BANKS CHANGING TACTICS: GOING JUDICIAL

MOST POPULAR ARTICLES

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE

“I suspect the FMAs [Foreclosure Mill Attorneys] came up with the scheme of “assuming” that the notes and trust deeds had already been safely deposited inside the REMICs. Based upon this fabricated assumption, they would have the REMIC Trustee execute a Limited Power of Attorney to a Big Bank Servicer to conduct the foreclosure.  The approach would avoid [or obscure] the issue of if, how, when, or whether the paperwork had ever been
delivered into the REMIC.” — PHIL QUERIN, ESQ.

“If the right of foreclosure never resided with the REMIC Trustee because the loan paperwork was never deposited there, then the foreclosure proceeds or the recovered property don’t belong there either.” PHIL QUERIN, ESQ>

EDITOR’S NOTE: In this superbly reasoned article, Querin grinds into the issues of strategy and tactics. It still all comes down to one simple fact: the pretenders are just that — pretenders. They are not the creditors, they do not represent the creditors, and they do not own the obligation, note or mortgage.

Note also differences in recording laws from state to state. Here, in Oregon, different rules apply as to recorded instruments depending upon whether the action is judicial or non-judicial. If he is right and the banks are going to try the judicial gambit, then they are “banking” on the bias of judges against borrowers who look like they are escaping liability. If you can keep the Judge’s attention on the priority, validity and ownership of liens, the issue of enforcement and identity of the creditor, you can avoid appearing as though you are seeking to invalidate the obligation — something no judge is likely to ever entertain.

Foreclosures – What Are The Big Banks Up to Now!?

August 07, 2011, 9:59:26 PM | Phil Querin ESQ.

“Oh what a tangled web we weave,
When first we practice to deceive!”

Sir Walter Scott, Marmion, Canto vi. Stanza 17.
Scottish author & novelist (1771 – 1832)

There are two new interesting developments on the foreclosure front in
Oregon.  But first, here’s a recap of where we’ve been and where we
are now:

Background.

The Big Banks tried and failed to conduct illegal non-judicial
foreclosures in Oregon.  As pointed out in several earlier posts,
here, here, and here, they have been routinely ignoring the mandatory
recording requirement of ORS 86.735(1).
They got their wrists slapped by Federal Judges, Panner, Alley, and others.
They realized that even when they completed an illegal foreclosure,
they likely couldn’t get title and couldn’t evict the homeowner.
As discussed here and here, their lobbyists went to the Oregon
legislature, and tried to convince the politicians that real estate
commerce would come to a halt, if they weren’t permitted to continue
violating the law.  [Note to Big Banks: Commerce did come to a halt,
but it was back in 2007+ after you’d gone on your securitization
binge, lent money to borrowers you knew couldn’t qualify [or didn’t
care if they couldn’t], immediately got paid by selling liar loans as
securities to pension funds and others who relied upon the agencies
you paid for bogus investment grade ratings, and then went through
four years of “extend and pretend” modifications that accomplished
absolutely nothing to resolve the foreclosure crisis. – PCQ]
The Big Banks next threatened that if they weren’t permitted to
violate Oregon’s non-judicial foreclosure law any more, then By Golly,
they would just start suing their delinquent borrowers in court, since
the  mandatory recording requirement only applied to non-judicial
foreclosures.
First Recent Development – Judicial Foreclosures. Today, there are
anecdotal reports of the Big Banks cancelling their non-judicial
foreclosure sales and going judicial.   We know this because they are
quietly changing their pre-foreclosure title insurance orders from
“Trustee Sale Guarantees” to “Litigation Reports.”  What does this
mean?  Well, if they were going to non-judicially foreclose one of
their borrowers, they would order a Trustee Sale Guarantee, since the
Successor Trustee in charge of the foreclosure would be conducting it
by public record recordings and newspaper advertisements, rather than
through the court system.  This type of report tells the Successor
Trustee who to name and send all mailings to in order to foreclose out
their interest in the subject property.

But if the Big Banks order a “Litigation Report”, it means they’re
teeing up a foreclosure lawsuit in court, and need a slightly
different form of title insurance coverage.  This report tells the
bank’s FMA [“Foreclosure Mill Attorneys”] who has to be named in the
lawsuit’s complaint, so that the foreclosure removes all other
interests subordinate to the plaintiff bank.  That way, the bank has
clear title to the property to transfer out of their REO department
once they complete the judicial foreclosure.

Why do the banks want to go to court, and publicly drag themselves,
and their borrowers, into the public arena, which will not only air
everyone’s dirty linen, but also subject themselves to court scrutiny?
The first explanation is simple: The mandatory recording requirement
of ORS 86.735(1) only applies in non-judicial foreclosures.  In other
words, the Big Banks don’t have to record the [oftentimes missing]
Trust Deed Assignments if they go to court, since the law does not
require that they so. [However,  they still have to establish that
they have “standing” as the “real party in interest” which essentially
raises the same issue as in a non-judicial foreclosure – does the bank
actually hold the note and mortgage it’s foreclosing on? – PCQ] My
suspicion is that the Big Banks really don’t want to go this route.
All it will take is one borrower to call their bluff, and demand that
they establish their legal standing to sue, i.e. produce the note,
fully endorsed [“indorsed” in UCC-speak] by all successive owners.

But being institutionally incapable of thinking outside the safety
box, Big Banks figure this is their only alternative. Options such as
deeds-in-lieu of foreclosure, cash for keys, expedited short sale
consents, are far too innovative – and would require a dose of human
compassion, which is verboten on most banker menus.

The remaining issue in this new development is how the Big Banks will
decide which homeowners they’ll sue, versus which one they will
foreclose non-judicially.  Right now, there appears to be no common
theme.  Clearly, if a borrower has the temerity to sue them to enjoin
a non-judicial sale, they will likely stop that sale and sue the
borrower in court. Who else they sick their FMAs on remains to be
seen.

Second Recent Development – Limited Powers of Attorney. Recently, we
are also seeing Big Banks quietly record Limited Powers of Attorney
before commencing their foreclosures.  A “Limited Power of Attorney”
(“LPOA”) is a document used to delegate certain prescribed powers from
one party to another.  A LPOA differs from the General Power of
Attorney in that the latter is broad and all-encompassing, with few,
if any limitations placed on the Attorney-in-Fact [the party receiving
the delegated power. – PCQ].  What follows is a summary of one such
LPOA recently recorded on the county records in anticipation of a
foreclosure:

It runs from the Big Bank, not in its “individual capacity” but solely
as “Trustee”.  Although it is clear that the Trustee is serving in
that capacity for a REMIC, the REMIC isn’t identified by name.  In
this case, the Trustee is acting as the principal and is delegating
certain powers to a third party.
The third party is another Big Bank identified as a “Servicer.”
Certain delegated powers are granted to any officer appointed by the
Servicer’s Board of Directors.  They are empowered to execute and
acknowledge in writing or by facsimile stamp “…all documents
customarily and reasonably necessary and appropriate” for certain
enumerated foreclosure tasks.  It is not clear if the Servicer is the
same Servicer already identified in the REMIC’s Pooling and Servicing
Agreement [“PSA”], but it would seem doubtful, since that would be
unnecessary.  The Servicer identified in the PSA would already have
those powers.
The LPOA provides that the documents may only be executed and
delivered by the Attorneys-in-Fact [i.e. the officers of the
Servicer], if such documents are required or permitted under the terms
of the related servicing agreements.
More specifically, the LPOA is issued in connection with the
Servicer’s responsibilities regarding the mortgage loans held by the
REMIC Trustee.
The listed tasks that the Servicer is authorized to perform run the
gamut of enforcing mortgages and trust deeds, to foreclosing them, and
virtually everything in between.  The Servicer is authorized to sue in
its own name, and defend the Trustee in all related litigation.
It is worth noting that the LPOAs appear to be signed by legitimate
bank officers.
So what’s up?  Well….given the banks’ radio silence, we can only
speculate.  Here’s my take:  As we have known for a year or more, the
Big Banks have been engaging in a “single assignment” ruse,
transferring the Trust Deeds being foreclosed from the original
lenders who made the loan [or MERS] to the Trustee of the REMIC where
the loan ostensibly resides.  This is nonsensical, since if the loan
was actually securitized into a REMIC upon origination years earlier,
it would have immediately gone through multiple assignments before
being deposited with the REMIC’s Trustee or Custodian.  Thus, making a
single assignment now, right before foreclosure, was a fairly
transparent sham. Banks do not transfer nonperforming loans to each
other without a reason. In those cases in which the original lender no
longer existed, but the Trust Deed Assignment was executed anyway,
this sham may have bordered on outright fraud.

Thus, in anticipation of further problems with borrowers contesting
this single assignment ruse, I suspect the FMAs [Foreclosure Mill
Attorneys] came up with the scheme of “assuming” that the notes and
trust deeds had already been safely deposited inside the REMICs.
Based upon this fabricated assumption, they would have the REMIC
Trustee execute a Limited Power of Attorney to a Big Bank Servicer to
conduct the foreclosure.  The approach would avoid [or obscure] the
issue of if, how, when, or whether the paperwork had ever been
delivered into the REMIC.  If some borrower wanted to attack the
Servicer’s power under the LPOA, the FMAs would likely argue that the
borrower was on a “fishing expedition” [quoting Prosecutor Hamilton
Berger in so many old Perry Mason TV episodes].  This argument could
resonate with a trial judge, concerned more about judicial economy
than borrowers’ procedural rights – “after all, the borrower is in
default….”

At this early point in time, it is difficult to tell whether the
Servicer, acting as the Attorney-in-Fact for the REMIC Trustee, is the
same Servicer identified in the REMIC’s PSA.  One of the reasons for
this difficulty is that at least in some cases, the LPOAs do not
specifically identify the REMIC by name.  Without the name, it is
almost impossible to identify the PSA, which names the Servicer and
describes their powers.  It also makes it difficult to know whether
such a delegation of power from the Trustee to a non-REMIC servicer
[if that was the case] is a violation of the terms of the PSA.

Here are my issues/questions/observations so far:

If the Note and Trust Deed were originally placed inside the REMIC
years ago, as they should have been, the PSA already gave the Master
Servicer or sub-servicer, the power to foreclose.  If so, the LPOA
would be completely unnecessary, since they already had these powers.
How can a LPOA be used to empower unidentified and unnamed persons in
a company to act?  Traditionally, powers of attorney are used to
delegate authority to a specified individual.  To have a power of
attorney from one corporation [with an unlimited existence] to another
corporation [with an unlimited existence] delegates power perpetually.
This has never been the traditional purpose or use of a Power of
Attorney – and it fact, subverts a corporation’s authority.  This sham
is reminiscent of the old MERS “Assistant Secretary” scam, where the
Board of Directors gave blanket officer designations to it members for
use in their foreclosures.
If the LPOA delegates foreclosure authority to persons outside the
REMIC structure, doesn’t that circumvent the purpose and intent of the
PSA that identifies who has the power to foreclose?
If the loan documents never made it into the REMIC before its Closing
Date – i.e. the date all notes, trust deeds, and mortgages were to be
delivered – how can the REMIC’s Trustee later delegate power to a
servicer to foreclose a property that was never inside the REMIC?
What happens after the foreclosure by the Servicer, acting as
Attorney-in-Fact on behalf of the REMIC Trustee?  If the right of
foreclosure never resided with the REMIC Trustee because the loan
paperwork was never deposited there, then the foreclosure proceeds or
the recovered property don’t belong there either.
What scrutiny are the title companies giving to this ruse?
Traditionally, title companies are very skittish about powers of
attorney appearing in the chain of title, since it is a risk they
insure against.  That being the case, they place stringent
requirements on the terms and authority in the document.  When title
companies issue a Trustee Sale Guarantee [for a non-judicial
foreclosure] or a Litigation Report [for a judicial foreclosure] to a
Big Bank doing the foreclosure, are they excluding or limiting
coverage for “excess of authority” problems that might arise if the
foreclosing Servicer didn’t actually acquire any authority because the
REMIC Trustee had none to delegate?  My suspicion, unfortunately, is
that this problem has already been addressed and resolved.  I suspect
the Big Banks have said [expressly or impliedly]: “If you want our
continued business, you’ll cover our backs on this.  If you won’t
cooperate, we’ll find a company that will.”
I also suspect that with the passage of time, more issues will arise.
But as it stands today, it appears that the Big Banks are still
looking for a work-around in order to deal with the documentation mess
they created several years ago.  Stay tuned!

12 Responses

  1. I have a subprime ARM loan from CIT from 10-2005. I had CIT, CITI Mortgage and now CARRINGTON as servicers. I am pretty sure they are getting ready to foreclose. Carrington is my new servicer but listed the CREDITOR as: Wells Fargo Bank N.A. as Trustee for Stanwich Mortgage Loan Trust Series 2011-2 Asset Backed Pass-through Certificates. MERS shows Carrington as the Servicer and Investor. The only recordings at the county are the Mortgage from 10-2005 after the loan closed. I’m in Oklahoma and was wondering if a Bankruptcy (which I had already begun preparring for a year ago) would help me with this mess? Thank you

  2. Thanks for the insight usedkarguy. On to studying DERECOGNITION OF FINANCIAL ASSETS

  3. does that help, MIH? just because the trust goes “dark”, does not mean the registrant is no longer operating. The deal summaries from absNET or MARKIT would show current loss ratios. However, loss ratios are irrelevant as this becomes one big accounting scam with the use of the swaps, TARP, PMI claims, and other securitization structures that supplement the payment stream. The issue you’re looking to explain is DERECOGNITION OF FINANCIAL ASSETS (FASB 140-3).

  4. A 15-15D states:

    Approximate number of holders of record as of the certification or notice date:
    Less than 300 Holders

    Pursuant to the requirements of the Securities Exchange Act of 1934,

    Wells Fargo Home Equity Trust
    Home Equity Asset-Backed Certificates,
    Series 2005-2 Trust

    has caused this certification/notice to be signed on its behalf by the
    undersigned duly authorized person.

    Date: 01/18/2006
    By: /s/ John B. Brown, Senior Vice President

    Instruction: This form is required by Rules 12g-4, 12h-3 and 15d-6 of
    the General Rules and Regulations under the Securities Exchange Act of 1934. The Registrant shall file with the Commission three copies of
    Form 15, one of which shall be manually signed. It may be signed by an officer of the Registrant, by counsel or by any other duly authorized person. The name and title of the person signing the form shall be typed or printed under the signature.

    The document takes the accounting of the trust out of the public domain. It’s called “going dark”, as in “you can’t see”. If there less than 300 “owners of record” of the certificates issues, there is no requirement that the Trustee/SPE release any financial information.

  5. It appears to me that many of the alleged “agents” for the REMICs are not agents at all b/c most REMICS filed a Form 15 with SEC within a couple of years of their closing dates. It is my understanding that a Form 15 filing could indicate a dissolution of the trust. If this is the case, a “trustee” nor any other agent can act on behalf of a dissolved trust, correct?

  6. Correct Usedkar:

    La Salle was nothing more than a trustee (but a bank acting as a trustee function for Bear Stearns pools. . I had some dealings with them myself when I could not get Bear Stearns, EMC and chase to perform. WE got it done but this was back in 2008 I believe. La Salle is out of the picture now – never did hear how they were removed as trustee, but I am sure Wall Street attorneys took care of that when the Chase purchase for 287 million was paid for Bear Stearns which like idiots we gave and cleaned up Bear Stearns for 28 B in 2007, late fall.

    Chase came out smelling like a rose because they probably only paid by tarp for 287 million if they even needed it. Chase bought them I believe four or five days after Tarp gave Bear Stearns the 28 B. Cleaned up like a champ and then sold for a pittance. Surely we did not get that taken, or did the taxpayer. Will confirm, but I am pretty sure, it was the deal or close thereto – apologize if not .

  7. Collection Rights known as servicing rights are sold for millions of dollars and are now being made a part of the bigger financial institutions. Homeq to Ocwen and now Litton sold to Ocwen – big money there because they just took the servicing rights from these companies and in the case of Homeq, they bought the whole subprime servicing group outright. But before all of that happened, When the loan was originated, whether you think it was a loan or not, servicing became a product at that time and was sold to temporary servicers until the servicing rights could be transferred to a master servicer in a pool or if not a pool, then sold to the next guy up that would be a servicer of loans. I have seen these servicing rights be sold or transferred twice within the 60 days until the pool closing date had been reached. Servicing of those loans allegedly taken into the pool, transferred at the same time to the Master servicer, the custodian of records and were not delivered to the trustee as a complete file first. All details in the individual PSA agreements.

    If you have information to back up this notion that collection rights are not sold or there is some special circumstance, please let me know so that I do not confuse the issue. But servicing rights indeed are a big money maker. If the alledged loans go into a pool, I do not know if the servicer paid any compensation at that time because usually in the 60 day after origination, the servicing can be sold at least twice until it is decided which loans are allegedly accepted into a pool.

    I am aware that many of you say these are not real loans so let’s not go there for now, but servicing is a product to be sold or transferred depending on whatever the agreement calls for.

    Why have I sold so many servicing rights to portfolio servicers if that is not the case. Just wondering.

    Try to straighten me out on this will you. It maybe that subprime is handled differently than regular “A” paper portfolio loans. In a conversation I had with Chase back in 2008 they told me they were not used to servicing subprime as they were “A:” people. Now that bank did not take over extremely difficult servicing of sub prime for their health and they were not the interim servicer in a pool. Just trying to figure out what scenario these guys are going with – thanks for your help.

  8. @ usedkarguy

    I GOT IT!! THANK-YOU.

    “The Trust allegedly holding the Plaintiff’s note was created on or about February 1, 2006, and is identified as “LaSalle Bank National Association, as Trustee for Certificate holders of Bear Stearns Asset Backed Securities I LLC, Asset-Backed Certificates, Series 2006-EC2.”
    and
    “….on behalf of the legal entity,“LaSalle Bank National Association, as Trustee for Certificate holders of Bear Stearns Asset Backed Securities I LLC, Asset-Backed Certificates, Series 2006-EC2” (hereafter the “Trust”). LaSalle is not the originator of the mortgage, the servicer, or even a bank. Instead, this entity is a New York common law trust created by an agreement known as “Pooling and Service Agreement.”

    I was looking at it wrong! In the caption, the “as Trustee for” was causing my mind to separate the “**** National Association” from the rest of what I viewed as the NAME of the Trust. I now see that the full NAME of the Trust INCLUDES the name of the Trustee IN IT.

    GO Schneiderman – we’re SO proud of him.

  9. Bill has it right,even the”strong” become”fatigued unto submission:;add in the psychological assault,maybe hunger-no j.o.b. no ‘benefits’ savings gone,health starts to feel the impact…
    makes ya’ wonder..ARE “they”/IT doing this to
    ahem
    kill
    us
    all
    off
    with
    legal
    plunder
    torture…??????????
    Ahhh,maybe I am getting ‘paranoid’…

    Nah,these people are honest,reputable and have credentials….

    I just had my brupper(breakfast-lunch&supper,the one meal of the day,fortunate to have that !!)

    I don’t want to lose it!

    Thank God for men such as Neil and for all those here who are light-years ahead of me…

    Carry On.

    Nail the colors to the mast…

  10. You said “mortgage” again…no mortgage.

    “The Depositor — is (or was) the “investor” to the collection rights. What was securitized in bogus trusts –were the cash flows to collection rights.
    Once a loan is written-off/charged off — that loan can no longer be paid by borrower (unless original creditor does reverse accounting entry — which they do not).
    Collection rights do not have to be “funded” — they are simply a right to collection transferred by assignment — not a “NOTE”. However, all was presented to borrowers has a new NOTE/loan. This is why no notes were never validly sold to trusts — there was no Note to a mortgage to transfer!!
    Again, only talking about the subprime/alt-a “loans.”
    Every single one of these bogus mortgages should be discharged.”
    ..

  11. Thanks for this post. There are some items here that need to be addressed by those who are familiar with the law and the PSA’s.

    The PSA in some cases that provides for a power of attorney per se, is not in recordable form and not acceptable to some counties. If the POA is required per the transaction, the title company must request it, get it recorded and then record any missing assignments, not to mention making sure they are in sequential order of filing. Your comment regarding that.

    The Limited Power of Attorney in some cases does not show the specific REMIC as you mentioned but it is noted also that the LPOA also in some cases does not authorize the servicer as attorney in fact to endorse notes, only to prepare and execute the assignment of Note and Lien. This can be a problem, can it not? Your comment.

    Yes they are attempting to finish off the kill by perhaps switching to a judicial rather than the non judicial as it states they can do so in the DOT or Mortgage. Your comments.

  12. Another point to consider –

    In Oregon, it costs money to answer a complaint. People in foreclosure will have difficulty coming up with $500-$1,000 to simply answer and defend. People will become frustrated (as they are already worn out and demoralized) and will conceed to a default rather than fill out the paperwork for a hardship and defend pro se.

    This is the real advantage for the banks. People can always come back and claim an illegal non-judicial foreclosure down the road. BUT….if they don’t answer and defend a judicial complaint, then they forfeit any future rights and claims.

Leave a Reply

%d bloggers like this: