Maine Case Affirms Judgment for Homeowner — even with admission that she signed note and mortgage and stopped paying

Posted on December 27, 2017 by Neil Garfield

While this case turned upon an  inadequate foundation for introduction of “business records” into evidence, I think the real problem here for Keystone National Association was that they did not and never did own the loan — something revealed by the usual game of musical chairs that the banks use to confuse and obscure the identity of the real creditor.

When you read the case it demonstrates that the Maine Supreme Judicial Court was not at all sympathetic with Keystone’s “plight.” Without saying so directly the court’s opinion clearly reveals its doubt as to whether Keystone had any plight or injury.

Refer to this case and others like it where the banks treated the alleged note and mortgage as being the object of a parlor game. The attention paid to the paperwork is designed by the banks to distract from the real issue — the debt and who owns it. Without that knowledge you don’t know the principal and therefore you can’t establish authority by a “servicer.”

The error in courts across the country has been that the testimony and records of the servicer are admissible into evidence even if the authority to act as servicer did not emanate from the real party in interest — the debt holder (the party to whom the MONEY is due.

Note that this ended in judgment for the homeowner and not an involuntary dismissal without prejudice.

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Hat Tip to Bill Paatalo

Keybank – maine supreme court

Here are some meaningful quotes from the Court’s opinion:

KeyBank did not lay a proper foundation for admitting the loan servicing records pursuant to the business records exception to the hearsay rule. See M.R. Evid. 803(6).

KeyBank’s only other witness was a “complex liaison” from PHH Mortgage Services, which, he testified, is the current loan servicer for KeyBank and handles the day-to-day operations of managing and servicing loan accounts.

The complex liaison testified that he has training on and personal knowledge of the “boarding process” for loans being transferred from prior loan servicers to PHH and of PHH’s procedures for integrating those records. He explained that transferred loans are put through a series of tests to check the accuracy of any amounts due on the loan, such as the principal balance, interest, escrow advances, property tax, hazard insurance, and mortgage insurance premiums. He further explained that if an error appears on the test report for a loan, that loan will receive “special attention” to identify the issue, and, “[i]f it ultimately is something that is not working properly, then that loan will not . . . transfer.” Loans that survive the testing process are transferred to PHH’s system and are used in PHH’s daily operations.

The court admitted in evidence, without objection, KeyBank’s exhibits one through six, which included a copy of the original promissory note dated April 29, 2002;3 a copy of the recorded mortgage; the purported assignment of the mortgage by Mortgage Electronic Registration Systems, Inc., from KeyBank to Bank of America recorded on January9, 2012; the ratification of the January 2012 assignment recorded on March 6, 2015; the recorded assignment of the mortgage from Bank of America to KeyBank dated October 10, 2012; and the notice of default and right to cure issued to Kilton and Quint by KeyBank in August 2015. The complex liaison testified that an allonge affixed to the promissory note transferred the note to “Bank of America, N.A. as Successor by Merger to BAC Home Loans Servicing, LP fka Countrywide Home Loans Servicing, LP,” but was later voided.

Pursuant to the business records exception to the hearsay rule, M.R. Evid. 803(6), KeyBank moved to admit exhibit seven, which consisted of screenshots from PHH’s computer system purporting to show the amounts owed, the costs incurred, and the outstanding principal balance on Kilton and Quint’s loan. Kilton objected, arguing that PHH’s records were based on the records of prior servicers and that KeyBank had not established that the witness had knowledge of the record-keeping practices of either Bank of America or Countrywide. The court determined that the complex liaison’s testimony was insufficient to admit exhibit seven pursuant to the business records exception.

