“Lost notes” and the Sudden Appearance of “Original Notes.”

Think of it this way: If someone wrote you a check for $100, which would you do? (1) make a digital copy of the check and then shred it or (2) take it to the bank? Starting with the era in which banks made what is abundantly clear as false claims of securitization the banks all chose option #1. And they collected incredible sums of money far exceeding the Madoff scam or anything like it.

Back in 2008 Katie Porter was a law professor and is now a member of the US House of  Representatives. For those of who don’t know her, you should follow her, even on C-Span. She nails it every time. She knows and other congressmen and women are following her lead. Back in 2008 she uncovered the fact that in her study of 1700 filings in US Bankruptcy court, 41% were missing even a copy of the note, much less the original note.

Around the same time, the Florida Bankers Association, dominated by the mega banks and who absorbed the Florida Community Bank Association, told the Florida Supreme Court that, after the purported “loan closing,” digital copies of the notes were made — and then the original notes were destroyed. FBA said it was “industry practice.” It wasn’t and it still isn’t — at least not for actual creditors who loan money. Out in the state of Washington on appeal, lawyers for the claimant in foreclosure admitted they had no clue as to the identity of the creditor. The state banned MERS foreclosures, along with Maine.

That admission, with full consent of the mega banks, raised the stakes from 41% to around 95% — a figure later confirmed in Senate Hearings by Elizabeth Warren. The other 5% are loans that were truly traditional — funded by the “lender” (no pretender lender) and still owned by the lender who had the original documents in their vault.

The law didn’t change. In order to enforce a note you needed the original. And in order to plead you “lost” the note, you had to allege and prove very specific things starting with the fact that it was lost and not destroyed. Then of course you had to prove that the original was delivered to you, which nobody could because the original was destroyed immediately after closing and a fax copy was the only thing used after that.

Typically destruction of the note means that the debt is discharged or forgiven — something that is actually a natural outgrowth of the same debt being sold dozens of times in varying pieces under various contracts, none of which give the buyer any direct right, title or interest in the “underlying” debt, note or mortgage. In short, neither the debt nor the note exist in most cases shortly after the alleged loan closing.

The representatives of the mega banks who started the illusion of securitization of mortgage debts could neither produce the original note (because it was destroyed) nor tell a credible story to explain its absence. So they did the next best thing. They recreated the note to make it appear like an original using advanced technology that could even mimic the use of a pen to sign it.

Some of us saw this early on when they failed to account for the color of the ink that was used at closing. Those were among the first cases involving a complete satisfaction of the alleged encumbrance, plus payment of damages and attorney fees, all papered over by a settlement agreement that was under seal of confidentiality.

While obviously presenting moral hazard, the process of recreation could have been legal if they had simply followed the protocols of the UCC and state law to reestablish a lost note. But they didn’t. The reason they didn’t is that they still had to prove that the note was a legal representation of a debt owed by the borrower to a creditor that they had to identify. But they couldn’t do that.

If they identified the creditor(s) they would admitting that they had no claim because a person or entity possessing a right, title or interest in the debt did not include the named claimant in the foreclosure. Naming a claimant does not create a claim. A real claim must be owned by a real claimant. That is the very essence of legal standing.

If they had no claim they would be admitting that the securitization certificates, swaps and other contracts were all bogus. That would tank the $1 quadrillion shadow banking market. That is where we see the evidence that for every $1 loaned more than $20 in revenue was produced and never allocated to either the debt of the borrower or the investment of the investors. The banks took it all. $45 trillion in loans and refi’s turned into $1 quadrillion in “nominal” value. Nice work if you can get it.

So then they did the next next best best thing thing. They simply presented the recreation of the note as the actual original and hoped that they could push it through and that has worked in many, probably most cases.

It works because most borrowers and their lawyers fail to heed my advice: admit nothing — make them prove everything. By giving testimony regarding the “original” note the borrower provides the foundation and the rest of the foreclosure is preordained.

For some reason, lawyers who are usually suspicious, refuse to acknowledge the basic fact that the entire process is a lie designed to take property, sell it and apply or allocate the sale proceeds to anyone except the owner(s) of the debt. They hear “free house” and get scared they will look foolish.

A free house to those persistent and enduring souls who finance the great fight is a small price to pay for the mountains of windfall profit of the banks and related parties. As for the banks, adding the proceeds of a house that should never have been sold is adding insult to injury not only to the homeowner but to the entire society.

If anyone wants to know why so many Americans are angry, look no further than the 40 million people were directly displaced by illegal foreclosure and the additional 70 million people who were affected by those dislocations. Voters know that if the many $trillions spent on bailouts had been used to level the playing field, 110 million Americans and millions more worldwide would have never faced the worst effects of the great recession.

And we will continue voting for disruptors until a level playing field re-emerges.

see Lost notes and Bad Servicing Practices and Incentives SSRN-id1027961

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult or check us out on www.lendinglies.com. Order a PDR BASIC to have us review and comment on your notice of TILA Rescission or similar document.
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New “Original Notes” from Visionet Systems: How False Original Signatures Are Created

reapplying the “signature images” upon stored copies.”

I have obtained confirmation from a large bank vendor (Visionet Systems, Inc.) that it rectifies “lost notes” by reapplying the “signature images” upon stored copies. —- Bill Paatalo, December 10, 2016

Kudos to Bill Paatalo who has quantified and identified what I have been talking about for years — the production of “original” notes that were previously destroyed. The sarcasm from the bench has dripped ridicule on anyone even suggesting that the “blue ink” signature is merely a reproduction on a fabricated document. The revelations in this article might be a step toward changing that attitude. — Neil Garfield

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.


This is something that everyone ought to read because it not only reveals the details of how consumers are being screwed by illegal actions taken by the banks, but also shows how we have now institutionalized illegal behavior.

Perhaps most important is the take-away question from this revelation: Why is the fabrication and forging and robosigning documents necessary if these were all bona fide loans? Answer: They were not bona fide loans and the loan documents were fabrications that the borrower was fraudulently induced to sign.

The money given to “borrowers” was not a loan, but it was a liability.  The liability arose because the homeowner received the benefit of the money advanced somewhere near the time of the fictitious closing. But because of the larger scheme of stealing money from pension funds et al, the use of their money at the so-called closing was hidden from BOTH the investors and the “borrowers.” No loan contract was ever formed. Hence the need for repeated fabrications to cover up the illegal behavior and to create the illusion of literally “the greater weight of the evidence.”

In virtually every foreclosure case the money trail (i.e., reality) does not in any way dovetail or reconcile with the false paper trail created by the world’s largest banks.

Excerpts from Bill’s Article:

I have obtained confirmation from a large bank vendor (Visionet Systems, Inc.) that it rectifies “lost notes” by reapplying the “signature images” upon stored copies. 

Astonishingly enough, this is not the only business practice that appears to violate the $25B National Consent Judgment. Visionet advertises that it prepares “OCR Legal Packages” which involves the use of a sophisticated computer software program to create and verify foreclosure affidavits. Apparently, humans are too slow, as Visionet points out, “Servicers routinely lag behind on completing the legal package reviews in a timely manne[r.”]

[For reference, here is a copy of the “Consent Judgement” (CJ) signed on April 11, 2012 (consent_judgment_boa-4-11-12)]

This investigation begins with yet another “surrogate signed” mortgage assignment “Prepared By: Visionet Systems, Inc.,” executed and recorded December 2015 in Collier County Florida (see: collier-county-florida-assignment). The assignment is executed by “Stacy Pierce – Vice President – MERS as nominee for Greenpoint Mortgage Funding, Inc.” Of course, this mortgagee went out of business on August 20, 2007.

I looked up “Stacy Pierce” and found her LinkedIn resume which shows “VP of Operations” for Visionet Systems, Inc. (see: https://www.linkedin.com/in/stacy-pierce-53047162)

I visited Visionet’s website (https://www.visionetsystems.com/about) and found this marketing brochure describing a product called “Visirelease.” (see: visirelease-marketing-brochure) I was curious as to the following language located on page 2:

“A database driven Business Engine enables the users to define complex business conditions. These business conditions are associated with the relevant tasks to ensure verification at completion of each task. A powerful and flexible print engine is implemented for printing of release, assignments and lost notes, with or without signature images.”

The persons signing the eventual automated affidavits are simply relying on the auto-produced document, and do little if any human verification. The prime example is the above assignment on behalf of defunct Greenpoint! Still, if the witness was doing the actual verification, then why the need for OARS? In all the cases I have been involved, having read and heard countless servicer witnesses’ testimony, I have yet to hear any of these bank witnesses divulge that the affidavits relied upon in the proceedings were prepared and “verified” by a third-party automated computer program. How’s that for hearsay?

Here is the laundry list of potential violations to the Consent Judgment. Nowhere do I see room for “automated affidavit verification solutions” by undisclosed third-party vendors such as Visionet Systems, Inc.

[(CJ – A1-A3):

2. Servicer shall ensure that affidavits, sworn statements, and Declarations are based on personal knowledge, which may be based on the affiant’s review of Servicer’s books and records, in accordance with the evidentiary requirements of applicable state or federal law.

3. Servicer shall ensure that affidavits, sworn statements and Declarations executed by Servicer’s affiants are based on the affiant’s review and personal knowledge of the accuracy and completeness of the assertions in the affidavit, sworn statement or Declaration, set out facts that Servicer reasonably believes would be admissible in evidence, and show that the affiant is competent to testify on the matters stated. Affiants shall confirm that they have reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose, including the borrower’s loan status and required loan ownership information. If an affiant relies on a review of business records for the basis of its affidavit, the referenced business record shall be attached if required by applicable state or federal law or court rule. This provision does not apply to affidavits, sworn statements and Declarations signed by counsel based solely on counsel’s personal knowledge (such as affidavits of counsel relating to service of process, extensions of time, or fee petitions) that are not based on a review of Servicer’s books and records. Separate affidavits, sworn statements or Declarations shall be used when one affiant does not have requisite personal knowledge of all required information.

5. Servicer shall review and approve standardized forms of affidavits, standardized forms of sworn statements, and standardized forms of Declarations prepared by or signed by an employee or officer of Servicer, or executed by a third party using a power of attorney on behalf of Servicer, to ensure compliance with applicable law, rules, court procedure, and the terms of this Agreement (“the Agreement”).

6. Affidavits, sworn statements and Declarations shall accurately identify the name of the affiant, the entity of which the affiant is an employee, and the affiant’s title.

7. Servicer shall assess and ensure that it has an adequate number of employees and that employees have reasonable time to prepare, verify, and execute pleadings, POCs, motions for relief from stay (“MRS”), affidavits, sworn statements and Declarations.

10. Servicer shall not pay volume-based or other incentives to employees or third-party providers or trustees that encourage undue haste or lack of due diligence over quality.

11. Affiants shall be individuals, not entities, and affidavits, sworn statements and Declarations shall be signed by hand signature of the affiant (except for permitted electronic filings). For such documents, except for permitted electronic filings, signature stamps and any other means of electronic or mechanical signature are prohibited.


Statutory Requirements for Enforcement of Note or Mortgage

For further information please call 954-495-9867 or 520-405-1688


So many people sent me this short white paper that I don’t know who to thank or even who wrote it. Any help would be appreciated so I can edit this article and give attribution to the writer.

The only thing that I would caution is that eventually, perhaps sometime soon, the importance of the Assignment and Assumption Agreement will rise in importance as to these enforcement actions based upon a fictitious closing, debt, note and mortgage. The A&A is an agreement between the “originator” and some other “aggregator conduit”.

The A&A essentially calls for violation of TILA by not disclosing the existence of a third party lender. It also allows for compensation and profits arising from the signature of the borrower on the settlement documents without disclosure of who received that compensation or made those profits and how much they were “earning.”

Whether this is ultimately determined to be a table funded loan or simply not a loan contract at all with the borrower remains to be seen. If it is determined to be a table funded loan with an undisclosed third party lender who is not even the aggregator in the A&A then according to regulations Z it is “predatory per se.” If it is predatory per se then how can anyone seek enforcement in equity (i.e. foreclosure)?

And while I am at it, to answer the question of many judges — “what difference does it make where the money came from? — ASK THE BANKS. They nearly always demand to see the bank account from which the down payment is being made and even going beyond that to require the borrower to prove that the money is the money of the borrower. If normal underwriting requires the borrower to produce proof of funding then why isn’t the bank required to prove that they funded the loan — either by origination or acquisition or both?

If a borrower gets the down payment from his Uncle Joe because he is in fact broke, then the Bank under normal underwriting circumstances won’t approve the loan. If a Bank has no financial stake in the alleged “loan” then why should THEY be allowed to enforce it? Isn’t that highly prejudicial to the real creditors? Isn’t the foreclosure judge making it harder for the real creditors to collect by entering judgment for a party who has no risk, no financial stake and no contractual right (or obligations) to represent the real creditor.

And lastly is the wrong assumption about the chronology of these transactions. The mortgage backed securities were “sold forward,” which is to say there was nothing in the Trust when they were sold — and as it turns out in most cases the Trust never got any loans. Further the notes and mortgages were also sold forward in a cloudy arrangement in which the ownership and balance due was at least in doubt if not unknown. You must remember that the banks were not in the business of loaning money — they were in the business of selling mortgage backed securities for empty trusts and then using the money any way they chose.

All that said the following was received by me from several people and I agree with virtually all of it.


Statutory Requirements For Establishing The Right To Enforce An Instrument

1. Prove status of holder of the instrument. (UCC § 3-301(i)); or

2. Prove status of non-holder in possession of the instrument who has the rights of a holder. (UCC § 3-301(ii)); or

3. Prove status of being entitled to enforce the instrument as a person not in possession of the instrument pursuant to UCC § 3-309 or UCC § 3-418(d). (NOTE is lost, stolen, destroyed).

UCC § 3-309, requirements.

a. Prove possession of the instrument and entitled to enforce it when loss of possession occurred. (UCC § 3-309(a)(1)).

i. If illegality or fraud were involved in the original transaction, it cannot be proved that the person is entitled to enforce the instrument.(See UCC § 3-305. DEFENSES)

b. Prove non-possession of the NOTE is NOT the result of a transfer. (UCC § 3-309(a)(2)).

NOTE: If discovery shows that the instrument was sold by the person claiming the right to enforcement, a transfer occurred, and such person is NOT entitled to enforce the instrument. (See UCC § 3-309(a)(ii)).

c. Prove that the person seeking enforcement cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. (UCC § 3-309(a)(3)).

