SCOTUS Revives Qui Tam Actions

Until this decision I had assumed that Qui Tam actions were essentially dead in relation to the mortgage meltdown. Now I don’t think so.

The question presented is whether actions brought by a private person acting as a relator on behalf of a government entity can bring claims for damages under the False Claims Act. Such actions are barred by the statute of limitations, which requires a violation to be brought within six years of the violation or three years “after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances.”[3] 

In a unanimous decision the Court held that the tolling period applies to private relator actions. This does not by any stretch of the imagination create a slam dunk. Relators must have special knowledge of the false claim and the damage caused to the government. It will still be necessary to argue in an uphill battle that the true facts of the securitization scheme are only now unfolding as more evidence appears that the parties claiming foreclosure are neither seeking nor receiving the benefit of sale proceeds on foreclosed property.

Some claims might relate back to the origination of mortgages and some relate to the trading of paper creating the illusion of ownership of loans. Still others may relate to the effect on local and State government (as long as the Federal government was involved in covering their expenses) in the bailout presumably for losses incurred as a result of default on mortgage loans in which there was no loss to the party who received the bailout, nor did such bailout proceeds ever find the investors who actually funded the origination or acquisition of loans.

And remember that a relator needs to prove special knowledge that is arguably unique. The statute was meant to cover whistleblowers from within an agency or commercial enterprise but is broader than that. The courts tend to restrict the use of Qui Tam actions when brought by a relator who is not an “insider.”

See https://www.natlawreview.com/article/supreme-court-recognizes-longer-statute-limitations-qui-tam-plaintiffs-false-claims

See Review of False Claims Act 18-315_1b8e

See Cochise Consultancy, Inc. v. United States ex rel. Hunt

I also find some relevance in the decision penned by J. Thomas writing for the court as it applies to TILA Rescission, FDCPA claims, RESPA claims and other claims based upon statute:

Because a single use of a statutory phrase generally must have a fixed meaning, see Ratzlaf v. United States, 510 U. S. 135, 143, interpretations that would “attribute different meanings to the same phrase” should be avoided, Reno v. Bossier Parish School Bd., 528 U. S. 320, 329. Here, the clear text of the statute controls. Cochise’s reliance on Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 545 U. S. 409, is misplaced. Nothing in Graham County supports giving the phrase “civil action under section 3730” in §3731(b) two different meanings depending on whether the Government intervenes. While the Graham County Court sought “a construction that avoids . . . counterintuitive results,” there the text “admit of two plausible interpretations.” Id., at 421, 419, n. 2. Here, Cochise points to no other plausible interpretation of the text, so the “ ‘judicial inquiry is complete.’ ” Barnhart v. Sigmon Coal Co., 534 U. S. 438, 462. Pp. 4–8. (e.s.)

Point of reference:

I still believe that local governments are using up their time or might be time barred on a legitimate claim that was never pursued — that the trading of loans and certificates were transactions relating to property interests within the State or County and that income or revenue was due to the government and was never paid. A levy of the amount due followed by a lien and then followed by a foreclosure on the mortgages would likely result in either revenue to the government or government ownership of the mortgages which could be subject to negotiations with the homeowners wherein the principal balance is vastly reduced and the government receives all of the revenue to which it is entitled. This produces both a fiscal stimulus to the State economy and much needed revenue to the state at a cost of virtually zero.

In Arizona, where this strategy was first explored it was determined by state finance officials in coordination with the relevant chairpersons of select committees in the State House and Senate and the governor’s office that the entire state deficit of $3 Billion could have been covered. Intervention by political figures who answered to the banks intervened and thus prevented the deployment of this strategy.

I alone developed the idea and introduced it a the request of the then chairman of the House Judiciary committee. We worked hard on it for 6 months. Intervention by political figures who answered to the banks intervened and thus prevented the deployment of this strategy. It still might work.

See also

http://www.mondaq.com/unitedstates/x/809786/White+Collar+Crime+Fraud/False+Claims+Act+Statute+of+Limitations+Relators+Now+Get+Up+to+10+Years+to+File+Suit

The Court also held that the relator’s knowledge does not trigger the limitations period. The statute refers to knowledge of “the official of the United States charged with responsibility to act in the circumstances[.]” Had the Court interpreted this provision to include relators, fears of protracted tolling by relators would largely dissipate because the qui tam action would have to be filed within three years of the relator’s knowledge or six-years of the violation, whichever is later. The Court rejected this approach, finding the express reference to “the” government official excludes private citizen relators. The Court held it is the government’s knowledge that triggers the limitations period.

The Court, however, left unanswered the question of which government official’s knowledge triggers the limitations period. The government argued in its briefs and at oral argument that such official is the Attorney General or delegate. As we have noted in prior posts (see Holland & Knight’s Government Contracts Blog, “ Self-Disclosure and the FCA Statute of Limitations: Cochise Consultancy, Inc. v. United States v. ex. rel. Billy Joe Hunt,” March 27, 2019), there is a broader question as to whether knowledge by governmental actors outside of DOJ, including knowledge trigged by self-disclosure, should start the limitations period. The Court did not rule on this question, though its decision hints at an interpretation that includes only the Attorney General. If true, DOJ becomes the sole repository for disclosures that trigger the limitations period. That is, unless defendants can argue that DOJ “should have known” of the violation when investigative bodies such as the Office of Inspector General or the FBI have actual knowledge of the violation … more on this latter issue is sure to come.

How “Standing” Is Causing the Longest Economic Recovery Since the Great Depression

THE PERFECT CRIME: THE VICTIMS DON’T KNOW ANYTHING

WHY INVESTORS AND BORROWERS SHOULD GET RID OF THE SERVICERS AND REPLACE THEM WITH SERVICING COMPANIES THEY CAN TRUST TO MITIGATE THE LOSSES CAUSED BY INVESTMENT BANKS

HOW? It is simple: since the perpetrators ignored the REMIC trust, didn’t fund them and never intended to actually have the REMIC trusts own the loans, the investors can go directly to homeowners or through their own servicers to settle and modify mortgages. This would leave the investors with claims against the investment banks for the balance of the losses, plus punitive damages, interest and court costs. It is the same logic as piercing the corporate veil — if you pay your grocery bills using the account of your limited liability corporation, the corporate entity is ignored.

Vasquez v Saxon (Arizona supreme Court) revisited

Assume the following facts for purposes of analogy and analysis:

  1. John Jones is a Scammer, previously found to have operated outside the law several times. He conceives of yet another PONZI scheme, but with the help of lawyers he has obscured the true nature of his next scheme. He creates a convoluted scheme that ultimately was never understood by regulators.
  2. The first part of his scheme is to offer shares in a company where the money will be held in trust. The money will be disbursed based upon standards that are promised to incoming investors.
  3. The new company will issue the shares based upon the receipt of money from investors who are buying those shares.
  4. Jones approaches Jason Smartguy, who manages a pension fund for 3,000 employees of ABC Company, a Fortune 500 company.
  5. Jason Smartguy manages the pension funds under strict restrictions. A pension fund is a “stable managed fund” whose investments must be at the lowest risk possible and whose purpose is capital preservation.
  6. John Jones promises Jason Smartguy that the new company will invest in assets that are valuable and stable, and that these investments will pay a return on investment higher than what Jason Smartguy is getting for the pension fund under his management. Jason likes the idea because it gives him employment security and probably bonuses for increasing the rate of return on the funds managed for the pension fund.
  7. The lawyers for John Jones have concealed the PONZI nature of the scheme (paying back investors with their own money and with money from new investors) by disclosing the existing of a reserve fund — consisting entirely of money from Jason Smartguy.
  8. Jason advances $100 Million to John Jones who says he is acting as a broker between the new Company (the one issuing the shares) and the Pension fund managed by Jason Smartguy.
  9. The new Company never receives the money. Instead the money is placed in accounts controlled by people who have no relationship with the new Company.
  10. The new Company never receives title or any documentation showing they own shares of the money pool now controlled by John Jones when it should be controlled by the new Company.
  11. John Jones uses the money to bet against the new Company, insurance on the value of the shares of the new Company, and the proceeds of other convoluted transactions — mostly based on the assumption that John Jones owns the money in the pool and based entirely on the assumption that any assets of the pool therefore belong to John Jones — not the new Company as promised.
  12. John Jones also uses the money to buy assets, so everything looks right as long as you don’t get too close.
  13. The assets Jones buys are designed to look good on paper but are pure trash — which is why John Jones bet against the pool and shares in the pool.
  14. Everyone is fooled. The investors get monthly statements from John Jones along with a check showing that the investment is working just as was planned. They don’t know that the money they are receiving comes entirely from the reserve pool and the meager actual returns from the assets. The insurance company believes that Jones is the owner of the money and the assets purchased with money from the pool created by Jason Smartguy’s advance from the pension fund.
  15. John Jones goes further. He pretends to own the shares of the new Company that actually belong to the pension fund managed by Jason Smartguy. He insures those shares naming himself as the insurance beneficiary and naming himself as the receiver of proceeds from his bets that the shares in the new Company would crash, just as he planned.
  16. While the assets are proving as worthless as John Jones had planned, Jason Smartguy receives payments to the pension fund exactly as outlined in the Prospectus and the Operating Agreement for the New Company. Unknown to Jason, the assets are increasingly proving worthless, as a whole and the income is declining. So Jason buys more shares in the new Company, thus providing Jason with a larger “reserve” fund and more “assets” to bet against and more “shares’ to bet against.
  17. John Jones sets out to “acquire” assets that will fail, so his bets will pay off. He buys assets whose value is low (and getting worse) and he creates fictitious transactions in which it appears as though the new Company has bought the assets at a much higher price than their value. The “sales” to the Company are a sham. The Company has no money because Jason Smartguy’s pension money never was made to the new Company in exchange for the new Company issuing shares of the company to Jason’s pension fund.
  18. The difference between the real value of the assets and the price “sold” to the pool is huge. In some cases it is 2-3 times the actual value of the asset. John Jones treats these sales as “proprietary trading profits” for John Jones,when in fact it is an immediate loss to Jason’s pension fund. The shares of the new Company are worthless because it never received any money nor title to any assets. John Jones as “broker” took all the money and assets.
  19. Meanwhile John Jones continues to pay Jason’s pension fund along with distribution reports showing the assets are in great shape and the income is just fine. In reality the assets are virtually worthless and the income is declining just as John Jones planned. John Jones is taking money hand over fist and calling it his own. His bets on the whole thing crashing are paying off handsomely and he is not reporting to Jason how much he is making by taking Jason’s managed money and calling part of it proprietary profits.
  20. The beauty of John Jones PONZI scheme is in the BIG LIE told not only to Jason Smartguy but also to Henry Homebody, who owns a home in Tucson Arizona. Henry is easier to sell on a stupid scheme than Jason Smartguy because Jason requires proof of independent appraisals (ratings), proof of insurance and various other aspects of the investment. Henry Homebody trusts the “lenders” and considers them to be banks, some with reputations and brands that go back 150 years.
  21. Henry Homebody’s house has been in the family for 6 generations and is fully paid off. He pays only insurance and taxes. Unknown to him, he is a special target for scammers like Merendon Mining, whose operators are now in jail. Merendon got homeowners with unencumbered houses to “invest” in a mirage (gold shares) thus putting the fantastic equity in their homes to work. Henry is flown to Canada, wined and dined, and has a very good time, just before he agrees to take out a loan using his family home as collateral, which will provide an income to him of $16,000 over month (which is about ten times his current income).
  22. Henry is approved for a loan equal to twice the value of the property and in which the mortgage broker (now on the run from the law) used projected income from the speculative investment in Merendon mining. This act by the mortgage broker was illegal but worth the risk because the broker was part of the Merendon Mining scam. (look up Merendon Mining and First Magnus Funding).
  23. Henry makes Payments on the mortgage principal, interest, taxes and insurance (all higher because of the false appraisal that was used for the property). He is able to do this because some of the money from the “loan” was given to him and he was able to make payments until the magnificent returns started to come in from his Merendon Mining shares. But those shares were worded in such a way that they were not exactly the ownership of gold that Henry thought he was getting. In fact, it was another pool with options on gold. And of course the money never materialized and neither did the gold. (Note 1996-2014: more than 50% of all loans were “refi’s” in which the home was fully paid or nearly so).
  24. Henry’s lender turned out to be a party pretending to lend him money, using MERS as a nominee for trading purposes, and naming the originator as lender when in fact they were also just a nominee.
  25. Henry’s mortgage and note recite terms that are impossible to meet unless Merendon Mining pays off.
  26. Henry believes at closing that First Magnus was the lender and that some entity called MERS is hanging in the background. Nobody explains anything to him about the lender or MERS. And of course he was told not to get an attorney because nothing can be changed anyway.
  27. Henry did not know that John Jones had spread out Jason’s money into several entities and then used Jason’s money to fund the origination of Henry’s loan.
  28. Jason does not know that the note and mortgage were never executed in the name of the pension fund or the new Company that was supposed to own the loan as an asset.
  29. Eventually the truth starts coming out, the market crashes and prices of homes return to actual value. Merendon Mining is of course a bankrupt entity as is First Magnus, whose operator appears to be on the run.
  30. Henry can’t make the payments after the extra money they gave him runs out. He has $2 million in loans and the “guaranteed” investment in Merendon Mining has left him penniless.
  31. John Jones fabricates and forges dozens of documents to piece together a narrative wherein an “independent” company would claim ownership of Henry’s loan despite the complete absence of any real transactions between any of the companies because the loan was fully funded using Jason Smartguy’s pension money.
  32. Henry knows nothing about the scam John Jones pulled on Jason Smartguy and certainly doesn’t know that the new Company was involved in his loan (because it wasn’t). Henry doesn’t understand that First Magnus and MERS never loaned him any money and that he never owed them money. And Henry knows nothing about John Jones, whose name appears on nothing.
  33. John Jones, the PONZI operator goes about the business of finishing the deal and making sure that the multiple people who bought into Henry’s loan (without knowing of the other sales and bets placed by John Jones) don’t start asking for refunds.
  34. John Jones MUST get a foreclosure or there will be auditing and reporting requirements that most everyone will overlook as long as this looks like just another loan gone bad. His PONZI scheme will be revealed if the true facts become known so he makes sure that nobody sees the actual money trail except him. He might go to jail if the truth is discovered.
  35. The lawyers for John Jones have told him that even fabricated, forged, non-authentic, falsely signed, and falsely notarized documents carry a presumption of validity. Thus the lawyers and Jones concocted a PONZI scheme that would most likely succeed because even the borrower, Henry, still thinks he owes money to First Magnus or its “successors”, whose identity he doesn’t really care about because he knows he took the loan. He doesn’t know that First Magnus and several other entities were involved in collecting fees and making profits the moment he signed the papers, and possibly before.
  36. Meanwhile Jason Smartguy, manager of the pension fund is starting to get disturbing reports about the assets that were purchased. Jason still doesn’t know that the money he gave John Jones never went into the New Company, that the Company never engaged in any transactions, and that John Jones was claiming “losses” that were really Jason’s losses (the pension fund).
  37. John Jones was collecting money from multiple sources without any of them knowing about each other and that he had no losses, he had only profits, and even got the government to lend him more money so he wouldn’t go out of business which might ruin the economy.
  38. Most of all John Jones never made a loan to Henry Homeowner; but that didn’t stop him from saying he did make the loan, and that the paperwork between John Jones and Jason Smartguy’s pension fund was irrelevant — the borrower got a loan and stopped paying. Thus judicial or non judicial process was available to sell the home that had been in Henry’s family for 6 generations.
  39. But the weakness in John Smith’s PONZI scheme is that his entire strategy is based upon presumptions of validity of his false documentation. If courts start applying normal rules and require Jones to disclose the money trail, he is cooked. There can be no foreclosure if a non-creditor initiates it by simply declaring that they are the creditor and that they have rights to enforce the debt — when the only proof of that is that Jason Smartguy, manager of the pension fund, has not yet put the pieces together and demanded ownership of the loan, settled the cases with modifications and went after John Jones for the balance of the money that was skimmed off the deal.
  40. And since Henry’s house is in Tucson, Az, he is subject to non-judicial foreclosure and he is in big trouble. He has no reason to believe the “servicer” is unauthorized, that the debt that is subject to correspondence and monthly statements does not exist, nor that the mortgage or deed of trust was void for lack of consideration — none of the “lenders” at closing ever loaned him a dime. The money came from Jason but Henry didn’t, and possibly still doesn’t know it.
  41. John Jones files a document called “Substitution of Trustee.” In this false document Jones declares that one of his many entities is the “new beneficiary” (mortgagee). Jones holds his breath. If Henry objects to the substitution of trustee he might have to reveal that the new trustee is not independent, it is a company controlled by John Jones.
  42. John Jones has made himself the new trustee. If the substitution of trustee is nullified in a court proceeding, NOTHING can be done by John Jones or his controlled companies.
  43. If the old trustee realizes that they have received no information on the validity of the claim and might still be the trustee, they might file an “interpleader” action in which they say they have received competing claims, demand attorney fees and costs along with their true statement that as the trustee named on the deed of trust, they have no stake in the outcome.
  44. If that happens Jones is cooked, broiled and boiled. He would be required to allege and prove that the “new beneficiary” is in fact the creditor in the transaction by succession, purchase or otherwise. he can’t because it was Jason who gave the money, it was Jason who was supposed to get evidence of ownership of the loan, and it is Jason who should be deciding between foreclosure (which John Jones MUST have to escape enormous civil and criminal liability).
  45. Jones doesn’t file documents for recording unless and until the case goes into foreclosure. That is because he continuing to trade and make claims of losses on “bad loans.”
  46. In fact, just to be on the safe side, he doesn’t file the fabricated, forged perjurious assignment of the loan at all if nobody makes him. He only files the assignment when he absolutely must do so, because he knows each filing is false and potentially proof of identity theft from the pension fund and from the homeowner.
  47. So it often happens that despite laws in each state requiring the filing of any transfer of an interest in real property for recording, Jones files the assignment when there is the least probability and least likelihood that the PONZI scheme will be revealed. Jones knows the mortgage is void and should never have been recorded, as a matter of law.
  48. Henry brings suit against Jones seeking justice and relief. But he really doesn’t know enough to get traction in court. Jones filed the assignment after the notice of default, after the notice of sale, and after the notice of substitution of trustee.
  49. The Judge who knows nothing about the presence of Jason, who still does not know this is going on, rules for Jones saying that it is irrelevant when the assignment was recorded because it is still a valid assignment between the parties to the assignment.
  50. Jason knows nothing about how the money from his pension fund was handled.
  51. Jason knows nothing about how each foreclosure seals the doom and affirms the illegal windfall to intermediaries who were always playing with OPM (other people’s money).
  52. The Court doesn’t know that that the assignment was just on paper, that there was no business reason for it to be executed, that there was no purchase of the loan from Jason’s pension fund, to whom the actual loan was payable. Thus the Judge sees this as much ado about nothing.
  53. Starting from the premise that Henry owed the money anyway, that there were no real defenses, and that since nobody else was making a claim it was obvious that Jones was the creditor, the Arizona Supreme Court says that anyone can can foreclose on an undated, backdated fabricated assignment forged and robo-signed with no real transaction; and they can execute a substitution of trustee even if they are complete strangers to the loan transaction and once they file that, they can foreclose on property that was never used as collateral for the real loan.

Because there are hundreds of John Jones characters in this tragedy, the entire marketplace has been decimated. The middle class is permanently stalled because their only net worth has been stolen from them The borrowers would gladly execute a real mortgage for real value with real terms that make sense 95% of the time, but they need to do it with the owner of the debt — the pension fund. The pension fund the borrower need to be closely aligned on the premise that the loans can be modified for better terms that forced sales, the housing market could recover, and money would start flowing back to the middle class who drives 70% of our consumer based economy.

They are all wrong and are opening the door for more PONZI schemes and even better ways to steal money and get away with it. The Arizona Supreme Court in Vasquez as well as all other decisions from the trial bench, appellate courts, regulators and law enforcement are all wrong. The burden of proof in due process is on the party seeking affirmative relief. Anyone who wants the death penalty equivalent in civil litigation (forfeiture of homestead), should be required to prove beyond all reasonable doubt or by clear and convincing evidence that the mortgage was valid and should have been recorded.

If they didn’t make the loan they had no right to record the mortgage or do anything with the note or mortgage except give it back to the borrower for destruction. If they didn’t make disclosure of the real nature of the loan and all the profits that would arise from the borrower signing an application and the loan documents, those profits are due back to the borrower.

Each time the assumption is made that there are no valid defenses for the borrower, we are cheating investors and screwing the homeowners. And as for the windfall proposition we know who gets it — the John Jones PONZI operating banks that started all of this. Exactly how can this lead anyway other than a continued drag on our economy?

