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EDITOR’S NOTE: OK they never mentioned Donald Duck. But the point is the same. The appellate and trial courts, on virtually a daily basis are eviscerating not only the current foreclosure cases but casting a long shadow over the ones that have already been “completed.” It is clear that the designation of MERS was the designation of anon-entity. They might have well as not entered any name. Thus MERS could not foreclose and MERS could not not transfer what it did not have. The strategy of crating paper trails to give life to a fictional character and the illusion of securitization has been shattered in three states in about as many days.


KABOOM | NY Appellate Division | Bank of NY v Silverberg – MERS Does NOT Have The Right to Foreclose on a Mortgage in Default or Assign That Right to Anyone Else

4closureFraud's picture

Submitted by 4closureFraud on 06/13/2011 13:04 -0400

Appeals Court Clarifies MERS Role in Foreclosures

The ubiquitous Mortgage Electronic Registration Systems, nominal holder of millions of mortgages, does not have the right to foreclose on a mortgage in default or assign that right to anyone else if it does not hold the underlying promissory note, the Appellate Division, Second Department, ruled Friday. “This Court is mindful of the impact that this decision may have on the mortgage industry in New York, and perhaps the nation,” Justice John M. Leventhal wrote for a unanimous panel in Bank of New York v. Silverberg, 17464/08. “Nonetheless, the law must not yield to expediency and the convenience of lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules that govern real property.” The opinion noted that MERS is involved in about 60 percent of the mortgages originated in the United States.

From the ruling…

(Emphasis added by 4F)

Decided on June 7, 2011


(Index No. 17464-08)

[*1]Bank of New York, etc., respondent,
Stephen Silverberg, et al., appellants, et al., defendants.

LEVENTHAL, J.This matter involves the enforcement of the rules that govern real property and whether such rules should be bent to accommodate a system that has taken on a life of its own. The issue presented on this appeal is whether a party has standing to commence a foreclosure action when that party’s assignor—in this case, Mortgage Electronic Registration Systems, Inc. (hereinafter MERS) —was listed in the underlying mortgage instruments as a nominee and mortgagee for the purpose of recording, but was never the actual holder or assignee of the underlying notes. We answer this question in the negative.

On appeal, the defendants argue that the plaintiff lacks standing to sue because it did not own the notes and mortgages at the time it commenced the foreclosure action. Specifically, the defendants contend that neither MERS nor Countrywide ever transferred or endorsed the notes described in the consolidation agreement to the plaintiff, as required by the Uniform Commercial Code. Moreover, the defendants assert that the mortgages were never properly assigned to the plaintiff because MERS, as nominee for Countrywide, did not have the authority to effectuate an assignment of the mortgages. The defendants further assert that the mortgages and notes were bifurcated, rendering the mortgages unenforceable and foreclosure impossible, and that because of such bifurcation, MERS never had an assignable interest in the notes. The defendants also contend [*3]that the Supreme Court erred in considering the corrected assignment of mortgage because it was not authenticated by someone with personal knowledge of how and when it was created, and was improperly submitted in opposition to the motion.

Here, the consolidation agreement purported to merge the two prior notes and mortgages into one loan obligation. Countrywide, as noted above, was not a party to the consolidation agreement. ” Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident'”

Therefore, assuming that the consolidation agreement transformed MERS into a mortgagee for the purpose of recording—even though it never loaned any money, never had a right to receive payment of the loan, and never had a right to foreclose on the property upon a default in payment—the consolidation agreement did not give MERS title to the note, nor does the record show that the note was physically delivered to MERS. Indeed, the consolidation agreement defines “Note Holder,” rather than the mortgagee, as the “Lender or anyone who succeeds to Lender’s right under the Agreement and who is entitled to receive the payments under the Agreement.” Hence, the plaintiff, which merely stepped into the shoes of MERS, its assignor, and gained only that to which its assignor was entitled (see Matter of International Ribbon Mills [Arjan Ribbons], 36 NY2d 121, 126; see also UCC 3-201 [“(t)ransfer of an instrument vests in the transferee such rights as the transferor has therein”]), did not acquire the power to foreclose by way of the corrected assignment.

In sum, because MERS was never the lawful holder or assignee of the notes described and identified in the consolidation agreement, the corrected assignment of mortgage is a nullity, and MERS was without authority to assign the power to foreclose to the plaintiff. Consequently, the plaintiff failed to show that it had standing to foreclose. MERS purportedly holds approximately 60 million mortgage loans (see Michael Powell & Gretchen Morgenson, MERS? It May Have Swallowed Your Loan, New York Times, March 5, 2011), and is involved in the origination of approximately 60% of all mortgage loans in the United States (see Peterson at 1362; Kate Berry, Foreclosures Turn Up Heat on MERS, Am. [*6]Banker, July 10, 2007, at 1). This Court is mindful of the impact that this decision may have on the mortgage industry in New York, and perhaps the nation. Nonetheless, the law must not yield to expediency and the convenience of lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules that govern real property. Accordingly, the Supreme Court should have granted the defendants’ motion pursuant to CPLR 3211(a) (3) to dismiss the complaint insofar as asserted against them for lack of standing. Thus, the order is reversed, on the law, and the motion of the defendants Stephen Silverberg and Fredrica Silverberg pursuant to CPLR 3211(a)(3) to dismiss the complaint insofar as asserted against them for lack of standing is granted.

FLORIO, J.P., DICKERSON, and BELEN, JJ., concur.

ORDERED that the order is reversed, on the law, with costs, and the motion of the defendants Stephen Silverberg and Fredrica Silverberg pursuant to CPLR 3211(a)(3) to dismiss the complaint insofar as asserted against them for lack of standing is granted.

Full opinion below…

It is well worth the read…


9th Circuit BAP: HSBC, ASC Not Real Party In Interest, No Standing, MERS Has No Interest


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Fontes-MEMO-9th Ciruit BAP – Judge Jury a Member of the Panel

The collateral benefit MUST go solely to the homeowner. If the creditor chooses not to exercise any right or intention to collect, it is not a license for ANYONE to come in as a third party and make the claim.

“If you don’t want it, we’ll take it” is not a cause of action. Pretender lenders are not entitled to collect on the claim of the real creditor under any theory.


Interesting that the Judges on the panel had previously tossed out expert testimony from me and otherwise ruled against the theories and facts reported on this blog. Now, sitting on an appellate review panel, the same Judges decided that Judge Hollowell should be reversed, but like other favorable decisions, announced that their decision should not be used as binding legal precedent. In other words, they are creeping toward our conclusions, accepting them gradually with a toe in the water to see what happens. The primary new event is that these Judges are no longer giving lip service to the “free house” political argument that was previously made and accepted by pretender lenders. Things are changing! Hold on tight, this ride is not over yet.

Despite the acknowledgment by the Bankruptcy Chapter 13 Petitioner that ASC had a secured claim, the appellate panel said that relying on the Petition is not enough. As we have said repeatedly here on these pages, many lawyers suggest that the Petition be filed such that these issues don’t even arise, thus bolstering at the administrative level in Bankruptcy or the Trial level in civil litigation the argument that the borrower already admitted that this was a secured liquidated claim. The truth is, in my opinion, and in the opinion of many other lawyers and Judges, that the claims being presented in nonjudicial (which is the subject of this Fontes case) and judicial proceedings are neither secured nor liquidated.

Whether you look at the Herrera case, reported earlier, or any of the recent cases we have reported in the last week, you will see very clearly that the courts no longer have the automatic knee jerk prejudice to rule against the homeowner. A bad mortgage is a bad mortgage. The securitizers created these table funded loans with undisclosed lenders and messed up almost everything that was a clerical task. If the end result runs negative to the foreclosers, too bad, they never showed they had any loss anyway (because in fact they had no loss).

The real party in interest is the investor-lender who has chosen NOT to enforce against the homeowner because they don’t want any part of the multitude of affirmative defenses and counterclaims for fraud, predatory lending, statutory violations etc. Instead, they are suing the investment banks who sold them “mortgage bonds” without the mortgages.

The collateral benefit MUST go solely to the homeowner. If the creditor chooses not to exercise any right or intention to collect, it is not a license for ANYONE to come in as a third party and make the claim. “If you don’t want it, we’ll take it” is not a cause of action.

Pretender lenders are not entitled to collect on the claim of the real creditor under any theory.


“Under sec 362(d) only a “party in interest” may seek relief from the operation of the automatic stay from the bankruptcy court.”

In Weisband “the court concluded that MERS did not have constitutional standing and, if MERS did not have constitutional standing, its assignee could not satisfy the requirements of constitutional standing either. Id. see also Wilhelm, 407 B.R. at 404 (discussing validity of MERS’s assignments related tot he note). We do not perceive a different result is warranted…”

“it is axiomatic that HSBC must show that it has both constitutional standing and prudential, or party in interest, standing to bring the motion for relief from stay. Satisfying one standing requirements and not the other is insufficient. See Valley Forge Christian Coll. v Ams. United for Separation of Church and State, Inc. 454 U.S. 464, 474-75 (1982)”

“The only manner in which HSBC links itself to ASC in the record is through its repeated assertions (e.s.) without any reference to any evidence that ASC was its “Servicer.” No further details were given [Editor’s note: nor are further details EVER given, thus the importance of this statement in the case]. Does HSBC mean that ASC was its agent at thet ime fo the debtors’ filing? Or, does HSBC mean it somehow became the sucessor in interest to ASC? The record does not support either theory.”

“The record contains no servicing agreement between ASC and HSBC indicating that ASC was HSBC’s agent, and ASC’s proof of claim did not state it was acting as the agent for HSBC.”

“… the only inference to be drawn from the record is that ASC was acting as the servicer for some other party than HSBC when debtors filed their petition.” [Editor’s Note: The court recognized the shell game and put a stop to it]

Cochrane: How Deutsche Bank as a Trustee will attempt to harm you in bankruptcy court.

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EDITOR’S NOTE: When you actually READ the securitization documents, you will find, as I did, that all of them are quite disingenuous. They mislead the casual reader and even some careful readers who don’t understand what is actually being said. The prospectus says the investor is buying into a pool, but as you continue to read, you find the pool has not been formed, much less filled with loans to satisfy the definition of “asset-backed mortgage bond.” So the investor is buying into a non-existent pool, which may or may not have been formed at a later date, with nothing in it except the income received from selling credit default swaps on the most toxic tranches of a CDO, usually in the same Special Purpose vehicle (Trust).

The so-called “Trustee” seems at first to be an intended fiduciary of a bona fide trust, but as you read the PSA and other securitization documents you find that with each passing page the powers of the Trustee are stripped away until they are at best the contingent agent of a dubious trust that has nothing in it except the income from credit default swaps and whose principal asset, as represented, is neither present nor was there ever any intent to make any legal transfers of legally constituted documents that would fill the pool with assets and thus create the “res” over which the Trustee has power.

With each passing page of each document it is obvious that the powers of the “Trustee” are actually in the hands of the master servicer, who in turn hires a subservicer who actually does the work, but without “knowledge” (plausible deniability). The subservicer in turn has multiple sets of books which it uses for reporting purposes — one for the borrower, one for the investor and one for the securitizers, to start with. Like MERS, the subservicer never lays hands on any document evidencing ownership of the borrower’s obligation which of course is at variance with the undelivered note and undelivered mortgage or deed of trust.

And since the subservicer does not handle or control the payments to securitizers and the investors, it has no way of knowing or accounting for payments that were made — except its own payments to the securitizers, despite the declaration of default against the borrower. The borrower, not knowing the payments are continuing, accepts the allegation that the obligation is in de fault even though it is being paid. UNTIL THE COURT IS MADE AWARE OF THE MULTIPLE SETS OF BOOKS, IT HAS NO WAY OF KNOWING ABOUT THE FRAUD. AND IF IT ISN’T EVEN ALLEGED, THEN THE ISSUE IS NOT BEFORE THE COURT.

The Trustee meanwhile has no idea what is going on in the courts (plausible deniability) and neither do the investor-lenders. Payments of principal and interest made to the securitizers, who are agents of the investor-lenders are neither reported to nor paid to the investors in many cases. While often named as the foreclosing party, the Trustee has no attorney client relationship with the attorney who is representing to the court that he represents the “lender” or “Holder” of the note, which of course does not describe the transaction that was disclosed to the borrower in the loan documents, note and mortgage. Hence the borrower-debtor, is led to believe that the loan documents are the written instruments governing the transaction when in fact they are a lie — but without putting together the securitization documents, the loan level accounting, the title and securitization analysis and the forensic analysis, the borrower and his/her attorney is in the dark about the truth of the matter. Hence the representation in court by the pretender lender appears true because the borrower does not deny them.

How Deutsche Bank as a Trustee will attempt to harm you in bankruptcy court BY MARY COCHRANE

See Case No 07-077227-PB7 (Bankr.S.D.Cal 6/9/2008)
DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for WaMu Series 2007-HE1 Trust, its
assignees and/or successors

The TRUSTEE will argue against you if you claim Deutsche Bank may not foreclose on the property because the Assignment was not recorded.

US Bankruptcy denied relief as to: CC 2932.5 if DBNTC could not provide ownership documents it could not….

An Assignment of the Note amounts to an Assignment of the Deed of Trust.

Deutsche Bank has provided no convincing evidence that the Note was ever assigned to Deutsche Bank. Furthermore, even if the Note was assigned to Deutsche Bank, Deutsche Bank is not the party asserting a security interest in the Property. Rather the motion is brought by Deutsche Bank as TRUSTEE for HE1 Trust. The record is devoid of any further assignment to HE1 Trust.

In summary, the only question before the Court is whether Deutsche Bank and/or HE1 Trust has an interest in the Proeprty. The Court holds that Deutsche Bank has failed to provide evidence that it, let alone HE1 Trust has a security interest in the Property. Accordingly, the motion is denied. Deutsche Bank’s motion for relief from stay is dened without prejudice.

WaMu retains possession of Note and Deed of Trust as Agent for Deutsche Bank.

The Trustee, Deutsche Bank, argues that based upon “…..” may not foreclose on the Property because the Assignment was not recorded. That may be. However, that is an issue the TRUSTEE can raise with the state court if relief from stay is ultimately granted.

Both parties allotted much ink and paper to issue of whether Deutsche Bank has a perfected security interest in the Note. The Court finds this discussion beyond the scope of the motion before it. Deutsche Bank has moved for relief from stay to proceed against the Property. Whether or not it holds a security interest in the Note is irrelevant. Since we are not concerned with a security interest in the Note, all talk of a ‘perfected lien’ on the Note is beside the point.


Regarding Asset Backed Securities, could be Depositor, Underwriter, even one of its Special-Purpose Vehicles SPV’s could be a national banking association or sent in during a foreclosure or bankruptcy as a substitute trustee:.

Deutsche Bank National Trust Co.
Formerly Bankers Trust Co of California NA 8/1/96
3 Park Plaza 16th Floor, Irvine CA 92614
Maiing: 1761 East St. Andrew Pl, 2nd FLoor Santa Ana CA 9270a
IRS 13-3347003
7,443 SEC Filings 5/6/97 – 2/14/11
As ‘Filer’ ‘Owner’ ‘Filing Agent’

Deutsche Bank National Trust Company (Deutsche Bank), as Trustee for

In MERSONLINE.Org registry
DB Structured Products Inc.
60 Wall St. NY NY 10005
212-250-9340 Fax 212-797-516
Primary Contact: MERS Dept c/o Deutsche Bank NA
MEMBER ORG ID: 1002829
Lines of Business: Servicer, Subservicer, Interim Funder, Investor, Document Custodian
eRegistry Participant: NO
eDelivery Participant: NO

Business Entity: New York State
Jurisdiction: Delaware
Active – Initial DOS Filing: 4/30/1970
1/11/2002 changed name to DB Structured Products Inc.

Mary reveals below information on Deutsche Corporate Trust Services and imagine name change in line with DB Structured Products Inc. name change. Was Deutsche Bank Shapres Pixley Inc. 1/7/1994 – 1/10/2002
And was 1/6/1994 thru 4/30/1970 Deutsche Bank Sharps Pixley Inc. former name Sharps Pixley Inc established 4/30/1970.

During foreclosure or bankruptcfy in CA for example, the Deed of Trust may list ‘WaMu’ as the beneficiary and “California Reconveyance Company’ as the Trustee. On the SEC, you’ll find Deutsche Bank Trust Company/National Association to be a ‘Filing Agent’ of Deutsche Bank AG and 1 SEC File as ISSUER SEC File 028-12000 13F-NT/A and 13F-NT. First Filing 8/15/06 – Last Filing 2/15/11.

Don’t be frustrated if you are not understanding these facts. The more you read them and try to understand them you’ll realize you are smarter than the average bear. I could not spell ‘SEC’ when I started October 2008.

Deutsche Bank Trust Co National Association
280 Park Avenue
New York NY 10017

How does Deutsche Bank have a perfected lien against the Property and Chain of Title?

Deutsche Bank will assert to the court it is the ‘current beneficiary of a primissory note and deet of trust by way of Assignment’

What is the ‘Trustee’ I mean ‘are’ the TRUSTEE’s in SEC Reconstituted and/or their Reconstituion Servicing Agreements going to do now? regarding

Assignments in CA for example:

MERS Fatal Flaw in Ca, on May 12, 2011 at 10:19 am said:
In California it’s coming down to one key issue, MERS NOT having an assignment of the Note from the Original Lender to MERS, legally recorded.
“The assignment of the lien without a transfer of the debt was a nullity in law.”
“A lien is not assignable unless by the express language of the statute.”
“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”
CARPENTER V. LONGAN, 83 U. S. 271 (1872), U.S. Supreme Court
More info at https://sites.google.com/site/mersfatalflawsincalifornia

Well in the USA Deutsche promoted itself 2002 forward Trust & Securities Services

Deutsche Bank`s Trust & Securities Services provides an extensive range of trust, agency, depositary, custody, fund administration and related services on over EUR 7 trillion in debt and equity securities worldwide. Its six globally integrated product groups ensure that every service is provided by expert, specialist staff.
Debt Services offers a range of products for bonds, CP and MTN programs, project financings, escrows, restructurings, syndicated loans, auction rate securities and Islamic financings
Structured Finance Services specializes in asset and mortgage backed securities, collateralized debt obligations and asset backed CP conduits
Corporate Services provides management and administration for a variety of tax-neutral and tax-advantaged structures
Alternative Fund Services provides administration for hedge funds, fund of hedge funds, private equity and other alternative investment vehicles
Equity Services covers ADRs, global shares, German shares and German capital transactions
Direct Securities Services provides safekeeping and clearing services for securities in more than 32 markets worldwide.
For information about Deutsche Bank residential property foreclosure and REO (real estate owned) inquiries please click here
All funds in a “noninterest-bearing transaction account” are insured in full by the Federal Deposit Insurance Corporation from December 31, 2010, through December 31, 2012. This temporary unlimited coverage is in addition to, and separate from, the coverage of at least USD 250,000 available to depositors under the FDIC’s general deposit insurance rules.

The term “noninterest-bearing transaction account” includes a traditional checking account or demand deposit account on which the insured depository institution pays no interest. It also includes Interest on Lawyers Trust Accounts (“IOLTAs”). It does not include other accounts, such as traditional checking or demand deposit accounts that may earn interest, NOW accounts, and money-market deposit accounts.

For more information go to http://www.fdic.gov

2/06/2002 Deutsche Bank wins Trustee Awards in Securitization Markets

2003 – Deutsche Bank Corporate Trust Chicago Office Opens

Deusche Bank expands Municipal Trustee Services

Deutsche Bank Coporate Trust wins EURO CP Award

2004 Deutsche Bank opening new Corporate Trust Office San Francisco

Deutsche Bank also has regional corporate trust offices in Charlotte, NC; New York; Chicago; Olive
Branch, MS; and Santa Ana, CA.

NEW YORK, JANUARY 20, 2004 – Deutsche Bank’s Trust & Securities Services today announced
the opening of a regional corporate trust office in San Francisco, California. The new office is the
latest in the continuing regional expansion of traditional corporate trust services launched by
Deutsche Bank in June 2002 in the US.

Raafat Albert Sarkis heading Unit in CA was a Vice President in US Bank’s corporate trust unit. Head of Global Debt Services within Deutsche Bank’s Trust & Securities Services. “Raafat’s wealth of industry knowledge, his client relationships and his proven track record will help ensure that our clients in the Western states benefit from localized expertise and a commitment to exceptional customer service.

Deutsche Bank ranks among the global leaders in corporate banking and securities, transaction
banking, asset management, and private wealth management, and has a significant private &
business banking franchise in Germany and other selected countries in Continental Europe.

Deutsche Bank’s Trust & Securities Services is one of the leading global providers of trust and
securities administration services.

Through a fully integrated network of specialist offices worldwide, the group provides domestic custody in 23 securities markets as well as trustee, agency, registrar, depositary, SPV management and related services for a wide range of financings. Products serviced include bonds, auction rate securities, medium term note and commercial paper programs, asset backed and mortgage backed securities, CDOs, SIVs, project financings, escrows, syndicated loans, American Depositary Receipts and German equities.
FDIC Chairman Shelia Blair sure looked uncomfortable in her ‘skin’ on 60 Minutes. What do you think?

Regarding Deutsche Bank… The first chart depicts the mortgage transaction as many (most?) of us still understand it:

Here’s Chairman Bair’s second chart, “Borrowing Under a Securitization Structure”, depicting the typical mortgage transaction in 2007 (click to enlarge):

The County Auditor’s database says the owner of this house is Deutsche Bank National Trust Company. It says Deutsche Bank NTC paid $50,000 for the house in a sheriff’s sale in March 2007. The sheriff’s sale was the outcome of Case CV-05-554639, an action for foreclosure against the previous owners, filed in Common Pleas Court in February 2005 by Deutsche Bank NTC “as Trustee”.

But Deutsche Bank never held a mortgage on 4111 Archwood. And Deutsche Bank doesn’t really own 4111 Archwood now.

We’ll get back to Case CV-05-554639 and that magic word “Trustee” in a minute. But first, a short tour of the New Mortgage Industry, courtesy of the Chairman of the Federal Deposit Insurance Corporation, Sheila Bair.

Chairman Bair testified before the U.S. House Committee on Financial Services last April. Her entire testimony is well worth reading, but it’s modestly famous for two charts.

The first chart depicts the mortgage transaction as many (most?) of us still understand it

As Chairman Bair explained to the Committee:

Securitization takes the role of the lender and breaks it into separate components. Unlike the more traditional relationship between a borrower and a lender, securitization involves the sale of the loan by the lender to a new owner–the issuer–who then sells securities to investors. The investors are buying “bonds” that entitle them to a share of the cash paid by the borrowers on their mortgages. Once the lender has sold the mortgage to the issuer, the lender no longer has the power to restructure the loan or make other accommodations for its borrower. That becomes the responsibility of a servicer, who collects the mortgage payments, distributes them to the issuer for payment to investors, and, if the borrower cannot pay, takes action to recover cash for the investors.

And she listed some of the roles in this modern mortgage transaction:

o Issuer – A bankruptcy-remote special purpose entity (SPE) formed to facilitate a securitization and to issue securities to investors.
o Lender – An entity that underwrites and funds loans that are eventually sold to the SPE for inclusion in the securitization. Lenders are compensated by cash for the purchase of the loan and by fees. In some cases, the lender might contract with mortgage brokers. Lenders can be banks or non-banks.
o Mortgage Broker – Acts as a facilitator between a borrower and the lender.The mortgage broker receives fee income upon the loan’s closing.
o Servicer – The entity responsible for collecting loan payments from borrowers and for remitting these payments to the issuer for distribution to the investors. The servicer is typically compensated with fees based on the volume of loans serviced. The servicer is generally obligated to maximize the payments from the borrowers to the issuer, and is responsible for handling delinquent loans and foreclosures.
o Investors – The purchasers of the various securities issued by a securitization. Investors provide funding for the loans and assume varying degrees of credit risk, based on the terms of the securities they purchase…
o Trustee – A third party appointed to represent the investors’ interests in a securitization. The trustee ensures that the securitization operates as set forth in the securitization documents, which may include determinations about the servicer’s compliance with established servicing criteria.
“Bankruptcy-remote”. What a great adjective.

So what does this all have to do with 4111 Archwood? While I explain, you might want to keep that second chart handy.

In August 2003, the couple that had owned 4111 Archwood since 1996 refinanced it for $93,500. Their lender was Argent Mortgage Company, LLC, a division of ACC Holdings of Orange, CA, which also owned Ameriquest Mortgage and AMC Mortgage Services. Argent was the biggest single subprime lender in Cuyahoga County between 2003 and 2005, going from no originations in 2002 to nearly 2,400 in 2003, 4,900 in 2004, and 3,800 in 2005. (Following several years of lawsuits and other problems, ACC recently closed Ameriquest’s doors and sold Argent, AMC and Ameriquest’s servicing contracts to Citigroup. Argent is now doing business as Citi Residential Lending.)

Less than two months after the mortgage on 4111 Archwood was signed, Argent Mortgage Co. LLC transferred it to Argent Securities, Inc., which “deposited” it, along with thousands of other Argent mortgages into something called “Argent Securities, Inc. Asset-Backed Pass-Through Certificates Series 2003-W5″.

Let’s just call it “ASIABPTCS2003W5″ for short.

As you may have guessed, ASIABPTCS2003W5 is one of those “bankruptcy-remote special purpose entities” Chairman Bair mentioned. It was set up by Argent to be the vehicle by which all that mortgage paper, with a face value of $1.5 billion, would be sold to investors. Once that was accomplished, the mortgage on 4111 Archwood became a tiny piece of the paper assets owned by ASIABPTCS2003W5, a corporate entity owned not by Argent but by its investors.

The “Pooling and Service Agreement” that created ASIABPTCS2003W5 named Argent’s sister company, Ameriquest Mortgage, as “Master Servicer” for all those mortgages.

And it named Deutsche Bank National Trust Company as the “Trustee” of ASIABPTCS2003W5 — the party paid to represent the interests of the investors and oversee the Master Servicer’s performance.

This all happened at the beginning of October, 2003.

Sixteen months later, in February 2005, the borrower was in default and Deutsche Bank — as the Trustee for ASIABPTCS2003W5 — filed an action for foreclosure in Common Pleas Court.

But — funny thing — nobody had bothered to tell the County Recorder, who’s legally in charge of keeping track of these things, that Argent Mortgage had sold the mortgage to ASIABPTCS2003W5. Ten months into the foreclosure proceeding, the magistrate somehow figured out that Argent was still the mortgagee of record and that Deutsche Bank lacked standing to foreclose on the property. (As the case summary, entry for 12/21/05, puts it: “PLAINTIFF’S MOTION TO VACATE CASE AND PLACE ON THE ACTIVE LIST IS DENIED. THE PARTY PURPORTEDLY GRANTED RELIEF FROM STAY IS NOT THE PLAINTIFF IN THIS ACTION.”)

The lawyer for Deutsche Bank quickly filed a motion to make Argent the “substitute plaintiff” in the case. The magistrate agreed to this, putting the foreclosure back on track. Then Argent’s lawyer got it together to file the correct document — it’s called a “Release Assignment” — with the Recorder’s Office in February, confirming the sale of the mortgage on 4111 Archwood to, ahem…


Finally, seven months later — after the foreclosure was granted to substitute plaintiff Argent, which had sold off its interest in the mortgage three years earlier — the magistrate granted a second plaintiff substitution, swapping Argent out and “Deutsche Bank National Trust Company as Trustee of ASIABPTCS2003W5″ back in.

So it was “Deutsche Bank National Trust Company as Trustee of ASIABPTCS2003W5″ listed as plaintiff on the sheriff’s sale notice, and as the grantee (buyer) on the sheriff’s deed. And now it’s “Deutsche Bank National Trust Company” listed as the owner on County records — with a tax mailing address at 505 City Parkway Suite # 100, Orange, CA, which just happens to be the last-listed address of Ameriquest Mortgage. (Remember them? Master Servicer for ASIABPTCS2003W5. Now defunct. Mortgage servicing contracts bought by Citigroup.)

But of course Deutsche Bank NTC doesn’t actually own 4111 Archwood, any more than it actually ever owned the mortgage.

ASIABPTCS2003W5 — that “bankruptcy-remote special purpose entity”, a paper creation owned by nobody in particular — owns 4111 Archwood.

Deutsche Bank, as Trustee, just represents ASIABPTCS2003W5 for certain purposes. Ameriquest Mortgage was supposed to take care of ASIABPTCS2003W5′s properties, but Ameriquest is out of business; this job may have passed to Citi Residential.

So who’s actually responsible for 4111 Archwood? Good question.

That’s just one house. Deutsche Bank currently “owns” over 900 houses in Cuyahoga County through foreclosures in which it acted as Trustee for some “special purpose entity”, commonly an entity created by Argent. Argent alone organized at least thirty-one of these billion-dollar mortgage-backed investment pools from 2003 through 2006.

So maybe you can see why Judges Boyko, O’Malley, Rose, et al are making a big deal about checking Deutsche Bank’s paperwork.

This entry was posted on Wednesday, November 21st, 2007 at 2:46 pm and is filed under Deutsche Bank. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.




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SEE MANN order_br_cally_so_dist_salazar_vs_us_bank_denying_mfrs_mers_4_11_2011

Bankruptcy Judge Margaret M. Mann GETS IT!

1 Posted by Dan Edstrom on April 12, 2011 at 8:19 pm

Bankruptcy Judge Margaret M. Mann GETS IT!

By Daniel Edstrom
DTC Systems, Inc.

Coming off of the heels of in re: Agard (http://dtc-systems.net/2011/02/mers-agency-york-bankruptcy-court-agard/), the Honorable Judge Mann from the United States Bankruptcy Court Southern District of California took 76 days to review the Motion for Relief From Automatic Stay for the in re: Salazar Chapter 13 bankruptcy (Bankruptcy No: 10-17456-MM13).   The findings of fact and conclusions of law were an amazing reading that confirms many of the issues we have been discussing in regards to loans, securitization and foreclosure.  Like Judge Grossman in the agard case, Judge Mann goes to great lengths to research the details that are applicable to this case.   Here are some highlights:

  • Assignments must be recorded before the foreclosure sale

  • Civil Code Section 2932.5 applies to Deeds of Trust

  • Recorded assignments are necessary despite MERS’ role

  • The Gomes case does not apply [to the Salazar case]

  • US Bank or MERS cannot contract away their obligations to comply with the foreclosure statutes

  • As a matter of law, Salazar’s acknowledgment cannot be read as a waiver of his right to be informed of a change in beneficiary status.

  • MERS System is not an alternative to statutory foreclosure law

  • US Bank as the foreclosing assignee was obligated to record its interest before the sale despite MERS’ initial role under the DOT, and this role cannot be used to bypass Civil Code section 2932.5.  Since US Bank failed to record its interest, Salazar has a valid property interest in his residence that is entitled to protection through the automatic stay

  • Cause does not exist to grant relief from stay

  • Denying relief from stay at this time is the least prejudicial option for both parties



COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

SEE jpm-makes-2-billion-while-investors-lose-500-million

EDITOR’S NOTE: If the press can ask the questions leading right up to the top of the megabanks, why can’t the government? You have to remember that these people practically invented the term “due diligence” and before the securitization scam, it was very challenging to get a deal through where all the i’s were not dotted. The point here is not whether Jamie Dimon belongs in jail. The point is that the securitization scam was intentional and there are civil remedies for everyone who was hurt by it.

JPM set up an investment that they knew at the highest levels was going to fail, didn’t tell their investor (of course) because they were going to  make a lot of money BECAUSE the investor was going to lose money. This is what was done to investors in mortgage-backed bonds and what was done to homeowners who put up their house for an “investment” that was already doomed. Facts like these help make the case for appraisal fraud and other deceptive lending practices. And it shows how the megabanks were pulling the strings through remote vehicles and then defending with plausible deniability.

My answer is that their denial is not plausible and not even possible. Nobody accidentally makes $2 billion on a client’s loss of $500 million. We’re not talking the lottery here. We are talking high finance where the controls and command centers are limited to a few rooms with very few people in those rooms.

Investing in the Dark

NY Times Editorial

So what did Jamie Dimon know and when did he know it?

New documents unsealed recently in a class-action lawsuit against JPMorgan Chase — some of which name Mr. Dimon, the chief executive — paint yet another picture of a bank profiting while its clients suffer. At issue is a precrash investment vehicle, named Sigma, in which the bank had invested $500 million in assets from pension funds and other clients, nearly all of which the clients say was lost when the investment tanked in 2008.

The clients were blindsided because they believed that Sigma was a safe way to invest. JPMorgan was not taken by surprise. As Louise Story reported in The Times on Monday, court documents show that warnings by top bank officials about Sigma and similar investments went all the way up to Mr. Dimon’s office.

The gist of the warnings was not how to protect clients, but how the ailing Sigma presented the bank with what one e-mail described as “very big moneymaking opportunities as the market deteriorates.”

When Sigma did indeed collapse, JPMorgan collected nearly $1.9 billion, according to the suit, a figure the bank disputes, without providing any alternative figure.

It is possible that JPMorgan did nothing wrong legally — and that is precisely the problem. It clearly stinks to withhold information that may well have caused clients to change their minds — in effect, for the bank to treat clients’ money with less care than it treats its own. As long as banks operate that way, there is no restoring trust in the financial system, or, by extension, in the political system that props it up.

But is it illegal? JPMorgan has said that the unit of the bank that handled the clients’ investments in Sigma was not, by law, allowed to confer with the unit of the bank that benefited from Sigma’s demise. That may be true, but as Ms. Story pointed out, in this case, the information rose to executives who oversee the entire company and were in a position to intervene. That they did not is a failure to do the right thing, even if the court decides that the bank did not break the law.

In the meantime, efforts to write new rules to try to curb such conflicts is hamstrung by a Republican backlash against the Dodd-Frank financial reform law that was passed last year. There is proposed legislation to repeal provisions of the law, and the agencies that have to implement the law are in danger of not getting enough money to do the job. As the pension funds in the class-action suit against JPMorgan can certainly attest, only the banks will benefit from business as usual.


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

In his experience, Mr. Shaev said: “The attorneys who represent the banks invariably state that they will get the collateral file for us and prove that the banks had possession of the documents at the appropriate time. But then when we review the file it doesn’t show that at all.”

“The Central Question rising to the surface and now unavoidable is whether a party claiming to be a secured creditor would prevail if there was a normal adversary hearing on the merits where the normal rules of evidence apply” — Neil F Garfield

EDITOR’S NOTE:  In bankruptcy courts across the country, pretender lenders have been able to rely upon an unwritten code wherein a motion to lift stay (MLS) filed by a secured creditor would be unopposed by the trustee. The pretender lender would not only be free to continue with judicial or nonjudicial foreclosure and sale, they would also have the appearance of a court order  apparently confirming their right to foreclose.

When I first broached the subject with various US trustees around the country in 2007 and 2008 they were extremely skeptical. I proposed a business model to them which would provide the protection to the debtor that was intended by the Constitution and the statutes governing the substance of bankruptcy petitions.  I showed them that the US trustee, the attorney for the US trustee, the creditors, and the attorney for the debtor would all be able to share in a larger estate and thus earned more fees than was currently the case where a home was in foreclosure.

It was my opinion then and it is my opinion now that not only do the pretender lenders lack standing to pursue a foreclosure, but that there does not appear to be any credible party in the securitization chain who would possess such standing. It was my opinion that the participants in the securitization scheme had hopelessly obscured the obligation and split the obligation from the note and mortgage as well as splitting the note from the mortgage.

Thus while the obligation clearly exists, subject to offsets and counterclaims, there is no law or legal theory under which the obligation was in fact secured. The US trustees in bankruptcy were not only skeptical, they were actually opposed to my plan because they did not want to be part of any procedure by which a borrower abused the judicial process in order to gain a windfall or undue advantage.

In a major change of policy, US trustees in bankruptcy court are now challenging the standing and viability of the claims made by the pretender lenders. The premise was that if a lawyer came to bankruptcy court claiming to represent a lender that was secured by a mortgage on the property it was presumed that the representation to the court was true. As we have seen in various news reports there are good reasons to question whether the attorney represents anyone, whether any of the parties to whom the attorney refers is an actual creditor, and whether the claim is secured by a mortgage on the home.

The wrongful foreclosure damage actions are giving pause to everyone involved in the closing of these deals and in the processing of the “foreclosures.” Invariably, the old trustee on a deed of trust is substituted with one with whom the pretender lender has an ‘arrangement” concerning going forward, regardless of the obstacles.

The employment of  intermediaries used to obscure the fraud in the sale of the bogus mortgage bonds and the bogus mortgage loans are the business model for the employment of intermediaries used to obscure the fraud on the court in foreclosures.

These intermediaries — originators, brokers, title agents, escrow agents, appraisers, trustees, and foreclosure companies are all in the cross hairs of lawyers across the country who are suing for individual or class action relief. Any party moving forward at this point can be held to the “knew or should have known” status required for a fraudulent foreclosure or slander of title action. If it is negligence, there might be insurance coverage. If it is viewed as an intentional act of fraud, the insurer for errors and omissions might decline coverage for even the defense of the action.

The megabanks have intentionally and in so many words set up various “bankruptcy remote” vehicles that are intended to insulate them from liability in case this thing explodes in their faces. They wish to protect their claim of plausible deniability and point the finger at the actual people who got the hands dirty — as the recent closing of  David Stern’s office in Florida demonstrates. These remote vehicles are submitting credit bids at auction which are by all accounts not only illegal, but void.

Any issuance of a title document reflecting a “credit bid” is essentially a “wild deed,” — i.e., one that can and would be ignored by a title examiner. This leads to the inevitable conclusion that nearly all REO property is still legally owned by the homeowners who believe their home was foreclosed and sold.

The central question that is gradually rising to the surface is simply whether or not a party claiming to be a creditor could sustain its burden of proof in a normal evidentiary hearing. The presumptions that were used before the securitization of residential mortgage loans made sense when the transaction lacked the complexity and duplicity inherent in the scheme of securitization as it was practiced by Wall Street. It is now apparent to many judges, many lawyers, many people in the media, many homeowners, and now US trustees in bankruptcy, that the old presumptions do not apply.

In plain language, the parties claiming to be creditors are not creditors, because the bankruptcy estate does not owe them any money. The same is true in federal and state civil court. The mega banks took advantage of their appearance of propriety and the old presumptions and made the judicial system of vehicle for fraudulent conveyances. The resulting chaos in the chain of title, claims under title insurance, and the inability to obtain a satisfaction of mortgage from a party that is authorized to execute it is the major challenge confronting the legal system.

This has thrust an enormous burden on the offices of the  property appraiser and County recorder across the country. 66 million transactions involving “wild deeds” are now in the chains of title in tens of millions of homes.

The resolution to this crisis is obvious even if it is odious. It has happened in the past that title records have been corrupted beyond repair. It becomes necessary to push a figurative “reset” button with a window of opportunity for those affected to present their claims in a manner required by the court and the legislature of each state. It is in this process that the homeowners will receive an opportunity to obtain some relief while the investors who advanced the funds for the loans recover as much as possible.


November 27, 2010

Don’t Just Tell Us. Show Us That You Can Foreclose.




AFTER examining their foreclosure practices for flaws in mortgage documentation and other procedures, many of the nation’s largest banks have resumed — or will soon resume — trying to evict defaulted borrowers.

JPMorgan Chase, for example, told investors this month that it had extensively reviewed its foreclosure controls, trained personnel in the unit and started new procedures to ensure that all legal requirements would be met when it moves to seize a property in default.

“If we find any foreclosures in error, we will fix them,” JPMorgan Chase said.

But while banks may have booted a few robo-signers and tightened up some lax procedures, one question at the heart of the foreclosure mess refuses to go away: whether institutions trying to take back a property can prove they even have the right to foreclose at all.

Some in the industry believe that questions about this issue — known as “legal standing” — are trivial. They say it’s just a gambit by borrowers’ lawyers to throw sand in the foreclosure machine. Nine times out of 10, bankers say, the right institutions are foreclosing on the right borrowers.

Maybe so. But the United States Trustee Program, the unit of the Justice Department charged with overseeing the integrity of the nation’s bankruptcy courts, is taking a different view. The unit is stepping up its scrutiny of the veracity of banks’ claims against borrowers, and its approach is evident in two cases in federal bankruptcy court in Atlanta.

In both cases, Donald F. Walton, the United States trustee for the region, has intervened, filing motions contending that the banks trying to foreclose have not shown they have the right to do so.

The matters involve borrowers operating under Chapter 13 bankruptcy plans overseen by the court in the Northern District of Georgia. In both cases, the banks have filed motions with the bankruptcy court to remove the automatic foreclosure stay that results when a court confirms a debtor’s Chapter 13 repayment plan. If the stay is removed, the banks can foreclose.

In one case, the borrower had her Chapter 13 plan confirmed by the court early last month. About two weeks later, Wells Fargo asked the court for relief from the stay so that it could foreclose.

Responding on Nov. 16, Mr. Walton asked the court to deny the bank’s request because it had failed to produce any facts showing that it was entitled to foreclose — either as the holder of the underlying note or as the agent for the holder.

The other case involves a couple who had their Chapter 13 plan confirmed by the court in March 2009. A month ago, Chase Home Finance, a unit of JPMorgan Chase, asked the court for relief from the automatic stay so that it could start foreclosure proceedings.

Again, Mr. Walton objected, asking the court to deny the request on the same grounds as argued in the Wells Fargo matter — in this case, that Chase hadn’t proved that it controlled the note on the property.

Jane Limprecht, a spokeswoman for the trustee program, confirmed that it was ratcheting up its scrutiny on banks’ foreclosure practices.

“The United States Trustee Program is engaged in an enhanced review of mortgage servicer filings in bankruptcy cases to help ensure the accuracy of the claim to repayment,” she said. She declined to comment on specific filings.

A Chase spokesman said the bank is the holder of the note in the Georgia case, giving it standing to file the motion.

A spokeswoman for Wells Fargo said that in its case, it is the trustee of a mortgage security that contains the loan, not the servicer. In its capacity as the trustee for mortgage loans serviced by others, it says it expects those servicers to abide by all required laws, processes and procedures.

Howard D. Rothbloom, a lawyer in Atlanta who represents borrowers in bankruptcy, welcomed the actions by Mr. Walton and said he believes they show a sea change in the United States trustee’s thinking on the foreclosure mess.

“Until now, what we had was homeowners complaining about a lack of due process,” Mr. Rothbloom said. “Now you have the federal government complaining about the abuse of the judicial process. That’s really what was missing before.”

The judges overseeing these matters have not yet ruled on the banks’ or the trustee’s requests. And Wells Fargo and Chase may indeed be able to persuade the trustee that their filings were proper.

But the trustee’s intervention in these matters indicates that it wants banks to show the courts that they have the right to foreclose, rather than simply telling them they do. That had been the custom, after all. Now, Mr. Walton’s motions may serve as a warning to banks that they need to be better prepared if they want to foreclose on a borrower.

“For years, the trustee would always take the creditors’ side,” Mr. Rothbloom said. “My strong opinion is the U.S. trustee’s perspective is that they exist to stop borrowers from cheating banks. Perhaps they are coming to the realization that banks can also cheat borrowers.”

FEDERAL trustees in other parts of the country have also intervened in borrower cases, but many of these actions have been related to questionable foreclosure fees or to dubious legal or documentation practices. The shift to a broader focus on the issue of standing suggests that the courts may no longer accept at face value the banks’ arguments that they have the right to foreclose or represent the institution that does.

David Shaev, a lawyer in New York who works with troubled borrowers, says the United States trustee there has also intervened in one of his cases, taking up the issue of a bank’s right to foreclose.

In his experience, Mr. Shaev said: “The attorneys who represent the banks invariably state that they will get the collateral file for us and prove that the banks had possession of the documents at the appropriate time. But then when we review the file it doesn’t show that at all.”

As many large banks renew their foreclosure efforts, Mr. Rothbloom says he hopes that the United States trustee will bring about a comprehensive change in bank practices.

“I’ve gotten resolutions for clients in individual cases, but I’m just a flea on the tail of an elephant,” he said. “Resolutions of individual cases don’t bring about systemic change.”

And systemic change is precisely what’s needed.

Why We Do What We Do

 “Without your blog I would not have found the right lawyer in my state.”          

                                                                                                                   – Meghan in RI

“Some of the most rewarding work of my career.”

                                                                                                                  – Chris Brown Esq.

While we understand the many reasons borrowers pursue their cause on a ProSe or ProPer basis,  it has been our position since the beginning that people need competent licensed local counsel. Also, you must understand that no matter what anyone tells you, no letter or correspondence from anyone, no “loan audit,”  no promise of modification will stop a foreclosure particularly in non-judicial states, the only thing that will stop a foreclosure is a judge or court order. Our first mission here is education and the desimination of information to the public, judges, lawyers, legislators and homeowners. Unfortunately, the executive and legislative branches of government have dropped the ball and still don’t get it(with some exceptions like Marcy Kaptur D-Ohio).

The bottomline is that the Judicial branch is the only hope, Judges need to open their eyes, ask questions they may have never had to ask because the facts and circumstances are really unlike they have ever been in the past. Lawyers who do “get it” and are actively practicing in this area and succeeding we need to hear from you. People need to know how to find you. There are simply still not enough lawyers that “get it.” We also believe that if someone has the desire and financial wherewithal to hire a lawyer, we want them to give there money to someone that will be effective and is staying up to date on this everchanging area of practice. When we get emails like the ones below or other feedback it makes us feel like we are in some small part helping folks through what is and will be one of the most difficult period for our country in our lifetime.  Lawyers who are listed here are doing good work and quite frankly in many cases have practices that are expanding and thriving. If you or your law firm is interested in being listed here email your contact info to:  foreclosuredefensegroup@gmail.com Also, if you are a homeowner and have a lawyer who you think knows their stuff and has been doing a stellar job for you, let us know about them.

Hi Mr. Garfield, Mr. Keiser and the Livinglies team 

   I am writing to say thank you for starting this blog. Without it, I would not have found the right lawyer in my state. I was working with another lawyer, originally, and all he did was buy me some time. Otherwise, he took a lot of money from me for nothing…and continues to pursue me for more. It is also comforting to know that there are other people out there fighting for the same cause, whether they are victims or not. I know there are some naysayers presently posting on your sight but, anyone in my shoes, fighting like all of us are, all of us know when to read between the lines. I have learned so much from your blog and referred your site to others.   I would love to see you have another seminar on the East Coast sometime. Thanks for what you’re doing and let me know how I can help at anytime

Meghan in RI

From: Christopher Brown, Esq.
To: Neil, Brad

While I am at it, let me toss on some more praise for … you    I cannot thank you enough for the seminar I attended in August 2008, in Los Angeles, CA.  It has completely redefined my practice.  While we are still the only firm in Northern Virginia doing this, we are doing it well, and making HUGE strides recently .. it has taken a year to do it, but the foreclosing law firms are FINALLY beginning to concede they have a problem.
Every trial that has come up has been continued, or the case resolved with a “good” loan mod.  They have yet to put us to the test at trial, which we are eager to see happen, but our clients continue to accept the good loan mod offers that come before trial.  The client is the boss, and I can’t make guarantees, so they more often than not go for the mod, but I feel it coming.  We are making incredibly sound constitutional arguments (non-judicial foreclosure is violation of due process, no standing / article 3 injury for purported owner of the note/deed of trust), challenging title like no one else can (former 25 year in-house counsel for title companies on my staff since January), and raising all sorts of problems that were created by the securitization process (former NY securities atty on my staff as well).
This Kansas Sup Ct opinion closes the gap and makes us that much more confident in pursuing our clients interests. I am ecstatic about where my firm is right now and the work we are doing.  My staff, which is growing every few months, is ecstatic as well, as myself, my employees, and our families, are doing well in a recession, and we are helping families protect their homes at the same time.  I could not be happier – and with this Kansas Sup Ct opinion, things are going to get better even faster.
We have gone through several different strategies, and the one we settled on, ironically, is the one you espoused in the seminar (!!), file a suit claiming they can’t enforce the note, do discovery, and put the burden on them.  It is funny the trials and tribulations my office has gone through to get to this point, but it has also been some of the most rewarding work of my career.
Keep up the good work .. and …
Thank you.
Anything I can do for you, all you have to do is ask.
Christopher E. Brown, Esq.
Brown, Brown & Brown, P.C.

Cramdown in Chapter 13!!

see Bradsher Cramdown in Chapter 13

This case is an example of why forensic audits need to go much further than they currently do. Brad Keiser’s Workshop on forensic analysis will focus on the important issues that are usually missed in TILA or other reviews.

As the case points out, the usual rule is that lien stripping and cram-down on residential loans in a Chapter 13 are not possible. BUT in this case they did exactly that. The astute lawyer read the documents. It turns out that the “security instrument” (mortgage or deed of trust, depending upon where you are) secured not only the payment of the note but also the payment of taxes, insurance and other things. Thus, the court reasoned that the debt COULD be bifurcated into secured and unsecured.

The debt was originally $65k, but it was reduced to $22k as against the property because that is all the property was worth. The rest was unsecured, subject to normal Chapter 13 plan and treatment. Thus the debtor/petitioner got to keep their home, make the payments on the new secured loan balance and treat the rest as unsecured debt.

Most mortgages seem to have similar provisions. Forensic analysts should look carefully at the wording, since a lawyer or expert evaluating the case would need to know if the mortgage is subject to cram-down in this fashion.


So in Chapter 11 for the big boys they address reality and treat the value of the property the way it is. But in individual little guy petitions for relief in bankruptcy court, they stick you with the entire amount of the Note even if the security is only worth 20% of the “principal.” And it’s not like the bank comes out any better. They still only get the value of the property. The ONLY thing accomplished by treating the property AS IF it were worth the amount of the principal due on the note is that the homeowner gets to be evicted.

Editor’s Comment: REALITY is not just a concept. Property values went artificially high and finally went into a correction period that is still not over. So the owners of the multibillion dollar residential Stuyvesant Town decided to drop off the keys and walk away. They bought the place for $5.4 billion, didn’t use their own money, and then decided that the place was only worth $2 billion now and would never recover because the price they paid was based upon artificially high appraisals. Sound familiar?
So the banks and investors (mostly the investors) take the hit for the loss and the intermediaries walk away with all the money they made while they owned the deal.
And while I am on the subject of double standards, the one in bankruptcy court is simply stunning. Any fool knows that if you lend someone $100 and you get a bicycle as security, then you have security up to the value of the bicycle. So if the bike is worth $50, you have $50 worth of security and the other $50 is obviously secured by nothing. Chapter 11 proceedings for the big boys recognize this when they do “lien stripping.”
If property is worth only $1 million and the mortgage note is for $5 million, the creditor’s claim is stripped into two parts — the secured part ($1 million) and the unsecured part ($4 million). The same holds true if you are a land speculator by profession and you have multiple houses. But if you are average Joe or Josephine you can’t strip the lien. Why? Because congress said so, that’s why.Speculators and big boys get the treats.
So in Chapter 11 for the big boys they address reality and treat the value of the property the way it is. But in individual little guy petitions for relief in bankruptcy court, they stick you with the entire amount of the Note even if the security is only worth 20% of the “principal.” And it’s not like the bank comes out any better. They still only get the value of the property. The ONLY thing accomplished by treating the property AS IF it were worth the amount of the principal due on the note is that the homeowner gets to be evicted.
Of course that IS the point. They want the homeowner out. They want the loan in default. Because the defaulted loan is worth far more in insurance dollars than it is in fair market value on sale. And the bonus is they get the house too even though they didn’t put up a nickle for the loan.
January 26, 2010

Wide Fallout in Failed Deal for Stuyvesant Town

In the beginning, investors and lenders could not get enough of the record-breaking $5.4 billion deal to buy the largest apartment complexes in Manhattan: Stuyvesant Town and Peter Cooper Village.

Now, three years later, they cannot get away from it fast enough.

The partnership that bought the 80-acre property on the East River announced on Monday that it was turning the keys over to its lenders after it defaulted on its loans and the value of the property fell below $2 billion.

Yet in walking away, the partners, Tishman Speyer Properties and BlackRock Realty, have left tenants in limbo and other investors with far bigger losses.

Many of the other companies, banks, countries and pension funds — including the government of Singapore, the Church of England, the Manhattan real estate concern SL Green, and Fortress Investment Groups — that invested billions of dollars in the 2006 deal stand to lose their entire stake.

“At the time, it looked like a sound investment,” said Clark McKinley, a spokesman for Calpers, the giant California public employees’ pension fund, which bought a $500 million stake in the property. “When the market tanked, we got caught.”

Calpers, he added, has written off its investment. So has Calsters, a California pension fund that invested $100 million, as has a Florida pension fund that put $250 million into the deal.

Even though nearly all of the attention and blame surrounding the default has been directed toward Tishman Speyer, it will lose only its original investment of $112 million. (BlackRock will also lose $112 million.)

Any collateral damage to Tishman Speyer, which manages a $33.5 billion portfolio of 72 million square feet of property in the United States, Europe, Asia and Latin America, was expected to be minimal; real estate experts said that Tishman’s reputation might suffer, but that the firm would still be able to put together deals and raise capital.

“This is a big black eye for them,” said John McIlwain, a senior fellow for housing at the Urban Land Institute. “But it’s not the end of Tishman. They own a lot of property. It’s a dent, but not the end.”

For decades, Stuyvesant Town and Peter Cooper Village were an oasis for middle-class New Yorkers; they were built in the 1940s by Metropolitan Life, which received tax breaks and other incentives in exchange for keeping rents low, initially for the World War II veterans who were the first tenants.

With rents and condominium prices skyrocketing in 2006, MetLife put developments on the auction block. A partnership formed by Tishman Speyer and BlackRock paid $5.4 billion. The acquisition cost was actually $6.3 billion, because the partnership had to raise $900 million for reserve funds to cover interest payments, apartment renovations and capital improvements.

The rental income did not cover the monthly debt service. But the two partners were betting that they could turn a healthy profit over time as they replaced rent-regulated residents with tenants willing to pay higher market-rate rents. But their plan fell apart when they could not convert enough apartments to the higher rents as quickly as they had planned. And in the past two years, average rents in New York have fallen sharply, along with property values.

Last year, analysts predicted that Tishman Speyer and BlackRock would default. That prediction intensified when New York State’s highest court ruled in the fall that the partnership had improperly deregulated and raised the rents on 4,400 apartments. The partners were forced to roll back rents and they have been in negotiations on rebates owed to tenants. (The eventual owners, not Tishman Speyer and BlackRock, are expected to inherit liability for the $215 million in rent rebates.)

On Jan. 8, the owners defaulted on $4.4 billion in loans ($3 billion in senior mortgages and $1.4 billion in secondary loans). They had also raised $1.9 billion in equity. The problem was that the latest appraisal put the value of the complexes at about $1.9 billion.

“It’s the poster child for the entire housing bubble,” said Daniel Alpert, managing partner of Westwood Capital. “There’ll be some other spectacular blowups, but this will be at the top of the pecking order.”

Mr. McIlwain said it may take a decade or more for the prices to reach the levels they did in 2006.

“You’re talking about a prime deal at the top of the market when money was fast and free,” he said. “You’re not going to see money that is fast and free until bankers’ memories fade, which typically takes 10 years.”

In the meantime, real estate analysts said the collapse of the Stuyvesant Town deal would send ripples throughout the real estate investment community.

“The fact that they have given the keys back is going to have a chilling effect,” said Keven Lindemann, director of real estate for the research firm SNL Financial, which covers publicly traded real estate. “This was such an enormous transaction that it looks like most, if not all, of the equity is going to be wiped out.”

The Government of Singapore Investment Corporation, which made a $575 million secondary loan, and invested as much as $200 million in equity, stands to lose all of that.

CWCapital, the company that is negotiating with Tishman Speyer and BlackRock on behalf of the mortgage holders, declined to comment. With Tishman Speyer stepping down as manager of the 11,227 apartments, CWCapital has talked to both the LeFrak Organization, which owns and manages thousands of apartments in Queens and elsewhere, and Rose Associates, the Manhattan company that had managed the two complexes before Tishman Speyer took over.

This month, several of the secondary lenders sent letters to Tishman Speyer and BlackRock threatening foreclosure because of the default. The partners tried unsuccessfully to craft a new deal that would have involved them putting up “several hundred million dollars,” in return for restructuring the loans, according to one real estate executive briefed on the negotiations.

The secondary lenders, he said, had “overplayed their hand” in the hope that they would get back some of their investment. Instead of being forced into bankruptcy, Tishman Speyer and BlackRock will walk away sometime after a new manager is in place.

Fannie Mae and Freddie Mac may be in the best position of anyone involved in the deal’s financing. They acquired over $2 billion in securities backed, in part, by the $3 billion Stuyvesant Town mortgages. Fannie and Freddi Mac have to be paid before any other debtholders, but they are not parties to the negotiations over the property.

They may well become an integral part of the solution. In a report issued Monday, Deutsche Bank suggested that CWCapital’s most likely action will be to wipe out the existing mortgage and attempt to sell the complexes. “Given the size of the properties and an asking price likely to be well in excess of $1 billion, a sale may necessitate Fannie Mae and Freddie Mac providing financing to a potential buyer,” the report said.



  • any imaginary person or thing spoken of as though existing
  • any fictitious story, or unscientific account, theory, belief, etc.
  • Kudos to investigative journalist Kevin Hall with McClatchy Newspapers for inserting himself into the so called “loan modification” process and exposing the farce that is being perpetrated on the American public in the article below. Why is this happening? Pretty simple, two reasons, first the fact is that in almost all cases where you have a mortgage that has been securitized, you the homeowner or you the lawyer representing the homeowner are not dealing with a party that has authority to modify the loan and second they NEED a default. One of the many missions of this site is exposing the truth, hence the name “Livinglies.” The reality is that they, the “pretender lender,” know the debt is unenforceable, the real party in interest is unidentifiable in most cases, and the title to the property has a cloud on it. So what do they REALLY need:

    1. They need new paperwork and they need new signatures on something they can represent as your affirmation of the debt….to THEM… not the party that actually funded your loan who may be damaged by a default or even the party still on the deed or mortgage at the county recorders office. 
    2. They need you to waive any rights and claims you could assert because the “real lender”  or “real party in interest” and/or various parties in the chain of securitization assumed liablity for those claims you could assert as the notes flowed up the chain.
    3. Here’s the biggie, they have insurance in the event of default, they can’t collect on the insurance, credit default swaps, PMI, etc.  in the event of modification.

    Insurers have a habit of including exclusions into policies of all types and credit default insurance policies are not different. Here is a little sample of a PMI exclusion:

    “Notwithstanding any other provision of this Policy, the coverage extended to any Loan by a Certificate of Insurance may be terminated at the Company’s sole discretion, immediately andwithout notice, if, with respect to such Loan, the Insured shall permit or agree to any of thefollowing without prior written consent of the Company: (1) Any material change or modification of the terms of the Loan including, but not limited to, the borrowed amount, interest rate, term or amortization schedule, excepting such modifications as may be specifically provided for in theLoan documents, and permitted without further approval or consent of the Insured.“*

    *Radian Guaranty Master Policy, Condition 4.C, at Master_Policy

    So who is the “insured”? Well, the bondholders who put up the money that was actually used to fund your loan, reality is they are the only other party other than you that has been damaged in this whole mortage meltdown. Every other party between you and them was an intermediary, who made a killing, and had no capital at risk. The truth, there is no incentive or reason to modify your loan. In order to collect on the insurance they need a default, not a modification.

    Why do you think they want you to use the “fax” to resend them your “modification” paperwork for the umpteenth time? So they can “lose” it again. If they allowed you to scan and email it to them or send it Certified Mail Return Receipt Requested you would have evidence that a) they received it b) who received it and c) when they received it. Then all of a sudden you have a timeline, then all of a sudden someone has to be accountable and explain why they received your information 3 months ago and you haven’t heard “boo” since…

    They know that 60% of these “modifications” are back in default within a year so they need to clear the deck to foreclose when that happens. Meantime, with regard to these “trial” modifications, the paperwork I have seen explictly says that the payments will NOT be credited to your loan account but will be placed in a “suspense” account until after the trial modification period is done. Now, if you fail to complete the trial period or when the “trial” period is completed and you did comply, but they tell you they cannot approve your for a modification…who do you spose keeps that money sitting in the suspense account?

    Bottomline folks, even if you are “working with your servicer on a loan modification” you need to consult a competent attorney, don’t wait until the wolf is at the door to start looking for one.

    If you are a competent attorney, practicing in this area and not on our list of “Lawyers that Get It” we want to hear from you.

    Homeowners Often Rejected Under Obama Plan

    By Kevin G. Hall G. Hall | McClatchy Newspapers

    WASHINGTON — Ten months after the Obama administration began pressing lenders to do more to prevent foreclosures, many struggling homeowners are holding up their end of the bargain but still find themselves rejected, and some are even having their homes sold out from under them without notice.

    These borrowers, rich and poor, completed trial modifications of their distressed mortgage, and made all the payments, only to learn, often indirectly, that they won’t get help after all.

    How many is hard to tell. Lenders participating in the administration’s Home Affordable Modification Program, or HAMP, still don’t provide the government with information about who’s rejected and why.

    To date, more than 759,000 trial loan modifications have been started, but just 31,382 have been converted to permanent new loans. That’s averages out to 4 percent, far below the 75 percent conversion rate President Barack Obama has said he seeks.

    In the fine print of the form homeowners fill out to apply for Obama’s program, which lowers monthly payments for three months while the lender decides whether to provide permanent relief, borrowers must waive important notification rights.

    This clause allows banks to reject borrowers without any written notification and move straight to auctioning off their homes without any warning.

    That’s what happened to Evangelina Flores, the owner of a modest 902 square-foot home in Fontana, Calif. She completed a three-month trial modification, and made the last of the agreed upon monthly payments of $1,134.60 on Nov. 1. Her lawyer said that in late November, Central Mortgage Company told her that it would void her adjustable-rate mortgage, which had risen to a monthly sum above $2,000, and replace it with a fixed-rate mortgage.

    “The information they had given us is that she had qualified and that she would be getting her notice of modification in the first week of December,” said George Bosch, the legal administrator for the Law Firm of Edward Lopez  and Rick Gaxiola, which is handling Flores’ case for free.

    Flores, 58, a self-employed child care worker, wired her December payment to Central Mortgage Company on Nov. 30, thinking that her prayers had been answered. A day later, there was a loud, aggressive knock on her door.

    Thinking a relative was playing a prank, she opened her front door to find two strangers handing her an eviction notice.

    “They arrived real demanding, saying that they were the owners,” recalled Flores. “I have high blood pressure, and I felt awful.”

    Court documents show that her house had been sold that very morning to a recently created company, Shark Investments. The men told Flores she had to be out within three days. The eviction notice had a scribbled signature, and under the signature was the name of attorney John Bouzane.

    A representative in his office denied that Bouzane’s law firm was involved in Flores’ eviction, and said the eviction notice was obtained from Bouzane’s Web site, www.fastevictionservice.com.

    Why would a lawyer provide for free a document that gives the impression that his law firm is behind an eviction?

    “We hope to get the eviction business,” said the woman, who didn’t identify herself.

    Flores bought her home in 2006 for $352,000. Records show that it has a current fair-market value of $99,000. The new owner bought it for $78,000 at an auction Flores didn’t even know about.

    “I had my dream, but now I feel awful,” said Flores, who remains in the house while her lawyers fight her eviction. “I still can’t believe it.”

    How could Flores go so quickly from getting government help to having her home owned by Shark Investment? The answer is in the fine print of standard HAMP documents.

    The Aug. 25 cover letter from Central Mortgage Company, the servicer that collects Flores’ mortgage payments, offered Flores a trial modification with this comforting language:

    “If you do not qualify for a loan modification, we will work with you to explore other options available to help you keep your home or ease your transition into a new home.”

    CMC is owned by Arkansas regional Arvest Bank, itself controlled by Jim Walton, the youngest son of Wal-Mart founder Sam Walton.

    A glance past CMC’s hopeful promise finds a different story in the fine print of HAMP document, which contains standardized language drafted by the Obama Treasury Department and is used uniformly by lenders.

    The document warns that foreclosure “may be immediately resumed from the point at which it was suspended if this plan terminates, and no new notice of default, notice of intent to accelerate, notice of acceleration, or similar notice will be necessary to continue the foreclosure action, all rights to such notices being hereby waived to the extent permitted by applicable law.”

    This means that even when a borrower makes all the trial payments, a lender can put the house up for auction if it decides that the homeowner doesn’t qualify — assuming that foreclosure proceedings had been started before the trial period — without telling the homeowner.

    Until now, lenders haven’t even had to notify borrowers in writing that they’d been rejected for permanent modifications.

    In January, 11 months after Obama’s plan was announced, homeowners will begin receiving written rejection notices, and the Treasury Department finally will begin receiving data on rejection rates and reasons for rejections.

    The controversial clause notwithstanding, the handling of Flores’ loan raises questions.

    “Foreclosure actions may not be initiated or restarted until the borrower has failed the trial period and the borrower has been considered and found ineligible for other available foreclosure prevention options,” said Meg Reilly, a Treasury spokeswoman. “Servicers who continue with foreclosure sales are considered non-compliant.”

    CMC officials declined to comment and hung up when they learned that a reporter was listening in with permission from Flores’ legal team. Arvest officials also declined comment.

    McClatchy did hear from Freddie Mac, the mortgage finance agency seized by the Bush administration in September 2008. Freddie owns Flores’ loan, and spokesman Brad German insisted that Flores was reviewed three times for loan modification.

    “In each instance, there was a lack of documentation verifying that she had the income required for a permanent modification,” German said.

    That response is ironic, said Michael Calhoun, the president of the Center for Responsible Lending, a nonpartisan group in Durham, N.C., that works on behalf of borrowers.

    “These lenders gave loans with no documentation and charged them a penalty interest rate for doing so. And now when the people ask for help, they are using extravagant demands for documentation to give them the back of their hand and continue to foreclosure,” Calhoun said.

    German said that Flores was sent a letter on Nov. 24, which would have arrived several days later, given the Thanksgiving holiday, informing her that she’d been rejected for a permanent modification. Flores and her attorney said she never got a letter, and neither Freddie Mac nor CMC provided proof of that letter.

    Exactly one week after the letter supposedly was sent, Flores’ home was sold to Shark Investments. That company was formed on Aug. 19, according to records on the California Secretary of State’s Web site. Shark Investments, apparently an unsuspecting beneficiary of Flores’ woes, has no phone listing. The Riverside, Calif., address on the company’s filing as a limited liability company traces to a five-bedroom, four-bath house with a swimming pool.

    German didn’t comment on whether Flores received sufficient notice under Freddie Mac rules, or how the home could move to sale so quickly.

    Flores’ legal team, which specializes in foreclosure prevention, thinks that lenders and servicers are gaming Obama’s housing effort.

    “It seems servicers are giving people false hopes by sending them a plan, and they are using the program as a collection method, getting people to pay them with no intention of modifying the loan,” said Bosch. “I believe they are using this as a tool to suck people dry.”

    Dashed hopes aren’t exclusive to the working poor such as Flores.

    David Smith owns a beautiful home in San Clemente, Calif., the location of the Richard Nixon Presidential Library. Smith purchased his five bedroom home four years ago for $1.3 million. Today, the real estate Web site Zillow.com estimates the value of Smith’s home at $981,000, slightly below the $1 million he still owes on it.

    Smith said he went from “making a lot of money to making hardly any” as the national and California economies plunged into deep recession. He’s a salesman serving the hard-hit residential and commercial construction sector. On top of his hardship, Smith’s mortgage exceeds the limits for the HAMP plan.

    In late August, Smith signed and returned paperwork in a prepaid FedEx envelope to Bank of America that said it had received the contract needed to modify the adjustable-rate mortgage he originally took out with the disgraced lender Countrywide Financial, which Bank of America bought last year.

    The modification agreement shows that Bank of America agreed to give Smith a 3.375 percent mortgage rate through September 2014, and everything Smith paid between now and through 2019 would count as paying off interest. He’d begin paying principal and interest in October 2019, with the loan maturing in 2037.

    The deal favors the lender, but Smith, 55, jumped on it because it kept him in the home.

    Armed with what he thought was “a permanent modification,” Smith returned a notarized copy of the agreement and made subsequent payments on time.

    In return, he got a surprising notice from Bank of America saying that his house would be auctioned off on Dec. 18.

    “It looks like they’re trying to sell this out from underneath me,” Smith said. “My wife cries all the time.”

    After a Dec. 16 call from McClatchy asking why Bank of America wasn’t honoring its own modification, the lender backed off.

    “The case has been returned to a workout status and a Home Retention Division associate will be contacting Mr. Smith for further discussions,” said Rick Simon, a Bank of America spokesman. “The scheduled foreclosure sale will be postponed for at least 30 days to allow for review of the account in hope of completing a home retention solution for Mr. Smith.”

    The Center for Responsible Lending says such problems are common.

    “Everyone acknowledges that the system is not working well,” Calhoun said.

    House Fails on Cramdown in Chap 13

    The outlook is bleak in terms of government providing for the common welfare and common defense. We have a coup d’etat that is a fait accomplit. The job is finished. Wall Street and the insurance companies are running the country. So it is up to us to go with the flow and have them wondering about the old saying “Be careful what you wish for.” If they want to run the country they will find they can’t just run PART of it. This is not a pick and choose situation.

    If the country is being run for the benefit of the powerful financial sectors and other businesses too big to fail, they are going to find themselves in the same position that every government encounters — disatisfied people who start taking matters into their own hands. If we are going to ignore the protections contained in the constitution and the ideals stated in the Declaration of Independence, then anyone can.

    Law enforcement has already shown a willingness to stop serving foreclosure papers. Everyone knows this is wrong. The Titans, who didn’t even show up at Obama’s meeting (again) believe in their arrogance that they can continue their reign of domestic terror forever.

    As a student of history and in particular Mr. Jefferson, I personally am quite satisfied that government or the exercise of governmental power ONLY exists by virtue of the collective consent of the governed. The time comes (it always does) when internal and external forces converge on these newly annointed autocrats, and dislodge them from their positions.

    This country was created to provide multiple vehicles to allow those transitions to occur without violence, chaos and extremism. As each one of these paths is shut down, the autocrats risk more than their power and privilege.

    It seems that despite the fact that we have a Democratic controlled House and Senate, we have further proof that as Sen. Dick Durbin (D-IL) has said “the banks own the place.” The Bankruptcy courts despite not being given the “cramdown tool” in Chap 13 have continued to produce some of the better rulings by simply enforcing black letter property law, particularly with regard to an identifiable real party in interest being joined to foreclosure proceedings. Here again we have further evidence that answers to the foreclosure problem are not going to come from the Legislative or Executive branches of government. The battle will be waged in the courtroom.

    Eric Holder, US Attorney General recently said before the Senate Judiciary Committee, “When I appeared before this committee in January for my confirmation hearing, I laid out several goals for my time as Attorney General: to protect the security of the American people, restore the integrity of the Department of Justice, reinvigorate the Department’s traditional mission, and most of all, to make decisions based on the facts and the law, with no regard for politics.”

    Well perhaps Mr. Holder can take a sabbatical from worrying about due process for Guantanamo detainees and spend a little time addressing the absence of due process that homeowners are experiencing, paricularly in non-judicial venues like California, Arizona and Nevada. The objective of non-judicial foreclosure was judicial economy, it was not meant to be an avenue to do an “end around” due process.

    There is no greater security than HOME for most people. The greatest injustice or illegal seizure of property is still occuring in states that allow non-judicial foreclosure. When combined with the shortage of competent legal representation for homeowners in both judicial and non-judicial states not to mention the cost of obtaining any kind of represenation has resulted in thousands of Pro Se litigants having to fend for themselves.

    WASHINGTON (AP) — The House has rejected an effort to expand a Wall Street regulation bill with mortgage relief that would let debt-ridden homeowners reduce their payments in bankruptcy court. The vote was 241-188 to reject.

    The provision would have revived a previous bill that passed the House but later failed in the Senate. Democrats hoped that by inserting the provision in the regulatory legislation they would have had another opportunity to make it law. Aiding homeowners through bankruptcy had been a key feature of President Barack Obama’s foreclosure fighting proposal, but the president did not push for it.

    Banks and credit unions have lobbied against the bankruptcy measure. They say it would force a flood of bankruptcy filings and ultimately drive up mortgage rates.

    Miami Auctions Aims at Insider Deals

    Ken McLeod has the figures on this, having done detailed statistical analysis, and capable of testifying as an expert on the usual outcome of these sales. The important point being “why would the “bank” let the property go for 60% of distressed market price — even to an insider?” Answer: because it is all a game to them. The money is free. They don’t have one dime invested, they have already been paid their fees and now that they have the house too they get to share in the spoils. Talk about situational versus sustainable ethics!
    Every Auction should be conducted like this. It would at least take some of the greedy momentum out of this market.
    November 26, 2009

    Miami-Dade Hopes Online Auctions Will Help Reduce Backlog of Foreclosures

    MIAMI — Buying into Miami’s foreclosure glut will soon be a whole lot easier.

    Seeking ultimately to eliminate a record backlog and a system that favors insiders, Miami-Dade County announced plans on Wednesday to use online auctions for the thousands of delinquent properties that have made South Florida a center of the recession.

    Miamidade.realforeclose.com, the Web site, will become fully operational on Dec. 7, making Miami-Dade the largest of 12 Florida counties in the process of replacing courthouse auctions with online sales.

    County officials here expect the number of properties sold, now about 450 a week, to triple, slowing the growth of an inventory of 110,000 foreclosures. “The goal is to make it more convenient for people to bid and to research properties,” said Harvey Ruvin, the clerk of courts. “It kind of levels the playing field.”

    The online system would end, or at least make digital, what many officials describe as a process steeped in speculation, trickery and, occasionally, physical conflict.

    For centuries, property auctions by government have been in-person affairs; the laws of many states require that they take place “on the courthouse steps.” And in Miami, with 7,000 properties entering foreclosure each month, that has often meant that auctions were held in small, dank rooms where a handful of investors or their employees would jockey for properties.

    Sometimes, the investors — typically dressed in T-shirts and jeans to suggest the absence of wealth — were accused of working together to keep prices low. In other cases, they would compete intensely. In Miami and elsewhere in Florida, scuffles have broken out as one investor tried to block another, or tried to sell a property at a higher price than he paid minutes earlier.

    Mr. Ruvin said that he installed cameras and a full-time police officer a few years ago to keep things under control.

    He said he looked forward to making the system computer-based, so bidders would make offers from home. “My approach is to serve more and more people online instead of in line,” he said.

    A change in state law last year, allowing sale by “electronic means,” has made it possible. And in the eight Florida counties that already have online foreclosure auctions up and running — including other areas hard-hit by the real estate predicament, like Lee County — more potential buyers have become involved.

    Lloyd McClendon, the chief executive of RealAuction.com, which has contracts to run the county auctions across Florida, said nearly 11,000 bidders had registered, including at least one person from New Zealand.

    “It opens it up to a wider audience, and really the sale prices are more in line with what they should be,” Mr. McClendon said. “Before, these bidders would do deals among themselves. This is fairer to all who are involved.”

    While We Were Sleeping, Idaho Took the Lead: In re Sheridan — Real Party Must Have Actual Pecuniary Interest



    “The real party in interest in relief from stay is whoever is entitled to enforce the obligation sought to be enforced. Even if a servicer or agent has authority to bring the motion on behalf of the holder, it is the holder, rather than the servicer, which must be the moving party, and so identified in the papers and in the electronic docketing done by the moving party’s counsel.”

    For 2 years I have been saying “stick with the basics.” Black Letter Law will set you free. But time and again attorneys, pro se litigants and judges go astray and find themselves in never never land. Most attorneys and Judges take preliminary motions with a grain of salt. Virtually all foreclosures would be eliminated if lawyers and judges paid attention to the very beginning of the case. Gator Bradshaw in Florida delivers a nice piece at our seminar on motion practice.


    Your job is to immediately focus the Judge’s attention on the fatal defects presnted by the actions of the intermediaries in the securitization process and more specifically, whoever is attempting to foreclose. By failing to challenge this at the outset you have effectively waived the issue and now face an uphill battle. This case reported below shows that a mere objection from the Trustee in BKR caused the entire claim of the forecloser to completely collapse.

    7 months ago, before any of the landmark decisions reported on these pages,  Federal Bankruptcy Judge Myers in Idaho was presented with an objection from the Trustee to  Motion for Relief From stay.  Full pdf version at Sheridan_decision Idaho BKR J Myers

    That the Trustee took up the cause is reason enough to note this case. What the Court did with it, in an articulate, well-reasoned memorandum of decision, is nothing short of startling in its clarity. One by one, this Judge takes down the arguments and tactics of the intermediaries in the securitization chain and basically says that none of them has a right to make a claim.

    In short, just as in these pages, the Judge doesn’t say say who CAN assert and enforce the claim, he just says that none of these nominees, intermediaries, conduits, bookeepers, servicers, MERS, or pretender lenders has any pecuniary interest in the outcome and therefore they lack standing to be in court. On jurisdictional grounds, therefore, the case is closed and these interlopers are thrown out of court. Will the REAL Lender please stand up? Maybe, maybe not. 

    The Judge points out that  “The Motion further alleges that Debtors were indebted at filing “to Movant” and that the debt arose out of a promissory note and a deed of trust dated September 20, 2006 “naming Movant as beneficiary.”

    Judge Myers calmly and correctly points out that this was a total lie. When pressed the attorney acknowledged that the movant was not owed any money and that MERS was merely an agent for an undisclosed principal for an undisclosed purpose acting purportedly for the real party in interest. But the Judge says quite clearly and correctly that the rules require the real party in interest to be the movant.

    This Judge also addresses the issue of burden of proof, a sticking point for many readers of this blog. He states that the burden is on the movant to prove standing, not on the homeowner or petitioner to prove lack of of standing. In fact, pointing to the rules again, he says that the pleading must  “[p]rovide the details of the underlying obligation or liability upon which the motion is based;” In a stroke of his pen, this Judge ends the issue over who has the burden of proof and even provides grounds BEFORE DISCOVERY for dumping fraudsters out of court. They must plead the allegations, and they must attach documentation that shows their pleadings are true and correct. This Judge is telling fraudsters to stop coming to court with attorney affidavits that are not evidence (see his memorandum) and to stop submitting affidavits, notes, revisions to notes, late indorsements, assingments that don’t match up with the pleadings or the requirements of pleading.









    IN RE )

    ) Case No. 08-20381-TLM



    ) Chapter 7

    Debtors. )

    ________________________________ )





    In this Chapter 7 case, the trustee, Ford Elsaesser (“Trustee”), objects to a

    motion under § 362(d) for relief from the § 362(a) automatic stay.

    § 362(d) are common in bankruptcy cases.

    promptly to entry of an order, after proper notice, without any objection.

    1 Motions under2 Most stay relief requests proceed3


    However, changes in mortgage practices over the past several years have

    created a number of new issues. The one highlighted in this case is the standing of



    & Kronz

    (Bankr. D. Idaho 2008). Debtors indicated in their § 521 statement of intention that they would


    There was no objection, and the exemption was therefore allowed.

    Taylor v. Freeland, 503 U.S. 638, 643-44 (1992); Rainsdon v. Farson (In re Farson), 387 B.R. 784, 797



    the moving creditor. Serial assignments of the mortgagee’s interest(s) and the

    securitization of mortgages have complicated what was previously a generally

    straight-forward standing analysis. Though many creditors provide in their

    motions adequate explanation and documentation of their standing to seek relief

    on real estate secured debts, Trustee challenges the adequacy of the subject motion

    in this case.

    Following hearing and consideration of the arguments of the parties, the

    Court determines that Trustee’s objection is well taken and the same will be

    sustained. The motion for stay relief will be denied.




    On June 24, 2008, Darrell and Sherry Ann Sheridan (“Debtors”) filed their

    joint chapter 7 bankruptcy petition, schedules and statements. They scheduled a

    fee ownership interest in a residence located in Post Falls, Idaho.

    at sched. A (the “Property”). Debtors asserted the Property’s value was


    Servicing” ($197,000.00) and “Citimortgage” ($34,000.00).

    While this left no apparent equity in the Property, Debtors nevertheless claimed

    the benefit of an Idaho homestead exemption.

    See Doc. No. 1Id. They indicated secured claims existed in favor of “Litton LoanId. at sched. D.Id. at sched. C.4



    reaffirm the secured debts on the Property.




    Property as a scheduled but not administered asset,


    Closing of the case as a no asset chapter 7 would constitute an abandonment of the

    see § 554(c), and the automatic stay wouldsee § 362(c)(1).



    to by others and in the case law, as “MERS.”

    Mortgage Electronic Registration Systems, Inc. refers to itself, and is generally referred



    The § 341(a) meeting of creditors occurred on July 31, 2008. Debtors

    received a discharge on October 3, 2008. While the case was noticed to creditors

    as a “no asset” chapter 7, and though Trustee concedes there will be no anticipated

    distribution to creditors, Trustee has not yet filed his final report of no distribution

    which would allow the case to close.



    On October 16, 2008, the subject motion for relief from stay was filed.



    Doc. No. 21 (the “Motion”). It was filed by “Mortgage Electronic Registration

    Systems, Inc. as nominee HSBC Bank USA, National Association, as Indenture

    Trustee of the Fieldstone Mortgage Investment Trust Series 2006-3.”



    Movant” and that the debt arose out of a promissory note and a deed of trust dated

    September 20, 2006 “naming Movant as beneficiary.”

    Id. at 1 (the6 The Movant characterized itself as a “secured creditor andId. The Motion further alleges that Debtors were indebted at filing “toId.


    Attached to the Motion is a promissory note (the “Note”) executed by

    Debtors. It is payable to “Fieldstone Mortgage Company” as the “Lender.”




    by stipulation of the parties, as “Exhibit 1.”

    The documents attached to the Motion were admitted into evidence at the final hearing,



    evidentiary hearing is a result of the presence of material, disputed facts, which under Fed. R.

    Bankr. P. 9014(d) requires testimony in the same manner as in an adversary proceeding.

    A “final hearing” is contemplated under § 362(d) and (e). That it would be an



    Ex. 1.

    Lender or anyone who takes this Note by transfer and who is entitled to receive

    payments . . . is called the Note Holder.”

    The Note is secured by a deed of trust dated September 20, 2006 and

    recorded in the real property records of Kootenai County, Idaho, on September 22,

    2006 (the “Deed of Trust”). The Deed of Trust at paragraph (C) identifies and

    defines the “Lender” as “Fieldstone Mortgage Company, a Maryland corporation.”

    Paragraph (E) of the Deed of Trust recites:

    MERS is a separate corporation that is acting solely as nominee for

    Lender and Lender’s successors and assigns. MERS is the beneficiary

    under this Security Instrument.

    Ex. 1.

    Trustee objected to the Motion, contending that the Movant failed to

    establish its interest in the Property or its standing to seek stay relief. Doc. No. 23.

    At a preliminary hearing on November 4, 2008, the parties requested a final

    hearing because the question of standing remained unresolved.

    was held on December 16, 2008, at which Trustee and counsel for Movant made

    argument, but no evidence was presented other than the documents that, as noted

    7 A portion of the Note states: “I understand Lender may transfer this Note.8 A final hearing



    The Code establishes time frames for preliminary hearing, final hearing and ruling.



    § 362(e)(2), the stay generally “shall terminate on the date that is 60 days after a request is made

    by a party in interest” if the case is one under chapters 7, 11 or 13 and the debtor is an individual.

    However, that period may be extended by either agreement of the parties or by the Court for good


    December 16, 2008, about the 60th day after the request. This delay was by or with concurrence

    of the parties. The Court concludes that additional delay to the date of this Decision was required

    to address the contentions of the parties.

    § 362(e)(1), (2). In this case, the Motion was originally filed October 16, 2008. Under

    See § 362(e)(2)(B). Here, the scheduling of the hearings resulted in a final hearing on



    equity in such property coupled with a lack of necessity of such property for an effective


    light of the fact that this is a chapter 7 liquidation, the Property is not required for reorganization.

    Another ground for stay relief with respect to acts against property is an absence of

    See § 362(d)(2). The Motion indicated a lack of equity in the Property and, in



    above, were admitted by agreement.




    A. Stay relief requires a motion by a party in interest with standing


    The Bankruptcy Code, Bankruptcy Rules and this District’s local rules

    govern stay relief requests.

    Under the Code, relief from the § 362(a) stay is authorized “[o]n request of



    made by a “party in interest.”) One ground for stay relief is “cause, including the

    lack of adequate protection of an interest in property

    § 362(d)(1) (emphasis added). The Motion here alleged “cause” based on

    delinquent payments,

    though no specific citations to § 362(d)(1) are made.

    party in interest and after notice and a hearing, . . . .” See § 362(d) (emphasisSee also § 362(e)(1) and (2), § 362(f), § 362(j) (all referring to requestsof such party in interest[.]”see Doc. No. 21 at 2, thus implicating § 362(d)(1) even10



    The Rules require that a stay relief request be made by a motion.

    R. Bankr. P. 9013 (“A request for an order, except when an application is

    authorized by these rules, shall be by written

    hearing.”) (emphasis added); Fed. R. Bankr. P. 4001(a)(1) (“A

    from an automatic stay provided by the Code . . . shall be made in accordance with

    Rule 9014[.]”) (emphasis added).

    In addition to the Bankruptcy Rules, this District’s local rules require,


    – the request shall be made by a “party in interest” and by “motion;”

    – the motion shall “[p]rovide the details of the underlying obligation or

    liability upon which the motion is based;” and

    – the motion shall have attached “accurate and legible copies of all

    documents evidencing the obligation and the basis of perfection of

    any lien or security interest[.]”

    LBR 4001.2(a), (b)(2), and (b)(5).

    See Fed.motion, unless made during amotion for reliefinter, that:


    1. Party in interest, and standing


    While the term “party in interest” is not defined by the Code, this Court has

    held that such a party must have a “pecuniary interest” in the outcome of the

    dispute before the Court.

    D. Idaho Aug. 28, 2007) (citing

    4705220 (Bankr. D. Idaho 2005), and


    D. Idaho 2003)).

    18 (9th Cir. BAP 2007) (noting that a “party in interest” may be one who has an

    actual pecuniary interest in the case, one who has a practical stake in the outcome

    of the case, or one who will be impacted in any significant way in the case).

    See In re Simplot, 2007 WL 2479664 at *9 n.45 (Bankr.In re Elias, 05.2 I.B.C.R. 41, 42, 2005 WLIn re Stone, 03.2 I.B.C.R. 134, 135 (Bankr.See also Brown v. Sobczak (In re Sobczak), 369 B.R. 512, 517-



    The question there was whether the J. R. Simplot Company, which was not a

    creditor with a claim against the debtor or estate, “had sufficient party in interest

    standing to be heard[.]” 2007 WL 2479664 at *9. This Court stated:

    not only defined party in interest, it addressed “standing” issues.


    Hasso v. Mozsgai (In re La Sierra Fin. Servs.)

    BAP 2002), explained that the doctrine of standing encompasses both

    constitutional limitations on federal court jurisdiction (

    controversy requirements of Article III), and prudential limitations on

    the court’s exercise of that jurisdiction. Constitutional standing

    requires an injury in fact,

    interest. 290 B.R. at 726-27. Prudential standing requires that the

    party’s assertions fall within the zone of interests protected by the

    statute and, further, requires that the litigant assert only its own rights

    and not those of another party.

    U.S. 154, 162, 167-68 (1997). The party asserting standing exists has

    the burden of proving it.

    the cases as principles applicable to standing on appeal, the same

    propositions apply to a party at the bankruptcy court level.

    , 290 B.R. 718 (9th Cir.

    i.e., the case orviz. an invasion of a judicially cognizableId. at 727 (citing Bennett v. Spear, 520Id. at 726. Though sometimes articulated in



    not assert . . . objections that relate solely to others, or that go to issues that do not

    directly and adversely affect them pecuniarily.”

    omitted). These same standing requirements were recently highlighted in a stay

    relief context by the court in


    *5-6 (Bankr. W.D. Wash. Mar. 6, 2009).

    (footnote citations omitted). In

    Simplot, the Court concluded that “parties mayId. at *10 (footnote citationsIn re Jacobson, ___ B.R. ___, 2009 WL 567188 at


    2. Real party in interest


    Under Rule 9014, which by virtue of Rule 4001(a)(1) governs stay relief

    requests, certain “Part VII” rules are applicable.

    incorporated rules is Rule 7017, which in turn incorporates Fed. R. Civ. P. 17, and

    Rule 17(a)(1) provides that “An action must be prosecuted in the name of the real

    party in interest.”

    See Rule 9014(c). Among those



    holder of the note, “neither asserts beneficial interest in the note, nor that it could

    enforce the note in its own right.” 2009 WL 567188 at *4. It concluded that Fed.

    R. Civ. P. 17 applied, requiring the stay relief motion to be brought in the name of

    the real party in interest.

    Cal. 2008));

    notes that its moving party, who claimed to be a servicer for the

    Id. (citing In re Hwang, 396 B.R. 757, 767 (Bankr. C.D.see also In re Vargas, 396 B.R. 511, 521 (Bankr. C.D. Cal. 2008). As



    The real party in interest in relief from stay is whoever is entitled to

    enforce the obligation sought to be enforced. Even if a servicer or

    agent has authority to bring the motion on behalf of the holder, it is the

    holder, rather than the servicer, which must be the moving party, and

    so identified in the papers and in the electronic docketing done by the

    moving party’s counsel.





    The upshot of these several provisions of the Code, Rules, local rules and

    case law is this: to obtain stay relief, a motion must be brought by a party in

    interest, with standing. This means the motion must be brought by one who has a



    Cir. 2008) does not require a different conclusion.

    did not violate the automatic stay by seeking to foreclose on the debtors’ property after the

    bankruptcy court granted the loan servicer’s (Washington Mutual) § 362(d) motion.

    62. Although Wachovia did not join in the motion or separately seek stay relief, the court held

    that the order entered “as to Washington Mutual” was effective as to Wachovia.

    Notably, however, the Reussers never challenged Washington Mutual’s standing in bankruptcy

    court; instead, they launched that attack in a subsequently filed district court action.

    62. The Ninth Circuit held that “a final order lifting an automatic stay is binding as to the

    property or interest in question—the res—and its scope is not limited to the particular parties

    before the court.”

    standing and, of course, no final order has been entered.

    The Ninth Circuit’s recent decision in

    Reusser v. Wachovia Bank, 525 F.3d 855 (9thReusser held that a lender, Wachovia Bank,Id. at 861-Id. at 857, 861.Id. at 861-Id. at 861. The difference here is that Trustee has timely objected to Movant’s



    pecuniary interest in the case and, in connection with secured debts, by the entity

    that is entitled to payment from the debtor and to enforce security for such

    payment. That entity is the real party in interest. It must bring the motion or, if

    the motion is filed by a servicer or nominee or other agent with claimed authority

    to bring the motion, the motion must identify and be prosecuted in the name of the

    real party in interest.



    B. The present Motion


    Under the documents attached to the Motion and later admitted at hearing

    as Ex. 1, Fieldstone Mortgage Company, a Maryland corporation, would certainly

    appear to be a party in interest and have standing. It has an economic interest

    according to the Note attached to the Motion and an interest in Debtors’ Property

    according to the Deed of Trust that is also attached.

    However, the Motion was not brought by Fieldstone Mortgage Company.



    “the person named or otherwise designated in a trust deed as

    deed is given, or his successor in interest, and who shall not be the trustee.” Idaho Code § 45-

    1502(3) defines trust deed as “a deed executed in conformity with this act and conveying real

    property to a trustee in trust

    person named in the deed

    Idaho Code § 45-1502(1) defines beneficiary for purposes of the trust deed statute as

    the person for whose benefit a trustto secure the performance of an obligation of the grantor or otherto a beneficiary.” Id. (emphasis added).




    1. MERS as “nominee” or “beneficiary”


    Counsel for Movant argues that MERS, given its titular designation of

    “beneficiary” under the Deed of Trust, is or should be able to prosecute the

    Motion under the Code, Rules and Local Rules. Counsel conceded, however, that

    MERS is not an economic “beneficiary” under the Deed of Trust. It is owed and

    will collect no money from Debtors under the Note, nor will it realize the value of

    the Property through foreclosure of the Deed of Trust in the event the Note is not




    Further, the Deed of Trust’s designation of MERS as “beneficiary” is

    coupled with an explanation that “MERS is . . . acting

    Lender and Lender’s successors and assigns.” Ex. 1 (emphasis added). Movant’s

    briefing suggests that a “nominee” is synonymous with an “agent.”

    26 at 2.

    The Motion was filed by MERS “as nominee [for] HSBC Bank USA,

    National Association, as Indenture Trustee of the Fieldstone Mortgage Investment

    Trust Series 2006-3.” Even assuming that MERS as a “nominee” had sufficient

    rights and ability as an agent to advance its principal’s stay relief request, there

    solely as nominee forSee Doc. No.



    evident consistency. The Motion commenced as follows:

    “COMES NOW Mortgage Electronic Registration Systems, Inc. as nominee

    HSBC Bank USA, National Association, as Indenture Trustee of the Fieldstone

    Mortgage Investment Trust Series 2006-3, a secured creditor and Claimant

    herein, and moves the Court for its Order granting relief from the automatic


    Thus, the “Claimant” and evidently the “Movant” (

    moves”) are one and the same, and this entity also purports to be a “secured creditor.” Since

    MERS is acting as nominee, the Claimant/Movant and secured creditor appears by these

    allegations to be HSBC Bank USA (in its role as indenture trustee for others). The Motion

    continues by asserting that “Debtor was on the date of filing the petition herein,


    Movant as beneficiary

    Bank USA or the Fieldstone Mortgage Investment Trust as its beneficiary. Nor is there

    explanation of how Debtors came to owe HSBC Bank USA.

    The Motion uses several terms (Movant, Claimant, Petitioner) without definition or

    i.e., the party who “COMES NOW . . . andindebted toarising out of [the Note] and a Deed of Trust dated September 20, 2006, naming.” Contrary to these assertions, the Deed of Trust does not name HSBC




    This language appears in the Deed of Trust only. There is no mention of MERS in the



    remains an insuperable problem. The Motion provides no explanation, much less

    documentation or other evidence, to show that the Fieldstone Mortgage

    Investment Trust Series 2006-3 (as an entity) or HSBC Bank USA (as that entity’s

    “indenture trustee”) has any interest in the subject Note or the subject Deed of




    In light of Trustee’s objection on this score, Movant argues that MERS’

    role as “nominee for Lender [

    successors and assigns” gives it ample authority to assert the stay relief request

    under the Deed of Trust for whatever successor in interest or assignee might have

    the beneficial interest.

    i.e., Fieldstone Mortgage Company] and Lender’s14 Even if the proposition is accepted that the Deed of Trust



    assignments resulting in the movant becoming the holder of the note.

    B.R. 259, 269 (Bankr. D. Mass. 2008) (“The Court and the Debtor are entitled to insist that the

    moving party establish its standing in a motion for relief from stay through the submission of an

    accurate history of the chain of ownership of the mortgage.”);

    (Bankr. D. Mass. 2007) (“‘If the claimant acquired the note and mortgage from the original lender

    or from another party who acquired it from the original lender, the claimant can meet its burden

    through evidence that traces the loan from the original lender to the claimant.’”) (quoting

    Some courts have indicated that the stay relief request should explain the serial

    See, e.g., In re Hayes, 393In re Maisel, 378 B.R. 19, 22In re





    provisions give MERS the ability to act as an agent (“nominee”) for another, it

    acts not on its own account. Its capacity is representative.


    2. Documentation


    This District’s Local Bankruptcy Rule 4001.2 requires copies of “all

    documents evidencing the obligation and the basis of perfection of any lien or

    security interest.” The sole documentation provided with the Motion here

    evidences the interests in the Note and Deed of Trust held by Fieldstone Mortgage

    Company, a Maryland corporation. This submission does not answer the key

    question — Who was the holder of the Note at the time of the Motion?

    Several movants for stay relief have argued that the holder of a note secured

    by a deed of trust obtains the benefit of the deed of trust even in the absence of an

    assignment of the deed of trust, on the theory that the security for the debt follows

    the debt. Under this theory, it would appear that when bankruptcy intervenes, and

    somewhat like a game of Musical Chairs, the then-current holder of the note is the

    only creditor with a pecuniary interest and standing sufficient to pursue payment

    and relief from stay.







    “need not here go so far” as to require such tracing, because of the paucity of proof presented in

    that case. 2009 WL 567188 at *6. The same is true here. Movant’s proof does not even show

    who presently holds the Note. That alone provides sufficient basis to deny the Motion.

    , 326 B.R. 708, 720 (Bankr. N.D. Ohio 2005)). The court in

    Jacobson decided that it



    The Motion here certainly suggests that the Fieldstone Mortgage

    Investment Trust Series 2006-3 (or perhaps HSBC Bank USA in its capacity as

    indenture trustee for that trust) was the holder of the note on the June 24, 2008,

    petition date. But at the time of the final § 362(e) evidentiary hearing herein, the

    parties discussed and Movant ultimately conceded that (I) the Note contained

    nothing indicating its transfer by Fieldstone Mortgage Company, (ii) the Motion

    was devoid of allegations regarding the details of any such transfer, and (iii) the

    record lacked any other documents related to the issue.


    3. The supplemental affidavit


    Subsequent to the closing of the hearing and after the Court took the

    dispute under advisement, Movant filed a “supplemental affidavit” of its counsel.



    counsel obtained on such date the “original” Note and that the same contains an

    indorsement. Counsel states that his “affidavit is presented to supplement the

    record herein and for the Court’s consideration in the pending motion[.]”

    The filing and consideration of this supplemental affidavit are improper for

    several reasons.

    Doc. No. 28 (filed January 2, 2009). This affidavit alleges that Movant’s

    Id. at 2.




    Accord Jacobson, 2009 WL 567188 at *6-8 (discussing inadequacies of evidentiary



    First, the record was closed, and the Court did not authorize the reopening

    of that record, nor did it indicate any post-hearing submissions would be accepted.

    Second, Trustee did not have the opportunity to address this “newly

    obtained” document at hearing, and nothing shows his consent to the

    post hoc

    supplementation of the evidentiary record.

    Third, disputed factual issues in contested matters may not be resolved

    through testimony in “affidavits” but rather require testimony in open court.


    Fed. R. Bankr. P. 9014(d). Under the circumstances, the identity of the holder of

    the Note certainly appears to be a fact in dispute falling within the ambit of this


    Fourth, the affidavit is insufficient to establish that counsel, as affiant, has

    the ability to testify regarding or lay the foundation required to admit the


    594-95 (Bankr. D. Idaho 2000).

    the “original” appears to be based not on the affiant’s (counsel’s) personal

    knowledge but on the assertions of someone else.

    Fifth, the proffer of this “new” note as the “original” note directly

    contradicts Movant’s prior representations that the Note attached to the Motion

    See Esposito v. Noyes (In re Lake Country Invs., LLC), 255 B.R. 588,16 The assertion that the newly possessed note is


    payable to the bearer and may be negotiated by transfer of possession alone until specially

    indorsed.”); § 28-3-301 (providing that the holder of the instrument may enforce it). These

    provisions make identification of the current holder significant.

    See generally Idaho Code § 28-3-205(2) (“When indorsed in blank, an instrument is


    was “true and correct” and the operative document in this matter.

    at 1.

    Sixth, even were it considered, the “new” Note’s asserted indorsement

    states: “Pay To The Order Of [

    signed by Fieldstone Mortgage Company through a named assistant vice

    president. There is no date nor indication of who was or is the transferee.

    Fieldstone Mortgage Company may have indorsed the Note in blank, but this

    document does not alone establish that either HSBC Bank USA or Fieldstone

    Mortgage Investment Trust is the Note’s holder.

    See Doc. No. 21blank] Without Recourse” and then purports to be17

    Thus, even if a “nominee” such as MERS could properly bring a motion for

    stay relief in the name of and on behalf of the real party in interest – the entity that

    has rights in and pecuniary interest under the Note secured by the Deed of Trust –

    nothing of record adequately establishes who that entity actually is. Under the

    evidence submitted at the § 362(e) final hearing, which consists solely of Exhibit

    1, the only entity that MERS could conceivably represent as an agent/nominee

    would be Fieldstone Mortgage Company. But MERS does not represent that party

    according to the Motion and, in fact, its contentions are to the effect that


    2006) is misplaced.

    nominee, had standing to seek stay relief.

    continued to hold the note, and the mortgage had not been transferred.

    For this reason, Movant’s reliance on

    In re Huggins, 357 B.R. 180 (Bankr. D. Mass.Huggins held that MERS, which was named in a mortgage as the lender’sId. at 184-85. But in Huggins, the original lenderId. at 182, 184.


    presentation constitutes a certification that there has been an “inquiry reasonable under the

    circumstances” and that factual allegations made “have evidentiary support or, if specifically so

    identified, are likely to have evidentiary support after a reasonable opportunity for further

    investigation or discovery”). Trustee here was clear, though, that he asserted no Rule 9011

    claims against Movant or its counsel.

    See Fed. R. Bankr. P. 9011(b) (providing inter alia that a motion’s filing or other


    Fieldstone Mortgage Company is no longer a party in interest.


    At the time of that final hearing, counsel for Movant conceded that he had

    no documentation provided to him by his “client” which indicated the interests

    under the Note or Deed of Trust were held by either HSBC Bank USA or the

    Fieldstone Mortgage Investment Trust. Counsel filed the Motion and

    characterized the Movant’s identity therein based solely on undocumented

    representations made to him. This would appear to be a problematic approach


    matter at issue and Movant to its proof.

    19 And, in this particular case, Trustee’s objection to the Motion put the


    When Trustee challenged the Motion’s bare assertions, Movant failed to

    provide an adequate record showing it was a party in interest with standing

    entitled to seek such relief. On the record presented, the Court finds and

    concludes Trustee’s objection is well taken. That objection will be sustained. The

    Motion will be denied. The Trustee will provide a form of order for the Court’s


    review and entry.

    DATED: March 12, 2009




    The Elephant in the Room – Well One of Many…

    By Brad Keiser

    For those of you who have been to our seminars, (coming to Southern California next month) You have heard me ask about Hank Paulson and Ben Bernanke…”Are they stupid or were they lying when they said everything was OK through out all of 2007 and most of 2008?” You have seen and heard why Neil and I declare we are of the belief that there is simply “not enough money in the world to solve this problem.”

    Fannie Mae’s (FNM) 8k has an interesting slide of their questionable assets in the supplement. It can be found below along with the complete 2009 Second Quarter filing. The report describes FNM’s exposure to problematic classes of mortgages on their book. That total comes to almost $1 Trillion. (that’s with a “T”) The total book of business is about $2.7 Trillion, at least 30% and more likely as high as 50% of their book is troubled. The report muddles with the actual holdings, as there are overlaps in the descriptions. The actual numbers they provide include:

    • Negative Amortization Loans: $15B
    • Interest Only: $196B
    • Low Fico: $357B
    •  LTV>90%: $265B
    • Low Fico AND > 90% LTV: $25B
    • Alt-A: $269B
    • Sub Prime: $8B

    Those numbers add up to $1.13 trillion. They are troubled for multiple reasons. For example, $25 billion are loans that have BOTH  high LTV and a FICO score less than 620. While there are varying degrees of toxicity when it comes to “toxic” assets these would be considered highly toxic.

     What might all this mean? Some trends are emerging. Based on historical private sector experience with these types of troubled loans, particulary those 30 % of Alt A/No doc and Negative Am loans that are non-owner occupied properties, one could expect that 50% of these borrowers will go into default. On the defaulted loans the losses will be conservatively about 50% of the outstanding loan balances. In other words, losses of 25% on the troubled book are reasonable assumptions. That would imply a loss over time on these loans of $275-$300B. And that does not include losses on Prime loans. And that is JUST Fannie. The Obama Administration has an estimate of $250B over four years for the full cost of cleaning up the ALL the GSE Agencies. These numbers suggest it could be double that, triple that or more.


    This is ONLY Fannie…not Freddie or Ginnie or Sallie, not Citi, not BoA, not Wells Fargo, not numerous community banks who owned preferred shares in Fannie or Freddie that had their capital severly eroded when those preferred shares were wiped out last fall. How about the dwindling balance of FDIC reserves? Ladies and Gents we have a veritable herd of these elephants lingering in the room.

    Gee no wonder Mr. Lockhart decided now would be a good time to step down from running Fannie, Hank Paulson is getting a tan somewhere now that he has saved Goldman Sachs(for the moment)and something tells me Uncle Ben Bernanke would not be heartbroken if he was replaced by Summers or whomever this fall and could simply go back to pontificating at Princeton.

    In the interest of full disclosure I hold no position in Fannie or any of the stocks mentioned….I am long 1200 shares of Smith & Wesson.

    Fannie 8k August 2009

    Double click chart below to enlarge

    Fannie Mae 8k Sup August 09

    Technology and Professional Responsibility: NewTrak and Required Due Diligence -“Plausible Deniability” collides with reality

    The Judge authored a 58 page opinion ”to share my education with participants in the bankruptcy system who may be similarly unfamiliar with the extent that a third party intermediary drives the Chapter 13 process.” Opinion, p. 30.

    where, as here, the debtor contests the relief sought, the flaws in the automated process become apparent. At this juncture, an attorney must cease processing files and act like a lawyer. That means she must become personally engaged, conferring with the client directly and abandoning her reliance on computer screens as an expression of her client’s will. This did not happen in this case until the Court became involved. It should not have taken judicial intervention to bring the Claim Objection to its conclusion.
    Opinion, p. 32 (emphasis added).

    Here follows a summary and analysis of the Judge Sigmund opinion by Texas Bankruptcy Attorney Stephen Sather

    SUNDAY, APRIL 26, 2009

    Pennsylvania Judge Writes Epic Opinion on Technology and Professional Responsibility

    Technology has dramatically changed the practice of law. Thanks to Westlaw and Lexis, it is no longer necessary to keep large expensive libraries. PACER and ECF have made court filings and filing documents available 24/7. I recently observed a case where the parties used GoToMeeting to handle thousands of pages of exhibits electronically. All of these developments have made the practice of law more efficient. However, a recent opinion from Judge Diane Weiss Sigmund highlights that professionals must be masters of the technology rather than being mastered by it. In re Taylor, No. 07-15385 (Bankr. E.D. Pa. 4/15/09).

    The Taylor case started with a simple question that comes up frequently in consumer bankruptcy cases: Why couldn’t the creditor’s lawyer get a payment history? The answer given to this question prompted Judge Sigmund to launch a one year investigation into the technology behind the case and how it was being used and to award some very creative sanctions. The Judge authored a 58 page opinion ”to share my education with participants in the bankruptcy system who may be similarly unfamiliar with the extent that a third party intermediary drives the Chapter 13 process.” Opinion, p. 30.

    What Happened

    Taylor involved a chapter 13 filing to try to keep a house. Two firms appeared on behalf of HSBC, the mortgage holder. A national firm filed a proof of claim, while a local firm filed a motion for relief from stay and responded to an objection to claim. All three documents were defective. The proof of claim attached the wrong mortgage and listed the wrong payment amount. The motion for relief from stay recited that the debtors had failed to make their post-petition payments for three months, when in fact they had been making the payments, but at a lower amount due to a dispute over flood insurance. According to the Court, “at the time the Stay Motion was filed, the Debtors were short $360 for payments more than 60-days overdue, a fact not clear from the canned pleading prepared by a paralegal from New Trak screens. The Debtors were charged $800 for the cost of the motion.” Opinion, p. 14. The motion also recited that the debtors had no equity in the property which the attorney later attributed to being part of a boilerplate form. The response to the objection to claim said that the claim was just fine when it was not.

    The Debtor’s attorney did not do much better. She filed a late response, which incorrectly stated that the debtors had made all of their payments but they had been returned by HSBC. The Debtor’s attorney also failed to respond to requests for admission tendered with the motion, incorrectly believing that her response to the motion was sufficient.

    Upon receiving the Debtor’s attorney’s response, HSBC’s local counsel continued the hearing for further investigation. The Debtor’s lawyer then filed an amended response, which included copies of the checks for the months of September through January with both front and back and the checks for February and March with just the front. The amended response alleged that the payments for September through March had all been made. As it turns out, the reason that there were only copies of the front side of the February and March payments was because the Debtor’s counsel was still in possession of these checks which had not yet been tendered. Debtor’s counsel erroneously mailed these checks to the person at HSBC’s attorney’s office who handled Sheriff’s Sales rather than to the Bankruptcy Department. The person in the Sheriff’s Sale department sat on the checks and did not inform the Bankruptcy Department that they had been received. The Debtor’s counsel also requested a payment history.

    On May 1, a young associate appeared for HSBC and insisted on prosecuting the motion even though he had been provided with proof of payments. The young attorney sought to proceed based on the deemed admissions even though he knew they were not accurate. The court denied the motion and instructed the debtor to escrow the disputed flood insurance premiums while the parties worked through the issue.

    One month later, the parties appeared on the claims objection and things rapidly escalated. The young associate (he had been licensed a few months at the time) stated that he could not get a payment history from his client. He explained that he had submitted a request for a payment history through an electronic system, but that he was forbidden to speak directly with the client. This statement caused the Court to issue a show cause order.

    In response to the Court’s Show Cause Order, HSBC retained new counsel and the problem with the claim was quickly settled. As noted by the Court, “What could not be accomplished for six months through the use of electronic communication was finalized in an hour the old way, by people sitting down with all relevant information and talking to each other.” Opinion, p. 19.

    While the contested matters were quickly settled, the Court was not satisfied. It launched an inquiry which brought the technology center stage.

    The Technology and Professional Responsibility

    The technology involved was the NewTrak system developed and operated by Lender Processing Services, Inc. f/k/a Fidelity Information Services, Inc. To its credit, LPS was “extremely cooperative” with the court’s inquiry and “provided a detailed demonstration of how NewTrak works in a hypothetical case.” Opinion, p. 9, n. 15. As a result, the Court had a substantial knowledge base to draw on when writing her opinion.

    NewTrak is an automation system which allows lenders and attorneys to communicate with each other. The lender uploads its information onto the system which then generates a referral to an attorney on the approved list. The attorney receives the information and generates the proof of claim, motion for relief from automatic stay or other pleading. The system also allows the attorney to request information from the client by opening an issue on the system. Another system called the mortgage servicing platform handles routine mortgage servicing. According to LPS, it was used by 39 of the 50 largest banks in 2007 and processed approximately 50% of the loans in the United States.

    While NewTrak provides a flow of information between attorney and client, it is not meant to prohibit direct contact between the parties. The Default Services Agreement specifically provides that “The Firm will never be prohibited from directly contacting any client where, in the professional opinion of the Firm such contact is necessary.” Opinion, p. 34, n. 45. As a result, the agreement contemplates that the Firm will exercise professional judgment. However, the Court found that when an attorney mechanically uses the system “the attorney abandons any pretense of independent judgment to the greater goal of expeditious and economical client service.” Opinion, p. 31.

    The Court contrasted the benefits of using the technology with its pitfalls when a matter is not routine.

    It is a regrettable reality, especially in this economic climate, that many homeowners are defaulting on their mortgages. While bankruptcy affords an opportunity to save the family home through a Chapter 13 plan that stretches the payments of mortgage arrears, it also requires debtors to maintain current payment on their mortgages. (citation omitted). This obligation is beyond the capability of many debtors who use a bankruptcy to forestall the inevitable. It seems reasonable that a mortgage lender should be able to avail itself of economic and expeditious means of collecting defaulted loans through the use of technology and delegation of tasks to lower cost labor. In many cases, the motions are granted by default, the debtors, or often more accurately their attorneys, filing no answer or making no appearance, where there is simply no defense to the relief sought. However, where, as here, the debtor contests the relief sought, the flaws in the automated process become apparent. At this juncture, an attorney must cease processing files and act like a lawyer. That means she must become personally engaged, conferring with the client directly and abandoning her reliance on computer screens as an expression of her client’s will. This did not happen in this case until the Court became involved. It should not have taken judicial intervention to bring the Claim Objection to its conclusion.
    Opinion, p. 32 (emphasis added).

    In this case, the court found that professional judgment was not used.
    The attorney for the national firm which filed the proof of claim testified that he reviewed only a representative sample of 10% of the claims which were electronically signed with his name. He did not review the specific claim in this case and as a result, did not find the mistakes in it.

    The president of the local firm which utilized NewTrak testified that he delegated the administrative aspects of the firm’s practice and was unaware of how NewTrak worked.

    The head of the bankruptcy section of the firm electronically signed all of the pleadings in the matter, but delegated all of the court appearances to an attorney who had been licensed for only one month when the initial pleading was filed. The court found that the head of the bankruptcy section failed to supervise the young attorney and asked the rhetorical question, “Could it be with ten lawyers and 130 paralegals and processors, a young attorney is expected to figure it out himself?” Opinion, p. 42.

    The Court also found that the client had restricted the firm’s authority.

    The Udren Firm’s authority from HSBC allowed them to take only three actions: (1) seek a continuance; (2) settle with Motion with an agreement for a six month maximum cure of the mortgage arrears with an agreement for stay relief upon certification of default of any future payment; and failing either of the foregoing; (3) press the motion. (citation omitted). No consultation with HSBC was expected nor occurred during the pendency of the contested matter.
    Opinion, p. 37, n. 49.


    The Court found that several parties to the case had violated their obligations under Rule 9011, including the obligation to make reasonable inquiry. However, the Court was also mindful that sanctions should be “limited to what is sufficient to deter a repetition of such conduct or comparable conduct by others similarly situated.” Rule 9011(c)(2). As a result, the Court granted some very creative relief.

    As to the Udren Firm, which acted as local counsel, the Court found that the expense of having to hire counsel and defend itself and the productive time lost in attending to the matter was punishment enough. However, the Court devoted additional attention to the specific lawyers from the firm.

    The Court found that the head of the Udren Firm’s bankruptcy section “may be so enmeshed in the assembly line of managing the bankruptcy department’s volume mortgage practice that she has lost sight of her duty to the court and has compromised her ethical obligations.” Opinion, p. 52. The Court ordered her to obtain 3 credits of CLE in professional responsibility/ethics in addition to her regular requirements.

    The court declined to award sanctions against the young associate, finding that “I believe these proceedings have been very hard on this young lawyer and while lack of experience is not a defense to a Rule 9011 violation, I suspect that he has learned all that he needs to learn without protracting this unfortunate time in his nascent career.” Opinion, p. 52.

    The Court found that the head of the firm “sets the tone and establishes its culture. He notes his firm’s reliance on NewTrak and other such aids as essential to the economic structure of the law practice. However, he had little familiarity with the actual operation of NewTrak and did not appear to get involved in the ‘weeds’ of the bankruptcy practice.” Opinion, pp. 52-53. The Court found this lack of involvement to be troubling and ordered relief accordingly.

    Mr. Udren may not be aware of the questionable practices imposed by his firm’s acquiescence to NewTrak and how little legal judgment is employed as a result or he may be aware and find it acceptable. To examine these practices in light of extant ethical obligations, I will direct him to obtain training in NewTrak and spend a day observing his bankruptcy attorneys, paralegals, managers and processors as they handle referrals. Since policy emanates from the top, I will also order Udren and (the head of the bankruptcy section) to conduct a training session for all members of the bankruptcy department in the appropriate use of the escalation procedure and the requirements of Rule 9011 with respect to pre-filing due diligence.
    Opinion, p. 53.

    The Court did not award sanctions against the national firm which prepared the proof of claim, but not because she found their conduct appropriate. The Court found that the record had not been fully developed with regard to this party, that the practices were national in scope and that the U.S. Trustee was investigating the firm. As a result, the Court left it to another day and another court to address these issues.

    The Court found that some of the problems in the case resulted from the Udren firm’s reluctance to contact its client directly and found that other firms used by HSBC might be under the same impression. As a result, the Court ordered HSBC “to prepare and transmit by mail and e-mail a letter to all the Network Firms outlining the escalation policy and encourage its use consistent with the Rules of Professional Conduct. HSBC should also advise the Network Firms that use of direct contact will not reflect adversely on the firm.” Opinion, p. 55.

    The Court did not sanction LPS.

    Based on the record, I find that sactions against LPS are not warranted. While it does appear from the limited screens that have been introduced in this case, that LPS’ involvement goes beyond passing data through their automatic system, I cannot conclude that it imposed restrictions on the Udren Firm’s handling of this case. (citation omitted). The Udren Firm entered into a contract with Fidelity which it viewed as advantageous to the business relationships with its mortgage lender clients and presumably its bottom line. As attorneys, the Udren Firm understood an attorney’s obligations under Rule 9011 to investigate and took a lesser approach. While NewTrak prescribed that approach, LPS did not dictate how they would handle cases referred to them when problems with the procedure were apparent. By misusing the resources made available to them, the Udren Firm, not LPS, was responsible for the Rule 9011 deficiencies in this case.
    Opinion, pp. 55-56.


    Judge Sigmund’s remarkable opinion demonstrates that she is no Luddite. Her opinion focuses on the need to exercise professional judgment in conjunction with technology rather than mindlessly bashing the technology itself. In her conclusion, she stated:

    My research has disclosed no other published opinion that explains the NewTrak process that is utilized by so many consumer mortgage lenders seeking relief in bankruptcy cases. I have attempted to share my education in this Opinion. Finally, it is my hope that by bringing the NewTrak process to the light of day in a published opinion, system changes will be made by the attorneys and lenders who employ the system or at least help courts formulate the right questions when they have not. While NewTrak has many features that make a volume business process more efficient, the users may not abandon their responsibility for fairness and accuracy to the seduction of electronic communication. The escalation procedures in place at HSBC and the Udren Firm existed on paper only. When an attorney appears in a matter, it is assumed he or she brings not only substantive knowledge of the law but judgment. The competition for business cannot be an impediment to the use of these capabilities. The attorney, as opposed to a processor, knows when a contest does not fit the cookie cutter forms employed by paralegals. At that juncture, the use of technology and automated queries must yield to hand-carried justice. The client must be advised, questioned and consulted. Young lawyers must be trained to make those judgments as opposed to merely following the form manual. Until they are capable of doing so they should be supported and not left to sink or swim alone in an effort for the firm to be more profitable by leveraging the cheapest labor.

    At issue in these cases are the homes of poor and unfortunate debtors, more and more of whom are threatened with foreclosure due to the historic job loss and housing crisis in this country. Congress, in its wisdom, has fashioned a bankruptcy law which balances the rights and duties of debtors and creditors. Chapter 13 is a rehabilitative process with a goal of saving the family home. The thoughtless mechanical employment of computer-driven models and communications to inexpensively traverse the path to foreclosure offends the integrity of our American bankruptcy system. It is for those involved in the process to step back and assess how they can fulfill their professional obligations and responsibly reap the benefits of technology. Nothing less should be tolerated.
    Opinion, pp. 57-58 (emphasis added).


    Time to Write to Obama, Senators and Congressman

    Many Thanks to Ron Ryan, Esq. representing the Tucson Bankruptcy Bar for the submission below:

    Editor’s Note: Obama wasn’t kidding when he he said the thing that humbled or frustrated him the most was how slow Washington is to “get on board.” Dick Durbin had the class and guts to say it outright. The banks own the city — and we the taxpayers gave them the money. WHERE IS YOUR OUTRAGE AND WHY ARE YOU NOT EXPRESSING IT?

    The Troubled Asset Relief Program money went to bank holding companies that were (a) not holding any troubled assets and (b) not lenders.  While we can and should cut Obama some slack because this was Bush-Paulson policy, to quote his own words back to him “We Can’t Wait!” The vote on amending the bankruptcy showed just how much of a strangleghold the banks have on Washington. The oligopoly that controls our government is driving us into another ditch, this time worse than the one we just visited at the end of the Bush term.

    The code was amended by Republican majority with the aid of Democrats to basically say that you can reduce the principal on,loans on 2nd, third, fourth, fifth and sixth residences but not on your first and only residence.  So the wealthy, the speculators and other people who essentially DON’T need the relief have it while 20 million homeowners are eating crow. This crisis was spawned and promoted by appraisal fraud at both ends of the spectrum — lying to the borrower about the value of the house and lying to the investor about the value of his investment. We are helping the liars.The recipients of taxpayer lenders are neither lenders nor holders of toxic assets.

    Federal Policy and Federal Money should be first aimed at stabilizing the free fall of people who have lost all their wealth in the middle and lower “classes” and second at making some sort of restitution to the investors who lost all their money. (MBS securities are said to be trading thinly at 3 cents on the dollar). Current policy and programs continue the MYTH that the intermediaries who are foreclosing, collecting, or modifying loans have any legal right to do so. They don’t. And if the reality doesn’t sink in, then  the eventual remedy is going to be that 20 million homeowners are going to be sitting in homes that have no mortgage or note and the investors are left eating crow. It is inevitable that the judicial outcome is the elimination of virtually all securitized mortgages and the reversal of virtually all foreclosures of securitized debt.

    From Ron Ryan and Tucson BKR Bar:

    Log on to the National Association of Consumer Bankruptcy Lawyer to read more and with one click send a letter to your Senators and the President. NACBA has been a major lobbyist in favor of this amendment for over two years. When you write Obama, you might want to add a little bit about how he needs to use his muscle and insist on the Senators passing measures he is in favor of. It doesn’t seem that he has done much arm twisting, and it will be necessary if he wants to get anything done. http://www.nacba.com/. Also, here is the mailing address and fax number for the President:

    President Barack Obama
    The White House
    1600 Pennsylvania Avenue NW
    Washington, DC 20500
    via fax 202-456-2461

    Cramdown Vote: Banks Bought Senators On The Cheap

    Sen. Dick Durbin (D-Ill.) introduced legislation in the Senate Thursday which would allow homeowners in bankruptcy to renegotiate — or cramdown — mortgages with banks. His corresponding amendment to the House-passed bankruptcy reform bill is scheduled to be voted on at 2:30. (Read the whole thing.)
    The measure is widely expected to fail, as crucial Democratic senators, whose votes are needed to overcome a filibuster, have publicly declared their opposition.
    Democratic Sens. Ben Nelson (Neb.), Mary Landrieu (La.) and Jon Tester have indicated they plan to vote against the amendment. Sen. Evan Bayh (D-Ind.), who supported the bill last time around, expressed reluctance to back it this time. The banking industry has lobbied relentlessly against the reform.
    On Monday night, Durbin concluded that the banks “frankly own the place.”

    The place came (relatively) cheap.

    The banking and real estate industry has funneled roughly $2,000,000 into Landrieu’s campaign coffers over her 12-year career, according to data from the Center for Responsive Politics. Bayh has taken in about $3.5 million. The financial sector is Nelson’s biggest backer; he’s taken $1.4 million from banks and real estate interests and another $1.2 million from insurance firms. Tester has fielded roughly half a million in his two years in office.

    That’s about nine million dollars — far, far less than one percent of the amount taxpayers have spent to bail out the financial industry.

    The opponents of the bill all say that industry influence is not the reason they’ll vote against the measure. Rather, they claim genuine policy disagreements: concerns it could raise interest rates or increase defaults, for instance.
    But Durbin’s amendment is very narrowly tailored and would only allow mortgages signed before Jan. 1 to be modified — meaning that interest rates on future loans should be unaffected.
    We’ll be watching the roll call and will post the rest of the no votes along with their take from the financial industry.
    Durbin’s office has also calculated, relying on data from the Center for Responsible Lending and Moody’s, how many homes his bill would save and how much home equity it would preserve by preventing foreclosures, which damage entire neighborhoods.
    Landrieu’s Louisiana could see 12,651 homes and $500 million of equity preserved. Tester’s Montana: 2,815 and $40 million. Nelson’s Nebraska: 3,763 and $140 million. Bayh’s Indiana: 27,960 homes and $590 million.
    Across the United States, the measure is estimated to prevent 1.69 million foreclosures and preserve $300 billion in home equity.
    Ryan Grim is the author of the forthcoming book This Is Your Country On Drugs: The Secret History of Getting High in America
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    Reality Check: Holder in Due Course Doctrine is not some fancy trick to get out of paying

    Too many people are looking for an easy way out and reporting that Judge’s don’t like their arguments because they are going into court saying they don’t owe the money and there is no obligation. This argument starts you off on the wrong foot and heads for disaster.

    The better approach is to start off with acknowlegding that a mortgage or deed of trust was executed, a note was executed, funding took place, and that an obligation was created. Your approach should be that you are not seeking to eliminate the obligation by some slight of hand trick but rather that the obligations exists, it might be enforeceable if it was not paid by federal bailout or insurance, but that the people and entities that initiated the foreclosure process are imposters.

    So your argument is not that your avoiding ALL possibility of liability, but that you are fighting for your right to avoid multiple liability on the same debt — because when the REAL holder in due course walks into court holding the note and an assignment and says you owe the money, the house or both, you will have already lost the money and house to the imposters who said they were foreclosing as the “lender” or on behalf of the “lender.” when they had no documentation or actual authority to do so.

    Good Question from Ron Ryan in Tucson:

    WHY ARE THEY NOT THE PARTY ENTITLED TO PAYMENT IF THE RECORD SHOWS THAT THEY ARE? Answer: There is no trick here. Either they ARE the holder in due course or they are not. If they gave the loan and funded it from their own accounts using their own loan department at their own bank and they still have the note and they never assigned it, sold it or transferred it, then they have a good loan and it is enforceable by them. There might still be claims for TILA violations and the potential for rescission, but these claims are probably minimal in comparison to the vast majority of loans. There ARE some loans given by local community banks that are substantially in compliance with the law and did not raise the spectre of appraisal fraud etc. But most of the small banks got knocked out of the market because they understood the appraisals were inflated and they couldn’t approve a loan that was (a) already scheduled to fail and (b) where the loan to value ration was vastly skewed. So just like the honest appraisers who didn’t get any more business (8,000 of them petitioned congress in 2005 to do something about it to no avail), the honest banks couldn’t compete because they knew they were competing for lousy business that would bring their bank down with losses. The point of our strategy is that more than 1,000 banks were created or lured into this mess with the prospect of making $30,000 or more on a $300k loan that was bound to fail. In doing so they dropped their underwriting standards to zero without informing the borrower that the borrower could no longer rely on the bank as the expert who was evaluating the value of the property, the borrower’s ability to repay, and the viability of the loan. They didn’t care because it wasn’t their money at risk. If the borrower knew that the “lender” didn’t care whether they could repay the loan or not, the borrower would have been on notice that something unusual was going on — and by the way, something that violated the Truth in Lending Act and a whole host of other statutes, rules, regulations and common law duties..

    MERS: 57 million mortgages on its Books: MSNBC Stuckey — Lenders passed around the deed to Vargas’ house as if it were a whiskey bottle at a frat party

    Great Song says it All- Click to Play: Shuttin Detroit Down



    D-Day vet’s tale parallels mortgage meltdown

    Ex-corpsman, 84, blames ‘greed, greed, greed’ as he faces losing his home
    By Mike Stuckey
    Senior news editor
    Feb. 17, 2009

    CERRITOS, Calif. – Questions linger here, as ripe and nagging as the odor that once wafted over this former dairy capital: Who is trying to seize the home of Ray Vargas, child of the Great Depression, D-Day veteran and loving husband who just wanted to do right by his dying wife? And are they entitled to it?

    In bankruptcy court documents, the party attempting to foreclose is identified as Mortgage Electronic Registration Systems Inc., or MERS, a small Vienna, Va.-based company employed by lenders to streamline the resale of mortgage loans and servicing rights. In that role, MERS claims an interest in tens of millions of U.S. home loans and the legal right to foreclose on those in default.

    But MERS never gave Vargas a loan. It never collected money from him or recorded his payments. It had no ability to modify his loan.

    What it did have was a copy of a document that named it a “beneficiary” of the mortgage on his home and a “nominee” for the lender and “lender’s successors and assigns.” But it has never identified the current holder of the loan.

    ‘It makes me sick’
    While such documentation has allowed many foreclosures to proceed around the nation, the judge in Vargas’ case threw MERS for a loop, ruling that the company had no right to attempt to seize his home on behalf of unnamed plaintiffs.

    “No such unidentified parties are permitted in a motion before the court,” wrote Judge Samuel L. Bufford. Bufford’s October ruling kept the foreclosure on hold and opened the door for Vargas to sue MERS in an action aimed at clearing his home of the $826,549 in debt he says is the result of fraud, forgery and abuse of process.

    “It makes me sick,” said Vargas, 84, a deeply religious man who believes God is guiding him in a mission to expose wrongful foreclosure. “Greed has no bounds. That’s what the whole problem is: greed, greed, greed.”

    Vargas’ case has captured the attention of hundreds of attorneys and others immersed in the nation’s mortgage meltdown, which saw foreclosure filings on U.S. homes hit 3 million last year. In the first six weeks of this year, foreclosure began on another 296,000, according to the Center for Responsible Lending.

    Legal icon is a new and somewhat surreal role for Vargas. The Chicago native who got his first job at 8 in the depths of the Great Depression has always been a realist.

    From World War II vet to painting contractor
    As a Navy corpsman during World War II, he went ashore with the third assault wave at Utah Beach on D-Day to pluck his fallen buddies from the sand and patch them up as best he could. Later, he owned a painting business and took on big jobs, like the restoration of the Queen Mary, the steamship turned hotel, in nearby Long Beach.

    But Vargas, hero, citizen and family man, has been sucker-punched along with millions of other American homeowners, taxpayers and the nation’s entire economy by the mortgage-lending debacle.

    A series of loans from some of America’s largest mortgage lenders cost him nearly $200,000 in less than two years and destroyed financial security it took a lifetime to build. Documents reviewed by msnbc.com show that loans sold to Vargas by mortgage brokers on behalf of the lenders were loaded with features that federal officials say are the hallmarks of predatory lending.

    Lenders passed around the deed to Vargas’ house as if it were a whiskey bottle at a frat party. Ultimately, he wound up in foreclosure proceedings. And, finally, bankruptcy court.

    Vargas’ story is the Cliff Notes version of what has happened to the larger American economy. It is a story of greed, lax lending standards, lack of government oversight and the fantasy that real estate prices will always rise.

    Now, Vargas’ story, like the larger epic, has become a nightmare. The final chapters in both will be written by judges and lawmakers who, many would argue, should have taken up their pens much sooner.

    Vargas’ story is complicated but it begins simply, with love — the love for a woman with whom he shared 57 years of marriage, three sons, three grandchildren and a cozy life in this suburban oasis, about 20 miles southeast of Los Angeles. Raymond Vargas loved Ophelia Martinez and she loved him.

    They married and set up house in Southern California in 1948, two years after Ray mustered out of the service, having earned a passel of ribbons and medals for service in the American, European and Pacific theaters.

    In 1971, after the family had outgrown its first home, Vargas made a down payment on a sprawling stucco two-story yet to be built in one of the many dairy pastures that gave way to the city of Cerritos, now an upscale enclave of 57,000 with tree-lined streets and posh facilities like a titanium-skinned library.

    Vargas’ business flourished and he became a well-known civic leader, serving seven times as commander of the local VFW.

    “I got more than I deserved,” he said, his eyes wandering to Ophelia’s paintings of landscapes and floral arrangements that adorn his living room.

    Medical needs force new loans
    The happiness ended in 2000, when Ophelia was stricken with Parkinson’s, Alzheimer’s, brain tumors and a stroke that left her bedridden, unable to speak. She required expensive around-the-clock care, but Vargas was determined not to put her in a nursing home.

    He spent the couple’s cash, closed out their retirement funds and tapped some credit cards. That left only the family home, which had been paid off for a dozen years.

    After initially taking out a $50,000 loan with the family’s longtime bank, Vargas turned to a reverse mortgage in late 2003. Such loans, available to older homeowners, are attractive to retired, fixed-income borrowers because they require no monthly payments. Principal and interest are generally not repaid until the sale of the home, often after the borrower has died.

    “I needed that money to pay my wife’s medical bills,” Vargas said. “I didn’t have to make any payments until I was deceased and then they would take their money out of my house and my sons would get the rest.”

    Reverse mortgage maxed out
    By the time Ophelia Vargas died on Jan. 4, 2005, the expenses for her care had maxed out the reverse mortgage. And Ray Vargas had become a target of services that cull through land records to provide sales leads to mortgage brokers. To anyone familiar with property values in Cerritos, the public information on Vargas’ loan might as well have been a banner saying, “Elderly homeowner with lots of equity to cash out.”

    Vargas was inundated with offers to refinance, by phone, mail and in person. “There were so many mortgage brokers after me, it wasn’t even funny,” he said.

    Vargas’ younger sister, Rebecca Deleon, said she often tried to shoo away loan officers during visits to Vargas’ home. “Every time I went over there, he had a new person that was trying to give him a loan,” Deleon told msnbc.com.

    In need of additional funds for his own home care and a pair of car loans, Vargas finally agreed to a loan. He insists the salesman told him the deal would refinance his house with a new reverse mortgage requiring no monthly payments.

    “They told me I didn’t have to send any money until I passed,” he says. “Then they started sending me all these bills.”

    A refinancing merry-go-round
    With that, he was trapped in a rapid cycle of refinancing that saw four lenders hold notes to his house in 2005 alone.

    Vargas said he is still as sharp mentally as ever but admitted that he didn’t read all the loan documents and was sometimes confused about the terms of the loans, partly because he had medical issues that for a time confined him to a wheelchair.

    But he insisted that he never signed up for any loan he did not believe to be a reverse mortgage. And while he acknowledged that his signature appears on many documents, he claimed it was forged in connection with at least three loans. He also said he never went to any office to conduct loan business and never signed any papers before a public notary, although many of the documents bear notary seals.

    “I never saw them,” Vargas said. “It was all telephonic. I never signed anything with them. I knew something was wrong.”

    Although he made mortgage payments once he realized he owed them, he said he was constantly assured by those who sold him the loans that each new refinancing would eliminate them.

    “He’s very straightforward and honest,” said Vargas’ attorney, Marcus Gomez. “He’s a little old World War II vet. He has no reason to lie. He thought he was getting money through another reverse mortgage and he needed it.”

    An examination by msnbc.com of hundreds of pages of bank statements, escrow and loan documents provided by Vargas showed that over 21 months in 2005 and 2006, Vargas’ home was refinanced five times through a total of six loans.

    Huge fees, penalties, interest
    In that time, his debt grew from $213,555 to $745,000. To tap his $531,445 in equity, Vargas paid at least $123,237 in loan origination fees and prepayment penalties. He paid at least $60,000 in interest as he struggled to make minimum payments on the loans, giving the money right back to the lenders he had borrowed it from. Thousands more in unpaid interest was added to his debt.

    Appraisals justified the loans. When they were made, the loans on Vargas’ house likely never totaled more than 90 percent of its value, which peaked close to $850,000 in 2006.

    Foreclosure was the lenders’ trump card and the equity cushion was their wager that they would not lose any money. Whether Vargas could make the payments was irrelevant.

    Given the huge decline in California real estate prices, Vargas’ house today is worth hundreds of thousands less than the $702,506 currently claimed in connection with the first loan and the $124,043 claimed on the second.

    Signs of predatory lending
    After the reverse mortgage, all of the loans to Vargas had one or more signs of predatory lending, practices that are not illegal unless they cross the line into fraud. However, federal officials have long warned of their harmful potential. “Predatory lending threatens to turn the American dream of homeownership into an American nightmare,” then-assistant HUD Secretary William Apgar warned in congressional testimony in 2002.

    Foremost, all of the loans were made with no regard for Vargas’ ability to pay them back. They were “option ARMS,” which gave him up to four choices each month of how much to pay. But  in every case, the lowest option, generally not enough to cover that month’s interest, was more than his $1,600 a month income from Social Security and a union pension.

    In other predatory features, at least three of the loans had hefty prepayment penalties. And three earned the agents who sold them a total of $35,475 in “yield spread premiums,” commissions paid by the lender to steer Vargas into loans that would yield more profit.

    The first four loans were made by Downey Savings and Loan, World Savings Bank, Washington Mutual and Countrywide Bank, respectively.

    Lenders all failed or nearly did
    Because they made so many loans like those provided to Vargas — and others that were even more reckless — Downey and Washington Mutual failed and were seized by federal regulators last year. The collapse of WaMu, with $307 billion in assets, was by far the largest bank failure in U.S. history.

    The parent company of World was taken over by Wachovia in 2006 in a move that is now widely seen as a big contributor to Wachovia’s failure and seizure last year. Countrywide was bought by Bank of America last year while on the brink of failure. It was subsequently sued by a dozen states over its predatory practices before BofA settled.

    Representatives who work for the successor companies of World, Countrywide and WaMu all said they could not comment on specifics of Vargas’ case because of customer privacy concerns. Some of them said it is now widely accepted that mortgage brokers, like those who handled all of Vargas’ loans, often lied about borrowers’ income and other aspects of the deals.

    A WaMu spokeswoman said the company, which was taken over by Chase, no longer accepts loans from mortgage brokers. Downey, which did not respond to msnbc.com’s inquiries, last year filed dozens of lawsuits that accuse mortgage brokers, borrowers and appraisers of lying on loan applications.

    The high cost of Freedom
    The final two loans on Vargas’ house were made by Freedom Home Mortgage Corp. of New Jersey, a first loan of $630,000 and a second of $115,000. They were made Oct. 3, 2006, and obligate him to pay over $3,700 a month — well more than double his income. Within months, he was unable to keep up with the payments. By early last year, foreclosure had begun.

    Vargas, who spends a good part of each day watching TV news, said, he only recently came to comprehend that side of the vast financial scheme he was caught up in.

    “God opened up my eyes” about what lies beneath the mortgage meltdown, he said. “He showed me what they were doing. They got all these loans and put them in the stock market in bundles. It’s incomprehensible.”

    Indeed, Vargas’ refinancing nightmare occurred during the peak years of mortgage securitization, the technique Wall Street used to turn home loans into bonds for sale to investors. Securitization in that time frame is now blamed for literally lavishing money on homeowners and buyers, often via predatory and subprime loans, and thus fueling housing inflation across the nation. And while lenders may not have considered Vargas a subprime borrower based on what mortgage brokers told them, his actual finances certainly made him one.

    ‘Securitization meat grinder’
    “A lot of the subprime lending, particularly the predatory loans, would not have occurred if the lenders had not been able to dump those loans into the securitization meat grinder,” said Bert Ely, a Cato Institute scholar and an expert on financial regulation.

    Millions of those borrowers, like Vargas, are in the thick of foreclosure proceedings. Millions more have lost their homes.

    Vargas got word in a letter last April 4 that MERS planned to auction the house three weeks later in a bid to regain what it said was owed in connection with the first mortgage. He retained attorney Gomez of nearby Norwalk, who rushed Vargas into bankruptcy court, a move that automatically stops, or stays, attempts to collect debts, including foreclosure.

    Creditors in bankruptcy cases are allowed to seek removal of such stays, and that’s what MERS did, retaining attorney Mark T. Domeyer.

    However, Gomez and Judge Bufford of the U.S. Bankruptcy Court for the Central District of California wanted to know what right MERS had to demand the keys to Vargas’ house. After all, the loan in question had been made by Freedom, the New Jersey lender.

    Domeyer’s court filings included copies of Freedom’s mortgage documents naming MERS as “beneficiary” of the deed of trust, or mortgage, on Ray’s house.

    The use of MERS as a “nominee” of the lender and “beneficiary” of mortgages is key to the company’s business model, described on its Web site as “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. … MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.”

    In other words, when a loan in the MERS registry is sold by one party to another, instead of filing paper “assignments” at the local government office where the mortgage is recorded, the transaction is simply noted by MERS. Similarly, foreclosures and other events are supposed to be noted in MERS’ records on each loan.

    57 million mortgages
    With more than 3,000 member companies and 57 million registered mortgages covering about 50 percent of all new loans, the 45-employee MERS controls and disseminates information on loans made to a majority of American homeowners. MERS would not disclose how many foreclosure cases it is currently bringing.

    In a press release in May 2007 when it announced the registration of its 50 millionth mortgage, MERS said it had saved the mortgage industry $1 billion since it was founded in 1996.

    But consumer advocates see the company in a darker light, arguing that another purpose of MERS is to obscure ownership of loans, allowing investors to buy, sell and foreclose on them in unethical and illegal ways. Also unhappy are local government officials who miss out on assignments and recording fees.

    Attorneys who defend homeowners in foreclosure say the procedure is reserved for the actual owner of the loan, also called a note. “The party who can bring a foreclosure proceeding has got to be the party that proves it actually owns the note and that note has been properly negotiated all the way up the line,” said O. Max Gardner III, a bankruptcy attorney from North Carolina and a dean of the U.S. debtor bar.

    Mixed results in court
    MERS officials and their attorney, Domeyer, declined requests from msnbc.com for interviews. MERS also declined to answer numerous questions submitted via e-mail, including who is actually the current owner of the loan, although it did provide a prepared statement that said in part, “Numerous state and federal courts have affirmed the right of MERS to be the mortgagee in the public land records and its ability to move for relief from stay and foreclose.” But Arnold’s statement also acknowledged that MERS’ guidelines for foreclosure appeared not to have been followed in Vargas’ case.

    The argument that MERS lacks legal standing to foreclose has met with mixed results in court. MERS has won several such cases in Florida; debtors have won in Ohio, Connecticut and elsewhere.

    Gardner said a nationwide ruling that MERS had no standing to foreclose would raise thorny issues. “What if a court really ruled that all these foreclosures that MERS has done are invalid?” he asked. “Can you imagine what would happen to the real estate and title business?”

    Bankruptcy court rulings on MERS are being keenly watched because that is where many foreclosure cases are playing out and where many more could wind up.

    So Judge Bufford’s ruling in Vargas’ case was greeted with enthusiasm by Gardner and his allies. In a withering opinion, the judge said MERS “presented no admissible evidence” in its case. And he found that sanctions should be imposed against Domeyer, the attorney representing MERS, for bringing such a sloppy motion to court.

    The bottom line, Bufford said, was that the true owners of the loan — “highly unlikely” to be original lender Freedom — did not come forward in court and MERS failed to prove any right to act on their behalf. He would not comment to msnbc.com beyond his published ruling.

    Bufford’s ruling opened the door for Gomez, Vargas’ lawyer, to file a new claim. This complaint airs Vargas’ allegations of fraud and forgery surrounding the origination of the loan. In it, he seeks $1.75 million in damages as well as to remove lenders’ liens and his obligation to repay them via “quiet title.”

    Freedom, the New Jersey company that originated the loans now in foreclosure, did not respond to interview requests.

    The loans appear to have been sold to Vargas on behalf of Freedom by Monta Vista Mortgage, a now-defunct Santa Ana, Calif., firm that has disconnected its phones and moved out of its offices.

    Signatures disputed
    Vargas said the signatures on the loans are not his and that he never met with anyone from Monta Vista nor received settlement statements explaining the transactions.

    Among the few papers Vargas has from Monta Vista are a letter and two check stubs showing he received about $48,000 for cashing out $95,000 in equity. It is unclear where the rest of the funds went.

    Msnbc.com located the owner of Monta Vista, Martha Lozano, in nearby Tustin. She said she was running a new company, Debt Solutions, which helps trouble borrowers seek loan modifications from lenders. She said she could find no records in her computer system indicating that her old firm, which employed 50 to 60 people, had done business with Vargas. She said any paperwork on Vargas’ transactions had likely been stolen during a burglary at a storage unit.

    Lozano said many homeowners in foreclosure “now want to blame us for everything that is happening to them.” But she defended the option ARMs sold to Vargas and others, saying, “You sell what the lender is advertising.”

    Asked if she would have sold such a loan to her father, Lozano quickly replied, “No way!”

    As to the claim of forgery, when msnbc.com tracked down the public notary who swore that Vargas had signed the documents, he said he had no recollection of the transaction. Thomas Montaghami of Anaheim, Calif., said he is no longer a notary. He said he had lost records that notaries are supposed to keep to explain how they verified the identities of people whose signatures they notarized.

    Montaghami said he had informed authorities of the loss of his records as required, but officials at the Secretary of State’s Office in Sacramento said they had no record of that.

    Shown a signature that MERS claimed was his on the loan it tried to foreclose, Vargas laughed. “That’s not mine.”

    His attention was diverted by the ringing phone, a telemarketer trying to sell Vargas on refinancing his home. “It’s an everyday thing,” he said. “They’re the vultures coming to pick over the bones.”

    The gallows humor fits Vargas’ lack of bitterness at his plight. A guy who began adulthood carting the dead and wounded away from Normandy may have a greater capacity for forgiveness than most.

    Even if he loses the house, he reckons, it was out of love for his dear Ophelia. “We were married 57 years,” he said, softly, his eyes lighting upon an urn on his mantle. “Her ashes are right there. She will be buried with me when God calls me.”

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    URL: http://www.msnbc.msn.com/id/29198366/

    WSJournal – “Servicers are limited in their ability to modify mortgages”

    Key points
    -“servicers are limited in their ability to modify mortgages”

    READ: they have no authority to modify nor authority to foreclose
    This is why so many are “strung along” thinking they are waiting to be approved for a loan modification and at the eleventh hour are told they “weren’t approved” and then the following week get a foreclosure notice. Get these “promises” communicated in WRITING or record them.

    -“40% of borrowers were 60 days past due within 8 months after their loan was modified”

    What it doesn’t say is that in modifying their loan they verified or affirmed a non-existent obligation AND likely agreed to “waive all claims” against everyone…

    -“loan modifications that include a principal reduction are less likely to re-default”

    If you are not getting a principal reduction that considers “affordability” AND the current value of the property today you are wasting your time or probably prolonging the inevitable. In order to get principal reductions you need some leverage, affirmative defenses, counterclaims.

    MOST OF ALL – DON’T WAIT until a week before a Summary Judgment hearing or Trustee Sale to try to act….you must be PROACTIVE and get your ammo ready before the enemy is at your door. THIS IS WAR PEOPLE – THE HOMEOWNERS WAR right here on our soil and its your home they want.

    Wall Street Journal   FEBRUARY 11, 2009


    The Obama administration provided few details about its plans to address the foreclosure crisis when laying out its economic-recovery program Tuesday, highlighting the challenges of creating a program that is fair and effective.
    The administration’s efforts are being complicated by a weakening economy. Nearly five million families could lose their homes between 2009 and 2011, according to Moody’s Economy.com. “The ground is shifting,” said Tom Deutsch, deputy executive director of the American Securitization Forum, an industry group. “We have a lot more job loss and a lot more pessimistic expectations on home prices.”
    Housing and Urban Development Secretary Shaun Donovan and Treasury Secretary Timothy Geithner will be meeting Wednesday to discuss possible approaches to the foreclosure crisis.
    One question facing the administration is how to win investor support for modification efforts while providing meaningful relief to borrowers. At a town-hall meeting Tuesday in Fort Myers, Fla., President Barack Obama suggested that he would propose legislation to make it easier for loan-servicing companies to ease up on troubled borrowers while taking steps that might win investors’ support. Right now, he said, servicers are limited in their ability to modify mortgages that have been packaged into securities and sold to multiple investors. In addition, “the borrower is going to have to probably — if they get some assistance — agree to give up some equity once housing prices recover,” the president said.
    Another challenge is determining who should get help. In Fort Myers, those facing foreclosure aren’t just local residents hurt by job losses, but also real-estate speculators. Another worry is moral hazard, or how to help those truly in need without encouraging others to fall behind on their payments.
    Government officials are also expected to create national standards for loan modifications that would be adopted by Fannie Mae and Freddie Mac. But there is little data on what types of workouts are most cost-effective. Data released in December by federal banking regulators show that more than 40% of borrowers were at least 60 days past due eight months after their loan was modified. Critics say redefaults are so high because mortgage companies aren’t doing enough to make payments more affordable.
    Forty-seven percent of loan modifications completed in November resulted in higher payments for borrowers, typically because unpaid interest and fees were added to the loan balance, according to a study by Alan M. White, a professor at Valparaiso University Law School in Indiana.
    Coming up with an effective modification is complicated by the fact that many troubled borrowers also have home-equity loans or credit-card debt, auto loans or other obligations that can make it difficult to afford even a lower mortgage payment. Other borrowers may be able to afford a modified payment, but lack the reserves to deal with unexpected bills.
    “You don’t want to modify a loan that you think will eventually redefault,” said Thomas Lawler, an independent housing economist. “All that will do is delay the process and increase the cost.”
    With home prices tumbling, some analysts have been pushing for mortgage companies to reduce loan balances. Borrowers whose loan modifications include a principal reduction are less likely to redefault, according to an analysis by Credit Suisse, but mortgage companies have thus far been reluctant to write down loan balances.
    A focus for the government has been on how to determine the “net present value” of homes. Government officials think that if they can agree on a common metric for determining a home’s value, they can expedite how the loan is modified.
    —Michael M. Phillips and Damian Paletta contributed to this article.
    Write to Ruth Simon at ruth.simon@wsj.com