NOTE: If discovery shows that the instrument was sold by the person claiming the right to enforcement, a transfer occurred, and such person is NOT entitled to enforce the instrument. (See UCC § 3-309(a)(ii)).

d. A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. (UCC § 3-309(b)).


UCC § 3-309 Enforcement Of Lost, Destroyed, Or Stolen Instrument.
(a) A person not in possession of an instrument is entitled to enforce the instrument if

(1) the person seeking to enforce the instrument​
(A) was entitled to enforce the instrument when loss of possession occurred, or
(B) has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred; ​
(2) the loss of possession was NOT the result of a transfer by the person or a lawful seizure; and​
(3) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.​

(b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, Section 3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.


An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument. (UCC § 3-203(a)).

If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this Article and has only the rights of a partial assignee. (UCC 3-203(d)).


If the bank, mortgage company, etc., sold the NOTE, they have no right to enforce the NOTE, through foreclosure or court proceeding pursuant to the fact that the UCC bars such claimant from invoking the court’s subject matter jurisdiction of the case.


Even if the claimant produces the original wet-ink NOTE, there is a defense to the action pursuant to UCC 3-305.

Illegality and false representation (fraud) perpetrated in the transaction.

Did the bankdisclose the SOURCE of the money for the transaction?Did the bank inform the NOTE issuer that the money for the transaction was provided at no cost to the bank?

Did the bank disclose that the NOTE would be sold at the earliest possible convenience, and that such sale and receipt of money from a third party would actually pay off the NOTE? (Satisfaction of Mortgage).​

Many discovery questions to be asked when a claimant initiates foreclosure proceedings.


Many assume that the bank/broker/lender that begins the process is actually providing the money for making a “loan,” when in fact, the bank/broker/lender is only making an “exchange,“ of notes, at no cost, and then, coercing the issuer of the promissory note into the comprehension that he is receiving a “loan.” The following was stated in A PRIMER ON MONEY, SUBCOMMITTEE ON DOMESTIC FINANCE, COMMITTEE ON BANKING AND CURRENCY, HOUSE OF REPRESENTATIVES, 88th Congress, 2d Session, AUGUST 5, 1964, CHAPTER VIII, HOW THE FEDERAL RESERVE GIVES AWAY PUBLIC FUNDS TO THE PRIVATE BANKS [44-985 O-65-7, p89]

“In the first place, one of the major functions of the private commercial banks is to create money. A large portion of bank profits come from the fact that the banks do create money. And, as we have pointed out, banks create money without cost to themselves, in the process of lending or investing in securities such as Government bonds.”​

In this instance, the transaction was funded by using the prospective property (collateral) and the signer’s promissory note as if the property and the Note already belonged to the bank/broker/lender. [Editor’s note: Those loans NEVER belonged to the Bank who was selling them before they even existed.]

So, if the bank used the promissory NOTE, as money, to create the cash reserve which was then used to validate the bank check issued on the face amount of the promissory NOTE, at no cost to the bank, without NOTICE to the signer of the promissory NOTE, and without fully disclosing these facts and aspects of the transaction, the bank committed a DECEPTIVE PRACTICE, FRAUD.

Who Can Sign a Lost Note Affidavit? What Happens When It Is “Found?”

For further information and assistance, please call 954-495-9867 or 520-405-1688


Let’s start with the study that planted the seed of doubt as to the validity of the debt, note, mortgage and foreclosure and whether any of those “securitized debt” foreclosures should have been allowed to even get to first base. Katherine Ann Porter, when she was a professor in Iowa (2007) did a seminal study of “lost” documents and found that at least 40% of ALL notes were lost as a result of intentional destruction or negligence. You can find her study on this blog.

The issue with “lost notes” is actually simple. If the note is lost then the court and the borrower are entitled to an explanation of the the full story behind the loss of the note, why it was intentionally destroyed and whose negligence caused the loss of the note. And the reason is also simple. If the Court and the borrower are not fully satisfied that the whole story has been told, then neither one can determine whether the party claiming rights to collect or enforce the note actually has those rights.

This is the question posed to me by a knowledgeable person involved in the challenge to the validity of the debt, note, mortgage and foreclosure:

Who is finding the Note?  Can a servicer execute a Lost Note Affidavit as a holder?  Non holder in possession?

It took me a while to get to the obvious point of the above defense.  It is intended in the event that party A loses the Note and files a LNA [Lost Note Affidavit}, that the Issuer, does not have to pay party B even if he appears with a blank endorsed note, unless B can prove holder in due course (virtually impossible these days, esp in foreclosure cases).

This is critical.  The foreclosing party, through a series of mergers and successions, files a case as successor by merger to ABC.  Can’t locate note, so it files a LNA, stating ABC lost the Note.  Note is found, but the foreclosing party says, oops, was in a custodial file for which we were the servicer for XYZ.   While the foreclosing party has the note, it cannot unring the fact it got the Note from XYZ after ABC lost it.

Good questions. He understands that the requirements as expressly stated in the law (UCC, State law etc.) are quite stringent. You cannot re-establish a lost note with a copy of it unless you can prove that you had it and that you were the person entitled to enforce it (known as PETE). You also cannot re-establish the note unless you can prove that the note was lost or destroyed under circumstances where it is far more likely than not that the original won’t show up later in the hands of someone else claiming PETE status. So there should be a heavy burden placed on any party seeking to foreclose or even just to collect on a “lost note.” But courts have steamrolled over this obvious problem requiring something on the order of “probable cause” rather than actual proof. While there is some evidence the judiciary is turning the corner against the banks, the great majority of cases fly over these issues either because of presumptions by the bench or because the “borrower” fails to raise it — and fails to make appropriate motions in limine and raise objections in trial.

But the person who posed this question drills down deeper into the real factual issues. He wants to know details. We all know that it is easier to allege that you destroyed it accidentally or even intentionally than to allege the loss of the note. A witness from the party asserting PETE can say, truthfully or not, “I destroyed it.” Proving that he didn’t and that the copy is fabricated is very difficult for a homeowner with limited resources. If the allegation and the testimony is that the note was lost, we get into the question of what, when where, how and why. But in a lost note situation most states require some sort of indemnification from the party asserting PETE status or holder in due course status. That is also a problem. I remember rejecting the offer of indemnification from Taylor, Bean and Whitaker after I reviewed their financial statements. It was obvious they were going broke and they did. And the officers went to jail for criminal acts.

So the first question is exactly when was the “original” note last seen and by whom? In whose possession was it when it was allegedly lost? How was it lost? Who has direct personal information on the location of the original and the timing and method of loss? And what happens when the note is “found?” We know that original documents are being fabricated by advanced technology such that even the borrower doesn’t realize he is not being shown the original (that is why I suggest denying that they are the holder of the note, denying they are PETE, denying they are holder in due course etc.)

In the confusion of those issues, the homeowner usually fails to realize that this is just another lie. But in discovery, if you are awake to the issue, you can either learn the facts (or deal with the inevitable objections to discovery). And then the lawyer for the homeowner should graph out the allegations and testimony as best as possible. The questioner is dead right — if the party NOW claiming PETE status or HDC status received the “found” original note but received it from someone other than the party who “lost” it, there is no chain upon which the foreclosing party can rely. In simple language, what they are attempting to do is fly over the gap between when the note was lost and destroyed and the time that the current claimant took possession of the paper. And once again I say that the real proof is the real money trail. If the underlying transactions exist, then there will be some correspondence, agreements and a payment of money that will reveal the true transfer.

And again I say, that if you are attacking the paper you need to be extremely careful not to give the impression that the borrower is attempting to get out of a legitimate debt. The position is that there is no legitimate debt IN THIS CHAIN. The debt lies outside the chain. The true debt is owed to whoever supplied the money that was received at the loan closing, regardless of what paperwork was signed. Failure to prove the original loan transaction should be fatal to the action on the note or the mortgage (except if the foreclosing party can prove the status of a holder in due course). The fact that the paperwork was signed only creates a potential second liability that does not benefit the party whose money was used for the loan.

The foreclosure is a thinly disguised adventure in greed — where the perpetrators of the false foreclosure, use fabricated, robo-signed paper without ANY loan at the base of the paper trail and without any payments made by any of the parties for possession or enforcement of the paper. They are essentially stealing the house, the proceeds, and the money that was used to fund the “loan” all to the detriment of the real parties in interest, to wit: the investors who were tricked into directly lending the money to borrowers  and the homeowners who were tricked into signing paperwork that created a second liability for the same loan.

Nye Lavalle’s Early Warning in 2003 Profiled In New York Times


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

SERVICE 520-405-1688

“The Fraud of Our Lifetime”

Robert D. Drain, a federal bankruptcy judge in the Southern District of New York, said in court last month that the failure of the mortgage industry to deal with pervasive problems involving inaccurate documentation and improper court filings amounted to “the greatest failure of lawyering in the last 50 years.”

In an interview last week, Judge Drain said several practices have contributed to the foreclosure mess. One is that Fannie and the rest of the industry failed to ensure that MERS was operating legally in all states. Another is that the industry failed to perform due diligence on documentation.


EDITOR’S NOTES: Nye has contributed to these pages and while he attended my workshop, he was as much a contributor there as a participant. For homeowners, lawyers, judges, legislators, and law enforcement officials, here are the take-away points that are documented by Lavalle and referred to in this article. Lavalle is a heavy hitter, and despite the obvious clarity of his projections and observations in 2003 and the years going forward, everyone ignored him — stating that he was “over the top.” I know how that feels. But here are some actual facts that can be found and used in your litigation with the banks and servicers, Fannie and Freddie. It was a dirty business from the start:

  1. Anyone who gains control of a note can try to force the borrower to pay it — even if it has already been paid. In our current context the burden mysteriously shifts to the borrower to prove information that is solely in the possession of the their opponent who has no intention of giving it up. By pretending to be a lender or successor, banks and servicers have foreclosed on millions of properties not just improperly from a procedural point of view, but wrongfully because there was no debt, there was no default and there was no security instrument that was enforceable.
  2. In at least 2 million foreclosures,, extrapolating from currently available figures, the debt was paid in full to the creditor but the note was not cancelled, so that the same note could be subject to collection multiple time. These uncancelled notes were routinely sent by Fannie and Freddie as parties complicit in a monumental fraud. Everyone knew better but the prospect of grabbing homes from unsuspecting homeowners who knew they had stopped making payments was irresistible. Why tell the homeowner that the debt was paid? Why tell the homeowner that there was no default? It certainly looked like there was a debt and it looked like a default. So the banks and servicers ran with it.
  3. Most of the remaining 5 million foreclosures were based upon false declarations of default because the note was partially paid by third parties as set forth in the contracts between the investors, servicers and banks. These also include debts that had been paid or settled in full by receipt of servicer payments, insurance, and credit default swaps as well as commingling of funds between tranches in each REMIC.
  4. Destruction of 40% of the notes ( at a minimum) was a planned strategy to create a grey area in which anyone who could create the “original note” (even though it was lost or shredded) was able to bring enforcement actions against hapless homeowners who had no way or knowing nor any access to information as to the reality of these exotic transactions.
  5. Lavalle warned Fannie and Freddie in 2005 — 2 years before this blog began — that David Stern’s office was being cited for using fabricated, fraudulent instruments. They didn’t care.
  6. The findings in confidential analyses and reports corroborated the observations and analysis of Lavalle. But the Conclusion is what will send occupiers and others through the roof — they concluded that most people would not have the resources of knowledge to attack the system of corruption and so it was decided to allow it to continue. In other words because you are ignorant of how the money was handled, because the banks and servicers were allowed to deceive you and you were deceived, because you didn’t understand the exotic instruments in which your your signature was used, and most of all because you didn’t have the money to challenge them, you would lose your home, all the money you put into it and never know that the parties who foreclosed were literally laughing all the way to the Bank. 
  7. The solution is to get help. The analytical tools offered on this web site are now being used with some success in courtrooms across the country. We are in the process of combining the tools into packages such that the inexperienced homeowner is not forced to choose between products that he or she does not understand. And we have paralegals support services for a legion of lawyers who will shortly announce their ability to process large volumes of case competently, methodically and successfully. We are ending the days where you order a report that contains helpful information but there is no instruction or manual that explains how to use the information on title, securitization Forensic Loan (TILA) Analysis and Loan Level Accounting. Now you only need to know that the consortium of analysts, paralegals and lawyers will bring the facts of your case together for the best possible presentation. Take hope from this but no sense of guarantee. Many Judges and lawyers and even the homeowners) have trouble with the notion that the debt was extinguished without borrower payment and was instead paid by others.

A Mortgage Tornado Warning, Unheeded


YEARS before the housing bust — before all those home loans turned sour and millions of Americans faced foreclosure — a wealthy businessman in Florida set out to blow the whistle on the mortgage game.

His name is Nye Lavalle, and he first came to attention not in finance but in sports and advertising. He turned heads in marketing circles by correctly predicting that Nascar and figure skating would draw huge followings in the 1990s.

But after losing a family home to foreclosure, under what he thought were fishy circumstances, Mr. Lavalle, founder of a consulting firm called the Sports Marketing Group, began a new life as a mortgage sleuth. In 2003, when home prices were flying high, he compiled a dossier of improprieties on one of the giants of the business, Fannie Mae.

In hindsight, what he found looks like a blueprint of today’s foreclosure crisis. Even then, Mr. Lavalle discovered, some loan-servicing companies that worked for Fannie Mae routinely filed false foreclosure documents, not unlike the fraudulent paperwork that has since made “robo-signing” a household term. Even then, he found, the nation’s electronic mortgage registry was playing fast and loose with the law — something that courts have belatedly recognized, too.

You might wonder why Mr. Lavalle didn’t speak up. But he did. For two years, he corresponded with Fannie executives and lawyers. Fannie later hired a Washington law firm to investigate his claims. In May 2006, that firm, using some of Mr. Lavalle’s research, issued a confidential, 147-page report corroborating many of his findings.

And there, apparently, is where it ended. There is little evidence that Fannie Mae’s management or board ever took serious action. Known internally as O.C.J. Case No. 5595, in reference to the company’s Office of Corporate Justice, this 2006 report suggests just how deep, and how far back, our mortgage and foreclosure problems really go.

“It is axiomatic that the practice of submitting false pleadings and affidavits is unlawful,” said the report, a copy of which was obtained by The New York Times. “With his complaint, Mr. Lavalle has identified an issue that Fannie Mae needs to address promptly.”

What Fannie Mae knew about abusive foreclosure practices, and when it knew it, are crucial questions as Congress and the Obama administration weigh the future of the company and its cousin, Freddie Mac. These giants eventually blew themselves apart and, so far, they have cost taxpayers $150 billion. But before that, their size and reach — not only through their own businesses, but also through the vast amount of work they farm out to law firms and loan servicers — meant that Fannie and Freddie shaped the standards for the entire mortgage industry.

Almost all of the abuses that Mr. Lavalle began identifying in 2003 have since come to widespread attention. The revelations have roiled the mortgage industry and left Fannie, Freddie and big banks with potentially enormous legal liabilities. More worrying is that the kinds of problems that Mr. Lavalle flagged so long ago, and that Fannie apparently ignored, have evicted people from their homes through improper or fraudulent foreclosures.

Until a few weeks ago, Mr. Lavalle, 54, had never seen O.C.J. 5595. He had hoped to get a copy after helping Fannie’s lawyers, at Baker & Hostetler in Washington, complete it. He didn’t.

But after learning about its findings from a reporter for The Times, Mr. Lavalle said, “Fannie Mae, its directors, servicers and lawyers appeared to have an institutional policy of turning a willful blind eye to evidence of mortgage origination and servicing fraud.”

He went on: “When confronted directly with this evidence, Fannie not only failed to correct and remedy the abuses, it assisted in continuing the frauds via institutional practices that concealed fraudulent foreclosures.”

A spokesman for Fannie Mae said in a statement last week that the company quickly addressed several issues that were raised in the 2006 report and that it took action on other issues associated with foreclosures in 2010. “We want to prevent foreclosure whenever possible, but when foreclosures cannot be avoided they must move forward in a timely, appropriate fashion,” he said.

Fannie Mae would not say whether it had shared O.J.C. 5595 with its board of directors or its regulator, then known as the Office of Federal Housing Enterprise Oversight. James B. Lockhart III, who headed that regulator in 2006, said he did not recall reading the report. “I probably did not see it as back then foreclosures were not a very big deal,” he said.

But another report published last fall by the inspector general of the Federal Housing Finance Agency, the current regulator, briefly mentioned some of the problems that Mr. Lavalle had raised. (It didn’t mention him by name.) It also faulted Fannie Mae, saying it failed to address foreclosure improprieties that had surfaced years before.

LIKE most people, Nye Lavalle had little interest in the mortgage industry until things got personal. Raised in comfortable surroundings in Grosse Pointe, Mich., just outside Detroit, he began his business career in the 1970s, managing professional tennis players. In the 1980s, he ran SMG, a thriving consulting and research firm.

Then he tried to pay off a loan on a home his family had bought in Dallas in 1988. The balance was roughly $100,000, and the property was valued at about $175,000, Mr. Lavalle said. But when he combed through figures provided by his lender, Savings of America, he found substantial discrepancies in the accounting that had inflated his bill by $18,000. The loan servicer had repeatedly charged him late fees for payments he had made on time, as well as for unnecessary appraisals and force-placed hazard insurance, he said.

Mr. Lavalle refused to pay. The bank refused to bend. The balance rose as the bank tacked on lawyers’ fees and the loan was deemed delinquent. The fight continued after his mortgage was allegedly sold to EMC, a Bear Stearns unit.

Unlike most people, Mr. Lavalle had the time and money to fight. He persuaded his family to help him pay for a lawsuit against EMC and Bear Stearns. Seven years and a small fortune later, they lost the house in Dallas. Back then, judges weren’t as interested in mortgage practices as some are now, he said.

The experience lit a fire. Mr. Lavalle set out to learn everything he could about the mortgage industry. In a five-hour interview in Naples, Fla., last month, he described his travels nationwide. He dove into mortgage arcana, land records and court filings. By 1996, he had identified what appeared to be forged signatures on foreclosure documents, foreshadowing troubles to come. He took his findings to big players in the industry: Banc One, Bear Stearns, Countrywide Financial, Freddie Mac, JPMorgan, Washington Mutual and others. A few responded but later said his claims were not valid, he said.

Now he splits his time between Orlando and Boca Raton, advising lawyers as an expert witness. “From my own personal experience and 20 years of research and investigation, nothing — and I mean nothing — that a bank, lender, loan servicer or their lawyer says or puts on paper can be trusted and accepted as true,” Mr. Lavalle said.

FANNIE MAE, now in government hands, has acknowledged how abusive foreclosure practices can hurt its own business. “The failure of our servicers or a law firm to apply prudent and effective process controls and to comply with legal and other requirements in the foreclosure process poses operational, reputational and legal risks for us,” it said in a 2010 filing with the Securities and Exchange Commission.

Five years earlier, Fannie seemed to have taken a different view. That was when Mr. Lavalle pointed out legal lapses by some of its representatives. Among them was the law offices of David J. Stern, in Plantation, Fla., which was handling an astonishing 75,000 foreclosure cases a year — more than 200 a day. In 2005, Mr. Lavalle warned Fannie Mae that some judges had ruled that the Stern firm was submitting “sham pleadings.” Nonetheless, Fannie continued to do business with the firm until it closed its doors last year, after evidence emerged of rampant forgeries and fraudulent filings.

O.C.J. Case No. 5595 found that Stern wasn’t the only firm working for Fannie that seemed to be cutting corners. It also found that lawyers operating in seven other states — Connecticut, Georgia, New York, Illinois, Louisiana, Kentucky and Ohio — had made false filings in connection with work for Fannie Mae or the Mortgage Electronic Registration System, or MERS, a private mortgage registry Fannie helped establish in 1995.

“While Fannie Mae officials do not have a single opinion, some officials believe foreclosure counsel are sacrificing accuracy for speed,” the report said.

The lawyers at Baker & Hostetler did not agree with everything Mr. Lavalle said. Mark A. Cymrot, a partner who led the investigation, discounted Mr. Lavalle’s fear that Fannie could lose billions if large numbers of foreclosures had to be unwound as a result of misconduct by its lawyers and servicers.

Even so, the report didn’t conclude that Mr. Lavalle was wrong on the legal issues. It simply said that few people would have the financial resources to challenge foreclosures. In other words, few people would be like Mr. Lavalle.

“Courts are unlikely to unwind foreclosures unless borrowers can demonstrate that the foreclosure would not have gone forward with the correct pleadings, which is a difficult burden for most borrowers to meet,” the report said. “Nevertheless, the issues Mr. Lavalle raises should be addressed promptly in order to mitigate the risk of exposure to lawsuits and some degree of liability.” Mr. Cymrot declined to comment for this article.

O.C.J. 5595 also questioned Mr. Lavalle’s contention that improprieties by loan servicers were pervasive. But based on interviews with 30 Fannie employees, the report conceded that the company had no mechanism to ensure that servicers were charging borrowers appropriate fees.

Other oversight at Fannie was similarly lacking, the Baker & Hostetler lawyers found. For instance, when Fannie identified fraud by a lender or servicer, it didn’t notify the homeowner. Nor did it police activities of lawyers or servicers it hired. As a result, the report said, Fannie might not be insulated from liability for their misconduct.

Lewis D. Lowenfels, a securities law expert, said he was perplexed that Fannie’s board appeared to have done nothing to correct these practices. “If it had been brought to the board’s attention that specific acts of illegality were being committed, it should have directed that relationships with the transgressors be terminated forthwith and Fannie Mae’s regulator be advised accordingly,” he said.

Daniel H. Mudd, Fannie’s chief executive at the time, declined to comment through his lawyer. Mr. Mudd was recently sued by the S.E.C., accused of failing to disclose Fannie’s participation in the subprime mortgage market.

PERHAPS no development has done more to obscure the forces behind the foreclosure epidemic than the rise of the MERS, the private registry that has all but replaced public land ownership records. Created by Fannie, Freddie and big banks, MERS claims to hold title to roughly half the nation’s home mortgages. Judges and lawmakers have questioned MERS’s legal authority to initiate foreclosures, and some judges have thrown out foreclosures brought in its name. On Friday, New York’s attorney general sued MERS, contending that its system led to fraudulent foreclosure filings. MERS refuted the claims and said it would fight.

Mr. Lavalle warned Fannie years ago that MERS couldn’t legally foreclose because it didn’t actually own notes underlying properties.

The report agreed. MERS’s approach of letting loan servicers foreclose in its own name, not in that of institutions owning the notes, “is not accepted legal practice in all states,” the report said. Moreover, “MERS’s counsel conceded false allegations are routinely made, and the practice should be ‘modified.’ ”

It continued: “To our knowledge, MERS has not addressed the issue of its counsels’ repeated false statements to the courts.”

Janis L. Smith, a spokeswoman for MERS, said it had not seen the Baker & Hostetler report and declined comment on its references to the false statements made on its behalf to the courts. She said that MERS’s business model is legal in all states and that as a nominee, it has the right to foreclose. MERS stopped allowing its members to foreclose in its name in all states in 2011.

Robert D. Drain, a federal bankruptcy judge in the Southern District of New York, said in court last month that the failure of the mortgage industry to deal with pervasive problems involving inaccurate documentation and improper court filings amounted to “the greatest failure of lawyering in the last 50 years.”

In an interview last week, Judge Drain said several practices have contributed to the foreclosure mess. One is that Fannie and the rest of the industry failed to ensure that MERS was operating legally in all states. Another is that the industry failed to perform due diligence on documentation.

MERS no longer participates in foreclosures. But a lot of damage has already been done, Mr. Lavalle said.

“Hundreds of thousands of foreclosures in Florida and across America were knowingly conducted unlawfully, for which there are still severe liabilities and implications to come for many years,” he said.

THERE was a time when Americans had mortgage-burning parties: When they paid off a promisory note, they celebrated by burning the release of the lien.

But they kept the canceled promissory note — and there was a reason for that. Promissory notes, like dollar bills, are negotiable currency. Whoever holds them can essentially claim them.

According to O.C.J. Case No. 5595, Fannie held roughly two million mortgage notes in its offices in Herndon, Va., in 2005 — a fraction of the 15 million loans it actually owned or guaranteed. Who had the rest? Various third parties.

At that time, Fannie typically destroyed 40 percent of the notes once the mortgages were paid off. It returned the rest to the respective lenders, only without marking the notes as canceled.

Mr. Lavalle and the internal report raised concerns that Fannie wasn’t taking enough care in handling these documents. The company lacked a centralized system for reporting lost notes, for instance. Nor did custodians or loan servicers that held notes on its behalf report missing notes to homeowners.

The potential for mayhem, the report said, was serious. Anyone who gains control of a note can, in theory, try to force the borrower to pay it, even if it has already been paid. In such a case, “the borrower would have the expensive and unenviable task of trying to collect from the custodian that was negligent in losing the note, from the servicer that accepted payments, or from others responsible for the predicament,” the report stated. Mr. Lavalle suggested that Fannie return the paid notes to borrowers after stamping them “canceled.” Impractical, the 2006 report said.

This leaves open the possibility that someone might try to force homeowners to pay the same mortgage twice. Or that loans could be improperly pledged as collateral by some other institution, even though the loans have been paid, Mr. Lavalle said. Indeed, there have been instances in the foreclosure crisis when two different institutions laid claim to the same mortgage note.

In its statement last week, Fannie said it quickly addressed questions of lost note affidavits and issued guidance to servicers that no judicial foreclosures be conducted in MERS’s name. It also said it instructed Florida foreclosure lawyers “to use specific language to assure no confusion over the identity of the ‘owner’ and the ’holder’ of the note.”

The 2006 report said Mr. Lavalle at times came across as over the top, that he was, in its words, “partial to extreme analogies that undermine his credibility.” Knowing what we know now, he looks more like one of the financial Cassandras of our time — a man whose prescient warnings went unheeded.

Now, he hopes dubious mortgage practices will be eradicated.

“Any attorney general, lawyer, bank director, judge, regulator or member of Congress who does not open their eyes to the abuse, ask pertinent questions and allow proper investigation and discovery,” he said, “is only assisting in the concealment of what may be the fraud of our lifetime.”



Part III of Gardner and Shepherd: Notes and Assignments

Your Client’s Securitized Mortgage: A Basic Roadmap PART 3: Dealing with Notes and Assignments [2009-11-19]

Your Client’s Securitized Mortgage: A Basic Roadmap
By O. Max Gardner, III and Richard D. Shepherd

Part 3: Dealing with Notes and Assignments

There are two basic documents involved in a residential mortgage loan: the promissory note and the mortgage (or deed of trust). For brevity’s sake these are referred to simply as the Note and the Mortgage.

A Note is: a contract to repay borrowed money. It is a negotiable instrument governed by Article 3 of the Uniform Commercial Code (UCC). The Note, by itself, is an unsecured debt. Notes are personal property. Notes are negotiated by endorsement or by transfer and delivery as provided for by the UCC. Notes are separate legal documents from the real estate instruments that secure the loans evidenced by the Notes by liens on real property.

A Mortgage is: a lien on, and an interest in, real estate. It is a security agreement. It creates a lien on the real estate as collateral for a debt, but it does not create the debt itself. The rights created by a Mortgage are classified as real property and these instruments are governed by local real estate law in each jurisdiction. The UCC has nothing to do with the creation, drafting, recording or assignment of these real estate instruments.
A Note can only be transferred by: an “Endorsement” if the Note is payable to a particular party; or by transfer of possession of the Note, if the Note is endorsed “in blank.” Endorsements must be written or stamped on the face of the Note or on a piece of paper physically attached to the Note (the Allonge). See UCC §3-210 through §3-205. The UCC does not recognize an Assignment as a valid means of transferring a Note such that the transferee becomes a “holder”, which is what the owners of securitized mortgage notes universally claim to be.

In most states, an Allonge cannot be used to endorse a note if there is sufficient room at the “foot of the note” for such endorsements. The “foot of the note” refers to the space immediately below the signatures of the borrowers. Also, if an Allonge is properly used, then it must describe the terms of the note and most importantly must be “permanently affixed” to the Note. Most jurisdictions hold that “staples” and “tape” do not constitute a “permanent” attachment. And, the Master Document Custodial Agreement may specify when an Allonge can be used and how it must be attached to the original Note.

Mortgage rights can only be transferred by: an Assignment recorded in the local land records. Mortgage rights are “estates in land” and therefore governed by the state’s real property laws. These vary from state to state but in general Mortgage rights can only be transferred by a recorded instrument (the Assignment) in order to be effective against third parties without notice.

In discussions of exactly what documents are required to transfer a “mortgage loan” confusion often arises between Notes versus Mortgages and the respective documents necessary to accomplish transfers of each. The issue often arises from the standpoint of proof: Has Party A proven that a transfer has occurred to it from Party B? Does Party A need to have an Assignment? The answer often depends on exactly what Party A is trying to prove.

Scenario 1: Party A is trying to prove that the Trustee “owns the loan.” Here the likely questions are, did the transaction steps actually occur as required by the PSA and as represented in the Prospectus Supplement, and are the Trustee’s ownership rights subject to challenge in a bankruptcy case?

The answers lie in the UCC and in documents such as:

  • the MLPSA’s;
  • conveyancing rules of the PSA (normally Section 2.01);
  • transfer and delivery receipts (look for these to be described in the “Conditions to Closing” or similarly named section of MLPSA’s and the PSA);
  • funds transfer records (canceled checks, wire transfers, etc);
  • compliance and exception reports provided by the Custodian pursuant to the Master Document Custodial Agreement; and
  • the “true sale” legal opinions.

Some of these documents may or may not be available on the SEC’s EDGAR system; some may be obtainable only through discovery in litigation. The primary inquiry is whether or not the documents, money and records that were required to have been produced and change hands actually do so as required, and at the times required, by the terms of the transaction documents.

Another question sometimes asked when examining the “validity” of a securitization (or in other words, the rights of a securitization Trustee versus a bankruptcy trustee) is, must the Note be endorsed to the Trustee at the time of the securitization? Here are some points to consider:

  • Frequently the only endorsement on the Note is from the Securitizer-Sponsor “in blank” and the only Assignment that exists, pre-foreclosure, is from the Securitizer-Sponsor “in blank” (in other words, the name of the transferee is not inserted in the instrument and this space is blank).
  • The concept widely accepted in the securitization world (the issuers and ratings agencies, and the law firms advising them) is that this form of documentation was sufficient for a valid and unbroken chain of transfers of the Notes and assignments of the Mortgages as long as everything was done consistently with the terms of the securitization documents. This article is not intended to validate or defend either this concept or this practice, nor is it intended to represent in any way that the terms of the securitization documents were actually followed to the letter in every real-world case. In fact, and unfortunately for the certificate holders and the securitized mortgage markets, there are many instances in many reported cases where these mandatory rules of the securitization documents have not been followed but in fact, completely ignored.
  • Often shortly before foreclosure (or in some cases afterwards) a mortgage assignment is produced from the Originator to the Trustee years after the Trust has closed out for the receipt of all mortgage loans. Such assignments are inconsistent with the mandatory conveyancing rules of the Trust Documents and are also inconsistent with the special tax rules that apply to these special trust structures. Most state law requires the chain of title not to include any mortgage assignments in blank, but assignments from A to B to C to D. Under most state statutes, an assignment in blank would be deemed an “incomplete real estate instrument.” Even more frequent than A to D assignments are MERS to D assignments, which suffer from the same transfer problems noted herein plus what is commonly referred to as the “MERS problem.”

Scenario 2: Party B seeks to prove standing to foreclose or to appear in court with the rights of a secured creditor under the Bankruptcy Code. OK, granted the UCC (§3-301) does provide that a negotiable instrument can be enforced either by “(i) the holder of the instrument, or (ii) a non-holder in possession of the instrument who has the rights of a holder.”

  • Servicers and foreclosure counsel have been known to contend that this is the end of the story and that the servicer can therefore do anything that the holder of the Note could do, anywhere, anytime.
  • The Fannie Mae and Freddie Mac Guides contain many sections that appear to lend superficial support to this contention and frequently will be cited by Servicers and foreclosure counsel as though the Guides have the force of law, which of course they do not.
  • There are many serious problems with this legal position, as recognized by an increasing number of reported court decisions.

Authors’ General Conclusions and Observations:

  • Servicers and foreclosure firms are either wrong, or at least not being cautious, if they attempt to foreclose, or appear in court, without having a valid pre-complaint or pre-motion Assignment of the Mortgage. Yet at the same time, Servicers and note holders place themselves at risk of preference and avoidable transfer issues in bankruptcy cases if, for example, endorsements and Assignments that they rely upon to support claims to secured status occur or are recorded after or soon before bankruptcy filing.
  • In addition any Servicer, Lender, or Securitization Trustee is either wrong, or at least not being cautious, if it ever: (1) claims in any communications to a consumer or to the Court in a judicial proceeding that it is the Note holder unless they are, at the relevant point in time, actually the holder and owner of the Note as determined under UCC law; or (2) undertakes to enforce rights under a Mortgage without having and recording a valid Assignment.
  • The UCC deals only with enforcing the Note. Enforcing the Mortgage on the other hand is governed by the state’s real property and foreclosure laws, which generally contain crucial provisions regarding actions required to be taken by the “note holder” or “beneficiary.” State law may or may not authorize particular actions to be taken by servicers or agents of the holder of the Note.
  • For the Servicer to have “the rights of the holder” under the UCC it must be acting in accordance with its contract. For example, if the Servicer claims to have possession of the Note, did it follow the procedures contained in the “Release of Documents” section of the Custodial Agreement in obtaining possession? Does the Servicer really have “constitutional” standing under either Federal or State law to enforce the Note even if it is a “holder” if it does not have any “pecuniary” or economic interest in the Note? In short, the concept of constitutional standing involves some injury in fact and it is hard to see how a mere “place-holder” or “Nominee” could ever over-come such a hurdle unless it actually owned the Note or some real interest in the same.
  • The Servicer should have the burden of explaining the legal reasons supporting its standing and authority to act. Sometimes Servicers have difficulty maintaining a consistent story in this regard. Is the Servicer claiming to be the actual holder, or the holder and the owner, or merely an authorized agent of the true holder? If it is claiming some agency, what proof does it have to support such a claim? What proof is required? Sometimes this is just academic legal hair-splitting but many times it involves serious issues of fact. For example, what if the attorney for the Servicer asserts to the court that his or her client actually owns the Note, but the Fannie Mae website reports that Fannie is the owner? What if the MERS website reports that the Plaintiff is just the “Servicer?” What if the pre-complaint correspondence to the borrower names some entirely different party as the holder and indicated that the current plaintiff is only the Servicer?
  • Finally, the Servicer always has an obligation to be factually accurate in borrower communications and legal proceedings, and to supervise employees and vendors and attorneys to assure that Note endorsements, Assignments of Mortgage, and affidavits are executed by persons with valid corporate authority, and not falsified nor offered for any improper purpose.

The focus of the default servicing industry must move from “how fast we can get things done” to “how honestly and accurately can we be in presenting the proper documentation to the courts and to the borrowers”. Judicial proceedings are not like NASCAR races where the fastest lawyer always wins. Judicial proceedings are all about finding the truth no matter how long it takes and regardless of the time and difficulties involved.

November 14, 2009

Richard D. Shepherd

The Law Office of Richard Shepherd

Troy, Virginia (W.D.VA)



O. Max Gardner III

Gardner & Gardner PLLC





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


“Regulators have missed more than two dozen deadlines for new Dodd-Frank rules, which cover a swath of topics, be it consumer protections in mortgage lending, bank responsibilities for dealing with city governments, or future resolution powers for troubled financial institutions. The legislation was the government’s main response to the financial crisis, and it is supposed to rein in Wall Street and reduce the kind of risk that led to the market implosion three years ago.”


EDITOR’S COMMENT: As the 2012 campaign starts to heat up and the campaign contributions start to flow, the Banks are growing in influence in Washington even as they lose the confidence of the American people. Legislators and regulators alike are feeling the pressure to bow to Bank money-peddling. The loser is not just the American Consumer, it is the nation itself. World civil unrest, revolution and dire physical and financial circumstances pile up fueled by the continuation of Wall Street illusions despite the consequences to people — including their ability to find food and shelter, But the Banks, owned by shareholders but whose existence confers benefits on management without risk, continue their game of pretending that the $600 trillion in derivatives is real.

Here is a synopsis of the situation: We have $50 trillion in actual currency issued by all the governments of the world. Wall Street has issued $600 trillion in “cash equivalent” derivative products whose value can only be measured in currency — which is 1/12th of what Wall Street issued. The derivatives, derive their value from currency denominated assets like mortgages. The mortgages are not in any pools despite Wall Street’s assurances to the contrary. Hence, the investors who are holding or trading within the $600 trillion bubble of fake cash equivalents,are holding nothing. Central Bankers, regulators, legislators are scared to death and they are being paid off by Wall Street to keep the $600 trillion pressure on the world’s population.

The fear is that the sky will fall if the the truth be acknowledged. The truth is known by everyone who has any interest in the subject but nobody is doing anything other than kicking the can down the road. Nobody wants to admit that they are allowing a lie to be lived and promoted in our midst. The $600 trillion is no more real than any other fictional character. The courts are slowly but surely grinding their way to the truth of this essential factor. In the meanwhile we stay distracted from real policy based upon real economics.

The fact is that not only are derivatives fake, but the debt on which they purportedly derive their value is largely nonexistent. But as long as the myth is perpetuated, the wealth stays with a few hundred people around the world pulling the strings of the world’s purse. Legally and factually, the wealth was never transferred from the people and withheld courts will eventually arrive at exactly that conclusion sending the megabanks crashing down — only to discover that the sky that was supposed to fall, was left undisturbed. The entire process is going to take decades to work out but those who persist in litigation will get their rewards far earlier than those who remain ignorant or apathetic about their personal economic status.

Hundreds of thousands, perhaps millions of people, who think they defaulted on mortgage obligations will discover that there was no default, there was no mortgage and the foreclosure was a fake. As the enormous title problems are sorted out, those who move now, will be rewarded by a shift of wealth that brings them from being broke to being comfortable. It is highly probable that the collateral benefit to borrowers will result in a fairly wealthy middle class, as all loans come under scrutiny as a result of the false securitization scheme. Consumers will emerge out from under the fake mountain of debt caused by inflated mortgages, unconscionable student loans, auto loans, and other consumer loans. Until that day of redemption, we shall continue to suffer.

Still Writing, Regulators Delay Rules


Regulators overseeing financial reform are delaying many of the planned changes in the $600 trillion market for complex securities known as derivatives because they are running drastically behind schedule in writing their new rules.

The Securities and Exchange Commission said on Wednesday that market participants would not have to comply with many aspects of derivatives reform scheduled to take effect in mid-July. It declined to specify how long the delay would be in the equity derivatives it oversees.

The announcement follows a similar statement on Tuesday from the Commodity Futures Trading Commission, although that agency imposed a year-end deadline for many of the changes in the derivatives it oversees.

The idea of changing the deadline had been divisive at the commodities commission. The two Republicans on the five-commissioner board had wanted to create an extension without a deadline. The Democrats, however, wanted a specific date to keep some pressure on the group to complete the rule writing, according to three participants in the meeting.

The commissioners ultimately agreed unanimously on the extension, but the dispute illustrates the political divide that has been brewing in Washington for months as regulators work to roll out hundreds of rules required by the Dodd-Frank financial reform legislation of last summer.

Though the Dodd-Frank measure was passed with bipartisan support, it has come under fierce criticism from many Republicans as well as some Democrats with financial constituents, who have urged regulators to slow the rule writing. Republicans are also trying to shave financing from agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission, which now have a larger workload in writing and enforcing scores of new rules.

Gary Gensler, the Democratic chairman of the trading commission, testified in Congress on Wednesday about the agency’s limited resources. In an interview, he pointed out that the derivatives market is seven times the size of the futures market, which his agency has long overseen.

“This agency has been asked to take on a very expanded mission,” he said. The decision this week to push back the derivatives deadline, he added, “was not about delay. It was just giving the market the certainty while we’re completing the rules.”

Regulators have missed more than two dozen deadlines for new Dodd-Frank rules, which cover a swath of topics, be it consumer protections in mortgage lending, bank responsibilities for dealing with city governments, or future resolution powers for troubled financial institutions. The legislation was the government’s main response to the financial crisis, and it is supposed to rein in Wall Street and reduce the kind of risk that led to the market implosion three years ago.

Observers say that the two delays this week make sense: with regulators so behind schedule, putting some of the rules into effect could be problematic. Still, regulatory experts warned that delays could be dangerous.

“Sounds like common sense to me,” said James J. Angel, a professor at the McDonough School of Business at Georgetown. “The regulators have this tsunami of work dumped on them, and it’s important to get it right.”

Still, he said, it is unclear whether the banks calling for a slowdown have legitimate concerns.

“You don’t know whether they’re just whining because they’re trying to get a few more pennies or if this is really Armageddon to them,” he said.

At hearings, bank officials have urged regulators to move slowly, saying that the rules will be better if created with greater care and consideration. The industry also has warned against what its officials call the “big bang” approach, under which many rules would take effect at once.

One difficulty is that many rules are related, and some rules drive others. Nowhere is this more true than in the derivatives market, where financial insurance contracts are written to protect against many different risks.

For instance, the rules to impose position limits in some commodities derivatives, like oil contracts, may depend in part on how much money financial players hold in different investments. But the commodities commission has been unable to demand all the data on these holdings — and the banks have not been volunteering — until it has written certain other rules and passed the one-year mark on the law.

The law specified that some derivatives rules would go into effect next month, no matter the status of rule writing, and those are what both financial commissions voted to delay this week.

At the commodities commission, Democrats and Republicans agreed that the July deadline for many rules was untenable because its staffers had not even finished defining terms like “swaps dealer” — an entity that buys and sells a type of derivative.

Jill Sommers, one of the Republican commissioners at the commodities regulator, said in an interview that she absolutely wants the rules to go into effect. But the commission needs to take its time, she said. “We didn’t want a date,” Ms. Sommers said. “We’re trying to makes sure we don’t miss anything. I think we need to be very deliberate.”

One of her opponents in the meeting was Bart Chilton, a Democrat. He said in an e-mail on Wednesday that he worried that having no deadline would take away much needed urgency. “We should be putting the hammer down and making up for lost time,” he wrote. “That means doing what the agency has done: given us a time certain — the end of the year — in which to complete our work.”

The commission has three Democrats, but one, Michael Dunn, has his term expiring this summer. He can stay on beyond that date, but if he chooses to leave, a successor is sure to face fierce confirmation questions in the Senate, where lawmakers are heavily divided on the new rules.

Edward Wyatt contributed reporting.



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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…




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EDITOR’S COMMENT: The argument for separation of the note from the mortgage is finding a lot of resistance from the Bench, as Ron Ryan writes below. I agree with him up to a point. The fact remains that at the very start of the transaction, the receivable (cash trail) is separated from the documentation. Whether you call this separation of the mortgage (deed of trust) from the obligation or call it something else, it remains important to differentiate between the two transactions at the time of the “closing.”

  1. The actual transaction is between the source of funds and the homeowner. The source of funds is never disclosed at the closing, nor in any of the closing documents. Thus the loan is table funded by definition and it being a pattern of conduct that is indisputable, it is a predatory loan per se (Reg Z), which is something I would think any lawyer would want to point out, in order to start out on the right footing. Since the closing documents do not refer, directly or indirectly, to the actual cash transaction, nor to the treatment of receivables after closing it is clear that the documents at closing are not relevant to the actual transaction, nor are the parties to those documents. Thus the actual cash transaction and the money trail after closing is an entirely undocumented transaction.
  2. The documents upon which the pretenders are attempting to use in foreclosing, collecting or otherwise being involved in the money trail are a ruse — an illusion that both Judges and lawyers are having a hard time wrapping their minds around. It feels counter-intuitive and perhaps even a bit silly to say that the pile of documents produced at the illusory “closing” are all irrelevant or mostly irrelevant. While they could serve as the basis for introducing certain evidence in a lawsuit brought by the true creditor to reform the closing documents and establish themselves as the payee under the note and perhaps reconstitute a lien, the true creditor has no interest in bringing such an action and the lawsuit has never been brought to reform the documents or even ask the borrower for a signature correcting the breaks in the chain of title. 
  3. Thus the separation of “note and mortgage” is not really the issue so much as separation of the obligation from the rest of the documents including the note. Properly pleading and subsequent discovery would show exactly what I have described here, thus providing the solid basis for a challenge to standing and striking the pretender as not being a real party in interest nor authorized to act on behalf of the real party in interest. THAT is because even if the true creditor wanted to step forward, which they don’t, they have no documents to rely upon. The chain of documentation is both fictitious and fabricated, violating the REMIC statute and the terms of the contractual relationship amongst the securitizers and the investor lenders (i.e., the pooling and service agreement). The transfers were never made into the pool and even if they had made it, they would be describing a transaction between the homeowner and the loan originator that never in fact occurred when compared to the flow of funds at and after closing.

Ron Ryan, Esq,, a lawyer leading the fight in Tucson, writes: The issue of separation of ownership of the Loan and Note from ownership of the Deed of Trust has become outdated as a viable theory.  I am finding that there is more success when reducing the number of issues in a case to those that have a real shot at a total win.  In my opinion it should be left off pleadings, although the “nullity” rule of law can be pointed out in reference to MERS.  The separation argument could at some point in time become relevant again, IF it can be SHOWN that the same loan was sold to two separate parties or entities at the same time.

GUILTY! Taylor Bean & Whitaker Chairman


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EDITOR’S NOTE: So now the question is what about the real big boys at BOA, Chase, Citi et al? Anyone with a TB&W originated mortgage probably has their defense to foreclosure already set out for them.

Leader of Big Mortgage Lender Guilty of $2.9 Billion Fraud


The founder of what was once one of the nation’s largest mortgage lenders was convicted of fraud on Tuesday for masterminding a scheme that cheated investors and the government out of billions of dollars. It is one of the few successful prosecutions to come out of the financial crisis.

After more than a day of deliberations, a federal jury in Virginia found Lee B. Farkas, the former chairman of Taylor, Bean & Whitaker, guilty on 14 counts of securities, bank and wire fraud and conspiracy to commit fraud. Mr. Farkas, 58, faces decades in prison for his role in the $2.9 billion plot, which prosecutors say was one of the largest and longest bank fraud schemes in American history and led to the 2009 collapse of Colonial Bank.

“There’s no question that it is very momentous and a very significant case,” said Lanny Breuer, the assistant attorney general for the criminal division of the Justice Department.

The 10-day trial was a rare win for federal prosecutors in the aftermath of the financial mess. The Justice Department has yet to bring charges against an executive who ran a major Wall Street firm leading up to the disaster. An earlier case against hedge fund managers at Bear Stearns ended in acquittal. Prosecutors dropped their investigation into Angelo R. Mozilo, the former chief of Countrywide Financial, which nearly collapsed under the weight of souring subprime home loans.

Six other Taylor, Bean & Whitaker executives — including its former chief executive and former treasurer — have already pleaded guilty. Some agreed to testify against Mr. Farkas at his trial.

Mr. Farkas took the stand during the trial to defend his actions and deny any wrongdoing. A lawyer for Mr. Farkas did not respond to a request for comment.

The scheme began in 2002, prosecutors say, when Taylor, Bean & Whitaker executives moved to hide the firm’s losses, secretly overdrawing its Colonial Bank accounts, at times by more than $100 million. To cover up the actions, prosecutors said that the lender sold Colonial about $1.5 billion in “worthless” and “fake” mortgages, some of which had already been bought by other institutional investors. The government, in turn, guaranteed those fraudulent home loans.

In a related plot, Mr. Farkas and other executives created a separate mortgage lending operation, called Ocala Funding. The subsidiary sold commercial paper to big financial firms, including Deutsche Bank and BNP Paribas. When Taylor, Bean & Whitaker collapsed, the banks were unable to get all of their money back.

During the course of the fraud, prosecutors said, Mr. Farkas pocketed some $20 million, which he used to buy a private jet, several homes and a collection of vintage cars.  “His shockingly brazen scheme poured fuel on the fire of the financial crisis,” Mr. Breuer said.

With the credit crisis in full swing, Mr. Farkas and other Taylor, Bean & Whitaker executives persuaded Colonial to apply for $570 million in federal bailout funds through the Troubled Asset Relief Program, or TARP.

The Treasury Department approved the rescue funds, on the condition that Colonial was able to raise $300 million in private money. The Taylor, Bean & Whitaker executives falsely led the bank into thinking it had investors lined up. Ultimately, the government did not give any money to Colonial.

Shortly thereafter, in August 2009, Colonial filed for bankruptcy, the same time that Taylor, Bean & Whitaker failed.

“Today’s verdict ensures that Farkas will pay for his crime — an unprecedented scheme to defraud regulators during the height of the financial crisis and to steal over $550 million from the American taxpayers through TARP,” Christy Romero, the acting special inspector general for the TARP program, said in a statement.


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Submitted by Ron Ryan, Esq. , Tucson, Az

Linda DeMartini worked for 10 years for Countrywide Home Loans Servicing, LP (“CHLS”) and BAC after it took over all CHLS’s servicing and other business. She worked as: Customer Service Representative; Supervisor; Trainer; Training Developer; Manager of Policies and Procedures Writers; Communications leader; Senior Team Leader; and at the time of the testimony she was the number 3 Officer in Charge of the Litigation Unit.
She testified that she had personally seen the “original note” in the “original loan file” of BAC in Simi Valley. Pursuant to standard procedures there was no endorsement on the original note although there was room at the end of the note for it to be placed thereon.
She also testified that pursuant to standard customary procedures, the allonge that allegedly transferred the note to the Trust was prepared several weeks before the hearing specifically for the hearing at the request of CHLS’s attorneys. This was the only document she could provide that purported to be a negotiation and physical transfer of any documents to the Trust. The allonge was not attached to the Note. She also said that the original Allonge, after the court hearing, would have been placed back in the Countrywide loan file. At the hearing the Judge said that this inandof itself established that CHLS could not be a holder in due course, and would have to prove its case without the benefits of negotiable instruments law.
Ms. DeMartini also testified based upon PERSONAL KNOWLEDGE that it was standard operating procedure that everytime Countrywide originated a loan intended for securitization with servicing rights retained by Countywide, the ORIGINAL NOTE WAS ALWAYS kept in the loan origination file in Countrywide’s Simi Valley office. On the other hand, in cases where Countrywide sold the note with servicing rights released then and only then would Countrywide transfer and deliver the note to the new servicer.
On direct examination, DeMartini testified that it was “not the custom for the notes to go the investors but for the original notes to stay with us [Countrywide].” She also testified that Countrywide “had possession of the original documents [in Kemp} from the outset” and up to an including the day of the hearing. She also clearly testified that Countrywide transferred the “rights” to the Trust, but not “the physical documents,” without any testimony or knowledge as to how said transferred occurred, She also testified that this “was standard operating procedure in the mortgage business.” Immediately, the Judge stated that regardless of whether it was standard operating procedure, such practices are invalid under the law pursuant to the UCC.
The judge gave CHLS more time to try to establish ownership of the Trust by the transfer without negotiation exception or pursuant to the Pooling and Servicing Agreement, pursuant to some hypothetical special provision in the PSA the existence of which neither Demartini, CHLS’s attorney, nor the Judge had any idea could be found. But because the Note had never left possession of CHLS, as was standard operating procedure in all cases, the transfer without negotiation exception would obviously not
work.1 Additionally, as was made firmly clear by Kemp’s attorney at the hearing, the PSA would be of no help, because it states what everyone knowledgeable in the field knows to be the case, it is impossible for the originator to transfer a note directly to the Trust. They all require that the note be physically transferred from the originator to the sponsor, from the sponsor to the depositor, and from the depositor to the trust, with all intervening endorsements, after which the the Trustee delivers the note and other documents to the custodian for the Trust. Moreover, the loan related to a Trust that was formed and closed out in 2006. Evidence in the form of a fabricated allonge or any other form of transfer documentation created in 2009 cannot under any circumstances transfer to loan to such a trust in 2009, nor be backdated.


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SHEILA BAIR: A Flood of Litigation from Homeowners is Swamping the Court System.



Scott Pelley did a strong pice on the securitization scam last night on 60 minutes (see above links and watch the video). BUT THE SECURITIZATION MYTH WAS NEVERTHELESS PERPETUATED. According to Pelley, we don’t know who owns the mortgages AND THE TITLE IS CORRUPTED so people won’t be able to sell or refinance their house. The clear implication is that we don’t know who owns the house. But the answer is as simple Property Law 101. There is no mystery here. The fact that the securitizers intentionally or unintentionally screwed up the paperwork and the closings is not the homeowners’ problem.

WHO OWNS THE HOUSE? THE HOMEOWNER OF COURSE. THAT WOULD BE THE PERSON OR PERSONS IN THE PROPERTY RECORDS OF COUNTY RECORDERS OFFICE WHO WERE PROPERLY REGISTERED AS THE GRANTEE OF DEED FROM THE FORMER PROPERTY OWNER. The implication that the securitizers actually have some right to the house is wrong, and CBS was unintentionally carrying the message from Wall Street that this is just a paperwork mess that could be cleaned up. But as we have repeatedly said, if it were that simple, it COULD be corrected legally and they wouldn’t have need to have $10 per hour clerical people signing as vice-president of 20  different lending institutions, most of which they never heard of, were never employed by and who didn’t even know of their existence.

The reason why the paperwork is so screwed up is that Wall Street tried the usually successful practice of burying the opposition in paper. But the paper is meaningless. What Pelley missed in his focus on robo-signing was that the closing with the homeowner was defective in the first place and the only “correction” that is possible is to get another signature from the borrower. Good luck. The fact that Federal and state lending laws require that the lender be identified and that the fees and costs all be disclosed before the closing required that information to be on the promotional information given to the buyer, the Good Faith estimate, and the closing statement as well as the promissory note and mortgage or deed of trust. None of that was done.

SO THE QUESTION OF WHO OWNS THE MORTGAGE IS IRRELEVANT. There is no mortgage or deed of trust that can be enforced. The liability for the loan runs from the borrower to the lender. The party on the documents was not the lender. THAT is why this can’t be corrected without the cooperation of the borrowers who are now going to be presented with various proposals to induce them to sign off on paperwork that will make the initial filing of a mortgage valid and legal. It is highly unlikely, without a very significant payment estimated between $20,000 and $100,000 that any homeowner or former homeowner is going to sign such a document.

If the home is STILL worth less than the proposed mortgage, a significant number of homeowners simply won’t sign.

The bottom line is that the liability exists — only to the initial investor or successors who purchased mortgage bonds — and even there, such rights would only be valid if established i courts of equity where the “creditor” would come in with “clean hands” and a credible claim about how they are suffering a loss. Such parties might be and probably would be subject to answers, affirmative defenses, set-off, counterclaims and especially suits for quiet title, which are the last thing that pension funds, sovereign wealth funds, the Federal Reserve and U.S. Treasury want to get involved with.


PELLEY CALLED THIS A TRAIN WRECK. I disagree. I CALL IT JUSTICE AND THE APPLICATION OF LAW INSTEAD OF THE RULE OF WEALTHY MEN. When Xerox forgot to patent their document copying process, nobody said we should treat it as though they had the patent. Quite the contrary. When bankers, who have been doing this for hundreds of years, “forget” to document their liens and prioritize them, nobody should be saying we should give it to them anyway. Why? Because we already know they sold the same thing multiple times. In many cases, perhaps most, the “creditor has been paid, and perhaps over paid.

The consequences of homeowners getting an unintended collateral benefit from Wall Street’s screw-ups is unusual only because it is the little guy who is getting the benefit. But it is also society at large, where the attempted transfer of wealth did not succeed. Homeowners are realizing that they actually didn’t lose their house and are not at risk of losing their homes and that if they have any liability they have no burden of finding out the amount due or the identity of the creditor to whom it is due. The world is realizing that the mortgage bonds were empty pieces of paper and they have trading spit balls instead of proprietary currency.

The opportunity presented by this turn of events is enormous in terms of our ability to rebuild infrastructure, upgrade education, and level the playing field of what we want as a free market without domination by giants that are too big too fail and too big to manage or regulate.

Signing New Docs Creates New Loan and Waives Prior Defenses

Question from blogger:

In an awkward position and can’t seem to get a straight answer.  We refinanced our property in 2006 and in 2009 received a letter from the title insurers requesting we re-sign all docs.  The note is lost and was never recorded with the county.  I can’t find precedent in such a case and am unsure if quiet title action is the course to pursue.

Any thoughts?

Sounds to me that there are obvious title defects, that the title agent is worried about liability and that the ability of ANY mortgagee to enforce the note and mortgage is in doubt or maybe impossible. Don’t give up your superior position until you speak to a lawyer who understands securitization and mortgages.

It is possible that you don’t have a note or mortgage but that doesn’t mean you have no obligation. If they want to re-establish the formal documentation the burden should be on them, not you. Press the point aggressively since you appear to be in position to demand a very favorable settlement.



First, rule 1.110(b) is amended to require verification of mortgage foreclosure complaints involving residential real property. The primary purposes of this amendment are (1) to provide incentive for the plaintiff to appropriately investigate and verify its ownership of the note or right to enforce the note and ensure that the allegations in the complaint are accurate; (2) to conserve judicial resources that are currently being wasted on inappropriately pleaded ―lost note counts and inconsistent allegations; (3) to prevent the wasting of judicial resources and harm to defendants resulting from suits brought by plaintiffs not entitled to enforce the note; and (4) to give trial courts greater authority to sanction plaintiffs who make false allegations. Next, the Task Force proposed a new form Affidavit of Diligent Search and Inquiry. In its petition, the Task Force explained that many foreclosure cases are served by publication. The new form is meant to help standardize affidavits of diligent search and inquiry and provide information to the court regarding the methods used to attempt to locate and serve the defendant. We adopt this form as new form 1.924, with several modifications. The

How to Use Lost Documents and Destroyed or Withheld Documents

Floyd Norris - Notions on High and Low Finance

EDITOR’S NOTE: Earth,the final frontier. Somewhere there are people who grasp the concept of reality. But to give credit where credit is due Floyd gives primary print space to contrary points of view. Even better, he shows his professionalism by asking the two questions (1) why would banks lose the note and (2) “what am I missing here?”

So here is my response and I invite you all to forward the article toFloyd and see what he says in response.

A note is cash equivalent. So why would anyone rip up cash? His question is not so far-fetched. It turns everything on its head to think of banks ripping up money. You have a $10 bill in your hand. Later when things are looking litigious, you rip it up. Why?

The answer Floyd — the only possible answer — is that there is greater risk in having the $10 bill than in keeping it. What circumstances would make the banks believe there wass more risk in cash equivalents than in throwing them out and pretending they had them?

Well, here’s a simple example. Suppose you took a Loan for $1000 after certifying through third parties (whom you control) and your own warraqnty that you had a $1,000 bill in your pocket. Yes, that would be the $10 bill in our example. Now the loan goes bad or the lender wants to actually see the bill. Which would you rather do (1) show the $10 bill and go to jail or (2) say you lost it or it was accidentally destroyed?

The THIING you are missing Floyd is that this was all based upon representations and not the real thing. Fraud was committed on BOTH the investors and the borowers who both purchased financial products predicated on the same assets which were intentionally   viability (investment grade, remember?) at an unsustainable value and which were represented to be of the highest quality when in fact the securitization chain all the way from investor to borrower was predominantly toxic.

What you are missing is that there were two HUGE financial incentives to perform in what appears to you and others as erratic: (1) the huge yield spread premium between the aggregating pool and the SPV pool (that’s right there are ALWAYS TWO POOLS NOT ONE) and (2) the geometric steroidal profit rained on the investment banks who created these pools by leveraging insurance 30-70 times over. In simple terms the investment banks (NOT THE INVESTORS) received $30-$70 for each $1 in the promissory note that was funded for the benefit of the homeowner.

In other words, it was ONLY through failure of the pool that a $300,000 note could (a) be paid off with over $9 million (even if it wasn’t in default) through credit default swaps that are insusrance but specifically excluded from official definitions of insurance or securities.

Borrowers are right when they demand the documents becuase it will lead to collapse of the “lender” side (actually pretender lender” because they simply steal the identity of the investor the same way the stole the identity of many borrowers in order to make the pool look good. They are looking for low-hanging fruit not cases where the deceit will be exposed. Or it will lead to a reasonable settlement that reflects true value and affordability wth normal underwriting standards applied.

Floyd this is not legalmumbo jumbo or some technical sleight of hand trick. NONE of these foreclosures are initiated by the creditor. All of these foreclosures are blatent in that they seek to steal the home wihtout having advanced ONE PENNY to anyone for funding or buying the obligation. 

December 4, 2009, 3:59 pm <!– — Updated: 5:42 pm –>Are Banks Losing Lots of Documents?

My column today has provoked a number of e-mail messages from readers saying — some politely, some not — that I failed to discover that the big problem is that banks are losing documents, over and over again.

“I have faxed/mailed every document requested, for a year now,” complained one troubled homeowner.

Another, who thinks I asked foxes to tell me about chickens, adds:

My employer came under S.E.C. investigation, early this year, resulting in multiple rounds of layoffs. As a result, I was forced — through no fault of my own — to reach out to Bank of America, phoning regularly since MAY, at least twice monthly and faxing copies after each call (the only delivery method they allow — for EACH and every earnings document this year). Between regular assertions that they “lost the copies” and outright, documented LIES that I did not call or fax, I am still struggling with them in DECEMBER!! I can assure you that I have complied promptly and completely with their every request — and I am certain I am not a limited statistic — as your column strongly implies.

Jean Braucher, a law professor at the University of Arizona, points me to a paper she wrote: “Fixing the Home Affordable Modification Program to Mitigate the Foreclosure Crisis.” She thinks the banks are far more culpable than I made it sound:

I think the major reason we are seeing so few permanent modifications may turn out to be that many servicers are losing documents or perhaps refusing to admit that they have documents. There have been many accounts of borrowers getting the runaround at the stage of trying to get a trial modification, and now I believe there is reason to suspect that pattern may be continuing at the stage of conversion from trial to permanent modification.

After reading your column, I posted a query on a listserv this morning to a group of bankruptcy lawyers, some of whom have had experience helping clients try to get HAMP modifications. I got back reports that lenders deny getting documents that have been sent 3 or 4 times. In short, I don’t think you had the full story in your column.

I think that the first thing that the administration needs to do is make sure that Freddie Mac, the compliance agency for HAMP, does a searching audit of the procedures servicers are using, including by talking to borrowers and housing counselors and lawyers for borrowers. I think this will turn up a lot of evidence, some of it concerning continuing lack of capacity to handle modifications but some of it also indicating unfair and deceptive practices and even fraud are occurring. Then the Federal Trade Commission needs to make an example of the worst offenders with some enforcement actions.

I have a couple of reactions.

First, I see no reason for the banks to purposefully lose the papers. What am I missing?

Second, a theory that banks can be clumsy and even incompetent deserves respect.

I am not sure to what extent lost documents are a major part of the problem, but I am now sure that many people think a lot of documents are vanishing.

Perhaps each bank should appoint someone to receive documents from people who think their documents have previously been lost, hand out receipts, and then be available to intervene if that bank’s bureaucracy claims the documents are lost. That person should be willing to take the documents in person, as well as by fax. (The banks have scanners to put the documents into their systems.)

If that solves a big part of the problem, great. But I suspect there are many other reasons that modifications are not becoming permanent.

What to Look For and Demand Through QWR or Discovery Part II

Dan Edstrom, you are great!

OK I found the loan level details for my deal. It shows my loan in foreclosure and my last payment in 6/2008 (which is accurate). What it doesn’t say (among other things) is what advances were made on the account. Very interesting. This report is generated monthly but they are only reporting the current month. It also shows which pool my loan is in (originally their were approx. 4 pools, now there are 2). This means I can use all of this information to possibly calculate the advances reported – except that two months before I missed my first payment they stopped reporting SUB-servicer advances. [Editor’s Note: Those who are computer savvy will recognize that these are field names, which is something that should be included in your demand and in your QWR. You will also wanat the record data and metadata that is attached to each record. ]


If anyone wants this file or any of the servicing reports so they can see the actual data shoot me an email.

Dan Edstrom

States Commence the Inevitable “Tobacco” Litigation Against Banks — Arizona Leading

Sometime back in the early Spring and Summer of this year, I had a series of meetings with Arizona officials from the legislative and executive branch right up to the top, an Alabama Class Action firm of some repute, and telephone conversations with the U.S. Attorney, and several other class action attorneys researching “relater” and class actions.

I presented a plan to Arizona and others whereby if they would take certain actions, a vast sum of uncollected taxes, filing fees, late fees, and penalties could be assessed against the 100 or so of the main perpetrators of the largest criminal enterprise and financial coup d’etat in history.

In Arizona this would have meant recoupment of revenues that would have satisfied the current budget deficit in full and left a surplus in the State’s treasury. The same is true for many other states. The same is true for the Federal government. Foreclosing on the tax liens would have been easy — taking the mortgages claimed to be owned by the pretender lenders, restructuring them to fit with reality, re-funding many of the mortgages with money from local community banks and credit unions who were not playing the derivative securitization game, satisfying the tax liens, creating commerce with the local banks and putting wealth and real money back in the pockets of the homeowners whose pockets had been picked by Wall Street — money that would be spent in a real economy in each state enhancing the financial condition of ALL players, high and low, in the state and federal economy.

The people I met with are now using my plan, unfortunately without attribution, and preparing to commence lawsuits that will look very much like the tobacco litigation and settlements that took place years back. While this is definitely a step in the right direction, my opinion is that you opt out of any such class action, and that you pursue your own cause of action. Many of these people are and were in bed with the banks that caused this mess. It is my opinion that they will avoid the criminal part of the enterprise, avoid the tax revenues that are due to each state and end up with a friendly suit” that settles the “score” with pennies on the dollar leaving homeowners, cities, counties and states in the same awful position they presently find themselves.

The plan had as its premise that both the investors and the homeowners were sold financial products that qualified as securities. A security is ANYTHING (even a cow) that is sold to an investor under the pretext or promise that the investor will receive a passive return without participating in the business (like picking up cow-poop). For the pension funds, hedge funds and sovereign wealth funds the fact that a security was sold to them is easily understood. They bought a bond, whose indenture made it a hybrid security offering return of capital, and interest return, and ownership in the “underlying” (read that “non-existent”) pool of mortgages and notes. This by everyone’s account is a security.

For the homeowners the fact that they also bought a security seems to have been missed and some of the easiest remedies are being overlooked. The myth is that homeowners wanted a loan, applied for it and were approved based upon normal underwriting standards, perhaps with a few twists and turns. The reality is that they were targeted, sought out and sold by a vast chain of “bankruptcy remote” corporate shells fronting for the major players on Wall Street. This started with the sale to the investors of the mortgage backed bonds that also conveyed 100% of the ownership of the alleged asset in the alleged pool long before anyone applied for a loan. It ended with the sale of a financial product that was sold on the premise and promise of a passive return — increase the value of the property, refinance of the note periodically  so that they would continue to withdraw large sums of cash and avoid the crush of the payments that could become due when the loan reset to payments of unimaginable heights, many times far in excess of the income of the homeowner.

Both the investor and the homeowner were deceived in exactly the same way. They both bought securities that were misrepresented, intentionally to be of higher quality and higher value than was the case. We know it was intentional because of the presence of two undisclosed yield-spread premiums. The only way the investment banks and all the other intermediaries could stay out of trouble is if the loans failed and the credit default swaps paid off. This and only this was the source of repayment of principal to the Lenders (Investors): the loans HAD to fail because insurance doesn’t pay off on a performing or modified loan. They had to make absolutely sure the loans failed, and the dire consequences to the nation, the states, counties, cities and citizens be damned.

Now they want to screw you over AGAIN. Stick to your guns and your rights, the more litigation hits the judicial marketplace the more real your claims will appear. Once the Judge accepts your claims as possibly with merit, you will then be able to pursue evidentiary hearings, discovery, orders to compel and TRO’s based upon the contempt of court, violation of statute and other causes of action against the pretender lenders.

Soon the class actions and individual actions of the investors against the investment banks, servicers and other intermediary conduits will meet the class actions, individual actions and state actions for the homeowners/consumers and arrive at the obvious conclusion that if they cooperate rather than fear an internecine squabble, they end this problem once and for all — returning homeowners, cities, counties, states and the nation to true normalcy.


November 3, 2009

States Are Pondering Fraud Suits Against Banks


PHOENIX — Newly empowered by the Supreme Court, the attorneys general of several states hit hard by the housing collapse are exploring consumer fraud suits against major mortgage lenders.

Frustrated by the banks’ inability or unwillingness to stop an avalanche of foreclosures, the states are considering lawsuits over the creation and marketing of millions of bad loans as well as the dismal pace of mortgage modifications.

Such cases would have been impossible until recently, because federal regulators had exclusive oversight of national banks. But a 5-to-4 Supreme Court decision in June allowed the states to exercise their own supervision, giving them significant leverage.

“We tried to use the tool to be persuasive with the banks,” Arizona’s attorney general, Terry Goddard, said in an interview. “But their waterfall of excuses, the abysmal numbers of modifications, tells us persuasion is not working.”

As a result, he said, “we’re moving much closer to litigation.”

While statutes vary, those of every state prohibit fraud in consumer lending. The attorneys general are considering the theory that the banks essentially perpetrated a vast fraud on consumers by marketing exotic loans that would prove impossible to pay back.

During the boom, the banks earned short-term fee income from generating the loans, then quickly resold most of them to investors or to Fannie Mae and Freddie Mac, two government-sponsored housing agencies that eventually required costly taxpayer bailouts.

The Mortgage Bankers Association, a trade group, declined to comment on the possibility of state fraud lawsuits. A spokesman, John Mechem, warned that consumers would end up paying for any campaign of stepped-up legal activity.

“Lawsuits add to the patchwork of regulations that increases compliance costs for lenders, which in turn increases the cost of credit for borrowers,” Mr. Mechem said.

The states’ new power to sue banks arose from an effort in 2005 by Eliot Spitzer, then the New York attorney general, to discover whether several banks had violated the state’s fair-lending laws.

The banks balked at surrendering any information. The Clearing House Association, a consortium of national banks, and the federal Office of the Comptroller of the Currency filed suit, asserting the states had no authority over national lenders.

Mr. Spitzer’s successor, Andrew M. Cuomo, took up the battle. Lower courts agreed with the banks, but the Supreme Court, narrowly, did not.

Already, the states’ victory in Cuomo v. Clearing House is beginning to affect the legal landscape. “The handcuffs are off,” said Ann Graham, a professor of banking law at Texas Tech University. “The states can pursue justice now.”

In July, the Illinois attorney general, Lisa Madigan, filed a civil rights case accusing Wells Fargo of predatory lending. While the case was in the works for 18 months, Ms. Madigan said “it would have been much more difficult to bring” without the favorable Clearing House ruling.

The impact goes beyond housing issues. In West Virginia, a case brought by the state against Capital One, charging deceptive marketing of credit cards, was blocked by a judge in June 2008. The judge said the state did not have authority to pursue the case. After the Clearing House decision, West Virginia filed a request to reinstate the case.

Other states say they are just beginning to explore their new powers.

“We’re back on the field,” said Iowa’s attorney general, Tom Miller. “That’s really important. Certainly there will be some litigation.”

In Arizona, the number of state lawyers working on mortgage issues went from one to eight after Clearing House. “Before the court’s decision, we wouldn’t waste our time looking at national banks,” said Robert Zumoff, senior litigation counsel for Mr. Goddard.

The Clearing House ruling rolled back an expansion of federal authority that began more than five years ago. In January 2004, the Comptroller of the Currency, the agency responsible for regulating national banks, issued two rule changes that had a far-reaching effect on the ability of state banking regulators and law enforcement to pursue violations of state law by large banks and their subsidiaries.

The rule changes broadened the protections afforded to national banks against prosecution for violations of state civil rights and predatory lending laws and other banking statutes. In a statement announcing the regulations, then-comptroller John D. Hawke Jr. said that his agency would take the lead on preventing lending abuses by the banks.

“Predatory lending is a very significant problem in many American communities, but there is scant evidence that regulated banks are engaged in abusive or predatory practices,” Mr. Hawke said then. “Our regulation will ensure that predatory lending does not gain a foothold in the national banking system.”

In the years that followed, as the housing market roared to a peak and then began to plunge, national banks repeatedly and successfully cited the new regulations to turn back lawsuits alleging violations of predatory lending statutes and other laws by state attorneys general and banking regulators.

At other times, they merely switched their charters. When Illinois first started investigating the branches of Wells Fargo Financial Illinois for predatory lending in the spring of 2008, the branches operated under a state charter.

Initially, Wells responded to the state’s subpoena. But on July 26, 2008, the branches were put under the control of Wells Fargo Bank, which is nationally chartered. Wells promptly informed the state of this new situation and ceased cooperation.

With such maneuvers, Ms. Madigan said, “it was much easier for people in the banking industry or any other industry to hide their misconduct.”

While the attorneys general do not say they could have prevented all the shady deals that characterized the housing market at its worst, they believe they might have been able to stop enough of them to limit the scale of the crash.

“For the better part of eight years, the federal regulators were not being aggressive, and at the same time we were disabled,” said the Ohio attorney general, Richard Cordray. “There was nothing holding back irrational and irresponsible practices.”

The Clearing House decision was not a full-fledged victory for the states. The decision limits their subpoena power. While it is now easier to bring cases in court, it might be harder to develop them in the first place.

If the banking industry has its way, the victory will not be a permanent one.

In Washington, the banks are lobbying hard to try to block the states from becoming more aggressive. Lobbyists have urged lawmakers to pre-empt state rules that are more restrictive than federal laws. The Obama administration has opposed those changes.

Two weeks ago, the House Financial Services Committee voted to give the federal government the power to block states from regulating large national banks in some circumstances. Under the compromise, the Comptroller of the Currency would be able to override the states, but only after finding that the state law significantly interfered with federal regulatory policies.

In an interview in his offices here, Mr. Goddard and his top aides spoke repeatedly of their frustrations in dealing with the banks.

After the Clearing House decision, he said, there was “a virtual parade of national officers of national banks” coming through, ostensibly eager to find a common ground to help stanch foreclosures that are running as high as 7,000 a month in Arizona.

But Mr. Goddard, a former mayor of Phoenix, said the lenders were often unable or unwilling to provide him with elementary information, including how many and what kind of loans they have in the state.

The banks have been imploring Mr. Goddard to tell homeowners in default to get in touch with them, opening a dialogue. So he has. But the homeowners say they call and get no response.

“People call and get a runaround,” Mr. Goddard said. “The paperwork gets lost. It’s time to stop this absurd dance.”

He would rather have a solution to the foreclosure problem today than a court victory in three years. But since he is not getting a prompt solution, that leaves only the hope of legal action, in his view. Any case will most likely be a major effort involving multiple states.

“Maybe the banks think we don’t have the gumption to pull the trigger,” Mr. Goddard said.

Stephen Labaton contributed reporting.


If you can get through the formatting errors, it is worth reading. Judge Mayer clearly states that

“The original lender, WMC Mortgage Corp., apparently had the mortgage assigned to entities other than this plaintiff: however, there is no proof of assignments annexed to the moving papers and no proof that this plaintiff is the proper plaintiff.”

Thus standing comes to the forefront AGAIN as the pretender lenders try as they might, find it increasingly difficult to finesse basic rules of law and basic rules of procedure. The message is clear as is the moral of the story: don’t assume anything and challenge everything. We have seen here at livinglies weblog countless documents demonstrating a pattern of behavior that involves fabrication and forgery of documents, many times right in the office of the attorneys pursuing foreclosure on behalf of “clients” who have no interest in the mortgage and never did. Look closely and you will see notarization before the document is dated, notarization in one place and signing in another, many times thousands of miles apart. If these entities were on the level they would have no problem producing the right documentation in the right place at any time. Instead we find that if the mortgage is NOT delinquent or in default, they don’t have the documents but once they do declare the default, documents start emerging out of nowhere.

Judge Mayer means business. He “gets it” and says that he will dismiss with prejudice on this last chance (similar to Judge Shack), if they don’t prove they are the correct party to bring the foreclosure. My opinion is they probably can’t and they won’t bring such “proof” to court because it will be scrutinized now and could lead someone to be found in contempt or worse.

The cases are coming faster now. The scheme is unraveling and Judges are getting wise to wiseguy tactics of finesse and intimidation.

Thank you Jeff for this contribution. See if you can get a clean copy so we can clean this one up.


Justice<R. H. MAYER
Justice of the Supreme Court
. X _l_______l___________—__—_—-_———–
,4SS0(_’1.4 I ION, as trustee for BANK OF
AMERIC’ 2 reclo:;urr: actions, and evidentiary proof of proper service of said special summons; (5) failure
to submit e\ identiary proof, including an affidavit from one with personal knowledge, of compliance with
tlic requirements of CPLR 532 15(g)(3) regarding the additional notice by mail of summonses in
forwlosurrt xtioiis. and proof of proper service of said additional mailing; and it is further
ORDERED that, inasmuch this action was initiated prior to September 1,2008 and no final order
of judgment has been issued, and inasmuch as the plaintiff has identified the loan in foreclosure as a
“cubprimc home loan” as defined in RPAPL $1304, pursuant to 2008 NY Laws, Ch. 472, Section 3-a, the
defendant lionieovmer is entitled to a voluntary settlement conference, which is hereby scheduled for
December 116,2009 at 9:30 am before the undersigned, located at Room A-259, Part 17, One Court Street,
Rikerhead. VY 1 1(>01 (63 1-852- 17601, for the purpose of holding settlement discussions pertaining to the
rights and cibligations of the parties under the mortgage loan documents, including but not limited to,
determining whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing
his or her hcime. and evaluating the potential for a resolution in which payment schedules or amounts may
be ~fiodificdo r other workout options may be agreed to, and for whatever other purposes the Court deems
appropriate and it is further
ORDERED that at any conference held pursuant to 2008 NY Laws, Ch. 472, Section 3-a, the
plaintii’f’ s h~l la ppt’ar in person or by counsel, and if appearing by counsel, such counsel shall be fully
mthorized to dispclse of the case, and all future applications must state in one ofthe first paragraphs ofthe
aitorncy’k afirmation whether or not a Section 3-a conference has been held; and it is further
ORDERED that the piairitiff shall promptly serve a copy of this Order upon the homeowner
delelidant( s ) at all hown addresses via certified mail (return receipt requested), and by first class mail, and
upon all othcr defendants via first class mail, and shall provide proof of such service to the Court at the time
of any schctluled Conference, and annex a copy of this Order and the affidavit(s) of service of same as
exhihits to any niotion resubmitted pursuant to this Order; and it is further
ORDERED that with regard to any scheduled court conferences or future applications by the
plaintiif. if the Court determines that such conferences have been attended, or such applications have been
submitted. ui ithout proper regard for the applicable statutory and case law, or without regard for the required
proofs delinxited herein, the Court may, in its discretion, dismiss this case or deny such applications with
prejudice c i ~ i do r impose sanctions pursuant to 22 NYCRR 5 130-1, and may deny those costs and attorneys
fees atrenda i t mith the filing of such future applications.
[* 2]
bt’ells I.;rrgo Bank v Melgar
l t ~ d t3?0~. 3761 9-2007
P q e .r’
I n tliis foreclosure action, the plaintiff filed a summons and complaint on December 4,2007, which
essentiaIl> Jleges that the defentiant-homeowner(s), Martha L. Melgar and Pedro Reyes, defaulted in
payments u ith reprd to a mortgage, dated May 5,2005, in the principal amount of $258,400.00, and given
by the deteildnnt-homeowner(s) for the premises located at 68 Cranberry Street, Central Islip, New York
1 I722 Tile original lender, WMC Mortgage Corp., apparently had the mortgage assigned to entities other
than this p l i~nt iff: however, there is no proof of assignments annexed to the moving papers and no proof
that this pla ntiff is the proper plaintiff. The plaintiff now seeks a default order of reference and requests
amendmeni of the caption to substitute tenant(s) in the place and stead of the “Doell defendants. For the
reasom set i r t h hereiin, the plaintiffs application is denied.
In slqqx)rt of this application, the plaintiff submits an affidavit from Valerie Clark, Sr. Vice
I’rvsident 01 Saxon Mortgage Services as the alleged attorney-in-fact for the plaintiff, and a non-party to
this action: iowevcr, there is no sufficient evidentiary proof that such person or entity has authority to act
on behall’ 01 the lender-mortgage holder.
In rc levant part, CPLR $32 15(a) states: “When a defendant has failed to appear, plead or proceed
tu trial ofai- action re,ached and called for trial, or when the court orders a dismissal for any other neglect
to proceed. the plaintiff may seek a default judgment against him.” With regard to proof necessary on a
motion for cefault in general, CPLR 32 1 5(f) states, in relevant part, that “[oln any application forjudgment
by default, the applicant shall file proof of service of the summons and the complaint . . . and proof of the
facts constiluting the claim, the default and the amount due by affidavit made by the party . . . Where a
verified complaint has been serveld, it may be used as the affidavit of the facts constituting the claim and
h e amount due: in such case, an affidavit as to the default shall be made by the party or the party’s attorney.
Proof‘ot’iiiaili yg the notice required by [CPLR 32 15(g)], where applicable, shall also be filed.”
With regard to a judgment of foreclosure, an order of reference is simply a preliminary step towards
obtaining a default judgment (Home Sav. ojxm., FA. v. Gkanios, 230 AD2d 770,646 NYS2d 530 [2d Depi
1996 1 ) Without an affidavit by the plaintiff regarding the facts constituting the claim and amounts due or,
11-1 the alteri-ative. ‘in affidavit by the plaintiff that its agent has the authority to set forth such facts and
mouiits due, the sfatutory requirements are not satisfied. In the absence of either a proper affidavit by the
party or 3 ccymplairt verified by the party, not merely by an attorney with no personal knowledge, the entry
of judgment by default is erroneous (see, Peniston v Epstein, 10 AD3d 450, 780 NYS2d 919 [2d Dept
2004 1 : Gi.tringu \ * Wrighl, 274 AD2d 549, 7 13 NYS2d 182 [2d Dept 20001; Finnegan v. Sheahan, 269
4D2tl 401. 7G NYS2d 734 [2d Dept 20001; Hazim v. Winter, 234 AD2d 422, 651 NYS2d 149 [2d Dep1
1 996 1 )
In support of’the motion, the movant fails to submit the required affidavit made a party. Further.
uithnut a pioperly of’ered copy of a power of attorney, the Court is unable to ascertain whether or not a
plaintitTs s:rvicin;A agent. for example, may properly act on behalf of the plaintiff to set forth the facts
constituting the claim, the default and the amounts due, as required by statute. In the absence of either a
verijied coiilplalnt x a proper affidavit by the party or its authorized agent, the entry ofjudgment by defauli
IS erroneouj ( \ee iLl’ullins 1’. DiLorenzo, 1 99 AD2d 2 18; 606 NYS2d 16 1 [ 1 st Dept 19931; Hazim v. Winter.
234 1\1)2d -22.65 1 NYS2d 149 [2d Dept 19961; Finnegan v. Sheahan, 269 AD2d 491,703 NYS2d 734
Il!d I k p t r’OOO]). I‘lierefore, the application for an order of reference is denied.
\n‘itli regard to a mortgage assignment which is executed after the commencement of an action and
[* 3]
U’ells Furgo Bmk v Melgar
Index !Vo. 3 761 9-2007
Page 4
which statt s that i t is effective as of a date preceding the commencement date, such assignment is valid
wherc the c elaulting defendant appears but fails to interpose an answer or file a timely pre-answer motion
that assert4 the defense of standing, thereby waiving such defense pursuant to CPLR 321 1 [e] (see, HSBC
13crnk 03‘41 ’ /hmr’noi?d,5 9 AD3d 679, 875 NYS2d 490 1445 [2d Dept 20091). However, it remains settled
that foreclc sure ol’a mortgage may not be brought by one who has no title to it and absent transfer of the
debt. the assignmcnt of the mortgage is a nullity (Kluge v Fugazy, 145 AD2d 537,536 NYS2d 92 [2d Dept
1988 11. I 11-tliermore. a plaintiff has no foundation in law or fact to foreclose upon a mortgage in which the
plaintifl’ha~n o legal or equitable interest (Kutz v East-Ville Realty Co., 249 AD2d 243, 672 NYS2d 308
[ 1” Ilept 1098 1). I f an assignment is in writing, the execution date is generally controlling and a written
dssignment claiming an earlier effective date is deficient, unless it is accompanied by proof that the physical
delivci? of the notc and mortgage was, in fact, previously effectuated (see, Bankers Trust Co. v Hoovis, 26 3
’iDZd 93 7 (338.6’14 NYS2d 245 [1999]). Plaintiffs failure to submit proper proof, including an affidavit
from one with per:,onal knowledge, that the plaintiff is the holder of the note and mortgage, requires denial
01 the plaintiff’s application for an order of reference.
I- or Iinxc1cmu-e actions commenced on or after February 1,2007, RPAPL 5 1303( 1) requires that the
“toreclosin g party in a mortgage foreclosure action, which involves residential real property consisting of
ouner-occupied o qe-to-four-family dwellings shall provide notice to the mortgagor in accordance with the
provi\ions of thi. section with regard to information and assistance about the foreclosure process.”
I’ursumt to KPAPL 1303(2), the “notice required by this section shall be delivered with the summons and
complaint to commence a foreclosure action . . . [and] shall be in bold, fourteen-point type and shall be
printed on I:olorecl paper that is other than the color of the summons and complaint, and the title of the
notice shall be in bold. twenty-point type [and] shall be on its own page.” The specific statutorily required
language afthe nctice is set forth in RPAPL §1303(3), which was amended on August 5,2008 to require
additional language fbr actions commenced on or after September 1, 2008.
I hc plaintiff’s summons and complaint and notice of pendency were filed with the County Clerk
on er after- Februarj 1,2007, thereby requiring compliance with the notice provisions set forth in RPAPL
8 1-30; Plaintiff has failed to submit proper evidentiary proof, including an attorney’s affirmation, upon
which the t ‘ourt may conclude that the requirements of RPAPL 5 I303(2) have been satisfied, specifically
regarding the content. type size and paper color of the notice. Merely annexing a copy of a purportedly
compliant notice does not provide a sufficient basis upon which the Court may conclude as a matter of law
that the plaintiff has complied with the substantive and procedural requirements of the statute. Since the
plaintiff ha: failed to establish compliance with the notice requirements of RPAPL $1303, its application
fix an order of reference must be denied.
I ( pro\ idt additional protection to homeowners in foreclosure, the legislature enacted RPAPL,
1320 to I equire a mortgagee to provide additional notice to the mortgagor-homeowner that a foreclosure
aciion has t)een commenced. I n this regard, effective August 1, 2007 for foreclosure actions involving
rcs~clential property containing not more than three units, RPAPL 5 1320 imposes a special summons
requiremenl. in adJitiion to the usual summons requirements. The additional notice requirement, which
niust be in I-oldfacc type. provides an explicit warning to defendant-mortgagors, that they are in danger of
losing their iome and having a defaultjudgment entered against them ifthey fail to respond to the summons
bv sen ing 611 ansuer upon the mortgagee-plaintiff s attorney and by filing an answer with the court. The
notice also infhrim defendant-homeowners that sending a payment to the mortgage company will not stop
tlic foieclostire act ion, and advises them to speak to an attorney or go to the court for further information
[* 4]
Wells k argo Bank v Mrlgar
Index .No. 3 761 9-2007
Puge i
on ho\\, to answer the summons. The exact form and language of the required notice are specified in the
siaiuie P1aintlft.s failure to submit an attorney’s affirmation of compliance with the special summons
requiremen1 s of RPAPL 5 1320, and proof of proper service of the special summons, requires denial of the
plaintiff%\ application for an order of reference.
\x, itti regard to a motion for a defaultjudgment sought against an individual in an action based upon
nonpa) mcnt of‘a contractual obligation, CPLR $32 15(g)(3)(i) requires that “an affidavit shall be submitted
that additional notice has been given by or on behalf of the plaintiff at least twenty days before the entry
of such judgment. by mailing a copy of the summons by first-class mail to the defendant at his place of
residence 11- an eni!elope bearing the legend ‘personal and confidential’ and not indicating on the outside
of the em elope that the communication is from an attorney or concerns an alleged debt. In the event such
mailing is rt.turned as undeliverable by the post office before the entry of a default judgment, or if the place
ofresideiu ofthe defendant is unknown, a copy of the summons shall then be mailed in the same manner
to the defendant at the defendant’:; place of employment if known; if neither the place of residence nor the
place ofernploynimt ofthe defendant is known, then the mailing shall be to the defendant at his last known
residence Pursuant to CPLR 32 1 5 (g)(3)(iii), these additional notice requirements are applicable to
residential riortgage foreclosure that were commenced on or after August 1 2007. Since the moving papers
fail 1 o establish compliance with the additional mailing requirements of CPLR $32 15(g), the application
for an ordsi ol’refvrence must be denied.
0 ’lhi. constitutes the Decision and Order of the Court.
Ilated tober 5 , 2009

TOXIC TITLE: Cloud in Massachusetts: Getting Back Your Home AFTER Foreclosure Sale

Kathleen Engel, professor of law at Suffolk University, said the federal government should step in to help states deal with “toxic titles’’ that are clogging up the system from California to Florida. She said until recently few people were scrutinizing paperwork of foreclosing lenders, whose actions are causing problems for borrowers, investors, and municipalities. No matter how Long rules, she said, the problem isn’t going away.

Foreclosure sales in limbo over title issue

Expected ruling may complicate transactions

By Jenifer B. McKim, Globe Staff  |  October 9, 2009

A court decision expected as soon as today could negate the validity of sales of thousands of foreclosed homes in Massachusetts, causing havoc for buyers and sellers and further stalling the housing market’s recovery in hard-hit areas.

At issue is proof of ownership at the time of a foreclosure sale. During the housing boom, millions of mortgages were bundled into bonds and sold to investors, a process that resulted in lengthy and twisted paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held the mortgage.

That changed in March when Justice Keith C. Long of Massachusetts Land Court found that two foreclosures in Springfield were invalid because ownership of the mortgages was not clear at the time of the foreclosures.

Long’s ruling, which came as a shock to many who deal with distressed properties, called into question the ownership of hundreds if not thousands of foreclosed homes in Massachusetts, prompting some lenders to delay sales out of fear they could later be voided, title companies to balk at insuring them, and nonprofits to steer away from certain foreclosed homes altogether.

“There are thousands and thousands of titles that have gone through foreclosures with these late filed’’ ownership records, said Lawrence Scofield, an attorney with Ablitt Law Offices in Woburn, who represented plaintiffs in three consolidated Springfield cases ruled on by Long. “Judge Long is saying you don’t really own it. That is the real, overwhelming, economic effect.’’

Two of the plaintiffs asked Long to reconsider the ruling, and a decision is imminent.

Among those watching the case are Boston city officials, who say they hope Long will clarify title issues for homes that have already gone into foreclosure. In the meantime, the judge’s actions have stymied the city’s effort to buy as many as 20 bank-owned properties, hurting much-needed redevelopment efforts in neighborhoods plagued by foreclosure, officials said.

“It has put some properties in the state of limbo,’’ said Evelyn Friedman, director of Boston’s Department of Neighborhood Development.

While title issues can affect any home sale, Long’s ruling addressed procedures required under foreclosure law and therefore only affects properties foreclosed on by a lender. His decision builds on a growing national movement among housing advocates, courts, and some lawmakers to push lenders dealing with foreclosed properties to produce accurate documentation before deals are consummated.

Kathleen Engel, professor of law at Suffolk University, said the federal government should step in to help states deal with “toxic titles’’ that are clogging up the system from California to Florida. She said until recently few people were scrutinizing paperwork of foreclosing lenders, whose actions are causing problems for borrowers, investors, and municipalities. No matter how Long rules, she said, the problem isn’t going away.

“The fundamental problem is the paperwork was really shoddy,’’ said Engel. “The mess was created by Wall Street.’’

Locally, the Massachusetts decision has pitted advocates trying to revive neighborhoods against others trying to help homeowners stave off foreclosures.

Gary Klein, a consumer law attorney who filed a friend of the court brief in the case, said the real estate system placed “expedience and convenience’’ before the law. Providing home buyers with a “full set of procedural protections,’’ he said, is more important than comforting lenders who ignored the law. He said the lending community created the mess and it needs to fix it.

Klein said there is a benefit to the ruling for homeowners in trouble: It is slowing the foreclosure process, allowing them more time to try to save their homes. Indeed, since March, the number of foreclosure deeds has slowed, according to Warren Group, a Boston company that provides real estate data.

“There are probably at least a thousand families who are getting at least some period of temporary delay while lenders go back and get a proper paper trail,’’ said Klein, an attorney with the Boston-based law firm Roddy, Klein and Ryan. “Slowing foreclosures down allows people to get loan modifications and other relief.’’

The Springfield lawsuit was filed not by homeowners seeking to regain their houses, but by the foreclosing lenders who were trying to remove a “cloud from the title’’ of properties created because of where the lenders chose to publish foreclosure auction notices. A secondary issue was whether the notices – which did not officially name the mortgage holders – complied with the law, and that is what Long is concerned about.

The Real Estate Bar Association for Massachusetts, a statewide group with 3,000 members, joined the plaintiff’s attorney to ask the court to reconsider its ruling. Attorney Christopher Pitt, chair of the group’s Title Standards Committee, said many banks already have changed their procedures as a result of the March decision and are now coming to foreclosure-sale closings with completed paperwork.

But that doesn’t help people who already bought a foreclosed property from a bank.

“If a property has one of those arguably defective foreclosures in its back title, right now you may not be able to refinance or sell it,’’ said Pitt, who works for the law firm Robinson & Cole, which has an office in Boston.

In Springfield, the ruling scuttled purchases of two foreclosed properties in depressed areas, said Rudy Perkins, a staff lawyer with HAPHousing, a nonprofit that promotes affordable housing. As a result, Perkins said, the agency now steers clear of properties with similar title questions.

“There is a danger that if this can’t be resolved, those properties will stay boarded up,’’ said Perkins. “It killed the deals and, unfortunately, it is going to kill deals on other properties.’’

In North Andover, real estate agent Linda Kody said some banks have moved to redo a foreclosure rather than wait for Long’s decision. Others are not moving forward with foreclosures. Twelve pending sales in her office have collapsed recently, Kody said, and another 25 bank-owned property listings are on hold as lenders wait for a ruling.

“It is very upsetting,’’ said Kody, president of the real estate firm Kody & Co. Inc.

Biju Kachappilly, a father of two, is one of the many hopeful buyers awaiting the decision. Kachappilly said his pending purchase of a four-bedroom, $400,000 Colonial in Tyngsborough in April fell through over questions about the title. He still hopes to buy the home, but in the meantime is paying higher rent on a month-to-month apartment in Billerica after notifying the landlord of his plans to move.

“We are trying to buy a house and move our family there; it is good for the neighborhood and it is good for the town,’’ said Kachappilly. “Many families and houses are in limbo because of this decision.’’

Jenifer McKim can be reached at jmckim@globe.com.

Why the SPV (TRUST) is NOT THE LENDER: Using MERS Against the Pretender Lenders

the use of nominees or straw men doesn’t mean they can be considered principals in the transaction anymore than your depository bank is a principal to a transaction in which you buy and pay for something with a check. The fact that the money was processed through your depository bank doesn’t make them party to the transaction.

In answer to the central question being asked let me first state the strategic error being made by lawyers and pro se litigants: you can’t prove what you don’t know and you will lose credibility if you make representations you cannot back up. You can make allegations based upon Google information or an expert witness affidavit but you must accompany it with an allegation that the pretender lenders won’t give you the detailed information required by law. Then they come in and try to pin you with the burden of proof saying that you can’t allege or prove the details of the transaction. They are right. You can’t provide that information because only they have it and they refuse to give it you.

Here is what you DO know:

  1. Nearly all loans are securitized and your loan appears to be one of the loans that was securitized, which means that in a number of steps through intermediary conduits, the obligation either was transferred or was attempted to be transferred to what ultimately became a group of investors who funded the subject loan.
  2. If you have an expert witness affidavit you have a witness who says that your loan was securitized.
  3. A securitized loan by definition means that the lender is the person(s) or entity(ies) at the top of the securitization chain — i.e., the “investors” who purchased bonds that were mortgage backed securities.
  4. Those investors meet the definition of lenders — they advanced cash with the expectation of getting it back with interest.
  5. There are multiple stakeholders who purport to either had or have claims relating to the obligation, note or encumbrance. This creates a conflict, a cloud on title and doubt as to what to do with these people or entities that purport to have rights to enforce an obligation that was clearly funded by a real lender which was not themselves.
  6. The identity of the lender(s) is being withheld on the basis of confidentiality or some other ruse or obstruction fabricated by the pretender lenders.
  7. Federal Law (TILA, RESPA) requires the servicers to identify the lender, the name of a contact person at the lender, their address and phone number. They must supply the documents that show the identity of the lender. And the lender is responsible for providing a complete accounting of all transactions involving all funds paid and received by the Lender with respect to this obligation — from all sources.
  8. Federal Law and local laws or rules require an effort be made to modify, restructure or settle competing claims on these securitized loans.
  9. It is impossible to name the correct parties in litigation and impossible to comply with Federal Law without disclosure of the identity of the Lender.
  10. Any entity that meets the definition of a lender or creditor appears to be absent from the proceedings.

So the pretender lenders have come back with a series of arguments as they move up the securitization chain. First they said it was MERS who was the lender. That clearly didn’t work because MERS lent nothing, collected nothing and never had anything to do with the cash involved in the transaction. Then they started with the servicers who essentially met with the same problem. Then got cute and produced either the actual note, a copy of the note or a forged note, or an assignment or a fabricated assignment from a party who at best had dubious rights to ownership of the loan to another party who had equally dubious rights, neither of whom parted with any cash to fund either the loan or the transfer of the obligation. Katherine Ann Porter and April Charney were early leaders in exposing this deficiency.

Now the pretender lenders have come up with the idea that the “Trust” is the owner of the loan and that the Trustee is the proper party to represent the Trust and that therefore the Trustee has the power to enforce the obligation, the note and the encumbrance (mortgage or deed of trust). They first tell us that although MERS was named as nominee only and was not the lender even though it was named the beneficiary or mortgagee. Then they tell us that the Trustee and the “Trust” even though it is just a nominee (just like MERS) is the sole owner of the loans and that the real parties in interest (i.e., the investors who were the source of the cash) somehow don’t count. They can’t have it both ways.

My answer is really simple. The lender/creditor is the one who advanced cash to the borrower. The money used by the homeowner at closing when the homeowner purchased the loan product from the originating seller (pretender lender, actually a mortgage broker unregulated and unregistered) came from the Lender (investor). Therefore the investor is the lender. And the use of nominees or straw men doesn’t mean they can be considered principals in the transaction anymore than your depository bank is a principal to a transaction in which you buy and pay for something with a check. The fact that the money was processed through your depository bank doesn’t make them party to the transaction.

The pretender lenders do not want you to “meet” your Lender(s) (investor(s)). If you do, and compare notes, they will know that they gave an excessive amount of money that wasn’t really used entirely to fund mortgages and that the loans were structured in pools that were guaranteed to fail providing the underwriter, not the investor, with a windfall from the trigger of credit default swaps. The obvious answer is that if you meet your Lender (investor), you can restructure the loan yourselves and then jointly go after the pretender lenders for all the money they received and didn’t disclose as “agent” or nominees for either the homeowner who purchased the financial product consisting of a loan product with a promissory note and an agreement for encumbrance nor the investor who purchased a financial product consisting of a bond, deriving its value from the note executed by the homeowner, but which was insufficient on its face to actually cover the amount invested by the investor.

You will probably find that the trust has been dissolved or that the distribution reports provided by the CDO manager for the underwriter (investment bank) tell a very different story than the one being represented in court. The SPV (Trust) is a REMIC which is a conduit that keeps nothing. It might have the documents as a nominee but that merely makes them a records custodian, since the Trust clearly has no right to keep the money. In fact in order to maintain its status as an entity that has no tax “events” it CAN’T actually own anything or have any income, losses, assets or liabilities. Ask for a copy of the the financial statements and ledgers for the Trust and watch them go nuts.

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