Vasquez v saxon Az S Ct CV110091CQ

For more information call 954-495-9867 or 520-405-1688

Illinois Tops List of Most Foreclosures

Starting last month, the mega banks began an aggressive campaign to avoid modification, settlements or principal reductions and seek foreclosures before they are forced to modify.

Yes, we can help at livinglies, but the numbers are so high that there is no way we have the resources to help everyone. I am pitching in too, having become attorney of record for some. Like you, I am tired of waiting for lawyers who get it. I get it and although I am licensed in Florida we can help anyway.

Lawyers, accountants, analysts and others should be seeing this as a major opportunity to do well for themselves and for the owners of these homes by challenging the rights of the those collectors who are taking their money now, or demanding payment or threatening foreclosure. Lawyers have been slow on the uptake and in so doing are potentially setting themselves up for future malpractice claims for anyone, whether they aid or not, who received advice from the lawyer that was not based upon the realities of the securitization scam.

Call 520-405-1688, where you can get help in documenting the fraud, help in drafting the documents, and help in finding a lawyer. If you are a lawyer involved in foreclosure defense, bankruptcy or family law, you need to to start studying the real facts and the strategies that get traction in court.

We are planning a possible new Chicago seminar for lawyers, paralegals and sophisticated investors or homeowners. But we will only schedule it if we get enough calls to indicate that the workshop will at least pay for itself and that there will be volunteers to help on the ground to set up the the venue. It is a full day of information, strategy, role-playing and tactics to use in the court room.

Editor’s Analysis: Despite loosening standards for principal reductions and modifications, the foreclosure activity across the country is increasing or about to increase due to many factors.

The bizarre reason why the titans of Wall Street want these homes underwater combined with the miscalculation of the real number does not bode well for the housing market nor the economy. With median income now reported by the Wall Street Journal at 1995 levels, and the direct correlation between median income and housing prices you only need a good memory or a computer to see the level of housing prices in 1995 — which is currently where we are headed. As the situation gets worse, the foreclosure and housing problem will become a disaster beyond the proportions seen today. And that is exactly what Wall Street wants and needs — the investors be damned. Millions of proposals far  in excess of foreclosure proceeds have been rejected and forced into foreclosure and millions more will follow.

Wall Street NEEDS foreclosures — not modifications, principal write-downs or settlements. Foreclosures are food for the lions. The reason is simple. They have already received trillions in bailouts from the Federal Government. All of that was predicated upon the homes going into foreclosure. If the loans turn out to be capable of performing, many of those trillion of dollars ( generally reported at $17 trillion, which is more than the total principal loaned out to all borrowers during the meltdown period), the mega banks could be facing trillions of  dollars in liability as the demands are properly made for payback. The banks should not be allowed to collect the money and the houses too. Neither should they be allowed to collect the bailout money and keep the mortgages.

The “underwater” calculation is far off the mark. If selling expenses and discounts are taken into consideration, the value of homes used in that calculation is at least 10% less than what is used in the underwater calculation, which would increase the number of underwater homes by at least 15% bringing the total to nearly 10,000,000 homeowners who know now that they will never see valuation even coming close to the amount owed. The prospect for strategic defaults is staggering —- totaling more than 10 million homes  — or nearly twice the number of foreclosures already “completed”, albeit defectively.

Illinois is now getting hit hard, as the foreclosure menace spreads. Jacksonville up 30% in Florida, South Florida at 22 month high, Arizona with more than 600,000 homes underwater, all the paths lead to foreclosure. With that bogus deed on foreclosure in hand, Wall Street figures it is a  get out of jail free card.

Wall Street wants the foreclosures, needs the foreclosures and is going to get them — unless they are stopped in the courts. Don’t think you won’t end up in foreclosure just because you are current in mortgage payments. They have playbook that will trick you too into a foreclosure. If anyone tells you to stop making payments, watch out!

There’s A NEW Worst State For Foreclosures

By Mamta Badkar

Foreclosure activity in the United States fell 15 percent year-over-year in August. But housing is a local story and a few regions in the country were exceptions to the trend.

With one in every 298 properties receiving a foreclosure filing, Illinois had the highest foreclosure rate in the country for the first time since 2005, according to RealtyTrac’s latest foreclosure report.

Illinois pushed usual suspects like California, Arizona, and Nevada down the list.

The prairie state’s foreclosure rate jumped 29 percent month-over-month (MoM), and 42 percent year-over-year (YoY), with 17,781 properties in the state received a foreclosure filing in August.

And every detail in the state’s foreclosure report was ugly. Foreclosure starts – the pace at which mortgages enter the foreclosure process – were up 18 percent on the year. Scheduled foreclosure auctions were up 116 percent YoY. Bank repossessions climbed 41 percent YoY.

As a state that requires foreclosures to go through the judicial process, Illinois’ foreclosure rate was “artificially low” last year, according to Daren Blomquist, vice president of RealtyTrac.

5,268 homeowners in Illinois received a total of $357.3 million in assistance as part of the $25 billion national mortgage foreclosure settlement as of June 30, 2012, according to a report by the Office of Mortgage Settlement Oversight. That’s roughly $67,817 per borrower but it’s unlikely to have a large impact in reducing foreclosures in the future.

Foreclosure activity in the Chicago-Naperville-Joliet metro area was up 44 percent YoY, making it the metro with the eighth highest foreclosure rate in the country.

Blomquist told Business Insider in an email interview that in the case of the Chicago metro area, a land bank, like the ones set up in Cleveland and Detroit that rehabilitate properties or demolish them, could help ease the burden of distressed properties.

He doesn’t however expect any improvements in Illinois’ foreclosure rate anytime soon. “The foreclosures coming through the pipeline in Illinois and other states now are likely on mortgages that the banks do not deem are a good fit for any of the foreclosure alternatives outlined in the mortgage settlement.” He does however think that a program similar to Oregon’s foreclosure mediation program could help slow down foreclosures.

This chart from RealtyTrac shows the recent surge in Illinois’ foreclosure activity as its banks and courts push through foreclosures:

illinois foreclosure activity

RealtyTrac

RealtyTrac’s report also broke down US metropolitan areas with the highest foreclosure rates.

Click Here To See The 20 Metros Getting Slammed By Foreclosures

Shadow Foreclosures: Over 500,000 Az Homeowners Underwater

Yes, we can help at livinglies, but the numbers are so high that there is no way we have the resources to help everyone. Lawyers, accountants, analysts and others should be seeing this as a major opportunity to do well for themselves and for the owners of these homes by challenging the rights of the those collectors who are taking their money now, or demanding payment or threatening foreclosure. Arizona lawyers have been slow on the uptake here and in so doing are potentially setting themselves up for future malpractice claims for anyone, whether they aid or not, who received advice from the lawyer that was not based upon the realities of the securitization scam.

Call 520-405-1688, where you can get help in documenting the fraud, help in drafting the documents, and help in finding a lawyer. If you are a lawyer involved in foreclosure defense, bankruptcy or family law, you need to to start studying the real facts and the strategies that get traction in court.

We are planning a possible new Arizona seminar for lawyers, paralegals and sophisticated investors or homeowners. But we will only schedule it if we get enough calls to indicate that the workshop will at least pay for itself. It is a full day of information, strategy, role-playing and tactics to use in the court room.

Editor’s Analysis: Despite loosening standards for principal reductions and modifications, the foreclosure activity across the country is increasing or about to increase due to many factors.

The bizarre reason why the titans of Wall Street want these homes underwater combined with the miscalculation of the real number does not bode well for the housing market nor the economy. With median income now reported by the Wall Street Journal at 1995 levels, and the direct correlation between median income and housing prices you only need a good memory or a computer to see the level of housing prices in 1995 — which is currently where we are headed. As the situation gets worse, the foreclosure and housing problem will become a disaster beyond the proportions seen today.

Wall Street NEEDS foreclosures — not modifications, principal write-downs or settlements. The reason is simple. They have already received trillions in bailouts from the Federal Government. All of that was predicated upon the homes going into foreclosure. If the loans turn out to be capable of performing, many of those trillion of dollars ( generally reported at $17 trillion, which is more than the total principal loaned out to all borrowers during the meltdown period), the mega banks could be facing trillions of  dollars in liability as the demands are properly made for payback. The banks should not be allowed to collect the money and the houses too. Neither should they be allowed to collect the bailout money and keep the mortgages.

The “underwater” calculation is far off the mark. If selling expenses and discounts are taken into consideration, the value of homes used in that calculation is at least 10% less than what is used in the underwater calculation, which would increase the number of underwater homes by at least 15% bringing the Arizona total to nearly 600,000 people who know now that they will never see valuation even coming close to the amount owed. The prospect for strategic defaults in Arizona and elsewhere is staggering —- totaling more than 10 million homes  — or nearly twice the number of foreclosures already “completed”, albeit defectively.

As stated in the article below there is, as we have been saying for years, a huge difference between home prices and home values. Home prices can be pushed up or down based upon external factors In this case it was a flood of what looked like cheap money that is now apparent was neither cheap nor even money (because the named lender never made the loan). Home values and home prices should over the long run track each other given no manipulation of the marketplace which is exactly what Wall Street did. Home values, based upon the Case-Schiller index and thousands of other economists are based upon one simple variable — median income. Median income is now at the lowest point since 1995. That means home values are, after selling expenses and discounts, less than 90% of 1995 prices.

It is simply inevitable that people will take the hit on their credit and walk away from the homes rather than pay $200,000 for on-existent equity and that is exactly what Wall Street is counting on, forcing through its manipulation of government policy and spinning to the public media. If those homes do not go into foreclosure the mega banks’ scam will reveal itself, the assets on their balance sheet will vanish because they never existed anyway and the banks will fall. Whether they are too big to fail or not, they will fail — unless foreclosures spread out across the land.

by Kristena Hansen, www.bizjournals.com

Roughly 40 percent of all mortgaged homes in Arizona were under water during the second quarter of 2012, the third-highest negative equity rate in the nation, according to a report released Wednesday by CoreLogic Inc.

In raw numbers, that translates to about 521,600 homeowners statewide being under water for the quarter out of roughly 1.31 million total mortgaged homes, the report said.

Arizona’s negative equity rate was much higher than the national average of 22.3 percent (10.8 million homes) of all mortgaged homes that were underwater during the same period. That nationwide figure was also a gradual improvement from the first quarter’s 23.7 percent negative equity (11.4 million homes).

CALCULATING NEGATIVE EQUITY

Negative equity, or being under water, refers to homeowners who owe more on their mortgages than their home’s present estimated value. CoreLogic determines negative equity rates by the number of underwater homeowners versus all residential properties in a certain area with an outstanding mortgage.

CoreLogic experts say the improving negative equity landscape nationwide is largely due to the recent rebound in home prices, dwindling sales of lender-owned properties and low inventory of existing homes.

Home prices and home values, however, are distinctly different. Prices represent how much homes actually sell for, while home values are only an estimate and are therefore much harder to determine.

Michael Orr, a real estate expert at Arizona State University, said home value estimates will vary widely depending on who is making the assessment. That makes it tricky to hone in on best practices for calculating negative equity, he said.

Sam Khater, deputy chief economist for CoreLogic, explained how his firm makes its determinations.

We Are Drowning in False Debt While Realtors Push “Recovery”

Featured Products and Services by The Garfield Firm

LivingLies Membership – Get Discounts and Free Access to Experts

For Customer Service call 1-520-405-1688

Editor’s Comment:

The figures keep coming in while the words keep coming out the mouths of bankers and realtors. The figures don’t match the words. The net result is that the facts show that we are literally drowning in debt, and we see what happens as a result of such conditions with a mere glance at Europe. They are sinking like a stone, and while we look prettier to investors it is only when we are compared to other places — definitely not because we have a strong economy.

Iceland and other “players” crashed but stayed out of the EU and stayed away from the far flung central banking sleeping arrangements with Banks. Iceland knows that banks got us into this and that if there is any way out, it must be the banks that either lead their way out or get nationalized so their assets can take the hit of these losses. In Phoenix alone, we have $39 BILLION in negative equity. 

This negative equity was and remains illusory. Iceland cut the household debt in each home by 25% or more and is conitinuing to do so. The result? They are the only country with the only currency that is truly recovering and coming back to real values. What do we have? We have inflated property appraisals that STILL dominate the marketplace. 

The absence of any sense of reality is all around us in Arizona. I know of one case where Coldwell Banker, easily one of the most prestigious realtors, actually put lots up for sale asking $40,000 when the tax assessed value is barely one quarter of that amount and the area has now dried up — no natural water supply without drilling thousands of feet or hauling water in by truck. Residents in the area and realtors who are local say the property could fetch at most $10,000 and is unsalable until the water problem is solved. And here in Arizona we know the water problem is not only not going to get solved, it is going to get worse because of the “theory” of global climate change.

This “underwater” mess is political not financial. It wouldn’t exist but for the willingness of the government to stay in bed with banks. The appraisals they used to grant the loan were intentionally  falsified to “get rid of” as much money as possible in the shortest time possible, to complete deals and justify taking trillions of dollars from investors. The appraisals at closing were impossibly high by any normal industry accepted standard and appraisers admit it and even predicted it it in 2005. Banks coerced appraisers into inflating appraisers by giving them a choice — either come in with appraisals $20,000 over the contract price or they will never get work again.

The borrower relied upon this appaisal, believing that the property value was so hot that he or she couldn’t lose and that in fact, with values going so high, it would be foolish not to get in on the market before it went all the way out of reach. And of course there were the banks who like the cavalry came in and provided the apparently cheap money for people to buy or refinance their homes. The cavalry was in a movie somewhere, certainly not in the marketplace. It was more like the hordes of invaders in ancient Europe chopping off the heads of men, women and children and as they lie dying they were unaware of what had happened to them and that they were as good as dead.

So many people have chosen death. They see the writing on the wall that once was their own, and they cannot cope with the loss of home, lifestyle and dignity. They take their own lives and the lives of those around them. Citi contributes a few million to a suicide hotline as a PR stunt while they are causing the distress through foreclosure and collection procedures that are illegal, fraudlent, and based upon forged, robosigned documents with robo-notarized attestations  that the recording offices still won’t reject and the judges still accept.

There is no real real economic recovery without reality in housing. Values never went up — but prices did. Now the prices are returning back to the values left in the dust during the big bank push to “get rid of” money advanced by investors. It’s a game to the banks where the homeowner is the lowly deadbeat, the bottom of the ladder, a person who doesn’t deserve dignity or relief like the bank bailouts. When a person gets financial relief from the government it is a “handout.” When big banks and big business get relief and subsidies in industries that were already profitable, it is called economic policy. REALITY CHECK: They are both getting a “handout” and economic policy is driven by politics instead of common sense. French arisocrats found that out too late as their heads rolled off the guillotine platforms.  

But Iceland and other places in the world have taught us that in reality those regarded as deadbeats are atually people who were herded into middle class debt traps created by the banks and that if they follow the simple precept of restoring victims to their previous state, by giving restitution to these victims, the entire economy recovers, housing recovers and everything resumes normal activity that is dominated by normal market forces instead of the force of huge banks coercing society and government by myths like too big too fail. The Banks are doing just fine in Iceland, the financial system is intact and the government policy is based upon the good of the society as a whole rather the banks who might destroy us. Appeasement is not a policy it is a surrender to the banks.

Cities with the Most Homes Underwater

Michael B. Sauter

Mortgage debt continues to be a major issue in the United States, nearly six years after home prices peaked, according to a report released Thursday by online real estate site Zillow. Americans continue to owe more on their homes than they are worth. Nearly one in three mortgages are underwater, amounting to more than 15 million homes and a total negative equity of $1.19 trillion.

In some of America’s largest metropolitan regions, however, the housing crash dealt a far worse blow. In these areas — most of which are in California, Florida and the southwest — home values were cut in half, unemployment skyrocketed, and 50% to 70% of borrowers now find themselves with a home worth less than the value of their mortgage. 24/7 Wall St. reviewed the 100 largest housing markets and identified the 10 with the highest percentage of homes with underwater mortgages. Svenja Gudell, senior economist at Zillow, explained in an interview with 24/7 Wall St. that the markets with the highest rates of underwater borrowers are in trouble now because of the rampant growth seen in these cities prior to the recession. Once home prices peaked, which was primarily in late 2005 through 2006, all but one of these 10 housing markets lost at least 50% of their median home value.

Making matters worse for families with high negative equity in these markets is the increased unemployment. “If you have a whole lot of unemployment in an area, you’re more likely to see home values continue to decline in the area as well,” says Gudell. While in 2007 many of these markets had average or below average unemployment rates, the recession took a heavy toll on their economies. By 2011, eight of the 10 markets had unemployment rates above 10%, and three — all in California — had unemployment rates of above 16%, nearly double the national average.

24/7 Wall St. used Zillow’s first-quarter 2012 negative equity report to identify the 10 housing markets — out of the 100 largest metropolitan statistical areas in the country — with the highest percentage of underwater mortgages. Zillow also provided us with the decline in home values in these markets from prerecession peak values, the total negative equity value in these markets and the percentage of homes underwater that have been delinquent on payments for 90 days or more.

These are the cities with the most homes underwater.

10. Orlando, Fla.
> Pct. homes w/underwater mortgages: 53.9%
> Number of mortgages underwater: 205,369
> Median home value: 113,800
> Decline from prerecession peak: -55.9%
> Unemployment rate: 10.4% (25th highest)

In 2012, Orlando moved into the top 10 underwater housing markets, bumping Fresno, Calif., to number 11. From its prerecession peak in June 2006, home prices fell 55.9% to $113,800, a loss of roughly $90,000. In 2007, the unemployment rate in the region was just 3.7%, the 17th-lowest rate among the 100 largest metros. By 2011, that rate had increased to 10.4%, the 25th highest. As of the first quarter of this year, there were more than 205,000 underwater mortgages in the region, with total negative equity of $16.7 billion.

9. Atlanta, Ga.
> Pct. homes w/underwater mortgages: 55.5%
> Number of mortgages underwater: 581,831
> Median home value: $107,500
> Decline from prerecession peak: 38.8%
> Unemployment rate: 9.6% (37th highest)

Atlanta is the largest city on this list and the eighth-largest metropolitan area in the U.S. But of all the cities with the most underwater mortgages, it has the lowest median home value. In the area, 55.5% of homes have a negative equity value. With more than 500,000 homes with underwater mortgages, the city’s total negative home equity is in excess of $38 billion. Over 48,000 of these underwater homeowners, or nearly 10%, are delinquent by at least 90 days in their payments, which is also especially troubling. With home prices down 38.8% since June, 2007, the Atlanta area certainly qualifies as one of the cities hit hardest by the 2008 housing crisis.

8. Phoenix, Ariz.
> Pct. homes w/underwater mortgages: 55.5%
> Number of mortgages underwater: 430,527
> Median home value: $128,000
> Decline from prerecession peak: 54.2%
> Unemployment rate: 8.6% (44th lowest)

At 55.5%, Phoenix has the same percentage of borrowers with underwater mortgages as Atlanta. Though Phoenix’s median home value is $21,500 greater than Atlanta’s, it experienced a far-greater decline in home prices from their prerecession peak in June 2007 of 54.2%. This has led to a total negative equity value of almost $39 billion. The unemployment rate also has skyrocketed in the Phoenix area from 3.2% in 2007 to 8.6% in 2011.

7. Visalia, Calif.
> Pct. homes w/underwater mortgages: 57.7%
> Number of mortgages underwater: 33,220
> Median home value: $110,500
> Decline from prerecession peak: 51.7%
> Unemployment rate: 16.6% (3rd highest)

Visalia is far smaller than Atlanta or Phoenix and has less than a 10th the number of homes with underwater mortgages. Nonetheless, the city has been especially damaged by a poor housing market. Home values have fallen dramatically since before the recession, and the unemployment rate, at 16.6% in the first quarter of 2012, is third-highest among the 100 largest metropolitan statistical areas, behind only Stockton and Modesto. Presently, almost 58% of homes are underwater, with these homes carrying a total negative equity of $2.6 billion dollars.

6. Vallejo, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 44,526
> Median home value: $186,200
> Decline from prerecession peak: 60.6%
> Unemployment rate: 11.4% (16th highest)

In the Vallejo metropolitan area, more than 60% of the region’s 73,800 homeowners are underwater. This is largely due to a 60.6% decline in home values in the region from prerecession highs. Through the first quarter of this year, homes in the region fell from a median value of more than $300,000 to just $186,200. Of those homes with underwater mortgages, more than 10% have been delinquent on mortgage payments for 90 days or more.

5. Stockton, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 60,349
> Median home value: $146,500
> Decline from prerecession peak: 64.3%
> Unemployment rate: 16.8% (tied for highest)

With an unemployment rate of 16.8%, Stockton is tied for the highest rate among the 100 largest metropolitan areas. Few cities have been hit harder by the sinking of the housing market than Stockton, where 60.3% of home mortgages are underwater. Though there are only 100,014 houses with mortgages in Stockton, 60,348 of these are underwater and have a total negative home equity of slightly more than $6.9 billion. Meaning, on average, homeowners in Stockton owe at least $100,000 more than their homes are worth.

4. Modesto, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 46,598
> Median home value: $130,600
> Decline from prerecession peak: 64.5%
> Unemployment rate: 16.8% (tied for highest)

Since peaking in December 2005, home prices in Modesto have plunged 64.5%. This is the largest collapse in prices of any large metro area examined. As a result, 46,598 of 77,222 home mortgages in Modesto are underwater. Meanwhile, the unemployment rate rose to 16.8% in 2011. This number was 7.9 percentage points above the national average of 8.9% and almost double Modesto’s 2007 unemployment rate of 8.7%.

3. Bakersfield, Calif.
> Pct. homes w/underwater mortgages: 60.5%
> Number of mortgages underwater: 70,947
> Median home value: $116,700
> Decline from prerecession peak: 57.0%
> Unemployment rate: 14.9% (5th highest)

From its peak in May 2006, the median home value in Bakersfield has plummeted from more than $200,000 to just $116,700, or a 57% loss of value. From 2007 through 2011, the unemployment rate increased from 8.2% to 14.9% — the fifth-highest rate in the country. To date, more than 70,000 homes in the region have underwater mortgages, with total negative equity of just over $6 billion.

2. Reno, Nev.
> Pct. homes w/underwater mortgages: 61.7%
> Number of mortgages underwater: 46,115
> Median home value: $150,600
> Decline from prerecession peak: 58.3%
> Unemployment rate: 13.1%

There are fewer than 75,000 households in Reno, Nevada. Yet 46,115 home mortgages in the city are underwater, accounting for 61.7% of mortgaged homes. From January 2006 through the first quarter of 2012, home prices were more than halved, and negative home equity reached $4.39 billion. Additionally, the unemployment rate almost tripled in rising from 4.5% in 2007 to 13.1% by 2011. In 2007, Reno had the 54th-worst unemployment rate among the 100 largest metros. By 2007, Reno had the eighth-worst unemployment rate.

1. Las Vegas, Nev.
> Pct. homes w/underwater mortgages: 71%
> Number of mortgages underwater: 236,817
> Median home value: $111,600
> Decline from prerecession peak: 63.2%
> Unemployment rate: 13.9%

At 71%, no city has a greater percentage of homes with underwater mortgages than Las Vegas. The area with the second-worst percentage of underwater mortgages, Reno, has less than 62% mortgages with negative. The corrosive effects the housing crisis had on Las Vegas are evident in the more than 200,000 home mortgages that are underwater, 14.3% of which are at least 90 days delinquent on payments. Additionally, home values have dropped 63.2% from their prerecession peak, the third-greatest decline among the nation’s 100 largest metropolitan areas. Largely because of the collapse of the area’s housing market, unemployment in the Las Vegas area has soared. In 2007, the unemployment rate was 4.7%, only marginally different from the nation’s 4.6% rate. Yet by 2011, the unemployment rate had increased to 13.9%, considerably higher than the nationwide 8.9% unemployment rat.e.


Now They See the Light — 40% of Homes Underwater

Featured Products and Services by The Garfield Firm

LivingLies Membership – Get Discounts and Free Access to Experts

For Customer Service call 1-520-405-1688

Editor’s Comment:

They were using figures like 12% or 18% but I kept saying that when you take all the figures together and just add them up, the number is much higher than that. So as it turns out, it is even higher than I thought because they are still not taking into consideration ALL the factors and expenses involved in selling a home, not the least of which is the vast discount one must endure from the intentionally inflated appraisals.

With this number of people whose homes are worth far less than the loans that were underwritten and supposedly approved using industry standards by “lenders” who weren’t lenders but who the FCPB now says will be treated as lenders, the biggest problem facing the marketplace is how are we going to keep these people in their homes — not how do we do a short-sale. And the seconcd biggest problem, which dovetails with Brown’s push for legislation to break up the large banks, is how can we permit these banks to maintain figures on the balance sheet that shows assets based upon completely unrealistic figures on homes where they do not even own the loan?

Or to put it another way. How crazy is this going to get before someone hits the reset the button and says OK from now on we are going to deal with truth, justice and the American way?

With no demographic challenges driving up prices or demand for new housing, and with no demand from homeowners seeking refinancing, why were there so many loans? The answer is easy if you look at the facts. Wall Street had come up with a way to get trillions of dollars in investment capital from the biggest managed funds in the world — the mortgage bond and all the derivatives and exotic baggage that went with it. 

So they put the money in Superfund accounts and funded loans taking care of that pesky paperwork later. They funded loans and approved loans from non-existent borrowers who had not even applied yet. As soon as the application was filled out, the wire transfer to the closing agent occurred (ever wonder why they were so reluctant to change closing agents for the convenience of the parties?).

The instructions were clear — get the signature on some paperwork even if it is faked, fraudulent, forged and completely outside industry standards but make it look right. I have this information from insiders who were directly involved in the structuring and handling of the money and the false securitization chain that was used to cover up illegal lending and the huge fees that were taken out of the superfund before any lending took place. THAT explains how these banks are bigger than ever while the world’s economies are shrinking.

The money came straight down from the investor pool that included ALL the investors over a period of time that were later broker up into groups and the  issued digital or paper certificates of mortgage bonds. So the money came from a trust-type account for the investors, making the investors the actual lenders and the investors collectively part of a huge partnership dwarfing the size of any “trust” or “REMIC”. At one point there was over $2 trillion in unallocated funds looking for a loan to be attached to the money. They couldn’t do it legally or practically.

The only way this could be accomplished is if the borrowers thought the deal was so cheap that they were giving the money away and that the value of their home had so increased in value that it was safe to use some of the equity for investment purposes of other expenses. So they invented more than 400 loans products successfully misrepresenting and obscuring the fact that the resets on loans went to monthly payments that exceeded the gross income of the household based upon a loan that was funded based upon a false and inflated appraisal that could not and did not sustain itself even for a period of weeks in many cases. The banks were supposedly too big to fail. The loans were realistically too big to succeed.

Now Wall Street is threatening to foreclose on anyone who walks from this deal. I say that anyone who doesn’t walk from that deal is putting their future at risk. So the big shadow inventory that will keep prices below home values and drive them still further into the abyss is from those private owners who will either walk away, do a short-sale or fight it out with the pretender lenders. When these people realize that there are ways to reacquire their property in foreclosure with cash bids that are valid while the credit bid of the pretender lender is invlaid, they will have achieved the only logical answer to the nation’s problems — principal correction and the benefit of the bargain they were promised, with the banks — not the taxpayers — taking the loss.

The easiest way to move these tremendous sums of money was to make it look like it was cheap and at the same time make certain that they had an arguable claim to enforce the debt when the fake payments turned into real payments. SO they created false and frauduelnt paperwork at closing stating that the payee on teh note was the lender and that the secured party was somehow invovled in the transaction when there was no transaction with the payee at all and the security instrumente was securing the faithful performance of a false document — the note. Meanwhile the investor lenders were left without any documentation with the borrowers leaving them with only common law claims that were unsecured. That is when the robosigning and forgery and fraudulent declarations with false attestations from notaries came into play. They had to make it look like there was a real deal, knowing that if everything “looked” in order most judges would let it pass and it worked.

Now we have (courtesy of the cloak of MERS and robosigning, forgery etc.) a completely corrupted and suspect chain of title on over 20 million homes half of which are underwater — meaning that unless the owner expects the market to rise substantially within a reasonable period of time, they will walk. And we all know how much effort the banks and realtors are putting into telling us that the market has bottomed out and is now headed up. It’s a lie. It’s a damned living lie.

One in Three Mortgage Holders Still Underwater

By John W. Schoen, Senior Producer

Got that sinking feeling? Amid signs that the U.S. housing market is finally rising from a long slumber, real estate Web site Zillow reports that homeowners are still under water.

Nearly 16 million homeowners owed more on their mortgages than their home was worth in the first quarter, or nearly one-third of U.S. homeowners with mortgages. That’s a $1.2 trillion hole in the collective home equity of American households.

Despite the temptation to just walk away and mail back the keys, nine of 10 underwater borrowers are making their mortgage and home loan payments on time. Only 10 percent are more than 90 days delinquent.

Still, “negative equity” will continue to weigh on the housing market – and the broader economy – because it sidelines so many potential home buyers. It also puts millions of owners at greater risk of losing their home if the economic recovery stalls, according to Zillow’s chief economist, Stan Humphries.

“If economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures,” he said.

For now, the recent bottoming out in home prices seems to be stabilizing the impact of negative equity; the number of underwater homeowners held steady from the fourth quarter of last year and fell slightly from a year ago.

Real estate market conditions vary widely across the country, as does the depth of trouble homeowners find themselves in. Nearly 40 percent of homeowners with a mortgage owe between 1 and 20 percent more than their home is worth. But 15 percent – approximately 2.4 million – owe more than double their home’s market value.

Nevada homeowners have been hardest hit, where two-thirds of all homeowners with a mortgage are underwater. Arizona, with 52 percent, Georgia (46.8 percent), Florida (46.3 percent) and Michigan (41.7 percent) also have high percentages of homeowners with negative equity.

Turnabout is Fair Play:

The Depressing Rise of People Robbing Banks to Pay the Bills

Despite inflation decreasing their value, bank robberies are on the rise in the United States. According to the FBI, in the third quarter of 2010, banks reported 1,325 bank robberies, burglaries, or other larcenies, an increase of more than 200 crimes from the same quarter in 2009. America isn’t the easiest place to succeed financially these days, a predicament that’s finding more and more people doing desperate things to obtain money. Robbing banks is nothing new, of course; it’s been a popular crime for anyone looking to get quick cash practically since America began. But the face and nature of robbers is changing. These days, the once glamorous sheen of bank robberies is wearing away, exposing a far sadder and ugly reality: Today’s bank robbers are just trying to keep their heads above water.

Bonnie and Clyde, Pretty Boy Floyd, Baby Face Nelson—time was that bank robbers had cool names and widespread celebrity. Butch Cassidy and the Sundance Kid, Jesse James, and John Dillinger were even the subjects of big, fawning Hollywood films glorifying their thievery. But times have changed.

In Mississippi this week, a man walked into a bank and handed a teller a note demanding money, according to broadcast news reporter Brittany Weiss. The man got away with a paltry $1,600 before proceeding to run errands around town to pay his bills and write checks to people to whom he owed money. He was hanging out with his mom when police finally found him. Three weeks before the Mississippi fiasco, a woman named Gwendolyn Cunningham robbed a bank in Fresno and fled in her car. Minutes later, police spotted Cunningham’s car in front of downtown Fresno’s Pacific Gas and Electric Building. Inside, she was trying to pay her gas bill.

The list goes on: In October 2011, a Phoenix-area man stole $2,300 to pay bills and make his alimony payments. In early 2010, an elderly man on Social Security started robbing banks in an effort to avoid foreclosure on the house he and his wife had lived in for two decades. In January 2011, a 46-year-old Ohio woman robbed a bank to pay past-due bills. And in February of this year, a  Pennsylvania woman with no teeth confessed to robbing a bank to pay for dentures. “I’m very sorry for what I did and I know God is going to punish me for it,” she said at her arraignment. Yet perhaps none of this compares to the man who, in June 2011, robbed a bank of $1 just so he could be taken to prison and get medical care he couldn’t afford.

None of this is to say that a life of crime is admirable or courageous, and though there is no way to accurately quantify it, there are probably still many bank robbers who steal just because they like the thrill of money for nothing. But there’s quite a dichotomy between the bank robbers of early America, with their romantic escapades and exciting lifestyles, and the people following in their footsteps today: broke citizens with no jobs, no savings, no teeth, and few options.

The stealing rebel types we all came to love after reading the Robin Hood story are gone. Today the robbers are just trying to pay their gas bills. There will be no movies for them.

BAILOUT TO STATE BUDGETS: AZ Uses Housing Settlement Money for Prisons

Featured Products and Services by The Garfield Firm

NEW! 2nd Edition Attorney Workbook,Treatise & Practice Manual – Pre-Order NOW for an up to $150 discount
LivingLies Membership – Get Discounts and Free Access to Experts
For Customer Service call 1-520-405-1688

Want to read more? Download entire introduction for the Attorney Workbook, Treatise & Practice Manual 2012 Ed – Sample

Pre-Order the new workbook today for up to a $150 savings, visit our store for more details. Act now, offer ends soon!

Editor’s Comment:

The general consensus is that the homeowner borrowers are simply at the bottom of the food chain, not worthy of dignity, respect or any assistance to recover from the harm caused by Wall Street. Now small as it is, the banks have partially settled the matter by an agreement that bars the states from pursuing certain types of claims conditioned on several terms, one of which was the payment of money from the banks that presumably would be used to fund programs for the beleaguered homeowners without whose purchasing power, the economy is simply not going to revive. Not only are many states taking the money and simply putting it into general funds, but Arizona, over the objection of its own Attorney General is taking the money and applying to pay for prison expenses.

Here is the sad punch line for Arizona. The prison system in that state and others is largely “privatized” which is to say that the state “hired” new private companies created for the sole purpose of earning a profit off the imprisonment of the state’s citizens. Rumors abound that the current governor has a financial interest in the largest private prison company.

The prison lobby has been hard at work ever since privatizing prisons became the new way to get rich using taxpayers dollars. Not only are we paying more to house more prisoners because the laws a restructured to make more behavior crimes, but now our part of the housing settlement is also going to the prisons. Another bailout that was never needed or wanted. Meanwhile the budget of  Arizona continues to rise from incarcerating its citizens and the profiteers (not entrepreneurs by any stretch of the imagination) are getting a gift of more money from the state out of the multistate settlement.

Needy States Use Housing Aid Cash to Plug Budgets

By SHAILA DEWAN

Only 27 states have devoted all their funds from the banks to housing programs, according to a report by Enterprise Community Partners, a national affordable housing group. So far about 15 states have said they will use all or most of the money for other purposes.

In Texas, $125 million went straight to the general fund. Missouri will use its $40 million to soften cuts to higher education. Indiana is spending more than half its allotment to pay energy bills for low-income families, while Virginia will use most of its $67 million to help revenue-starved local governments.

Like California, some other states with outsize problems from the housing bust are spending the money for something other than homeowner relief. Georgia, where home prices are still falling, will use its $99 million to lure companies to the state.

“The governor has decided to use the discretionary money for economic development,” said a spokesman for Nathan Deal, Georgia’s governor, a Republican. “He believes that the best way to prevent foreclosures amongst honest homeowners who have experienced hard times is to create jobs here in our state.”

Andy Schneggenburger, the executive director of the Atlanta Housing Association of Neighborhood-Based Developers, said the decision showed “a real lack of comprehension of the depths of the foreclosure problem.”

The $2.5 billion was intended to be under the control of the state attorneys general, who negotiated the settlement with the five banks — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally. But there is enough wiggle room in the agreement, as well as in separate terms agreed to by each state, to give legislatures and governors wide latitude. The money can, for example, be counted as a “civil penalty” won by the state, and some leaders have argued that states are entitled to the money because the housing crash decimated tax collections.

Shaun Donovan, the federal housing secretary, has been privately urging state officials to spend the money as intended. “Other uses fail to capitalize on the opportunities presented by the settlement to bring real, concerted relief to homeowners and the communities in which they live,” he said Tuesday.

Some attorneys general have complied quietly with requests to repurpose the money, while others have protested. Lisa Madigan, the Democratic attorney general of Illinois, said she would oppose any effort to divert the funds. Tom Horne, the Republican attorney general of Arizona, said he disagreed with the state’s move to take about half its $97 million, which officials initially said was needed for prisons.

But Mr. Horne said he would not oppose the shift because the governor and the Legislature had authority over budgetary matters. The Arizona Center for Law in the Public Interest has said it will sue to stop Mr. Horne from transferring the money.


About Those Attorney Fees Awards to Bank Attorneys: Double Dipping+?

MOST POPULAR ARTICLES

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

When I was litigating 24/7 I used to say that all the best ideas I ever had for the Courtroom came from my clients. I think the reason is fairly simple: they had to live with the result I didn’t. No matter how passionate I was about their cause, nobody cared more about their case than they did. And that’s a good thing because, as any lawyer who has represented himself knows, getting too close removes your objectivity and tactical advantages. You are more likely to think through the consequences of adopting one strategy over another if you have the longer view.

But sometimes you we miss the simple questions as we speed toward our desired victory. It’s when you lose that you start realizing some things that maybe you should have brought up before. One highly educated pro se litigant asked me a simple question relating to a current case and it stopped me dead in my tracks.

The litigant had brought all the usual claims for quiet title, lack of standing and fabricated documents and, as is the tendency still, especially in Arizona, judges tend not to believe that these claims and defense are anything more than a gimmick to defeat an otherwise valid debt. So the homeowner lost and is now on appeal. The homeowner also lost the eviction (FED) action and now that is up on appeal but not before they were actually evicted. There was an issue about supersedeas bond and the timing of when it could be posted.

Supersedeas bond is meant to provide some measure of protection to the the winning side in the event the appeal fails. So for example if the rental value fo the property is $1,000 per month, the court might estimate the length of the appeal and set supersedeas at the rental value so the other side wouldn’t be prejudiced by a frivolous or losing appeal. The banks have been using supersedeas as a weapon against homeowners knowing that they have limited resources and they have sought to raise the bar on supersedeas as high as it can go.

In their effort to increase the supersedeas bond and thus further demoralize the homeowner they have gone one step too far, I think. But I missed the point until the litigant himself asked me about it. His question was essentially this: “if the mortgage and note state that in the event it becomes necessary to sell the property to satisfy the borrower’s obligation, the proceeds shall be first applied to attorneys fees and costs of foreclosure. Why then does supersedeas include attorneys fees and costs (with some judges)?

His question got my brain moving. The property already has been sold, at least according to pretender lender bank doctrine, and the trustee deed has been issued. The bid is whatever is stated on the Trustee deed, and in some cases, the property is even sold a third party. So the if the bid was $100,000 and the fee award was $50,000, isn’t that already covered? Isn’t that attorney fee award improper as applied against the homeowner — especially in a non-deficiency state like Arizona? In most cases, the “lender” can’t pursue the homeowner for a deficiency judgment if they elect non-judicial procedure. Why are attorneys fees an exception to this rule?

The answer appears to be that attorneys fees and court costs are not an exception to the rule regarding the prohibition against the banks against pursuing a non-deficiency judgment, but hey are doing it anyway through these attorney fees awards. And then they are bootstrapping it into a demand for supersedeas bond that includes attorney fees and costs. This is improper.

In a declining market, such as we have, where the rental values are dubious at best and where the marketability of title and property is dead in the water, supersedeas should be nominal — a few hundred dollars. But lawyers are making the mistake of not raising this issue at the hearing on supersedeas and of course pro se litigants are making all kinds of mistakes because they didn’t go through 3 years of law school and decades worth of practice in the courtroom.

The moral of the story is that when opposing counsel comes in asking for a fee award against the homeowner, the homeowner or counsel should object based upon the the prohibition against pursuing deficiency judgments. That legal bill is for the bank to pay and not for the homeowner to pay. Even if the Judge were somehow inclined to enter an order setting the amount of fees, it would still be for the bank to pay and not the homeowner. And frankly even if it was the homeowner’s bill, the amount would ordinarily be covered by whatever the value is of the property, low though it might be.

So these awards are actually double dipping — because the investors are not getting complete reports. The award is first used against the homeowner illegally and then used against the investor pool so that the house goes to the servicing bank, which was the their goal all along. The reason these pretenders are fighting for homes that were not financed by these pretenders and where the obligation was never purchased by these non-lenders is that they know that the investors have abandoned the claim against the homeowners as hopeless and they are instead demanding that the investment bank pay them back 100 cents on the dollar because of the fraudulent sale of mortgage bonds.

The abandonment by the investors has caused a vacuum which has spawned “moral hazard” as they say on Wall Street and “theft” as they say on Main Street. People and entities who had nothing to do with the loan transaction and who might, in certain cases have served as conduits for a small part of the money that flowed from the borrower, have stepped in with immunity from any liability because the investors who have the claim don’t want any part of the claim.

Why? Because the amount the investors advanced was (a) far less than the amount that was loaned which was (b) far less than the value of the loan which was (c) depreciated further by the appraisal fraud at origination of the loan which was (d) even further depreciated by the fall in property values caused by millions of homes being dumped on the market. Add counterclaims by homeowners for predatory and deceptive lending and you have essentially a negative value for going after homeowners — unless of course you have nothing to lose because you invested nothing, like the pretender lenders.

And if anyone questions my assertion that investors have abandoned their rightful claims against homeowners, just ask them.

Arizona Rep McCune Davis Still Waiting For Response from Speaker Andy Tobin

MOST POPULAR ARTICLES

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

SEE Az MCCune-Davis Letter to Andy Tobin, House Speaker

At a meeting last night, Arizona State Representative Debbie McCune Davis disclosed that on June 10, 2011 she had sent a letter to Andy Tobin, speaker of the Arizona House of Representatives, requesting that the House set a hearing to allow Homeowners to tell their stories about their home mortgages, attempts at modification and foreclosures. She is still waiting for ANY response.

She expressed her disappointment with the legislative process and shared some anecdotes, demonstrating that the banks are controlling the agenda in the Arizona legislature. The principal point she made that she felt was an error on the part of all legislators and the media was that the only source of information on the mortgage crisis seems to be the banks themselves. I stated that going to the banks for information was like going to a rapist for sex education. She wasn’t pleased with the way I phrased it but the audience seemed to agree with me.

All she was asking for was a forum in which the legislators would hear the facts from the other side of this, allowing homeowners and lawyers to give information on the current state of foreclosures, the quality of the mortgages and the process of modification or  mediation. Despite the existence of a $300 million dollar fund to reduce principal balances of mortgages in modifications, there have only been a handful of such modifications.

Among the points she raised in her letter were the following:

  1. A total of 451,590 estimated foreclosures for 2009-2012.
  2. Lost home equity wealth of $51.7 billion, more than 5  times the annual budget of Arizona
  3. The Zillow home value index has declined every month since February, 2006
  4. Rural communities are also getting hit hard with thousands of foreclosures.
  5. Projected recovery from the housing crisis is not expected to begin until at least 2014. Arizona is projected to be the last state of the union to recover with some estimates putting that date as far out as 2033 — more than 20 years from now.

My suggestion is that both Arizona and on-Arizona residents send an email to House Speaker Tobin telling him to stop listening only to bankers and start listening to those are actually affected by this crisis. As long as we allow banks to control the agenda, as long as legislators are more afraid of the banks than they are of the citizens who vote, the more likely we are to be facing a permanent crisis from which we will never recover.

BOA DEATHWATCH: PORTRAIT OF CRIMINAL ENTERPRISE?

MOST POPULAR ARTICLES

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

MORTGAGES WERE NOT SECURITIZED

“[Nevada Attorney General] Masto didn’t stop there. She also pulled out a bazooka. She accused BofA of failure to properly securitize mortgages, breaking the chain of title and nullifying their standing to foreclose. This is from the amended complaint:

Bank of America misrepresented, both in communications with Nevada consumers and in documents they recorded and filed, that they had authority to foreclose upon consumers’ homes as servicer for the trusts that held these mortgages. Defendants knew (and were on notice) that they had never properly transferred [text redacted] these mortgage to those trusts, failing to deliver properly endorsed or assigned mortgage notes as required by the relevant legal contracts and state law. Because the trusts never became holders of these mortgages, Defendants lacked authority to collect or foreclose on their behalf and never should have represented they could.”

Nevada AG Catherine Cortez Masto Destroys BofA in New Lawsuit

By: David Dayen Wednesday August 31, 2011 6:10 am

Nevada Attorney General Catherine Cortez Masto’s amended complaint in a lawsuit against Bank of America has so many interesting nuances, I think I need a new Internet to catalog them all. But let me start by saying that this complaint is a stick of dynamite to the foreclosure fraud settlement, exposing it as a useless whitewash that won’t deter banks from their criminal practices. Masto joins other skeptical AGs here in not acceding to such a dereliction of duty, and instead she lays out a thorough case of systematic fraud, in this case by Bank of America, at every step of the mortgage process.

First, the background. In October 2008, a group of twelve state Attorneys General, including Nevada, entered into a settlement with Bank of America over predatory lending at the mortgage lender Countrywide, which BofA had purchased in July. In the settlement, BofA promised to modify up to 400,000 mortgages nationwide, at a cost of up to $8.4 billion. This was to include principal reductions as well as refinancing, and all foreclosure operations on the affected loans would be suspended.

If any of this sounds familiar, that’s because it’s the same basic structure for the proposed settlement between all 50 AGs and leading banks over their fraudulent foreclosure operations. The question looming over the entire enterprise was whether the states could ensure vigorous enforcement. There’s a model with this Countrywide settlement in 2008 that we can look to. And apparently no AG but Catherine Cortez Masto has actually investigated whether or not BofA kept their promises. Turns out they haven’t. So Masto is seeking a pullout from the settlement, to pursue prosecution against the bank for multiple deceptive practices.

Allow me to highlight the deceptive practices in question. This is going to be a somewhat long excerpt because I want to add as much detail as possible:

In her filing, Ms. Masto contends that Bank of America raised interest rates on troubled borrowers when modifying their loans even though the bank had promised in the settlement to lower them. The bank also failed to provide loan modifications to qualified homeowners as required under the deal, improperly proceeded with foreclosures even as borrowers’ modification requests were pending and failed to meet the settlement’s 60-day requirement on granting new loan terms, instead allowing months and in some cases more than a year to go by with no resolution, the filing says […]

The complaint says the bank advised credit reporting agencies that consumers were in default when they were not, and contends that Bank of America employees deceived borrowers about why their requests to modify loans were denied. In addition, it says, the bank falsely claimed that the actual owners of loans had refused to allow changes to their mortgages, and it incorrectly claimed that borrowers had failed to make payments on trial loan modifications when in fact they had. Bank of America also misled borrowers, the Nevada attorney general’s filing noted, by offering loan modifications with one set of terms only to come back with a substantially different deal.

Among the more troubling findings in the Nevada complaint is the contention by several Bank of America employees that the company imposed strict limits on the amount of time they could spend on the phone assisting troubled borrowers seeking help with their loans.

One worker said in a deposition cited in the complaint that employees were punished if they spent more than seven minutes or 10 minutes with a customer. Even though these limits allowed almost no time for assistance, Bank of America employees who did not curtail their conversations were reprimanded, this employee said.

This is a portrait of a criminal enterprise, and to anyone who thinks the other mortgage servicers are somehow more chaste than Bank of America, I have some Bank of America stock to sell you.

But Masto didn’t stop there. She also pulled out a bazooka. She accused BofA of failure to properly securitize mortgages, breaking the chain of title and nullifying their standing to foreclose. This is from the amended complaint:

Bank of America misrepresented, both in communications with Nevada consumers and in documents they recorded and filed, that they had authority to foreclose upon consumers’ homes as servicer for the trusts that held these mortgages. Defendants knew (and were on notice) that they had never properly transferred [text redacted] these mortgage to those trusts, failing to deliver properly endorsed or assigned mortgage notes as required by the relevant legal contracts and state law. Because the trusts never became holders of these mortgages, Defendants lacked authority to collect or foreclose on their behalf and never should have represented they could.

We know that Countrywide didn’t convey the mortgage notes properly to the trust, their own officials testified to that in Countrywide v. Kemp (which is quoted in the complaint). Masto joins Eric Schneiderman in blowing the whistle on this corrupt securitization enterprise.

The entire complaint is here. Masto is seeking civil penalties of $5,000 per violation in the complaint, upping that to $12,000 when the violation affected a elderly or disabled person. She also wants restitution costs for wrongful foreclosures and the costs incurred by municipalities and homeowners from unnecessarily vacant foreclosed properties. Given that Nevada has so many foreclosures, the total liability could range higher than the original $8.4 billion settlement, and that’s just for Nevada alone.

So much else to say here. Masto’s lawsuit is as much about the current settlement talks as it is about the 2008 Countrywide settlement. She is saying, in no uncertain terms, that you simply cannot trust the banks to actually abide by settlement terms. As Masto says in the complaint, Bank of America’s “misconduct cut across virtually every aspect of the Defendant’s operations,” and they “materially and almost immediately violated the Consent Judgment” agreed upon in the settlement. At the time, Jerry Brown, then Attorney General of California, said that the settlement would “be closely monitored and enforced in the months ahead.” It clearly wasn’t. BofA didn’t wait for the ink to dry before violating the terms. And Masto has not only the accounts of borrowers to back this up, but also testimony from Bank of America employees.

Knowing this, seeing it fully documented in Nevada, how could there still be any negotiations on a settlement with the same people? The negotiation should be about whether there will be a public or private perp walk for BofA executives.

So why hasn’t any other state done the same basic investigation as Nevada, and sought to pull out of the Countrywide settlement? Arizona actually joined this lawsuit back in 2010, but that was when Democrat Terry Goddard was the AG. Republican Tom Horne became the AG after the 2010 elections, and he’s too busy literally trying to overturn the Voting Rights Act to worry about whether or not his constituents are being systematically ripped off by a bank, I guess. (Horne, by the way, is still on the executive committee of the foreclosure fraud settlement, I assume because he doesn’t want to do an investigation, and that’s the prerequisite, it seems.)

As for the others, let me tell you who one of the leaders on the Countrywide settlement was: a guy named Tom Miller, the Attorney General of Iowa and the leader of the 50-state settlement talks on foreclosure fraud. Here’s what he said at the time.

Miller said the Countrywide agreement’s program of loan modifications to prevent foreclosures is a win for all parties. “Foreclosure is the enemy. Most important, loan modifications can help homeowners avoid foreclosures and keep their homes. Avoiding foreclosures also helps the companies, helps communities and neighborhoods, and helps our overall economy by stabilizing the housing market,” he said.

“This is what we have been looking for. This agreement provides for the kind of systematic and streamlined loan modification program that is critical right now,” Miller said. “I strongly urge other servicers to undertake similar aggressive programs to prevent foreclosures.”

Do you think Tom Miller, who wants a foreclosure fraud settlement in the worst way, is going to bother to check to see if BofA managed to actually give Iowans the loan modifications they promised? Of course not. And he’s likely to bully all the other states in the Countrywide agreement to shut up about how that settlement was basically unenforced, because people would get the message that this new settlement would go the same way.

He must have got to all of them, but not Masto. And she has ruined his best wishes, not to mention the best wishes of Bank of America. They are denying any wrongdoing and still claiming that “the best way to get the housing market going again in every state is a global settlement that addresses these issues fairly, comprehensively and with finality.” Bullshit. The best way to restore the housing market, the rule of law, and faith in the American system is by rounding up criminal enterprises masquerading as banks.

And the investigation that would lead to that will surely happen now. Masto, Schneiderman and colleagues like Beau Biden, Martha Coakley and anyone else who actually takes their job description seriously will ensure that.

AZ AG File Amicus Brief Favoring Homeowners

MOST POPULAR ARTICLES

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

SEE AZ AG Amicus Vasquez 8-2011 (1)

CASE IS SCHEDULED FOR ORAL ARGUMENT ON SEPTEMBER 22, 20011 IN TUCSON, AZ. CONTRARY TO RUMOR, DO NOT EXPECT A RULING FROM THE COURT ON THAT DATE. THE SUPREME COURT OF ARIZONA WILL TAKE AS MUCH TIME AS IT NEEDS TO MAKE THE DECISION.

JUDGE HOLLOWELL HAS CERTIFIED TWO QUESTIONS ESSENTIAL TO THE OUT COME OF HUNDRED OF THOUSANDS OF FORECLOSURE CASES. ATTORNEY GENERAL THOMAS C HORNE HAS SUBMITTED AN AMICUS (FRIEND OF THE COURT) BRIEF ADVOCATING A FAVORABLE RESULT FOR THE PROTECTION OF THE TITLE SYSTEM, THE MARKETPLACE AND BORROWERS.

The case is Julia Vasquez v Deutsch Bank National Trust Company, as Trustee for Saxon Asset Securities Trust 2005-3; Saxon Mortgage, Inc., and Saxon Mortgage Services, Inc. Supreme Court Case No CV 11-0091-CQ, U.S. Bankruptcy Court Case No: 4:08-bk-15510-EWH. Assisting in the writing of the Amicus Brief were Carolyn R. Matthews, Esq., Dena R. Epstein, Esq., and Donnelly A. Dybus, Esq..

In a a very well -written and well reasoned brief, the Arizona Attorney general takes and stand and makes a very persuasive case contrary to the tricks and shell games of the pretender lenders. It also addresses head-on the contention that that a negative ruling to the banks will cause financial disaster. Just as we have been saying for years here on these pages, the AG makes short shrift of that argument. And the AG takes the bank to task on their “spin” that stopping the foreclosures will have a chilling effect on the housing market and therefore the economy. The absurdity of both positions is exposed for what they are — naked aggression and greed justifying the means to defraud and corrupt the entire housing market, financial industry and the whole of the consumer buying base in this and other countries.

Of particular note is the detailed discussion in the Amicus Brief regarding the recordation of interests in real property. While the brief does not directly attach perfection of liens that violate the provisions of Arizona Statutes, the implications are clear: If the public record does not contain adequate disclosure as to the identity of the interested parties, the document is neither properly recorded, nor is the party seeking to enforce such a document entitled to use that document as though it had been recorded.

 

The use of a double nominee method of identifying the straw-man beneficiary (usually MERS) and a straw-man “lender” (usually the mortgage originator  that was acting only as a conduit or broker) leaves the public without any knowledge as to the identities of the real parties in interest. In the case of a mortgage lien, if it is impossible to know the identity of the party who can satisfy the lien, then the lien is not perfected. The same reasoning holds true with any other document required to be recorded, to wit:  

PUBLIC POLICY OF ARIZONA AGAINST FORECLOSURES: The AG also meets head on the obvious bias in the courts in which the assumption is made that that it is somehow better for society to speed along the foreclosures. Not so, says the AG:

Briefs Submitted for Oral Argument in Arizona

MOST POPULAR ARTICLES

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

CV110091CQ Brief [Plaintiff Vasquez]

CV110091CQ Brief filed by Defendants

CERTIFIED QUESTIONS SUBMITTED FOR SUPREME COURT REVIEW

AMICUS BRIEFS REPORTEDLY BEING FILED BY ARIZONA AG AND OTHERS

A lot of buzz being generated about this time in  Arizona Supreme Court. The Court has scheduled oral argument in an auditorium and it will be broadcast, from what I understand on September live on September 22, 2011.

The big question of course is whether we will take a step forward or a step backward. The certified questions are straightforward and the greater weight of the law clearly supports Vasquez. If the banks lose this one, as they have on appellate review, they will once again be forced backward on 5 million foreclosures, many of which were in Arizona. My position is simple: if the law is applied and substance is more important than a procedure (non-judicial foreclosure) that in the current environment is questionable at best, then the Court will issue a ruling and opinion that will require Judges to make inquiry as to the truth of the matters asserted by the banks. If it is true, they can foreclose, If it is false they can’t. The fact that the decision could have large ramifications should not stop the court from doing the right thing.

As for the large ramifications, they run both ways. A decision for the banks will mean that title will be forever corrupted and uncertainty will be introduced into the marketplace that was never permitted or even contemplated. A decision for the borrowers will put the borrowers back into the driver’s seat to reclaim their home, damages for wrongful foreclosure and it will create a huge opportunity for community banks and credit unions to pick up the pieces of what is left of the megabanks when their balance sheets are revealed as nothing more than the emperor’s new clothes. A decision for banks will continue to stifle the economy that is already choking on foreclosures, unemployment and lack of capital or income to fuel economic growth. A decision for the borrowers will inject capital back into the economic equation and allow homeowners to recover with some money in or wealth in their pockets that can fueled the stimulus needed for the economy, employment and increased tax revenue for the states and federal government.

AS FOR THE FREE HOUSE STORY: It’s true. Someone is going to get a free house. Will it be the disinterested non-creditor banks who misbehaved and lied in the process of lending and documenting the alleged loans, and withheld accounting from third party payments made without subrogation? Or will it be the homeowner who has down payments, monthly payments, maintenance, taxes and insurance, as well as furnishings and home improvements in the home? Will there be a windfall? Yes. Either to the banks who don’t have anything to lose except an opportunity to get a free house or to the homeowner who had more left on his obligation than the value of his claims against the bank for wrongful foreclosure, predatory lending, fraudulent lending etc.

 

MICHELLE REAGAN: REPUBLICAN, MAINSTREAM AND HEADED FOR A BRIGHT FUTURE

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

It’s not often that I endorse a candidate for public office, much less one who isn’t running for anything yet. But I think it’s important to recognize the efforts of a State Senator, recently elected after having been in the State House of Representatives. Ms. Reagan is straight Republican carrying the actual ideology that big government, big spending and government intrusion into our private lives is something to be guarded against. She is pro-business and pro-banks (but as it turns out only if the banks behave themselves).

Senator Reagan wrote a letter to her own mortgage company —- or at least the one that said it was the mortgage company — and simply asked whether they were still the the holder of the note or if someone else was the creditor. For some inexplicable reason the Bank sued her creating a news furor and provoking Reagan to inquire further. We here at livinglies heard the cries of Colonial Bank and wondered if well, maybe they were telling the truth that they had never securitized anything. So we peeked under the hood and it turned out they were up to their neck in securitization and all that went with it.

Thank God for the stupidity of some bankers. If they hadn’t sued Reagan, this relatively unknown public servant might never had the reason to clear up the legal problem that seemed to be clogging the courts, as the Arizona House Judiciary Committee had been finding out. Reagan’s reaction was courageous and principled, and the the fine writing of Beth Findsen surely combined into a more formidable team than the bank lobbyists realized. They probably thought Arizona was a safe state, so they didn’t really pay that much attention.

Now Arizona will be a safe state to do business in because here, where I live, crazy as we might be on some things, we take contracts seriously, we take evidence seriously, and we take theft seriously. We don’t like bankers who cheat and steal. And we really don’t like lawyers who are complicit in the fraud — not just representing the interests of their clients as best they can. There are some law firms that were caught flat-footed by this and may have considerable exposure now to discipline, civil actions and even criminal liability for fabrication of documents, forgery and misrepresentation to the courts.

So to get to the point, Michelle Reagan has my vote wherever her ambitions lead her. We need more people like her — people who take public service seriously. I’m not nearly as interested in the political ideology of a person seeking to serve in public office, as I am in their integrity and basic sense of fairness, right and wrong. My suggestion: send a thank you note to Michelle Reagan in Phoenix to her Senate office and let her know how much you appreciate her. It’s high time we gave praise where it is due and give them hell where that is due.

Thanks Senator Reagan.

BANKS BLASTED BY ARIZONA STATE SENATE: FORECLOSURE DEFENSE DANCING IN THE STREETS

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

ARIZONA MAVERICK LEGISLATURE ASSERTS THE RULE OF LAW

EDITOR’S COMMENT: MUCHO CONGRATS TO SENATOR MICHELE REAGAN AND ATTORNEY BETH FINDSEN, ESQ. (SCOTTSDALE) WHO DRAFTED A BILL REQUIRING A WOULD-BE FORECLOSER (PRETENDER LENDER) TO PROVE THEY ARE THE CREDITOR. DESPITE MILLIONS OF DOLLARS IN A  SOLID RED STATE IN A REPUBLICAN CONTROLLED LEGISLATURE, THE STATE OF ARIZONA IS ONCE AGAIN DISPLAYING ITS KNACK FOR SURPRISING PEOPLE WITH A ‘MAVERICK” STANCE.

Banks were stunned when they learned that the measure had passed by a huge margin and that their efforts to screw up the State of Arizona just hit a brick wall. Now the State is going to be in position to collect billions of dollars in unreported and unpaid income taxes, recording fees, and fines and penalties. In a nutshell, the bill means that if you could not prevail in a judicial action you can’t use the power of non-judicial sale to make an end run around due process.

This bill stops 95% of foreclosures in their tracks and changes the entire landscape of title, wealth and ownership. It also reverses the downward spiral of the Arizona economy and changes the outlook from bleak and bleaker to a budget surplus and employment rising in a rising economy in a “right to work” state.

Expect desperate actions from desperate banks as they try to head off similar measures in other states. The statute merely re-states the law in the context of competing claims caused by securitization. If someone wants to buy a house, they are going to be required to pay for it, not steal it with a fake “credit bid.” Arizona and New York could not be more different in their politics or demographics but apparently there is agreement from the left and the right side the political spectrum that if the Feds won’t do the job, then the states will do it — stop foreclosures and prosecute people who committed civil or criminal fraud.

Bankers Apoplectic Over Arizona’s Republican Dominated Senate Passing Chain of Title Bill, 28-2

Yesterday, February 24, 2011, 10:37:16 PM | MandelmanGo to full article

Frankly, I don’t know where to begin. There’s just so much to say. It’s like a cornucopia of… well, lots of stuff to say. Bankers everywhere must be walking in circles, muttering to themselves, perhaps breaking out in hives. And I have to imagine that banking industry lobbyists are in some kind of trouble with their masters today, with phones being slammed down after CEOs have screamed:

“Damn it, how could you have let this happen? We gave you an open checkbook filled with blank checks… and you couldn’t even scare off, or buy off, the Arizona Senate… the Republican controlled Senate? And you call yourselves lobbyists?”

SLAM!

You see, the Arizona State Senate has passed Senate Bill 1259, sponsored by Michele Reagan, which would require the lenders that didn’t originate a loan to produce the full chain of title, or risk the foreclosure sale being voided. The bill now goes to the House for a vote, but with the Senate having passed it by an overwhelming margin of 28-2, it would seem that its passage is a fait accompli.

According to the Arizona Senate’s FACT SHEET FOR S.B.1259, foreclosures; proof of ownership, the Bill’s purpose is as follows:

“Provides a chain of ownership during foreclosure proceedings and allows reimbursement of lawyer fees for injunctions or court cases that fail to prove ownership.”

Well, I’ll be a monkey’s uncle. A Republican dominated Senate, you say?

You don’t say. Are you sure?

Quite sure.

So, are these Republicans in any way related to the Republicans in Washington D.C. or is the word “Republican” pronounced differently in Arizona and there’s no relation between the two groups?

(That was originally intended to be a rhetorical question, but if anyone feels capable of actually answering it, please… by all means… write to me… because I’m so confused.)

And attorneys fees to be awarded to the victor as well? Well, I’ll say… so, very good then. That means that homeowners who believe there is cause for a challenge to the servicer’s chain of title assertions, will have a much easier time finding and funding their legal representation, I would think that would be the case, anyway, don’t quote me…. or, no… go ahead and quote me, why the heck not?

And, in a related story… Arizona’s foreclosure defense plaintiff’s attorneys have been spotted across the state dancing in the streets with some of the state’s distressed homeowners. Many observers of this admittedly unusual phenomenon claim that for the most part, the attorneys and homeowners were doing the Hokey Pokey, with several people reporting that after rolling down their windows as they drove by, they heard the dancers exclaim: “That’s what it’s all about!”

The Senate’s S.B. 1259 FACT SHEET also listed five key “Provisions” of the bill:

1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.

2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.

3. Stipulates that failure to properly record the summary document that demonstrates evidence of title for the foreclosing beneficiary as of the date of the trustee’s sale will result in a voidable sale.

4. Allows any person with an interest in the trust property to file an action to void the trustee’s sale for failure to comply and is entitled to an award of attorney fees and damages, to include an award of attorney fees for any injunction or other provisional remedy related to the claim.

5. Becomes effective on the general effective date.

So, get this… I’m as curious as the bankers must be as to how in the world something like this happened. I mean, I’ve been accusing our country’s politicians of perpetual kowtowing to the banking lobby, and of having no first hand knowledge of what’s going on in real life, as far as the foreclosure crisis goes… and then the Arizona’s political types go and pass something like this? I mean… go figure, right?

So… how did it happen?


Well, funny story… it seems that State Senator Michele Reagan, a Republican of all things, who was first elected to serve in the Arizona House of Representatives in 2002, and in 2010 was elected to the Arizona State Senate… and who is Vice-Chairman of the Banking and Insurance Committee, and Chairman of the Committee on Economic Development and Jobs Creation… well it seems that she and her husband were sued by their servicer, Texas-based Colonial Savings FA, when they sent the bank a letter last July stating that they were planning to rescind their loan due to violations of the Truth in Lending Act or TILA .

According to Bloomberg’s story on the bill’s passage:

“They claim that the bank failed to disclose certain fees, and that the underwriter of their loan inflated their income by 12%, which violates the Truth in Lending Act.”

Colonial Savings then asked the court to declare that the couple were not entitled to rescind the loan, it should go without saying.

Reagan and her husband, David Gulino filed their own counter claim type lawsuit, in which they argued that they were manipulated into accepting an adjustable-rate mortgage, and that Colonial Savings, in true servicer-style, won’t tell them who owns their loan.

According to Bloomberg, Janet Walter, a spokeswoman for Colonial Savings, declined to comment, so I see no point in ringing her myself. And, Reagan’s attorney Beth Findsen, who told Bloomberg that she also helped write the bill, said the following:

“It makes Michele mad that the bank servicers will not disclose to a borrower the true noteholders,”

Findsen said. “She was taken aback that such basic information was not readily available.”

And I can imagine she would be taken aback. I know I would be… and in fact was… when I was first exposed to the problems being caused by Servicers, and I remain taken aback to this day.

Again, quoting from the Bloomberg story…

“If you foreclose on somebody you should have to tell them who owns the property,” Michele Reagan, who sponsored Senate Bill 1259, said in a telephone interview. “People have the right in this country to face their accusers.”

I like the way she thinks, don’t you? Even though, if I were to be picky about it, I’m not entirely sure that the reason for passing a law that requires the banksters to produce or report on all of the specific beneficiaries comprised in the Chain of Title has anything to do with our right to confront one’s accuser, as described in the Sixth Amendment to the U.S. Constitution, but if that’s what works, then let’s by all means run with it.

Strong opposition to the bill’s passage is coming from the Arizona Bankers Association, the Arizona Trustees Association, and Merscorp Inc., three great tastes that taste great together. MERS, in case you’ve been incarcerated in a Turkish prison over this past year, is an industry-owned organization that maintains a database containing more than 50% of all mortgages, that claims to be able to represent the trustees that conduct foreclosure auctions on behalf of lenders. Many vehemently disagree.

Paul Hickman, chief executive officer of the Arizona Bankers Association in Phoenix, showed up in the Bloomberg article, to issue the banking industry’s standard WARNING & THREAT package… the one they draw like a gun every time anything might change that affects them in any way.

“If Arizona passes this, it will be the only state in the union that will require a production of chain of title. States that pass these types of laws will be riskier environments to lend in and more difficult environments to get a loan in.”

Or, in other words… pass this bill and none of you in AZ will ever buy a home again because there will be no credit available to you. Hickman didn’t add the popular refrain about how the change will also paralyze the housing market, which will derail the recovery and basically end the world as we know it. Oooooo… scary bedtime stories for legislators.

And by the way, Mr. Hickman… the whole chain of title thing is already the law in Arizona and elsewhere.  This new law just requires your membership to follow the existing laws and actually make sure the chain of title is not destroyed by banker incompetence or blatant disregard for the law.

So, why would your banker buddies having to follow the law transform a geographic locale into a “riskier environment?”  Riskier for whom, exactly?  Just tell the bankers that they may have to work past three and actually care about doing things in compliance with the law from now on, and everything will be fine… see… risk gone.  Happy now?

Also, appearing alongside Hickman, the president of the Arizona Trustees Association in Phoenix, Richard Chambliss… I prefer to call him “Dick,” echoed the industry’s message as well:

“Reagan’s bill has both technical and conceptual problems, and could add to uncertainty over title.

Lenders that don’t file mortgage assignments with county recorders offices could face borrower challenges if the bill passes, even though the assignments weren’t required by state law.”

Dick Chambliss went on… sounding to me like he was getting a bit hot under the collar as he did…

“Is this bill intended to punish the lenders and screw up the process or address the problem that needs to be solved?”


Actually, two out of three, Dicky my boy… it’s definitely intended to punish the lenders, although nowhere near as severely as they should be punished, and now that we can all see how it upsets you and your peer group, we’re more confident than ever that it will also go a long way towards solving a couple of key problems inherent to the foreclosure crisis to-date as a result of servicer practices…

1. That servicers and lenders will actually have to follow the laws related to the chain of title, and therefore won’t be bringing fraudulent documents into court anymore.

2. That servicers that haven’t followed the laws and therefore that have broken the chain of title will now have an incentive to modify loans, instead of perpetuating illegal foreclosures.

But, look at the bright side… think of the money you’ll save on robo-signers, depositions, the creation of garbage alonges… you’ll come out ahead, I just know it.

Dick had yet another question to pose…

“What is it accomplishing by requiring that the history from the birth of the deed of trust to 20 assignments down the road have to be fully identified?”


Ooohh.. ohoo… I know this one, can I answer this one?

It’s a law to make sure that bankers tell the truth and follow our state and federal laws when foreclosing on someone’s home. Is that not an easy thing to see and understand? Even the banksters see the writing on the proverbial wall this time out, which is undoubtedly why they are so distressed at the prospect of the bill passing the House of Representatives and becoming law in Arizona.

See what I mean?  Doesn’t “Dick” fit him better than Richard.  For sure, right?  I don’t even know the guy and I can tell from the way he talks that he’s definitely a “Dick”.

With Arizona being a non-judicial foreclosure state, meaning that property can be legally repossessed there without a court order, the banksters are not used to being asked such questions related to foreclosure and therefore are likely to be nowhere near as prepared to create fraudulent documents as they have been in the judicial foreclosure states where they appear to have a rich history of forgery going back many years.

Most mortgages that were originated during the last ten years were securitized and therefore supposedly assigned to trusts, with “pass-through certificates” entitling their holders to receive a percentage of the payment streams generated by the mortgages in the pool offered for sale to investors. As a result, many, many of these loans were sold more than three times before ever getting into the trust, assuming they ever arrived.

Banks using the Merscorp’s system typically don’t file assignments because the says that the ownership information is tracked electronically, whatever that actually means. Numerous judges don’t agree, most notably of late, Federal Bankruptcy Court Judge Grossman in New York whose opinion a few weeks ago, although non-binding for several reasons, removed all uncertainty as the argument as to whether MERS should be allowed to foreclose. He says, clearly… not a chance.

Walter E. Moak, who is apparently a bankruptcy attorney in Chandler, Arizona, was quoted in the Bloomberg story, saying that this Arizona legislation would make it easier for borrowers to negotiate loan workouts, and depending on the details, I might even agree. But, then the story quotes this bankruptcy lawyer as saying something that I would have to take issue with…

“Servicers often reject modification requests because the borrower doesn’t meet investor guidelines, even as they refuse to identify the investors,” Moak said.

“The person who has decision-making power is not the servicer, it’s the investors,” he said.

I realize that servicers say this a lot… I realize that many people believe this to be the case… I know that intellectually it may even makes sense … and I’ll even allow for some small percentage of cases where this statement is accurate to whatever degree… BUT… for the most part, Mr. Moak’s statements are at best incomplete, and in many instances wrong.

When a servicer tells a homeowner that they are unable to modify their loan due to something about not meeting investor guidelines or because the investor said they won’t modify loans… well, I’m sorry Mr. Moak, but assuming the loan has been securitized… it’s almost never true. At least nine times out of ten, they’re just plain old lying… or shall we say they’re embroidering… or perhaps we should call it, embellishing… no, let’s go back to just plain lying.

Pooling and Servicing Agreements, in the vast majority of cases, do not prohibit servicers from modifying a loan that is at risk of imminent default, and besides that… servicers don’t have a relationship with the investors… they report to a Master Servicer, who in turn reports to a Trustee, and that trustee could theoretically contact investors, but even that is extremely unlikely as the investors we’re talking about are often pension plans, insurance companies and sovereign wealth funds… not exactly the kind of investors you just pick up the phone and call… and then you would have to reach some sort of a majority… I mean… it’s just a ridiculous proposition.

Georgetown Law Professor, Adam Levitin, in conjunction with Tara Twomey of National Consumer Law Center, two of the country’s leading experts in the intricacies of mortgage servicing as related to loan modifications, have just published a 90-page research paper that represents “the first comprehensive overview of the residential mortgage servicing business,” and although the subject is nothing if not complex, some things are clear.

(I actually know Tara from the judicial conference held last April for the 9th Circuit judges… she and I were on the same panel speaking to the judges about the foreclosure crisis and the impacts of securitization.)

From the Levitin/Twomey research paper on mortgage servicing:

Mortgage servicing has begun to receive increased scholarly, popular, and political attention as a result of the difficulties faced by financially distressed homeowners when attempting to restructure their mortgages amid the home foreclosure crisis.  In particular, the mortgage servicing industry has been identified as a central factor in the failure of the various government loan modification programs.

No one has a firm sense of the frequency of contractual limitations to modification for PLS. A small and unrepresentative sampling by Credit Suisse indicates that nearly all PLS PSAs permit modification when a loan is in default or default is reasonably foreseeable.  Almost 60% of the sampled PSAs had no other restrictions to modification.  Of the PSAs with additional restrictions, 27% capped loan modifications at 5% of the loan pool, either by count or balance.

The PSA sets forth two exceptions to this general limitation on loan modification. First, for defaulted loans, the PSA provides that the servicer may write down principal or extend the term of the loan.  Thus, it appears that the servicer may write down the principal on a defaulted or distressed loan or may extend the term of the loan.

Look, the fact is that servicers lie all the time to the homeowners who apply to have their loans modified, and I’ve got a front row seat to that behavior almost every single day. They want to foreclose because they make more money when they foreclose, and if they can say something to get a homeowner to give up, they will… and they do… all the time. I can’t count the number of times when I’ve told a homeowner to not give up and the result has been a modified loan.

If a servicer tells me that the sky is blue, I go outside and check for myself… and that’s all I have to say about that.

See why I have to check for myself?

Here’s the conslusion from the Levitin/Twomey paper…

Conclusion

This Article presents the first comprehensive overview of the residential mortgage servicing business and shows that mortgage servicing suffers from an endemic principal-agent conflict between investors and servicers.

Securitization separates the ownership interest in a mortgage loan and the management of the loan. Securitization structures incentivize servicers to act in ways that do not track investors‘ interests, and these structures limit investors‘ ability to monitor servicer behavior. Monitoring proxies, such as ratings agencies and trustees, are themselves subject to perverse incentives and are limited in their ability to monitor servicer behavior.

As a result, servicers are frequently incentivized to foreclose on defaulted loans rather than restructure the loan, even when the restructuring would be in the investors‘ interest. The costs of this principal-agent conflict are not borne solely by MBS investors. The principal-agent conflict in residential mortgage servicing also has an enormous negative externality for homeowners, communities, and the housing market.

The principal-agent problem in residential mortgage servicing could be addressed by restructuring servicing compensation. Other types of securitizations use measures that mitigate the principal-agent conflict between servicers and investors.

There are costs to applying these measures to residential mortgage securitization, which are likely to be borne partly by borrowers in the form of higher mortgage costs. Yet, correcting the principal agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.

And if I can wrap that conclusion up in a tidy little package with a bow on top, it says that it’s the mortgage servicers who are letting our nation down and causing unfathomable amounts of pain to our country’s homeowners across all socio-economic demographic segments.

The Bloomberg story also quoted Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City, who said that he thought the legislation would, “test the completeness and accuracy of bank records. The law could also have the unintended consequence of pushing more lenders to modify loans rather than face a voided sale.”

“I like it because it forces the financial institution into providing information about who owns loans and rebuild transparency,” Peterson said. “It makes it significantly more difficult to foreclose if they don’t have good records of the history of ownership of the loan.”

A FEW CLOSING THOUGHTS I HOPE YOU’LL CONSIDER…

1. In its simplest form, this is a bill that would create a law that would say that bankers have to follow our existing laws before foreclosing on someone’s home.  And yet the bankers don’t like it and say that if they were forced to follow our laws, we would have a harder time getting loans.

2. And to that I would say: Fine… if we have a harder time getting loans, then it occurs to me that we’ll owe less money and you bankers will have a harder time making as much money.  So who’s really going to suffer here if this becomes a law?

3. Bankers argued throughout the last 20 years that no laws should restrict sub-prime lending because then lower income Americans wouldn’t have access to credit, which is a lot like saying that poor neighborhoods need access to LOAN SHARKS.

4. Why wouldn’t every state in the country have a law like this one on the books?  It’s a law that makes banks follow the law.  How could that be a bad thing?  I’d like to encourage everyone to write to their state representatives and tell them that you want them to enact such a law.

5. The only reason this bill is being pushed through the Arizona legislature is that one of that state’s senators actually tried to rescind her own predatory loan and found out first hand what it’s like to have to deal with a servicer.  Is she an irresponsible borrower?  I don’t hear anyone calling her names, asking her if she’s living beyond her means.  WHY NOT?

6. What should we do, wait for more of our elected representatives to fall fare enough down the economic ladder so that they too have the experience of dealing with a servicer?  And only then we should stop the pain and suffering being caused by the foreclosure crisis.  I’ve said it before, but our elected representatives have long-since forgotten what it’s like to not be rich.  They need to be reminded…

I have a call in to Sen. Michele Reagan’s office in Phoenix and I hope to hear back from her.  But until I do, there’s only one thing that’s making me feel uneasy about S.B. 1259… and here it is…

Remember the first and second provisions I listed, from the FACT SHEET:

1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.

2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.

Yeah, well you see the 800lb. gorilla now, right?  Is this bill saying that all the bankers will be required to do under the new law is type up a list of what shouldn’t happen but didn’t… without having to prove anything?  Because if that’s the case, then I just wasted a huge amount of time writing about something that will soon be proven useless, and I’m not happy about that possibility at all.

I mean, typing up a chronology of what was supposed to happen and when, even though it didn’t… strikes me as being much easier than having a robo-signer sign 10,000 lost note affidavits each month

So, all I can say is… I’m going to find out for sure tomorrow by talking to the Senator’s office, and until then I’m going to pretend that I never even noticed that little issue, and pray like hell that this isn’t just another Charlie Brown run at that same stupid football.

From the Bloomberg article:

Matthew Benson, a spokesman for Arizona Governor Jan Brewer, a Republican, said she doesn’t comment on legislation until it reaches her desk.

Mandelman out.

J CURLEY AZ BKR CT: “No Docs To Show Ownership Of Loan Or Standing”

ONE ON ONE WITH NEIL GARFIELD ONE ON ONE WITH NEIL GARFIELD

COMBO ANALYSIS TITLE AND SECURITIZATION

EDITOR’S COMMENT: Judge Curley has been wrestling with these issues for more than 2 years. She has heard every argument, seen every memorandum, Expert Declaration (mine) and considered everything else possible. She was led to the inescapable conclusion that BOA’s position was a farce. She denied the Motion to Lift Stay, which effectively puts into question whether BAC or BOA is a creditor at all. In this well-reasoned and extremely well-written opinion, she outlines her analysis and reasoning. IN plain language, we are a nation of laws and civil procedure and not a nation of men and power. Not even the largest Bank on Earth can escape the requirements of our laws.

Arizona Bankruptcy Court Denies BAC “No Docs To Show Ownership Of Loan Or Standing” In re: ZITTA

Arizona Bankruptcy Court Denies BAC “No Docs To Show Ownership Of Loan Or Standing” In re: ZITTA

In re MIKE ZITTA AND IRENA ZITTA, Debtors.
BAC HOME LOANS SERVICING, LP FKA COUNTRYWIDE HOME LOANS
SERVICING LP, its assignees and/or successors in interest, Movant,
v.
MIKE ZITTA AND IRENA ZITTA, Respondents.

No. 09-bk-19154-SSC

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA

DATED: January 21, 2011.

Not for Publication-Electronic Docketing ONLY

AMENDED1 MEMORANDUM DECISION

I. PRELIMINARY STATEMENT
This Court recently received a Notice of Appeal filed by BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P.(“BAC”) on December 23, 2010. The Notice of Appeal concerns the Court’s denial of a Motion for Reconsideration filed by BAC relating to its Motion for Relief from Stay in the Chapter 11 bankruptcy case of Mike and Irena Zitta (“Debtors”). Because BAC may have prematurely filed its Notice of Appeal, and because this Court had anticipated an opportunity to execute some sort of Order, with an appended memorandum decision on the issues presented, this Court will amplify its reasoning in denying the Motion for Reconsideration and clarify the record so that the Motion for Reconsideration may be heard on appeal.

BAC filed its Motion for Relief from Stay on August 30, 2010.2 Copies of the interest-only promissory note (“Note”), along with an allonge (“Allonge”), the recorded deed of trust (“Deed of Trust”), and the Broker’s price opinion were attached to the Motion.3 BAC also filed a declaration in support of the Motion.4 However, no assignment of the Deed of Trust from any entity to BAC was included. The Debtors filed a response/objection to the relief requested.5 The Court denied BAC’s Motion by Minute Entry Order issued on October 20, 2010 (the “Minute Entry Order”), because BAC had failed to provide a copy of an assignment of the Deed of Trust with its Motion.6 The October 20 Minute Entry Order was not executed by this Court.

On October 29, 2010, BAC filed a Motion for Reconsideration of the Minute Entry Order, asserting that under Arizona law, an assignment of the Deed of Trust was not necessary to establish standing to move for relief from the automatic stay.7 The Court heard the Motion for Reconsideration on December 15, 2010, and denied the requested relief. BAC never submitted a form of order denying the Motion for Reconsideration, and although a minute entry order was generated that same day outlining briefly the Court’s denial of the Motion, the minute entry order was never executed by this Court.8 Rather than wait for an appropriate form of order to be entered, BAC chose to file a Notice of Appeal on December 23, 2010.

In this Memorandum Decision, the Court has set forth its findings of fact and conclusions of law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. The issues addressed herein constitute a core proceeding over which this Court has jurisdiction. 28 U.S.C. §§ 1334(b) and 157(b) (West 2010).

II. FACTUAL DISCUSSION
In the Motion for Relief from Stay filed on August 30, 2010, BAC asserted that it was the “holder in due course” and that it was the “payee and a holder in due course under that certain Promissory Note dated March 20, 2007.”9 The Note attached to the Motion for Relief from Stay stated that GreenPoint Mortgage Funding, Inc., had provided the financing to the Debtors so that the Debtors could acquire the real property located at 5100 East Blue Jay Lane, Flagstaff, Arizona (“Property”).10 The Note further stated that anyone taking the Note “by transfer and who [was] entitled to receive payments under [the] Note [was] called the “Note Holder.”11 The Allonge, dated March 20, 2007, stated as follows: “Pay to the Order of BAC Home Loans Servicing, LP f/k/a Countrywide Home Loan Servicing, LP without recourse.”12 GreenPoint Mortgage Funding, Inc. had executed the Allonge, although the signature is difficult to discern.13 The Deed of Trust attached to the Motion for Relief from Stay stated that GreenPoint Mortgage Funding, Inc. was the lender and that MERS was the nominee for the lender. Specifically, the Deed of Trust stated:

(E) “MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument.14

The Deed of Trust stated that the Debtors acknowledged or executed the document on March 21, 2007, although the Allonge and the Note had an execution date of March 20, 2007. Finally, the Declaration submitted in support of the Motion for Relief from Stay stated that “[it] is in the regular course and scope and business for BAC Home Loans Servicing, LP f/k/a Countrywide Home Loans Servicing LP to prepare and maintain books and records relating to the status of the servicing of Movant’s Deed of Trust.”15 The Declaration also stated that “Movant is the payee under that certain Promissory Note dated March 20, 2007…. Further, Movant is the present holder and owner of that certain First Deed of Trust of same date…. securing said Note against Debtors’ property….”16 Thus, BAC’s Declaration creates an ambiguity as to whether BAC is the servicer of the loan or whether it is the Note Holder who is entitled to payments under the Debtors’ Note obligation. The documentation presented by BAC also includes a security agreement, granting BAC a security interest in the Note.17

A review of the Motion for Relief from Stay reflects the myriad problems that this and other Courts are facing in attempting to handle the tremendous volume of such motions that are filed in the numerous bankruptcy cases that are pending across the country. First, the Motion that was filed in this case appears to be a form that may have been imperfectly tailored to the facts of this case. For instance, the Motion for Relief from Stay alleges that GreenPoint Mortgage Funding, Inc. “was the original lender on the subject Note and Deed of Trust. Thereafter, GreenPoint Mortgage Funding, Inc. assigned all of its rights, title and interest in and to said [N]ote and Deed of Trust to BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P. by way of an Allonge….”18 However, as noted previously, the Declaration seems to indicate that BAC was acting as a servicer. If BAC was simply the servicer, then for whom was BAC receiving payments under the Note? If BAC was holding the Note as the servicer, for whom was it acting? If BAC was the Note Holder, as defined in the Note, then why does the Declaration state that BAC operates as a servicer? Another way to state the problem is that the Motion for Relief from the Stay and the Declaration seem to reflect imperfectly the transfer of the various interests in the Note and Deed of Trust. Given the posture of the record presented to the Court, and the lack of clarity, the Court denied the Motion for Relief from Stay by Minute Entry Order on October 20, 2010. Rather than clarify the record by filing the appropriate assignment, a further declaration or affidavit, or some other documentation, BAC filed its Motion for Reconsideration. BAC chose to provide no further information to the Court from a factual standpoint.

III. LEGAL DISCUSSION
The Motion for Reconsideration

As outlined above, part of the problem with the issues to be decided is the context in which the matters have been presented to the Court. When a motion for relief from stay is filed, the Bankruptcy Code, the Rules of Bankruptcy Procedure, and the Local Rules of this Court are immediately applicable or implicated.

11 U.S.C. §362 (d) states that the bankruptcy court may, for instance, terminate, modify, or condition the automatic stay (1) “for cause, including the lack of adequate protection of an interest in property of such party in interest,” or (2) “with respect to a stay of an act against
property under subsection (a) of this section if-(A) the debtor does not have an equity interest in such property; and (B) such property is not necessary to an effective reorganization.”19 Section 362(g) states that the party requesting relief from the automatic stay has the burden of proof of whether the debtor has any equity in the property at issue.20 The Local Rules of the Arizona Bankruptcy Court further require that a party filing a motion for relief from the automatic stay be able to provide some support for the relief requested. For instance, if the party is stating that it is a secured creditor requesting relief from the automatic stay to pursue a trustee’s sale under Arizona law, the secured creditor should be able to provide support in the motion that it has a perfected security interest in property of the estate in which the debtor or debtor in possession also has an interest.21

In reviewing the sufficiency of any motion for relief from the automatic stay, the court must also consider under what provision of the Bankruptcy Code the debtor has filed. For instance, if the individual debtor has filed a chapter 7 petition, a trustee in bankruptcy is appointed that must collect and liquidate property of the estate, that has not been claimed exempt by the debtor, for distribution to the debtor’s creditors, according to the priorities set forth in the Bankruptcy Code.22 The trustee in bankruptcy may increase the amount of property of the estate available for distribution to creditors by exercising certain avoidance powers enumerated, inter alia, in Bankruptcy Code Sections 544, 547, and 548.23 An individual debtor may acquire the same duties and responsibilities of a trustee in bankruptcy by filing a chapter 11 petition, seeking to reorganize or to file a plan of liquidation.24 Because the debtor in possession is vested with the same powers of the trustee, the debtor in possession may pursue avoidance actions as well.25 In this case, the individual Debtors filed a chapter 11 petition seeking to reorganize, and no bankruptcy trustee has yet been appointed in this case. As a result, the Debtors exercise the rights of a bankruptcy trustee concerning the ability to avoid certain transfers or transactions.

Because of the avoidance powers of the bankruptcy trustee or the debtor in possession, this Court requires that if a party seeking relief from the automatic stay asserts a perfected security interest in any property of the estate, that moving party must be able to present at least a prima faciecase that it has such a perfected security interest under applicable law.26 The fact that the transaction is not avoidable between the parties to the underlying loan transaction is not dispositive of whether the transaction may be avoided by third parties that are, for instance, bona fidepurchasers.27

Turning to the standards of a motion for reconsideration, the moving party must show a manifest error of fact, a manifest error of law, or newly discovered evidence. School Dist. No. 1J Multnomah County, OR v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993); In re Gurr, 194 B.R. 474 (Bankr. D. Ariz. 1996). A motion for reconsideration is not specifically contemplated by the Federal Rules. To the extent it is considered by the Court, it is under Fed. R. Civ. P. 59(e) to alter or amend an order or judgment. In re Curry and Sorensen, Inc., 57 B.R. 824, 827 (Bankr. 9th Cir. 1986). Because BAC presented no new evidence to this Court and has not outlined any manifest error of fact, the sole basis for the BAC Motion for Reconsideration must be a manifest error of law by this Court. BAC has outlined several bases for what it believes is this Court’s manifest error of law.

 

(A) Is the Movant the Real Party in Interest?

A colleague in the Arizona Bankruptcy Court has stated that a party that brings a motion for relief from the automatic stay must first establish a “colorable claim.” “In order to establish [such a claim], a movant…. bears the burden of proof that it has standing to bring the motion.” In re Weisband, 427 B.R. 13, 18 (Bankr. D. Ariz. 2010) (citing In re Wilhelm, 407 B.R. 392, 400 (Bankr. D. Idaho 2009)). In the Weisband decision, the Court states that the moving party may establish standing by showing that it is a “real party in interest.”28 The Weisband Court next states that a holder of a note is a “real party in interest” under FRCP 17 because, under the Arizona Revised Statute (“ARS”) § 47-3301, the note holder has the right to enforce it. Weisband at 18. Relying on a decision from a bankruptcy court in Vermont, the Weisband Court next opines that “[b]ecause there is no federal commercial law which defines who is a note holder, the court must look to Arizona law to determine whether [movant] is [such] a holder.” Id. (citing In re Montagne, 421 B.R. 65, 73 (Bankr. D. Vt. 2009)). Finally, the Weisband Court states that under Arizona law, a holder of a note is defined as, inter alia, “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” Id. (citing ARS § 47-1201(B)(21)(a)).

BAC’s citation to Weisband fails to address this Court’s concerns. In the Motion for Relief, BAC contends that it is the “payee and a holder in due course.” However, the Declaration that it filed appears to reflect that BAC is the servicer for some other party. Obviously there is a difference. A servicer acts pursuant to a separate agreement with the Note Holder and is paid a separate fee to determine what payments have been made, or not made, by a given borrower. However, the servicer would not normally list the loan on its balance sheet as one of its assets. The Note Holder, according to the definition in the Note, is the party that is entitled to receive the payments under the Note, because it has arguably paid some consideration for the transfer of the obligation to it, and has listed the obligation as an asset in its books and records.29 BAC has not provided any additional facts to clarify whether it is the servicer pursuant to an agreement with the Note Holder, or contrary to its Declaration, it actually acquired the loan and has placed the loan on its balance sheet as one of its assets.

From the documentation provided by BAC, it appears that GreenPoint provided the original funding for the loan to the Debtors so that they could acquire the Property. Yet, at the time of the closing, GreenPoint immediately assigned its interest in the Note to BAC. The Declaration submitted by BAC, however, seems to indicate that BAC is only in the business of servicing loans-perhaps for some other entity associated or related to BAC. If BAC Home Loans Servicing, LP, is acting as the servicer of a Bank of America entity, for which entity is it acting? Conversely, if GreenPoint transferred the Debtors’ loan from its books and records to some other entity, was it BAC? If BAC alleges in its Motion for Relief from the Stay that it is the Note Holder, is it, in fact, the one legally entitled, because of the purchase of the Debtors’ obligation, to receive the Debtors’ payments?

As a part of its prima faciecase, BAC should have provided the Court with more factual information in support of its position. As a result, this Court may deny the Motion for Reconsideration, and the underlying Motion for Relief from the Stay, on the basis that BAC has failed to provide sufficient documentation to this Court so that the Court may ensure that BAC is the proper Note Holder, or servicer if appropriate, to pursue such a Motion for Relief from the Stay.

Thus, the focus of the BAC’s Motion for Reconsideration does not consider all of the factual and legal issues that it should. It does not address whether BAC, in this matter, has presented an appropriate factual and legal basis to proceed on this loan concerning the Debtors and their Property. BAC could have easily supplemented the record to provide the appropriate documentation to proceed, but chose not to do so.

(B) Has BAC Set Forth a Prima Facie Case That It Has
A Perfected Security Interest in the Property Given the Status
Of the Debtors As Debtors In Possession?

In its Motion for Reconsideration, BAC relies on ARS § 33-817, which states, “The transfer of any contract or contracts secured by a trust deed shall operate as a transfer of the security for such contract or contracts.” ARS § 33-817. BAC further points out that the Supreme Court of Arizona has held that a mortgage is a “mere incident to the debt,” and its “transfer or assignment does not transfer or assign the debt or the note,” but “the mortgage automatically goes along with the assignment or transfer” of the note. Hill v. Favour, 84 P.2d 575, 578 (Ariz. 1938) (emphasis added). However, at the hearing on December 15, 2010, the Court expressly stated its concern about the ability of BAC to proceed given that it had not provided any information as to a recorded assignment of the Deed of Trust. The Court asked counsel how her analysis was appropriate given (1) the status of the Debtors as Debtors in Possession who had objected to the relief requested, and (2) ARS § 33-818 which provides, in pertinent part, as follows:

[A]ssignment of a beneficial interest under a trust deed,… shall from the time of being recorded impart notice of the content to all persons, including subsequent purchasers and encumbrancers for value.
As outlined above, the Debtors, as Debtors in Possession, acquire the status of a bona fide purchaser and are able to set aside any real estate transaction, concerning their Property, for which the creditor has not taken appropriate steps under Arizona law. See 11 U.S.C. § 544(a)(3) (West 2010). Arizona law requires that if a secured creditor with a lien on the Debtors’ Property wishes to ensure that said interest is not subject to the claims of a bona fide purchaser, that said secured creditor record an assignment of its interest with the Recorder in the County where the Debtors’ Property is located. If notice of the assignment has not been provided, through recordation, the secured creditor may have its interest avoided by a bona fide purchaser. See Rodney v. Arizona Bank, 836 P.2d 434, 172 Ariz. 221 (Ariz. App. Div. 2 1992) (Unless and until the transferee of the beneficial interest in the deed of trust records an assignment of the deed of trust, the security interest in the real property remains unperfected.)

At the time of the hearing on the Motion for Reconsideration, BAC’s counsel agreed that although vis-a-vis the original parties to the transaction, no assignment of the Deed of Trust need be produced or recorded, because of the Debtors’ filing of a bankruptcy petition, ARS § 33-818 required that an assignment be prepared and properly recorded given the new status of the Debtors as Debtors in Possession.30 It is unclear why BAC has not simply supplemented the record to provide the assignment of the Deed of Trust.

The request that an assignment be recorded is not a burdensome requirement. MERS, through its registration system, keeps track of the transfers of the beneficial interests, under a deed of trust, from member to member in the system. When there is some type of default under the loan transaction, MERS generally prepares an assignment of the beneficial interest in the deed of trust for signature and then records the assignment with the appropriate state authority, which in Arizona would be the Recorder in the County where the real property that is subject to the secured creditor’s lien is located. This recordation of the assignment provides the requisite notice to third parties, as required under Arizona law.

Although BAC relies on the decision of Rodney v. Arizona Bank, 836 P.2d 434, 172 Ariz. 221 (Ariz. App. Div. 2 1992), the decision actually supports this Court’s understanding of the importance of the recordation of the assignment of the deed of trust. In Rodney, the borrowers were the Vasquezes, who received purchase money financing from the initial lender, Hal Clonts (“Clonts”), to purchase real property (“Property”) located in Mohave County. The Vasquezes executed a promissory note and deed of trust in favor of Clonts to provide him with a lien on their Property to secure repayment of the note. It is important to keep in mind that the Vasquezes remained the borrowers throughout a series of subsequent transactions that only affected the lender or the party that had a security interest in the promissory note and deed of trust.

Clonts transferred his interest to the Fidlers through an assignment of the beneficial interest in the promissory note and deed of trust. Id. at 435. However, on April 11, 1985, the Fidlers entered into a separate loan transaction in which they borrowed money from a third party, State Bank, later called Security Pacific Bank Arizona (“Security Pacific”). The Fidlers provided security to Security Pacific for their loan transaction by pledging “all monies” received by the Fidlers in “Escrow # 85-02-9290.” Id. Security Pacific immediately notified the title company, for the subject escrow, as to Security Pacific’s interest in the escrow funds. In September 1986, the Fidlers again transferred their beneficial interest in the promissory note and deed of trust to Theron Rodney (“Rodney”). The Fidlers received $20,000 from Rodney for the transfer of their interest. The Fidlers executed an assignment of the beneficial interest under the deed of trust. Rodney recorded his interest in the deed of trust with the Mohave County Recorder’s Officer where the Property was located. Not surprisingly, Security Pacific and Rodney disagreed as to the priority of their respective security interests in the loan proceeds. Security Pacific argued that the interest in the loan proceeds could only be perfected pursuant to the Uniform Commercial Code. Conversely, Rodney argued that the real property provisions of Arizona law were applicable. Id. at 436.

The sole issue to be addressed by the Appellate Court was whether Article Nine of the Uniform Commercial Code (as adopted in Arizona) applied to the creation and perfection of a security interest in a promissory note when the note itself was secured by a deed of trust in real property. Id. Before considering the analysis by the Court, let’s diagram the various loan transactions.

+——————————————————————————————————–+———————————————+
| The Vasquezes |                                                                                                                                                  Clonts |
| —- | |
+——————————————————————————————————–+———————————————+
| initial borrowers purchase money financing |                                                                                     initial lender |
+——————————————————————————————————–+——————————————————————+
| Vasquezes continue to pay on the original note and deed of trust to the title company, as escrow agent | (1) transfer of the interest in the note and deed of trust for consideration to the Fidlers |
|                                                                                                                                                                                                                   | (2) separate loan to the Fidlers–security interest in the note and deed of trust given to Security Pacific-consideration given to Fidlers |
|                                                                                                                                                                                                                   | (3) Fidlers again seek financing–security interest in the note and deed of trust given to Rodney |
|                                                                                                                                                                                                                   | for $20,000. |
+——————————————————————————————————–+——————————————————————–+
| | |
+——————————————————————————————————–+——————————————————————–+

Thus, it is only the parties on one side of the initial loan transaction that are in disagreement as to the priority of their security interests. Noting that Security Pacific only wanted to obtain a perfected security interest in the promissory note proceeds, the Court stated “we find that Security Pacific received a corollary security interest in the real property evidenced by the deed of trust, along with its interest in the note, although the corollary interest remained unperfected.” Id. The Court then stated that Security Pacific need not have a perfected security interest in the real property, because Security Pacific’s interest was only in the note which was a security interest in personal property under ARS § 47-1201(37). Id. at 436-37. The Court concluded that “Arizona case law holds that a mortgage note and the debt evidenced thereby are personal property (citing to Hill v. Favour, 52 Ariz. at 571, 84 P.2d at 579). Article Nine of the UCC applies to security interests in personal property….” Id. at 437. However, Article Nine of the Uniform Commercial Code does not apply to obtaining a lien on real property. In considering the somewhat murky area of “realty paper,” the Court relied on Commentators J White and R. Summers, who described “realty paper” as follows:

B mortgages his real estate to L. L gives B’s note and the real estate mortgage to Bank as security for a loan. Article Nine does not apply to the transaction between L and B, but does apply to that between L and Bank.

Id.31 Turning to the facts of this case, BAC is arguing that its security interest in the Note and Deed of Trust is perfected as to all others, rather than to just other mortgagees. It has forgotten the other side of the transaction, which is the “mortgagor” in the White and Summers analysis, or someone that may acquire an interest from the mortgagor, such as a bona fide purchaser. To perfect its interest as to the “mortgagor,” which would be the Zittas, or someone who may acquire an interest in the Property from the Zittas, BAC needed to record its assignment in the Deed of Trust, as required under real property law, such as ARS § 33-818 (West 2010). BAC has not shown this Court that any such assignment exists, so its Motion for Reconsideration must be denied as a matter of law.

BAC also relies on In re Smith, 366 B.R. 149 (Bank. D. Colo. 2007), which is inapposite. The debtor had been in a chapter 13 proceeding, but had converted his case to one under chapter 7. Id. at 150. Bank of New York, N.A. (“Bank of New York”) subsequently requested relief from the automatic stay as to the real property owned by the debtor. The debtor did not oppose the motion, and a foreclosure sale, pursuant to Colorado law, subsequently occurred. Bank of New York then recorded a deed upon sale as to the debtor’s real property. Without seeking any stay of the foreclosure proceedings, the debtor filed an adversary proceeding with the bankruptcy court. The debtor asserted that the Bank of New York was not the real party in interest, and therefore, it was unable to proceed with a foreclosure of his real property. The bankruptcy court reviewed the evidence presented and determined that Bank of New York was the holder of the promissory note at the time it commenced its foreclosure sale. The court stated that Countrywide Home Loans, Inc., which had originally provided the financing to the debtor, had endorsed the promissory note in blank. Under Colorado law, such a blank endorsement allowed the promissory note to become “payable to bearer.” However, Bank of New York did submit a Certification of Owner and Holder of the Evidence Debt, which allowed the Colorado court to conclude that Bank of New York was the “holder of the original evidence of debt.” The court then reviewed the deed of trust, determining that it was recorded at approximately the same time as the loan closing between the debtor and Countrywide Home Loan, Inc. The bankruptcy court then concluded that the promissory note was assigned to the Bank of New York. As such, once the promissory note was assigned to the Bank of New York, MERS then functioned as the nominee for the Bank of New York. Id. at 151. Presumably, as a result of MERS nominee status, the bankruptcy court concluded, sub silentio, that no additional action needed to be taken by Bank of New York vis-a-vis the debtor.

This Court questions the analysis by the Smith court.32 Although the Smith court relies on a 2002 decision from the Colorado Supreme Court, the court does not analyze the concept of “realty paper” or discuss White and Summers. As noted by this Court supra, the lender in the original loan transaction or a party that may subsequently obtain a security interest in the promissory note, as a result of a separate loan transaction, may be protected, but this Court is viewing the transaction from a different viewpoint: that of the Debtors in Possession that acquire the status of bona fide purchasers. There is no discussion, in Smith, as to how Colorado law would treat such third parties. Moreover, it is unclear whether Colorado has a similar provision as Arizona’s ARS § 33-818 that focuses on the separate requirements of a creditor that may have a beneficial interest under a deed of trust assigned to it.