KeyBank conceded that, without exhibit seven, it would not be able to prove the amount owed on the loan, which KeyBank correctly acknowledged was an essential element of its foreclosure action. [e.s.] [Editor’s Note: This admission that they could not prove the debt any other way means that their witness had no personal knowledge of the amount due. If the debt was in fact due to Keystone, they could have easily produced a  witness and a copy of the canceled check or wire transfer receipt wherein Keystone could have proven the debt. Keystone could have also produced a witness as to the amount due if any such debt was in fact due to Keystone. But Keystone never showed up. It was the servicer who showed up — the very party that could have information and exhibits to show that the amount due is correctly proffered because they confirmed the record keeping of “Countrywide” (whose presence indicates that the loan was subject to claims of securitization). But they didn’t because they could not. The debt never was owned by Keystone and neither Countrywide nor PHH ever had authority to “service” the loan on behalf of the party who owns the debt.]

the business records will be admissible “if the foundational evidence from the receiving entity’s employee is adequate to demonstrate that the employee had sufficient knowledge of both businesses’ regular practices to demonstrate the reliability and trustworthiness of the information.” Id. (emphasis added).

 

With business records there are three essential points of reference when several entities are involved as “lenders,” “successors”, or “servicers”, to wit:

  1. The records and record keeping practices of the initial “lender.” [If there are none then that would point to the fact that the “lender” was not the lender.] Here you are looking for the first entries on a valid set of business records in which the loan and fees and costs were posted. Generally speaking this does not exist in most loans because the money came a third party source who knows nothing of the transaction.
  2. The records and record keeping practices of any “successors.” Note that this is a second point where the debt is separated from the paper. If a successor is involved there would correspondence and agreements for the purchase and sale of the debt. What you fill find, though, is that there is only a naked endorsement, assignment or both without any correspondence or agreements. This indicates that the paper transfer of any rights to the “loan” was strictly for the purpose of foreclosing and bore new relationship to reality — i.e., ownership of the debt.
  3. The records and record keeping practices of any “servicers.” In order for the servicer to be authorized, the party owning the debt must have directly or indirectly given authorization and come to an agreement on fees, as well as given instructions as to what functions the servicer was to perform. What you will find is that there is no valid document from an owner of the debt appointing the servicer or giving any instructions, like what to do with the money after it is collected from homeowners. Instead you find tenuous documentation, with no correspondence or agreements, that make assertions for foreclosure. The game of musical chairs has bothered judges for a decade: “Why do the servicers keep changing” is a question I have heard from many judges. The typical claims of authorization are derived from Powers of Attorney or a Pooling and Servicing agreement for an entity that neither e exists nor does it have any operating history.

Filed under: boarding process, BURDEN OF PROOF, CASES, CORRUPTION, discovery, evidence, foreclosure, Investor, Mortgage, originator, Servicer, sham transactions, Trail Objections | Tagged: , , , , , , , , , , , , , , , | 4 Comments »

Foreclosure Defense: Fraudulent Appraisals, Teaser Rates, and Manufactured Defaults: Boons to Borrowers in Defending Foreclosure

Posted on June 11, 2008 by Neil Garfield
Fraudulent Appraisals, Teaser Rates, and Manufactured Defaults: Boons to Borrowers in Defending Foreclosure
As more and more lender misconduct hits the Internet airwaves and more of us continue our investigation into and scrutiny of the practices of originating lenders and their downline successors, certain themes are developing which give rise to numerous defenses to mortgage foreclosure actions. Three such issues are discussed here which are not mutually exclusive; which are “inextricably intertwined”; and which, when properly presented, may force a foreclosing party to bring additional parties into a foreclosure action, each of which is not only a potential additional “settlement pot” for the borrower’s claims, but also, on playing the “blame game”, can provide the borrower with free information to bolster the borrower’s claim as well.
The first is the fraudulent appraisal, particularly in foreclosure actions involving equity lines of credit (also called home equity lines of credit or “HELOC”s) and refinance transactions where “cash out” is provided to the borrower. It goes without saying that a mortgage loan of any type depends in material part on the outcome of the appraisal of the property, which directly affects the loan-to-value (“LTV”) which percentage is used to calculate the maximum amount of money which can be disbursed as a “cash out” on a refinance, or amount of credit line which is extended on a HELOC. Given the literature concerning the tremendous pressure by the investment bankers to get mortgage loans signed up so that they could be sold to an aggregator and then bundled and used to “back” a “mortgage-backed” security, it was incumbent upon the appraiser to make sure that the appraised value of the property came in at the right number to close the loan, whether the appraisal was accurate or not. What is being learned is that a great many of these appraisals were inaccurate, misleading, or outright false and based not on true “comparable sales” as required for a proper appraisal.
The second is the so-called “teaser rate” in Adjustable Rate Mortgage (ARM) loans. Literally hundreds of thousands of these loans, made to borrowers with unproven, dubious, little, or no income, “teased” or lured the borrower in with a promise from the mortgage broker or “lender” that the interest rate on the loan would be small for the first couple of years before it would go up, but with the attitude that “Hey, don’t worry, your property keeps going up in value, so by the time the new rate kicks in, you will have more equity and you can just do another ARM for a low rate”. What the mortgage broker and lender knew, however (but which was not disclosed to the borrower) was that the loan was only qualified for the borrower, in view of the borrower’s unproven, dubious, little, or no income, on the “teaser” interest rate, with the “lender” knowing that the borrower, once the “new” rate kicked in, DID NOT AND COULD NOT qualify for the loan and would not be able to make the increased mortgage payment based on the borrower’s income. As such, a default was built into the loan from the outset. But hey, no matter, as the originating “lender” had no intention of keeping the loan anyway, that would be someone else’s problem later on and down the line.
Which brings us to the effects of the manufactured default. Teaser rate loans to borrowers with unproven, dubious, little, or no income were doomed from the start. The originating lender knew or had to know that a default upon instance of the new and higher interest rate on the loan was almost inevitable, but hey again (to my friend purchasing these loans), YOU CAN FORECLOSE ON THE PROPERTY, SO YOU ARE PROTECTED!  This line had to have been repeated down the line at least through the first few layers of resale of the loans before bundling and being used as alleged “backing” for a “mortgage backed security”, when it really didn’t matter anymore except to those who now seek to foreclose on something they may not really even legally own or have rights to, and is probably not worth what the lender said it was worth.
So now, as a hypothetical (based on existing facts from certain pending cases), mortgage broker sucks in low-income borrower to take a cash-out refi on his house on a 2-year ARM with a low initial interest rate. Mortgage broker convinces borrower that Bank A has the best deal for borrower and that loan WILL be approved shortly despite no proof of borrower’s income, or on whatever income figure borrower claims (also known in mortgage parlance as “stated” income). Mortgage broker and Bank A make sure that appraiser inputs the “right” value for property on the appraisal so that the proper LTV is met to make the loan work even if true comps are not available. Bank A makes loan and immediately sells off mortgage to aggregator who in turn sells it off to investment banker in bundles for mortgage-backed-securities purposes. Bank A sells off right to “service” the loan to Servicing Agent, which collects payments from borrower, who defaults when teaser rate expires. Although there are numerous legal issues in this process, the focus here is on the interplay of the effect of the fraudulent appraisal, teaser rate, and manufactured default as they relate to assisting the borrower defending a foreclosure.
Servicing Agent now sues borrower for foreclosure claiming default in payment. Borrower defends against the Servicing Agent (as the purported “lender”) and asserts claims against Servicing Agent for lender liability, violation of lending laws, and other remedies. Servicing Agent claims “not me”, then looks to see who it can blame for borrower’s claims, and is thus forced to bring in Bank A, appraiser, and mortgage broker, who are each going to cry “not me” as well and start pointing fingers. The beauty of this is that the Servicing Agent has now provided the borrower with several other parties to seek relief from and has also provided the claims to be asserted against these additional parties. Further, one or more of these new parties may agree to “cooperate” with the borrower by disclosing the truth in exchange for a quick settlement either directly or through their professional liability insurance carriers rather than risk the potential of an adverse Final Court Judgment being entered against them and/or a professional license suspension or revocation, or loss of professional liability insurance coverage.
Given the enormity of the resale/aggregation/bundling/securitizing of mortgage loans and the myriad legal issues involved in the broad scheme of these transactions, a borrower threatened with foreclosure should never be shy to seek an opinion as to their potential defenses from an attorney who has a working knowledge of the pertinent concepts and how they operate in synergy to the benefit of the borrower. The investment in obtaining such an opinion could literally save the roof over the head of you (the borrower) and your family.
Jeff Barnes, Esq.

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: , , , , , , , , , , , | Leave a comment »

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