of thousands of lawsuits involving illegal foreclosure practices and fraud. http://www.challengingforeclosure.com Sirak@challengingforeclosure.com

  14. 427 page cae file for IBanez.

    http://www.scribd.com/doc/46497852/IBANEZ-Decision-Case-File-Compendium

    Does anyone have any case law for lenders that failed to verify a borrowers income or did verify and knew they could not repay the loan. TRYING TO FIGHT A LENDER who admitted in Court that the borrowers could not repay the loan or make payments as agreed, but the lender kept the borrowers on short term ballon notes and raised the payments from $1400 to $3200 and set them up to fail.

  15. “The real obligation was never described in the note or mortgage.”

    How should the real obligation have been described?

    How could one prove that the chain of title was broken in a state where the mortgage always follows the note, and MERS assigned the mortgage to BAC prior to the foreclosure suit, and the note is in blank (in a state that accepts in blank notes). Would that be a case where it was properly handled?

    With an originating lender, then Countrywide, then BofA and the investor Fannie Mae, is it likely that these could put together a valid chain of title? It seems that BoA could easily make up assignments in recordable form between itself and Countrywide. But would Fannie Mae need to be shown somehow too?

  16. If someone is in the process of foreclosure, can you challenge the bank’s foreclosure procedure and thereby stop the foreclosure in it’s tracks? I am in the middle of a loan modification with BOA. I want to challenge the foreclosure. Do I have to go to court to do so?

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