In considering the ability of the debtor to pursue a claim under 11 U.S.C. § 544, the Colorado court concludes that the debtor does not have the standing of the bankruptcy trustee. Smith at 152. Such an analysis is correct, since the debtor pursued his claim against the Bank of New York only after he had converted his case to one under chapter 7. The chapter 7 trustee also failed to join with the debtor in the adversary proceeding or to pursue the claim separately.33 However, as to the facts before this Court, the Debtors, as Debtor in Possession, in this chapter 11 proceeding do have the standing to pursue claims under Section 544.34 Thus, this Court must reject the analysis in the Smith case.

This Court concludes that given the summary nature of motions for relief from the automatic stay, 35 the general requirements in the case law and the Local Rules of this Court36 that a creditor alleging a security interest in certain property of the debtor and/or the bankruptcy estate at least set forth a prima facie case as to its perfected security interest, 37 BAC should have provided an assignment of the Deed of Trust. It failed to do so; however, the Motion for Relief from the Automatic Stay was denied without prejudice. BAC still has the opportunity to refile the Motion with the appropriate documents as exhibits thereto.

IV. CONCLUSION
For the foregoing reasons, the Court denies BAC Home Loans Servicing, LP’s Motion for Reconsideration of this Court’s Denial of the Motion for Relief from the Automatic Stay. The Court

SARAH SHARER CURLEY, Bankruptcy Judge

non-judicial sale is NOT an available election for a securitized loan

NON-JUDICIAL STATES: THE DIFFERENCE BETWEEN FORECLOSURE AND SALE:

FORECLOSURE is a judicial process herein the “lender” files a lawsuit seeking to (a) enforce the note and get a judgment in the amount owed to them (b) asking the court to order the sale of the property to satisfy the Judgment. If the sale price is lower than the Judgment, then they will ask for a deficiency Judgment and the Judge will enter that Judgment. If the proceeds of sale is over the amount of the judgment, the borrower is entitled to the overage. Of course they usually tack on a number of fees and costs that may or may not be allowable. It is very rare that there is an overage. THE POINT IS that when they sue to foreclose they must make allegations which state a cause of action for enforcement of the note and for an order setting a date for sale. Those allegations include a description of the transaction with copies attached, and a claim of non-payment, together with allegations that the payments are owed to the Plaintiff BECAUSE they would suffer financial damage as a result of the non-payment. IN THE PROOF of the case the Plaintiff would be required to prove each and EVERY element of their claim which means proof that each allegation they made and each exhibit they rely upon is proven with live witnesses who are competent — i.e., they take an oath, they have PERSONAL KNOWLEDGE (not what someone else told them),personal recall and the ability to communicate what they know. This applies to documents they wish to use as well. That is called authentication and foundation.

SALE: Means what it says. In non-judicial sale they just want to sell your property without showing any court that they can credibly make the necessary allegations for a judicial foreclosure and without showing the court proof of the allegations they would be required to make if they filed a judicial foreclosure. In a non-judicial state what they want is to SELL and what they don’t want is to foreclose. Keep in mind that every state that allows non-judicial sale treats the sale as private and NOT a judicial event by definition. In Arizona and many other states there is no election for non-judicial sale of commercial property because of the usual complexity of commercial transactions. THE POINT is that a securitized loan presents as much or more complexity than commercial real property loan transactions. Thus your argument might be that the non-judicial sale is NOT an available election for a securitized loan.

When you bring a lawsuit challenging the non-judicial sale, it would probably be a good idea to allege that the other party has ELECTED NON-JUDICIAL sale when the required elements of such an election do not exist. Your prima facie case is simply to establish that the borrower objects the sale, denies that they pretender lender has any right to sell the property, denies the default and that the securitization documents show a complexity far beyond the complexity of even highly complex commercial real estate transactions which the legislature has mandated be resolved ONLY by judicial foreclosure.

THEREFORE in my opinion I think in your argument you do NOT want to concede that they wish to foreclose. What they want to do is execute on the power of sale in the deed of trust WITHOUT going through the judicial foreclosure process as provided in State statutes. You must understand and argue that the opposition is seeking to go around normal legal process which requires a foreclosure lawsuit.

THAT would require them to make allegations about the obligation, note and mortgage that they cannot make (we are the lender, the defendant owes us money, we are the holder of the note, the note is payable to us, he hasn’t paid, the unpaid balance of the note is xxx etc.) and they would have to prove those allegations before you had to say anything. In addition they would be subject to discovery in which you could test their assertions before an evidentiary hearing. That is how lawsuits work.

The power of sale given to the trustee is a hail Mary pass over the requirements of due process. But it allows for you to object. The question which nobody has asked and nobody has answered, is on the burden of proof, once you object to the sale, why shouldn’t the would-be forecloser be required to plead and prove its case? If the court takes the position that in non-judicial states the private power of sale is to be treated as a judicial event, then that is a denial of due process required by Federal and state constitutions. The only reason it is allowed, is because it is private and “non-judicial.” The quirk comes in because in practice the homeowner must file suit. Usually the party filing suit must allege facts and prove a prima facie case before the burden shifts to the other side. So the Judge is looking at you to do that when you file to prevent the sale.

Legally, though, your case should be limited to proving that they are trying to sell your property, that you object, that you deny what would be the allegations in a judicial foreclosure and that you have meritorious defenses. That SHOULD trigger the requirement of re-orienting the parties and making the would-be forecloser file a complaint (lawsuit) for foreclosure. Then the burden of proof would be properly aligned with the party seeking affirmative relief (i.e., the party who wants to enforce the deed of trust (mortgage), note and obligation) required to file the complaint with all the necessary elements of an action for foreclosure and attach the necessary exhibits. They don’t want to do that because they don’t have the exhibits and the note is not payable to them and they cannot actually prove standing (which is a jurisdictional question). The problem is that a statute passed for judicial economy is now being used to force the burden of proof onto the borrower in the foreclosure of their own home. This is not being addressed yet but it will be addressed soon.

WEISBAND Case No. 4:09-bk-05175-EWH. BKR Tucson Judge HOLLOWELL Denies MLS for Lack of Standing

GMAC has failed to demonstrate that it is the holder of the Note because, while it was in possession of the Note at the evidentiary hearing, it failed to demonstrate that the Note is properly payable to GMAC

Once the securities have been sold, the SPV is not actively involved.

IN RE WEISBAND

In re: BARRY WEISBAND, Chapter 13, Debtor.

Case No. 4:09-bk-05175-EWH.

United States Bankruptcy Court, D. Arizona.

March 29, 2010.

Barry Weisband, Tucson, AZ, Ronald Ryan, Ronald Ryan, P.C., Tucson, AZ, Attorney for Debtor.

MEMORANDUM DECISION

EILEEN W. HOLLOWELL, Bankruptcy Judge

I. INTRODUCTION

The debtor, Barry Weisband (“Debtor”), has challenged the standing of creditor, GMAC Mortgage, LLC (“GMAC”), to seek stay relief on his residence. After reviewing the documents provided by GMAC and conducting an evidentiary hearing, the court concludes that GMAC, the alleged servicer of the Debtor’s home loan, lacks standing to seek stay relief. The reasons for this conclusion are explained in the balance of this decision.

II. FACTUAL AND PROCEDURAL HISTORY

A. Creation of Debtor’s Note And Asserted Subsequent Transfers

On or about October 6, 2006, the Debtor executed and delivered to GreenPoint Mortgage Funding, Inc. (“GreenPoint”) an adjustable rate promissory note in the principal sum of $540,000 (“Note”) secured by a Deed of Trust (“DOT”) on real property located at 5424 East Placita Apan, Tucson, Arizona 85718 (“Property”).

On a separate piece of paper, GreenPoint endorsed the Note to GMAC (“Endorsement”). The Endorsement is undated. The DOT was signed by the Debtor on October 9, 2006, and recorded on October 13, 2006. The DOT lists GreenPoint as the lender, and Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary of the DOT “solely as nominee for [GreenPoint], its successors and assigns.”

Approximately five months before the creation of the Note and DOT, on April 10, 2006, GreenPoint entered into a Flow Interim Servicing Agreement (“FISA”) (Exhibit D)[ 1 ] with Lehman Capital, a division of Lehman Brothers Holdings, Inc. (collectively “Lehman”), pursuant to which Lehman agreed to purchase conventional, residential, fixed and adjustable rate first and second lien mortgage loans from GreenPoint. Under the FISA, GreenPoint agreed to service the mortgage loans it sold to Lehman. According to GMAC, GreenPoint transferred the Note and DOT to Lehman under the FISA.

On November 1, 2006, Lehman entered into a Mortgage Loan Sale and Assignment Agreement (“MLSAA”) with Structured Asset Securities Corporation (“SASC”) (Exhibit E). Under that agreement, Lehman transferred a number of the mortgage loans it acquired under the FISA to SASC. GMAC claims that the Note was one of the mortgage loans transferred to SASC. SASC created a trust to hold the transferred mortgages — GreenPoint Mortgage Funding Trust (“Trust”). The MLSAA also transferred the right to receive principal and interest payments under the transferred mortgage loans from Lehman to the Trust.

Also, on November 1, 2006, SASC entered into a Trust Agreement (Exhibit F) with Aurora Loan Services (“Aurora”) as the master servicer, and U.S. Bank National Association (“U.S. Bank”) as the trustee. A Reconstituted Servicing Agreement (Exhibit G) was executed the same day, which provided that GreenPoint would continue to service the mortgages transferred to the Trust under the MLSAA, but that the Trust could change servicers at any time. Also, according to GMAC, on November 1, 2006, GMAC, Lehman, and Aurora entered into a Securitization Servicing Agreement (“SSA”) (Exhibit H), pursuant to which GMAC would service the loans transferred to the Trust. GMAC claims that under the SSA it is the current servicer of the Note and DOT.

Thus, according to GMAC, as of November 1, 2006, the Note and DOT had been transferred to the Trust, with SASC as the Trustor, U.S. Bank as the Trustee, Aurora as the master servicer, and GMAC as the sub-servicer. GreenPoint went out of business in 2007. According to GMAC, it remains the sub-servicer of the Note, and that is its only financial interest in the Note and DOT. (Transcript Nov. 10, 2009, pp. 44, 47, 75.)

B. Bankruptcy Events

As of March 1, 2009, the Debtor was in default of his obligations under the Note. Debtor filed his petition for relief under Chapter 13 of the Bankruptcy Code on March 19, 2009. On May 16, 2009, GMAC filed a proof of claim (“POC”), which attached the Note and DOT. The Endorsement from GreenPoint to GMAC was not attached to GMAC’s proof of claim. On May 12, 2009, MERS, as nominee for GreenPoint, assigned its interest in the DOT to GMAC (“MERS Assignment”). The MERS Assignment was recorded on July 16, 2009.

GMAC filed a Motion for Relief from Stay (“Motion”) on May 29, 2009, on the grounds that the Debtor had no equity in the Property and the Property was not necessary for an effective reorganization. The Motion also requested adequate protection payments to protect GMAC’s alleged interest in the Property. GMAC attached the Note with the Endorsement and DOT as exhibits to the Motion.

The Debtor filed a response challenging GMAC’s standing to seek relief from stay. After various discovery disputes, GMAC sent a letter dated September 17, 2009, to the Debtor which purported to explain the various transfers of the Note and the DOT. (Docket #90). The letter explained that GreenPoint transferred the “subject loan” to Lehman under the FISA, that Lehman sold the “subject loan” to SASC under the MLSAA, that SASC, Aurora Loan Services, and U.S. National Bank entered into a trust agreement, which created the Trust and made Aurora the master servicer for the “subject loan,” and, that GMAC was the servicer of the “subject loan” under the SSA. According to GMAC, its status as servicer, along with the Endorsement of the Note to GMAC and the assignment of the DOT from MERS to GMAC, demonstrated that it had standing to bring the Motion.

On November 10, 2009, the Court conducted an evidentiary hearing on the Motion. GMAC offered the original Note at the hearing and admitted into evidence a copy of the Note, DOT, copies of the FISA, MLSAA, Trust Agreement, the Reconstituted Servicing Agreement and the SSA. However, GMAC did not offer any documents demonstrating how the Note and DOT were conveyed by GreenPoint to the FISA. No document was offered demonstrating how the Note and DOT were conveyed from the FISA to the MLSAA or from the MLSAA into the Trust. Schedule A-1 of the MLSAA, where the transferred mortgages presumably would have been listed, only has the words “Intentionally Omitted” on it, and Schedule A-2 has the word “None.” (Exhibit F, pp. 19-20). Similarly, there is no evidence that the Note and DOT are subject to the SSA. Exhibit A to the SSA, titled “Mortgage Loan Schedule,” is blank. At the conclusion of the hearing, this Court ordered the Debtor to begin making adequate protection payments commencing on December 1, 2009 to the Chapter 13 Trustee. The Court further ordered GMAC and the Debtor to negotiate the amount of the adequate protection payments. When the parties were unable to reach agreement, the Court set the amount of the monthly payments at $1,000.

III. ISSUE

Does GMAC have standing to bring the Motion?

IV. JURISDICTIONAL STATEMENT

Jurisdiction is proper under 28 U.S.C. §§ 1334(a) and 157(b)(2)(G).

V. DISCUSSION

A. Introduction

Section 362(a) of the Bankruptcy Code provides that the filing of a bankruptcy petition operates as a stay of collection and enforcement actions. 11 U.S.C. § 362(a). The purpose of the automatic stay is to provide debtors with “protection against hungry creditors” and to assure creditors that the debtor’s other creditors are not “racing to various courthouses to pursue independent remedies to drain the debtor’s assets.” In re Tippett,Dean v. Trans World Airlines, Inc., 72 F.3d 754, 755-56 (9th Cir. 1995)); see also In re Johnston, 321 B.R. 262, 2737-4 (D. Ariz. 2005). Despite the broad protection the stay affords, it is not without limits. 542 F.3d 684, 689-90 (9th Cir. 2008) (citing Section 362(d) allows the court, upon request of a “party in interest,” to grant relief from the stay, “such as terminating, annulling, modifying, or conditioning such stay.” 11 U.S.C. § 362(d)(1). The court may grant relief “for cause, including the lack of adequate protection.” Id. The court may also grant relief from the stay with respect to specific property of the estate if the debtor lacks equity in the property and the property is not necessary to an effective reorganization. 11 U.S.C. § 362(d)(2).

Any party affected by the stay should be entitled to seek relief. 3 COLLIER’S ON BANKRUPTCY ¶ 362.07[2] (Henry Somers & Alan Resnick, eds. 15th ed., rev. 2009); Matter of Brown Transp. Truckload, Inc., 118 B.R. 889, 893 (Bankr. N.D. Ga. 1990); In re Vieland, 41 B.R. 134, 138 (Bankr. N.D. Ohio 1984)). Relief from stay hearings are limited in scope — the validity of underlying claims is not litigated. In re Johnson, 756 F.2d 738, 740 (9th Cir. 1985). As one court has noted, “[s]tay relief hearings do not involve a full adjudication on the merits of claims, defenses or counterclaims, but simply a determination as to whether a creditor has a colorable claim.” In re Emrich, 2009 WL 3816174, at *1 (Bankr. N.D. Cal. 2009).

Nevertheless, in order to establish a colorable claim, a movant for relief from stay bears the burden of proof that it has standing to bring the motion. In re Wilhelm, 407 B.R. 392, 400 (Bankr. D. Idaho 2009). The issue of standing involves both “constitutional limitations on federal court jurisdiction and prudential limitations on its exercise.” Warth v. Seldin, 422 U.S. 490, 498 (1975). Constitutional standing concerns whether the plaintiff’s personal stake in the lawsuit is sufficient to have a “case or controversy” to which the federal judicial power may extend under Article III. Id.; see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60 (1992); Pershing Park Villas Homeowners Ass’n v. United Pac. Ins. Co., 219 F.3d 895, 899 (9th Cir. 2000).

Additionally, the “prudential doctrine of standing has come to encompass several judicially self-imposed limits on the exercise of federal jurisdiction.'” Pershing Park Villas, 219 F.3d at 899. Such limits are the prohibition on third-party standing and the requirement that suits be maintained by the real party in interest. See Warth v. Seldin, 422 U.S. at 498-99; Gilmartin v. City of Tucson, 2006 WL 5917165, at *4 (D. Ariz. 2006). Thus, prudential standing requires the plaintiff to assert its own claims rather than the claims of another. The requirements of Fed. R. Civ. P. 17, made applicable in stay relief motions by Rule 9014, “generally falls within the prudential standing doctrine.” In re Wilhelm, 407 B.R. at 398.

B. GMAC’s Standing

GMAC advances three different arguments in support of its claim to be a “party in interest” with standing to seek relief from stay. First, GMAC asserts it has standing because the Note was endorsed to GMAC and GMAC has physical possession of the Note. Second, GMAC asserts that by virtue of the MERS Assignment, it is a beneficiary of the DOT and entitled to enforce and foreclose the DOT under Arizona law. Third, GMAC asserts it has standing because it is the servicer of the Note. The court addresses each of GMAC’s claims in turn.

1. GMAC Has Not Demonstrated That It Is A Holder Of The Note

If GMAC is the holder of the Note, GMAC would be a party injured by the Debtor’s failure to pay it, thereby satisfying the constitutional standing requirement. GMAC would also be the real party in interest under Fed. R. Civ. P. 17 because under ARIZ. REV. STAT. (“A.R.S.’) § 47-3301, the holder of a note has the right to enforce it.[ 2 ] However, as discussed below, GMAC did not prove it is the holder of the Note.

Under Arizona law, a holder is defined as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” A.R.S. § 47-1201(B)(21)(a).[ 3 ] GMAC has failed to demonstrate that it is the holder of the Note because, while it was in possession of the Note at the evidentiary hearing, it failed to demonstrate that the Note is properly payable to GMAC. A special endorsement to GMAC was admitted into evidence with the Note. However, for the Endorsement to constitute part of the Note, it must be on “a paper affixed to the instrument.” A.R.S. § 47-3204; see also In re Nash, 49 B.R. 254, 261 (Bankr. D. Ariz. 1985). Here, the evidence did not demonstrate that the Endorsement was affixed to the Note. The Endorsement is on a separate sheet of paper; there was no evidence that it was stapled or otherwise attached to the rest of the Note. Furthermore, when GMAC filed its proof of claim, the Endorsement was not included, which is a further indication that the allonge containing the Endorsement was not affixed to the Note.[ 4 ]

In Adams v. Madison Realty & Dev., Inc., 853 F.2d 163 (3d Cir. 1988), the plaintiffs executed promissory notes which, after a series of transfers, came into the defendant’s possession. At issue was whether the defendant was the rightful owner of the notes. The court held that the defendant was not entitled to holder in due course status because the endorsements failed to meet the UCC’s fixation requirement. Id. at 168-69. The court relied on UCC section 3-202(2) [A.R.S. § 47-3204]: “An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof.” Id. at 165. Since the endorsement page, indicating that the defendant was the holder of the note, was not attached to the note, the court found that the note had not been properly negotiated. Id. at 166-67. Thus, ownership of the note never transferred to the defendant. Applying that principle to the facts here, GMAC did not become a holder of the Note due to the improperly affixed special endorsement.

While the bankruptcy court in In re Nash, 49 B.R. 254 (Bankr. D. Ariz. 1985) found that holder in due course status existed even though an allonge was not properly affixed to an instrument, the court based its determination on the clear intention that the note assignment be physically attached because: (1) the assignment was signed and notarized the same day as the trust deed; (2) the assignment specifically referenced the escrow number; (3) the assignment identified the original note holder; and (4) the assignment recited that the note was to be attached to the assignment. Id. at 261.

In this case, however, there is no proof that the allonge containing the special endorsement from GreenPoint to GMAC was executed at or near the time the Note was executed. Furthermore, the Endorsement does not have any identifying numbers on it, such as an account number or an escrow number, nor does it reference the Note in any way. There is simply no indication that the allonge was appropriately affixed to the Note, in contradiction with the mandates of A.R.S. § 47-3204. Thus, there is no basis in this case to depart from the general rule that an endorsement on an allonge must be affixed to the instrument to be valid.

GMAC cannot overcome the problems with the unaffixed Endorsement by its physical possession of the Note because the Note was not endorsed in blank and, even if it was, the problem of the unaffixed endorsement would remain.[ 5 ] As a result, because GMAC failed to meet its burden of demonstrating that the Endorsement was proper, it has failed to demonstrate that it is the holder of the Note.

2. The MERS Assignment Of The DOT Did Not Provide GMAC With Standing

GMAC argues that it has standing to bring the Motion as the assignee of MERS.[ 6 ] In this case, MERS is named in the DOT as a beneficiary, solely as the “nominee” of GreenPoint, holding only “legal title” to the interests granted to GreenPoint under the DOT. A number of cases have held that such language confers no economic benefit on MERS. See, e.g., In re Sheridan, 2009 WL 631355, *4 (Bankr. D. Idaho 2009); In re Mitchell, 2009 WL 1044368, *3-4 (Bankr. D. Nev. 2009); In re Jacobson, 402 B.R. 359, 367 (Bankr. W.D. Wash. 2009). As noted by the Sheridan court, MERS “collect[s] no money from [d]ebtors under the [n]ote, nor will it realize the value of the [p]roperty through foreclosure of the [d]eed of [t]rust in the event the [n]ote is not paid.” 2009 WL 631355 at *4.

Because MERS has no financial interest in the Note, it will suffer no injury if the Note is not paid and will realize no benefit if the DOT is foreclosed. Accordingly, MERS cannot satisfy the requirements of constitutional standing. GMAC, as MERS’ assignee of the DOT, “stands in the shoes” of the assignor, taking only those rights and remedies the assignor would have had. Hunnicutt Constr., Inc. v. Stewart Title & Trust of Tucson, Trust No. 3496, 187 Ariz. 301, 304 (Ct. App. 1996) citing Van Waters & Rogers v. Interchange Res., Inc., 14 Ariz. App. 414, 417 (1971); In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007). Because GMAC is MERS’ assignee, it cannot satisfy the requirements of constitutional standing either.[ 7 ]

3. GMAC Does Not Have Standing As The Servicer Of The Note

(a) Servicer’s Right To Collect Fees For Securitized Mortgages

Securitization of residential mortgages is “the process of aggregating a large number of notes secured by deeds of trust in what is called a mortgage pool, and then selling security interests in that pool of mortgages.” Kurt Eggert, Held Up In Due Course: Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35 CREIGHTON L. REV. 503, 536 (2002). The process begins with a borrower negotiating with a mortgage broker for the terms of the loan. Then, the mortgage broker either originates the loan in its own name or in the name of another entity, which presumably provides the money for the loan. Almost immediately, the broker transfers the loan to the funding entity. “This lender quickly sells the loan to a different financial entity, which pools the loan together with a host of other loans in a mortgage pool.” Id. at 538.

The assignee then transfers the mortgages in the pool to another entity, which in turn transfers the loans to a special purpose vehicle (“SPV”,) whose sole role is to hold the pool of mortgages. Id. at 539. “The transfer to the special purpose trust must constitute a true sale, so that the party transferring the assets reduces its potential liability on the loans and exchanges the fairly illiquid loans for much more liquid cash.” Id. at 542. Next, the SPV issues securities which the assignee sells to investors. Id. at 539.

Once the securities have been sold, the SPV is not actively involved. It “does not directly collect payments from the homeowners whose notes and deeds of trust are held by the SPV.” Id. at 544. Rather, servicers collect the principal and interest payments on behalf of the SPV. Id. Fees are associated with the servicing of loans in the pool. Therefore, GMAC would have constitutional standing if it is the servicer for the Note and DOT because it would suffer concrete injury by not being able to collect its servicing fees.[ 8 ]In re O’Kelley, 420 B.R. 18, 23 (D. Haw. 2009) . In this case, however, the evidence does not demonstrate that the Note and DOT were transferred to the Trust, and, without that evidence, there is no demonstration that GMAC is the servicer of the Note.

(b) There Is Insufficient Evidence That The Note Was Sold To Lehman And Became Part Of The Trust

When the Debtor executed the Note and DOT, GreenPoint was the original holder of the Note and the economic beneficiary of the DOT. GreenPoint, allegedly, transferred the Note to Lehman pursuant to the FISA. However, the term “mortgage loans” is not defined in the FISA and GMAC’s documents regarding the securitization of the Note and DOT provide no evidence of actual transfers of the Note and DOT to either the FISA or the Trust. Because such transfers must be “true sales,” they must be properly documented to be effective. Thus, to use an overused term, GMAC has failed “to connect the dots” to demonstrate that the Note and DOT were securitized. Accordingly, it is immaterial that GMAC is the servicer for the Trust.

C. Debtor’s Other Arguments

1. Securities Investors Are Not The Only Individuals Who Can Satisfy Standing Requirements When Dealing With A 362 Motion on a “Securitized” Mortgage

The Debtor argues that, in an asset securitization scheme, only the securities investors have standing to seek stay relief because they are the only parties with a financial interest in the securitized notes. However, because the Debtor executed the Note and received consideration (which he used to purchase the house), the contract is enforceable regardless of who provided the funding. In other words, the fact that the funds for a borrower’s loan are supplied by someone other than the loan originator, does not invalidate the loan or restrict enforcement of the loan contract to the parties who funded the loan. A number of cases and treatises recognize that consideration for a contract, including a promissory note, can be provided by a third party. See, e.g., DCM Ltd. P’ship v. Wang, 555 F. Supp. 2d 808, 817 (E.D. Mich. 2008); Buffalo County v. Richards, 212 Neb. 826, 828-29 (Neb. 1982); 3 WILLISTON ON CONTRACTS § 7:20 (Richard A. Lord, 4th ed. 2009); RESTATEMENT (SECOND) OF CONTRACTS § 71(4) (2009).

Notes are regularly assigned and the assignment does not change the nature of the contract. The assignee merely steps into the shoes of the assignor. In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007); In re Trejos, 374 B.R. 210, 215 (9th Cir. BAP 2007). No additional consideration is required, as opposed to a novation which creates a new obligation. Id. at 216-17 citing RESTATEMENT (SECOND) OF CONTRACTS § 280, cmt. e. Therefore, the Debtor’s argument that the Note is unenforceable because the funder of the Note was not the payee fails. The Note is still valid and can be enforced by the party who has the right to enforce it under applicable Arizona law.

2. Proof Of A Note’s Entire Chain Of Ownership Is Not Necessary For Stay Relief

A movant for stay relief need only present evidence sufficient to present a colorable claim — not every piece of evidence that would be required to prove the right to foreclose under a state law judicial foreclosure proceeding is necessary. In re Emrich, 2009 WL 3816174, at *1 (Bankr. N.D. Cal. 2009). Accordingly, not every movant for relief from stay has to provide a complete chain of a note’s assignment to obtain relief.

Arizona’s deed of trust statute does not require a beneficiary of a deed of trust to produce the underlying note (or its chain of assignment) in order to conduct a Trustee’s Sale. Blau v. Am.’s Serv. Co., 2009 WL 3174823, at *6 (D. Ariz. 2009); Mansour v. Cal-W. Reconveyance Corp., 618 F. Supp. 2d 1178, 1181 (D. Ariz. 2009); Diessner v. Mortg. Elec. Registration Sys., 618 F. Supp. 2d 1184, 1187 (D. Ariz. 2009). It would make no sense to require a creditor to demonstrate more to obtain stay relief than it needs to demonstrate under state law to conduct a judicial or non-judicial foreclosure. Moreover, if a note is endorsed in blank, it is enforceable as a bearer instrument. See In re Hill, 2009 WL 1956174, at *2 (Bankr. D. Ariz. 2009). Therefore, this Court declines to impose a blanket requirement that all movants must offer proof of a note’s entire chain of assignments to have standing to seek relief although there may be circumstances where, in order to establish standing, the movant will have to do so.

3. The Movant Has Not Violated Rule 9011

The Debtor argues that GMAC “violated Rule 7011” by presenting insufficient and misleading evidence. Given that there is no Rule 7011, the Court assumes that the Debtor was actually referring to Bankruptcy Rule 9011. Rule 9011 allows a court to impose sanctions for filing a frivolous suit. FED. R. BANKR. P. 9011(c); see also FED. R. CIV. P. 11(c). As noted at the evidentiary hearing, the Court did not find that GMAC filed its motion for relief stay in bad faith, nor does this Court believe GMAC filed its motion thinking it did not have proper evidentiary support. There are numerous, often conflicting, decisions on the issues of “real party in interest” and constitutional standing, and what evidence must be presented by a servicer seeking stay relief. The record in this case does not support imposition of 9011 sanctions.

VI. CONCLUSION

GMAC has not demonstrated that it has constitutional or prudential standing or is the real party in interest entitled to prosecute a motion for relief from stay.

Accordingly, its motion is DENIED without prejudice.

Housing Starts UP with Market Glut?

Three years ago, when this derivative housing mess caught my attention, the reason I started looking into it was that the basic facts didn’t make any sense. Housing prices had been going up at a rate of as much as 20% in one month.

Coming from Wall Street with an M.B.A. and having studied, written about and commented on economics most of my adult life, I looked for obvious answers. Inflation? Nope, not that. Population increase? Nope not that. Migration patterns? A little but not nearly enough to account for the increases quoted by developers and secondary sellers.

So I asked sales people in real estate how they accounted for it. They told me that in Arizona it was being fueled by people selling their homes in California for $2 million and buying the same thing here in Arizona for less than half that amount. OK that would mean some migratory pattern. Are you from California?, I asked many people. Some. OK. Assume that my little non-scientific survey turned out wrong, and we start with the hypothesis of high prices in California fueling the Arizona boom.

More questions. How does that account for other parts of the country. BY the way, who is buying the homes in California? The story I got was that Vietnamese families were moving into expensive neighborhoods and 20 people comprising multiple generations (Gran Torino with Clint Eastwood? Good movie, but hardly the rule) could afford the $2 million price tag.

So after going down about a dozen rabbit holes my suspicions were raised about Wall Street’s involvement. You see they are the only ones who come up with other people’s money, selling them on a great investment opportunity because that is the only way Wall Street makes money.

Ok the rest is history. Prices went up simply because Wall Street was using a power pump forcing money into the system that the system could not absorb.

So like a balloon, it expanded, especially when the number of housing units sold was going down. The only way they could keep pushing out more money was by inflating the appraisals on the property. As the number of balloons declined relative to the supply of “air” (money) they had to blow the balloons up further and further even though everyone knew they would eventually pop. But they had that covered too, as everyone now knows because they made money on the way down through credit default swaps, federal bailouts etc.

Which brings me to my point. All current indications from the economists and experts who study this sort of thing are that in 20 years, (that is in the year 2030) there may be as many as 30 million unoccupied dwellings in the United States, even taking all the best predictions for population growth, migration etc. And you don’t need to employ an expert to see that there are unoccupied houses in your neighborhood and that there are even unoccupied neighborhoods, thanks to the foreclosure mess. So the inescapable conclusion is that we have built too many homes, shopping centers, office buildings etc. The demand is not there and it isn’t going to be there for decades.

So here is my question: Why are houses still being built? Who is financing them and who is buying them? Why are there government programs providing new home building incentives when what we need are new rail systems, new electrical grid, new high-speed internet, and new technology retrofitting homes that waste energy? Is something funny going on, AGAIN?

Credit Buster: Tucson Accountant Katz Shows Debtors How to Fight Back and Collect Damages and Attorney Fees

Editor’s Note: I don’t know him but I am going to get to know him. It sounds like you should too. Every  time the servicer violates the law, you have a  remedy. Katz is leading the charge collecting damages and there are usually awards of attorneys fees. I would add that if they don’t pay the judgment you can levy on an asset you know about — like your own mortgage. Think about it.

Servicers usually try to get out of being called a debt collector even if they put it on their demand letters and other correspondence. The way they do it is by saying they are not collecting the debt for another, they are collecting it for themselves. That’s fine. It brings us right back to proving that the identity of the creditor is being hidden from the court. Just because they say it doesn’t make it so. And while they can say it and that is evidence if the Judge allows it in, it cannot be presumed from an affidavit or some other document. You have every right to challenge that assertion and to ask for discovery demanding answers to questions (interrogatories) and demanding documents (requests to produce.)
April 23, 2010

Learning How to Fight the Collector

By ANDREW MARTIN

Among debt collectors, Steven Katz is known as a “credit terrorist.” For years, he has run what he calls the Steven Katz School of Bill Collector Education, otherwise known as the “credit terrorist training camp.”

Mr. Katz, a 58-year-old accountant in suburban Tucson, spends his free time schooling debtors on the finer points of consumer protection law to help them turn the tables on debt collectors. On occasion, he thumbs his own nose at them too.

“How many times can I sue you? Let me count the ways,” he wrote under his pseudonym, Dr. Tax, in a March posting on Inside ARM, a debt collectors’ Web site.

A former bill collector himself, Mr. Katz rebelled after a debt buyer damaged his credit score with what he says was a bogus bill. Mr. Katz sued, and in 2003 he collected his first damage award, a $1,000 check that he now keeps framed behind his desk.

“The bill collectors, when they call, make you feel like the only option you have is to lay down and play dead. That’s not true,” said Mr. Katz said, who does not charge for his advice. “Nothing validates this more than getting a check.”

Call this movement revenge of the (alleged) deadbeats. Even as collectors try to recoup debts from millions of Americans struggling to pay their bills, a small but growing number of lawyers and consumers are fighting back against what they describe as harassment, unscrupulous practices — and, most important to their litigiousness, violations of the Fair Debt Collection Practices Act.

In fact, 8,287 federal lawsuits were filed citing violations of the act in 2009, a 60 percent rise over the previous year, according to WebRecon, a site that tracks collection-related litigation and the most litigious consumers and lawyers on behalf of debt collectors.

On Wednesday, the Supreme Court made it even easier for consumers to use the courts to fight debt collectors, ruling that collectors cannot be shielded from suits by claiming they made a mistake in interpreting the law.

When a consumer stops paying a bill, creditors often try to collect on their own for a few months. In many instances, the creditor hires another company to collect the debt. In other cases, they may dispose of the debt by selling it to a debt buyer for a steep discount.

Debt collectors and debt buyers are the targets of litigious consumers, since the debt collection law primarily applies to third-party collectors.

Peter Barry, a Minneapolis trial lawyer, is so bullish on the future of debt collection litigation that he holds several “boot camps” each year to share his secrets with other lawyers who want in on the action. If the debtor wins a court case under the act, the debt collector must pay the lawyer’s fees.

The next boot camp is being held in early May in San Francisco, at a cost of $2,495 a person for two and a half days of instruction.

“I can’t sue every illegal debt collector in America, although I’d like to try,” Mr. Barry said.

Mr. Katz can also claim some credit for the increase in lawsuits. For six years, he has run a free Web site called Debtorboards.com, where people share tips on topics like keeping a paper trail and recording calls from collectors.

He said the site received two million hits in 2009, a 60 percent increase over the previous year.

“Debtorboards is geared to help people use the laws as they are on the books as both a shield and a sword,” said Mr. Katz, who says he has won $36,000 from his own litigation against collection agencies. (Since many of the settlements are confidential, it is difficult to prove the claims of Mr. Katz and others).

Of course, debt collectors are hardly pleased with the litigation trend.

Rozanne M. Andersen, chief executive of ACA International, a trade association for the debt collection industry, said she was “extremely concerned” about the increase in lawsuits, which she said cost her industry hundreds of millions of dollars a year. She said much of the increase was the result of ambiguous language in the Fair Debt Collection Act.

Debt collectors are required, for example, to identify themselves on a voice message left for a consumer, she said. But they are also prohibited from telling a third party — including someone who might overhear a phone message — about a consumer’s debt.

“We are between a rock and a hard place,” Ms. Andersen said.

Ms. Andersen said she had little patience for Web sites that encouraged consumers to thwart debt collectors.

“We believe those types of Web sites are encouraging people to not take responsibility for just debt,” she said.

Jack Gordon, who runs the fee-based WebRecon site, said it was no wonder lawsuits were increasing, because consumers were being bombarded with ads from lawyers when they searched online for information on debt collection. He said the proliferation of discussion sites like Mr. Katz’s had, to a lesser extent, also contributed to the trend.

On the boards, he said, “There’s a lot of hot air, a lot of people who overinflate their accomplishments.”

Regardless, Mr. Gordon’s database has become a badge of honor among the devotees of Debtorboards.com. As Brandon Scroggin, a 37-year-old from Little Rock, Ark., puts it, “That’s one list I’m a proud card-carrying member of.”

Mr. Scroggin, who provides price estimates at a body shop, said he was the type of person who refused to be taken advantage of, even for petty offenses. For instance, years ago, he said he joined in the class-action suit against the pop group Milli Vanilli, accused of lip synching, and collected a $1.25 check.

After a messy divorce, Mr. Scroggin was stuck with a $7,000 bill that he said belonged to his ex-wife. Instead of paying it, he began researching the law and stumbled on Debtorboards.com.

Armed with lessons he learned on the site, he demanded proof of the debt from the collection agency, and the calls stopped. But two and a half years later, they started up again so he sued the collection agency, National Loan Recoveries, for failing to provide proof of the debt, among other things.

The case was settled in 2008. The terms were confidential, but he says he never paid National Loan a dime. “Let’s just say I’m a very happy person,” he said. A lawyer for National Loan, Kathryn Bridges, did not return messages seeking comment.

Mr. Katz said his Web site was not intended to help people avoid paying legitimate debts. But if they do so, so be it — he feels no need to apologize.

He said Congress gave consumers certain rights, and he is simply making people aware of them, sometimes colorfully.

As Mr. Katz says at the bottom of each Dr. Tax posting, “A telephone in the hands of a collector is like a crowbar — it can be used to pry a mouth open wide enough to insert a foot.”

Barbara Thompson, 46, of Atlanta, said she challenged $11,000 in credit card debt using online research about collection laws. She does not dispute the debts but reasons that the credit card company wrote off her charges long ago. By her account, she owes the credit card company, not the debt collector.

“The credit card company, they sell it off, they charge it off, it’s just business as usual,” she said, adding, “I’m adamant about not paying a collection agency.”

AZ STATUTE DEFINES BENEFICIARY and CREDIT BID: NOT “NOMINEE”

33-801. Definitions

In this chapter, unless the context otherwise requires:

1. “Beneficiary” means the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or the person’s successor in interest. [Note that this does not include a nominee like MERS. There is a reason for that. The legislature intended to create certainty in contracts and actions on contracts. Using a nominee immediately creates the question of agency. The question of agency immediately raises the question of “who is the principal?” As long as that question exists, this statute is violated. If this statue is violated the deed of trust is void.]

2. “Business day” means any day other than a saturday or a legal holiday.

3. “Cash” means United States currency.

4. “Contract” means a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty, including but not limited to a note, A promissory note or provisions of any trust deed.

5. “Credit bid” means a bid made by the beneficiary in full or partial satisfaction of the contract or contracts which are secured by the trust deed. [Note that such credit bids are the rule rather than the exception and that the person making the credit bid is almost never the named the beneficiary. hence the sale is void]. [Note also that without an accounting for third party payments to the creditor in the securitization chain who has succeeded to the position of beneficiary BECAUSE THE SUCCESSION IS SHOWN IN THE COUNTY RECORDS, is voidable because the amount is incorrect, which is a question of fact that must be judicially resolved, which is why NO NON-JUDICIAL sale of securitized property is appropriate.] Such credit bid may only include an amount up to the full amount of the contract or contracts secured by the trust deed, less any amount owing on liens or encumbrances with interest which are superior in priority to the trust deed and which the beneficiary is obligated to pay under the contract or contracts or under the trust deed, together with the amount of other obligations provided in or secured by the trust deed and the costs and expenses of exercising the power of sale and the sale, including the trustee’s fees and reasonable attorney fees actually incurred. (e.s.)

6. “Force majeure” means an act of God or of nature, a superior or overpowering force or an event or effect that cannot reasonably be anticipated or controlled and that prevents access to the sale location for conduct of a sale.

7. “Parent corporation” means a corporation which owns eighty per cent or more of every class of the issued and outstanding stock of another corporation or, in the case of a savings and loan association, eighty per cent or more of its issued and outstanding guaranty capital.

8. “Trust deed” or “deed of trust” means a deed executed in conformity with this chapter and conveying trust property to a trustee or trustees qualified under section 33-803 to secure the performance of a contract or contracts, other than a trust deed which encumbers in whole or in part trust property located in Arizona and in one or more other states.

9. “Trust property” means any legal, equitable, leasehold or other interest in real property which is capable of being transferred, whether or not it is subject to any prior mortgages, trust deeds, contracts for conveyance of real property or other liens or encumbrances.

10. “Trustee” means an individual, association or corporation qualified pursuant to section 33-803, or the successor in interest thereto, to whom trust property is conveyed by trust deed. The trustee’s obligations to the trustor, beneficiary and other persons are as specified in this chapter, together with any other obligations specified in the trust deed.

11. “Trustor” means the person conveying trust property by a trust deed as security for the performance of a contract or contracts, or the successor in interest of such person.

%d bloggers like this: