In re: THOMAS L. DeSHETLER, CHERYL A. DeSHETLER, Chapter 13, Debtors.

Case No. 10-36557.

United States Bankruptcy Court, S.D. Ohio, Western Division, Dayton.

July 12, 2011.

Scott A. King, Jennifer L. Maffett, 2000 Courthouse Plaza, N.E., Dayton, Ohio, Counsel for Wells Fargo Bank, N.A.

Pamela Arndt, Office of the United States Trustee, Columbus, Ohio, Counsel for the United States Trustee.

DECISION GRANTING IN PART AND DENYING IN PART THE UNITED STATES TRUSTEE’S MOTION FOR ENTRY OF AN ORDER AUTHORIZING THE EXAMINATION OF AND REQUIRING THE PRODUCTION OF DOCUMENTS BY WELLS FARGO HOME MORTGAGE

GUY R. HUMPHREY, Bankruptcy Judge.

I. Introduction

This contested matter is before the court on the motion filed by the United States trustee^[1] seeking an order authorizing him to conduct an examination of Wells Fargo Home Mortgage, one of the nation’s largest residential mortgage lenders, pursuant to Federal Rules of Bankruptcy Procedure 2004 and 9016. Wells Fargo objects to this request.

As a backdrop to understanding this contested matter, the UST’s motion seeking to conduct a 2004 examination comes in the wake of the mortgage crisis that has gripped this nation for the last several years, highlighted by an unprecedented number of foreclosures and litigation in the bankruptcy courts concerning issues of standing and documentation.^[2] The volume of foreclosure proceedings has caused strain on mortgage servicers’ ability to process the large volume of delinquent loans encountered in the last several years. Compounding the challenges arising out of the sheer volume of the foreclosure filings is that most of these loans are syndicated, having been originated at a local level, bundled with other mortgage loans, and then sold to private investors, resulting in at least one and usually multiple transfers of the loan.^[3] Thus, the state and federal courts, particularly the bankruptcy courts, have been engulfed by the “perfect storm” arising out of the mass syndication of mortgage loans and the ensuing financial crisis.

The UST’s motion raises several issues. The threshold issue is whether the UST has the authority to conduct an examination and to compel the production of documents pursuant to Federal Rule of Bankruptcy Procedure 2004. If the UST possesses such authority, two additional issues must be addressed: 1) whether the UST has demonstrated “good cause” under Rule 2004 for this request; and 2) whether the scope of the requested examination is appropriate.

For the reasons to be discussed, the court finds that the UST has the authority to conduct an examination under Rule 2004, including the ability to compel the production of documents. The court further finds that the UST has established good cause. However, the court limits the scope of the examination to the documents related to Wells Fargo’s claim that it is the holder, or other person entitled to enforce, the promissory note that is the subject of this inquiry. Any oral examination, as limited by this decision, shall only proceed in the event that the UST determines that Wells Fargo has not produced sufficient documentation to establish that it is entitled to enforce the note and when that occurred.

II. Factual and Procedural Background

Thomas L. DeShetler and Cheryl A. DeShetler (the “Debtors”) filed a joint chapter 13 petition on October 11, 2010 (doc. 1). Wells Fargo Home Mortgage filed a proof of claim (claim 9-1) on November 19, 2010 on behalf of Well Fargo Bank, N.A.^[4] Attached to Wells Fargo’s proof of claim are copies of a mortgage granted to Washington Mutual Bank, FA (the “Mortgage”) and a promissory note payable to Washington Mutual Bank, FA endorsed in blank (the “Note”). On December 8, 2010 the court entered an order confirming the Debtors’ plan (doc. 21).

The UST filed a motion seeking to conduct a 2004 examination on December 8, 2010 (doc. 19) (the “2004 Motion”); on January 7, 2011 Wells Fargo filed an objection to the 2004 Motion (doc. 27) on February 22, 2011 the UST filed a reply (doc. 37) and on March 15, 2011 Wells Fargo filed a supplemental brief (Doc. 43) and a Request for Hearing (doc. 44), which the court granted (doc. 45). The court heard oral argument on April 13, 2011.

III. Positions of the Parties

The UST argues that he may conduct a 2004 examination because Wells Fargo’s proof of claim fails to attach documentation that Wells Fargo had standing to file its claim. In particular, the UST asserts that the Mortgage and Note attached to the proof of claim reference only Washington Mutual Bank, FA and that it is unknown whether the Note and Mortgage were ever properly assigned to Wells Fargo. To assist in determining the validity of Wells Fargo’s claim, the UST requests that Wells Fargo produce the “transactional mortgage loan history on the Debtors’ mortgage loan, along with payments for escrow advances made by Wells Fargo.” 2004 Motion, Exhibit A. The UST also requests that Wells Fargo provide evidence of the chain of assignment of the Mortgage and endorsement of the Note. Finally, the UST seeks to examine a representative of Wells Fargo regarding those documents.

In response, Wells Fargo asserts that the statutory powers granted to the UST do not include the authority to investigate and determine validity of claims based on state law rights and unilaterally increase the documentation necessary to file a valid proof of claim under Federal Rule of Bankruptcy Procedure (“BR”) 3001.^[5] Wells Fargo further argues that, assuming that the UST has the statutory powers to conduct a 2004 examination, the UST lacks good cause to request a 2004 examination because the proof of claim establishes that Wells Fargo holds the Note since a copy is attached to its proof of claim and because, under Ohio law, security follows the debt, it need not provide a copy of the assignment of the Mortgage. Finally, Wells Fargo challenges the UST’s request for a “complete loan history” as unnecessary. If the court allows the 2004 examination, Wells Fargo concludes that the scope of the document requests must be narrowed and any examination conducted at the place of employment of the individual representative who is examined.

IV. Legal Analysis

A. Jurisdiction

This court has jurisdiction pursuant to 28 U.S.C. § 1334 and General Order No. 05-02 of the United States District Court for the Southern District of Ohio, which is the general order of reference referring all bankruptcy proceedings and matters to this bankruptcy court. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (O).

B. The Role of the United States Trustee’s Program

Because Wells Fargo challenges the UST’s authority to conduct 2004 examinations, an examination of the role of the UST, including the relevant statutes, is in order.

The UST was created by the Bankruptcy Reform Act of 1978 (the “1978 Act”) as a pilot effort in select federal judicial districts of the United States to remedy the perceived institutional bias arising out of bankruptcy judges’ handling of both the judicial and administrative aspects of the bankruptcy system. H.R. Rep. No. 595, 95th Cong., 1st Sess. 100, reprinted in 1978 U.S.C.C.A.N. 5963, 6061. Under the program, the UST was appointed to take over the administrative functions previously assumed by bankruptcy judges. Id.

To implement the newly created program, the 1978 Act added a new chapter to Title 28 of the United States Code, chapter 39, which addresses, among other things, the appointment, role, and salaries of United States trustees. See 28 U.S.C. §§ 581-586(a). Section 586 sets forth a list of the duties of the UST and defines the United States Attorney General’s supervision to be exercised over these trustees. 28 U.S.C. § 586; In re Countrywide Home Loans, Inc., 384 B.R. 373, 380 (Bankr. W.D. Pa. 2008). It provides in relevant part that:

(a) Each United States trustee, within the region for which such United States trustee is appointed, shall—

(3) supervise the administration of cases and trustees in cases under chapter 7, 11, 12, 13, or 15 of title 11 by, whenever the United States trustee considers it to be appropriate—

[…]

(C) monitoring plans filed under chapters 12 and 13 of title 11 and filing with the court, in connection with hearings under sections 1224, 1229, 1324, and 1329 of such title, comments with respect to such plans;

[…]

(F) notifying the appropriate United States attorney of matters which relate to the occurrence of any action which may constitute a crime under the laws of the United States and, on the request of the United States attorney, assisting the United States attorney in carrying out prosecutions based on such action;

(G) monitoring the progress of cases under title 11 and taking such actions as the United States trustee deems to be appropriate to prevent undue delay in such progress…

28 U.S.C. § 586(a). The legislative history explains:

The Trustee in each case will be responsible for the administration of the case. The bill gives him adequate powers to accomplish what must be done, and relieves him of the necessity for applying to the court and receiving court approval for every action he proposes to take. The bill introduces the concept that the trustee may take any action necessary to the administration of the case if he notifies those parties in interest to whom notice would be appropriate under the particular circumstances . . . and provide an opportunity for a party in interest to object.

H.R. Rep. No. 595, 95th Cong., 1st Sess. 107-108, reprinted in 1978 U.S.C.C.A.N. 5963, 6069. Based on the pilot program’s success, Congress expanded the program and made it permanent through the enactment of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 (the “1986 Act”), P.L. 99-554. See also U.S. Trustee v. Columbia Gas Sys., Inc. (In re Columbia Gas Sys. Inc.), 33 F.3d 294, 296 (3rd Cir. 1994).

As part of the 1986 Act, Congress added a new provision to the Code — 11 U.S.C. § 307. That section provides that “[t]he United States trustee may raise and may appear and be heard on any issue in any case or proceeding under this title but may not file a plan pursuant to section 1121(c) of this title” (emphasis added). The House Report explains:

The U.S. Trustee is given standing to raise, appear, and be heard on any issue in any case or proceeding under Title 11, U.S. Code-except that the U.S. Trustee may not file a plan in a Chapter 11 case. In this manner, the U.S. Trustee is given the same right to be heard as a party in interest, but retains the discretion to decide when a matter of concern to the proper administration of the bankruptcy laws should be raised.

H.R. Rep. No. 764, 99th Cong., 2d Sess. 27, reprinted in 1986 U.S.C.C.A.N. 5227, 5240.

Wells Fargo advocates a view that restricts the powers granted to the UST to those specifically enumerated in § 586 and posits that § 307 is merely an enabling provision granting the UST the standing necessary to perform his duties under § 586. The UST argues that, pursuant to his congressionally mandated role as a “watchdog” of the bankruptcy system, § 586 and § 307 confer upon him broad authority to seek and conduct 2004 examinations.

C. Rule 2004 Examinations

The UST seeks to conduct an examination of Wells Fargo pursuant to BR 2004. It provides in pertinent part as follows:

(a) Examination on motion. On motion of any party in interest, the court may order the examination of any entity.

(b) Scope of examination. The examination of an entity under this rule or of the debtor under § 343 of the Code may relate only to the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor’s estate, or to the debtor’s right to a discharge. In . . . an individual’s debt adjustment case under chapter 13 . . ., the examination may also relate to the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formulation of a plan.

(c) Compelling attendance and production of documents. The attendance of an entity for examination and for the production of documents, whether the examination is to be conducted within or without the district in which the case is pending, may be compelled as provided in Rule 9016 for the attendance of a witness at a hearing or trial. As an officer of the court, an attorney may issue and sign a subpoena on behalf of the court for the district in which the examination is to be held if the attorney is admitted to practice in that court or in the court in which the case is pending.

* * * *

(e) Mileage. An entity other than a debtor shall not be required to attend as a witness unless lawful mileage and witness fee for one day’s attendance shall be first tendered . . . .

BR 2004.

The purpose of 2004 is to provide a tool to parties to a bankruptcy, particularly trustees, to obtain information concerning “the acts, conduct, or property” of the debtor, “the liabilities and financial condition of the debtor,” “any matter which may affect the administration of the debtor’s estate, or to the debtor’s right to a discharge,” and in a Chapter 11, 12, or 13 case, “the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formulation of a plan.” SeeIn re GHR Energy Corp., 35 B.R. 534, 536-38 (Bankr. Mass. 1983). See also In re Express One Int’l, Inc., 217 B.R. 215, 216 (Bankr. E.D. Tex. 1998) (The general purpose of a BR 2004 examination is to review the estate’s condition for the benefit of the rights of creditors.). BR 2004(b);

Bankruptcy courts have broad discretion in determining whether to order a 2004 examination. Bank One, Columbus NA v. Hammond (In re Hammond), 140 B.R. 197, 201 (S.D. Ohio 1992); In re Drexel Burnham Lambert Group, Inc., 123 B.R. 702, 708-09 (Bankr. S.D.N.Y. 1991); and In re Fearn, 96 B.R. 135 (Bankr. S.D. Ohio 1989). As Judge Cole noted, a 2004 examination’s scope is very broad:

It is well-established that the scope of a Rule 2004 examination is very broad and great latitude of inquiry is ordinarily permitted. The scope of examination permitted pursuant to Rule 2004 is wider than that allowed under Federal Rules of Civil Procedure and can legitimately be in the nature of a “fishing expedition”. Although the primary purpose of a Rule 2004 examination is to permit a party in interest to quickly ascertain the extent and location of the estate’s assets, such examination is not limited to the debtor or his agents, but may properly extend to creditors and third parties who have had dealings with the debtor.

Id. at 137-38 (citations omitted). However, Judge Cole also noted that, while broad, the scope of Rule 2004 examinations is not “limitless.” Id. at 138. “The examination should not be so broad as to be more disruptive and costly to the party sought to be examined than beneficial to the party seeking discovery.” Id. Moreover, an examination cannot be used for purposes of abuse or harassment. Fearn, 96 B.R. at 138; In re Mittco, Inc., 44 B.R. 35, 36 (Bankr. E.D. Wisc. 1984).

The use of a 2004 examination is not permitted for matters not related to the financial condition of a debtor or a debtor’s estate. Upon a creditor objection, the examiner must establish “good cause,” taking into consideration the totality of the circumstances, including the importance of the information to the examiner and the costs and burdens on the creditor. See Countrywide Home Loans, 384 B.R. at 393. The level of good cause required to be established varies depending on the potential intrusiveness. Id., citing Fearn, 96 B.R. at 138. See also Official Cmte. Of Unsecured Creditors v. Eagle-Pitcher Indus., Inc. (In re Eagle-Pitcher Indus., Inc.), 169 B.R. 130, 134 (Bankr. S.D. Ohio 1994)Hammond, 140 B.R. at 201 (similar). (examination should not be so broad as to be more disruptive and costly to the party to be examined than beneficial to the party seeking discovery);

D. The UST Has Authority to Monitor the Bankruptcy Claims Process

Wells Fargo argues that the UST lacks the authority under § 586 to investigate the proof of claim that it filed and, therefore, no basis exists for the UST to conduct a 2004 examination. Wells Fargo argues that § 586 sets forth the specific and limited tasks which the UST may undertake and that § 307 merely provides the UST with standing to take actions related to those specific tasks. Wells Fargo asserts that investigation of proofs of claim is not one of those specific tasks.

28 U.S.C. § 586(a)(3) grants the UST broad authority to “supervise the administration of cases and trustees in cases under chapter 7, 11, 12, 13, or 15 of title 11 by, whenever the United States trustee considers it to be appropriate . . . [.]” This authority includes “monitoring the progress of cases under title 11 and taking such actions as the United States trustee deems to be appropriate to prevent undue delay in such progress[.]” 28 U.S.C. § 586(a)(3)(G). As such, the UST is charged by statute with the duty to oversee and supervise the administration of bankruptcy cases. 28 U.S.C. § 586(a). Congress has summarized the role of the UST as protector of the public interest with the responsibility to ensure that bankruptcy cases are conducted in accordance with the law. Morgenstern v. Revco D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498, 500 (6th Cir. 1990), citing H. Rep. No. 595 at 109, reprinted in 1978 U.S.C.C.A.N. at 6070; United Artists Theatre Co. v. Walton, 315 F.3d 217, 225 (3rd Cir. 2003); U.S. Trustee v. Clark (In re Clark), 927 F.2d 793, 795 (4th Cir. 1990); In re Plaza de Diego Shopping Center, 911 F.2d 820, 824 (1st Cir. 1990); Adams v. Zarnel (In re Zarnel), 619 F.3d 156, 162 (2nd Cir. 2010).

Further, Congress has expressly given the UST standing under § 307 to raise and be heard on any issue under title 11, except that the UST may not file a chapter 11 plan. 11 U.S.C. § 307; Revco, 898 F.2d at 500; United States Trustee v. Price Waterhouse, 19 F.3d 138, 141 (3rd Cir. 1994); U.S. Trustee v. FIshback (In re Glados, Inc.), 83 F.3d 1360, 1361, n.1 (11th Cir. 1996); In re Donovan Corp., 215 F.3d 929, 930 (9th Cir. 2000); Clark, 927 F.2d at 796; Plaza de Diego Shopping Center, 911 F.2d at 824.^[6] Because of his role as representative of the public interest, the UST is not required to demonstrate any concrete pecuniary injury to exercise his standing under § 307 of the Code. Revco, 898 F.2d at 500. For example, the Sixth Circuit has held that a United States trustee had standing to appeal a bankruptcy court decision not to appoint an examiner under 1104(b)(2) because the public interest is a sufficient stake to confer standing upon the UST.^[7] Id.

Wells Fargo’s argument that § 586 circumscribes the UST’s authority under § 307 contradicts the express language of § 307. Section 307 specifically provides that “[t]he United States trustee may raise and appear and be heard on any issue in any case or proceeding under this title . . . .” 11 U.S.C. § 307 (emphasis added). In enacting § 307, Congress did not limit the issues which the United States trustees may raise to those specifically enumerated in § 586. Rather, Congress used very broad, all-inclusive language to authorize the United States trustees to raise any issue in any case or proceeding. In Countrywide, after an extensive review of the history of the UST, including the legislative history behind §§ 586 and 307, case law interpreting the powers granted to the United States trustees under those provisions, and a thorough application of traditional canons of statutory interpretation, the court concluded that:

Section 307 is written in extremely broad language. Indeed it is difficult to conceive of how section 307 could have been written in any broader language. The court has thus no difficulty concluding that the plain meaning of the power to “raise” and to “appear and be heard” as to any issue in any bankruptcy case or proceeding includes the ability to conduct examinations pursuant to Rule 2004 in the right circumstances.

Countrywide, 384 B.R. at 384. The court adopts the thorough analysis performed by the Countrywide court in concluding that the UST’s authority is not limited to the specific tasks expressly mentioned in § 586 and that the UST may conduct the requested 2004 examination in this case.

The claims process, including the filing and allowance of claims, constitutes a significant part of the bankruptcy process. Sections 501 through 511 of the Code directly address the claims process in bankruptcy cases. Other Code provisions cover varying issues relating to the determination, allowance, and treatment of claims.^[8] In addition to these Code provisions, Rules 3001 through 3014 address the claims process and claims issues in bankruptcy cases. Additional Rules cover the diverse issues relating to the determination, allowance, and treatment of claims.^[9] Section 586 is broad enough to allow the UST to monitor the claims process, including through the investigation of proofs of claim filed by creditors, to assist in his duty of monitoring the progress of cases. Issues, with proofs of claims filed by mortgage lenders, affect the administration of cases. Accordingly, monitoring the claims process falls well within the UST’s duty to monitor the progress of bankruptcy cases.

Other courts have recognized the UST’s ability to monitor the claims process in bankruptcy cases and under the broad standing accorded by § 307, to object to proofs of claim. In re Borrows, 2011 WL 721842 (Bankr. W.D. Wash. Feb. 22, 2011). In Borrows, the United States trustee filed an objection to a mortgage lender’s proof of claim. The lender, rather than responding to the substance of the objection, challenged the United States trustee’s standing to object to claims. Id. at *1. The court determined that § 307 provided standing to the United States trustee to object to a proof of claim. In so deciding, it found that § 586(3)(G) provided “specific authority for the UST to bring an objection to claim under the circumstances of this case.” Id. at *2.^[10]

Similarly, in Countrywide, the court concluded that the UST had sufficient interest to conduct a 2004 examination in connection with the UST’s challenge to Countrywide’s manner of calculating proofs of claim because “she has been charged to act as a watchdog to protect the integrity of the bankruptcy system.” Countrywide, 384 B.R. at 391, citingRevco, 898 F.2d at 500 and Eagle-Pitcher Holdings, 2005 WL 4030131, at *4 (Bankr. S.D. Ohio Aug. 26, 2005). The UST filed notices of 2004 examinations to obtain information from Countrywide in various bankruptcy cases alleging that the lender had engaged in questionable actions when filing proofs of claims. The UST sought to examine a corporate representative of Countrywide regarding “[its] bankruptcy procedures as they related to the Debtors’ financial affairs, the administration of their estate and the impact of Countrywide’s bankruptcy procedures on the integrity of the bankruptcy process in the Western District of Pennsylvania.” Countrywide, 384 B.R. at 400. The subpoena part of the request asked Countrywide to produce a variety of documents. The court rejected many of the same arguments made by Wells Fargo in this case in finding that the UST had the authority to conduct 2004 examinations relating to claims filed by Countrywide.

In addition, In re Wilson is instructive because it dealt with the UST’s on-going investigation into mortgage lenders’ filings in bankruptcy cases. 413 B.R. 330 (Bankr. E.D. La. 2009). In that case, the UST did not move for a 2004 examination but merely issued subpoenas to the mortgage lender. The court, finding “no reason to differ from the vast majority of courts on this issue” specifically adopted the reasoning in Countrywide, and allowed the UST to propound discovery on a mortgage lender in connection with allegations of improper filings by the lender pursuant to 11 U.S.C. §307 and § 105(a). Id. at 335-36. Noting that even though the UST had not sought discovery pursuant to 2004, “the preferable method for the UST to obtain the information it seeks from the [m]ovants,” the court concluded that its decision would have been the same. Id. at 336.

Perhaps most apposite to this case is the decision in In re Michalski, 449 B.R. 273 (Bankr. N.D. Ohio 2011). Wells Fargo filed a motion to quash a subpoena issued by the UST and requesting the court to reconsider an order granting a 2004 examination. The UST sought to examine records and documentation pertaining to the proof of claim which Wells Fargo filed in the debtors’ Chapter 13 case. While limiting the scope of the examination and documents to be produced, the court otherwise enforced the subpoena and denied the request to reconsider the granting of the 2004 examination. The court relied in large part on the rationale provided by Countrywide and Wilson and held that the UST had the authority “under Sections 307 and/or 586” to conduct the 2004 examination and to subpoena the documents underlying Wells Fargo’s proof of claim. Id. at 280.

Finally, another bankruptcy court rejected similar arguments made by BAC Home Loans Servicing, adopting the rationale of Countrywide, Wilson, and Michalski. The court stated: “The UST is charged to serve as a watchdog to protect the integrity of the bankruptcy system. That status compels the conclusion that Congress intended the UST to have the tools, including the ability to conduct Rule 2004 examinations and issue subpoenas, to carry out that duty. Without such authority, the UST’s role as a watchdog would be circumscribed and toothless.” In re Youk-See, ___ B.R. ___, 2011 WL 2458106, at *9 (Bankr. D. Mass. June 16, 2011).

The cases upon which Wells Fargo relies to argue that the UST’s authority under § 586 is very narrow do not alter this court’s conclusions. First, Wells Fargo cites In re Washington Mfg. Co., but that decision addressed the issue of whether a UST could intervene in an adversary proceeding under BR 7014, not the power of the UST to move for a 2004 examination. Citicorp North Amer., Inc. v. Finley (In re Washington Mfg. Co.) 123 B.R. 272, 275-76 (Bankr. M.D. Tenn. 1991). Of even greater significance, Washington Mfg. was decided prior to the Sixth Circuit’s decision in Revco.^[11]

Accordingly, the court concludes that the UST may be involved in the claims process by virtue of his duty to monitor the progress of bankruptcy cases in his role as the “public watchdog” of the system.

E. A 2004 Examination is a Tool Which the UST May Use in Exercising His Authority to Monitor the Progress of Bankruptcy Cases, Including the Claims Process

As noted, the UST has the authority under § 586 to monitor the progress of bankruptcy cases and to investigate conduct to determine if a crime has been conducted. Through § 307 Congress made the UST a party in interest to all bankruptcy cases and authorized the UST to appear in any case or proceeding and to raise any issue in any case or proceeding. The 2004 examination is a tool which Congress has given to parties in interest in bankruptcy cases to investigate matters relating to debtors’ financial condition, including to determine whether to proceed with litigation. A 2004 examination may be used by the UST to investigate proofs of claim filed in bankruptcy cases provided that the examination is otherwise appropriate under Rule 2004. Accordingly, the court will now address whether the UST’s requests in this case meet the requirements of Rule 2004.

F. The Requirements and Limits of Rule 2004 Examinations Applied to the UST’s Request

1. Standing: The UST Has Standing To Pursue a Rule 2004 Examination

For the reasons discussed, the UST has standing pursuant to 28 U.S.C. § 586 and § 307 to pursue a 2004 examination.

2. Good Cause: The UST Has Established Good Cause for Conducting a 2004 Examination

Wells Fargo argues that the UST does not have the necessary good cause to conduct a 2004 examination. Wells Fargo explains that “[a] UST is not vested with the power to independently investigate and determine the validity of claims based on state law rights and, in the process, unilaterally increase the required documentation necessary for the filing of a valid proof of claim under Fed. R. Bankr. 3001.” doc. 27, p. 3. Wells Fargo further argues that “the documents attached to the Wells Fargo claim already establish its standing.” doc. 27, p. 8. The court disagrees.^[12]

Essentially, Wells Fargo’s argument is premised upon an erroneous conclusion — that attaching a copy of a promissory note asserted to be the Note executed by the Debtors conclusively establishes that it is the holder of the Note and, therefore, is entitled to enforce the rights under the Note and Mortgage. See Objection, pp. 8-11. The court does not disagree with, and the UST has conceded, the propositions that under Ohio law the holder of a promissory note may enforce the note and that the rights under a mortgage are incidental to the rights under the promissory note which it secures.^[13] However, Wells Fargo’s argument that attachment of a copy of a promissory note to a proof of claim conclusively establishes Wells Fargo’s standing to file the proof of claim is not well taken.

A properly filed proof of claim is only prima facie evidence of the validity of a claim, and the UST is entitled to verify that eligibility by requiring that original documents or other evidence of the claimant’s entitlement to file and enforce the claim be produced. 11 U.S.C. § 502(a). Wells Fargo’s argument that the UST’s request amounts to an attempt to rewrite the rules governing the documentation of proofs of claim misses the point. In seeking to verify Wells Fargo’s standing to file a proof of claim, the UST is seeking to ensure that Wells Fargo complies with the Code and the Rules and to verify that Wells Fargo is a creditor entitled to file a proof of claim under § 501 of the Code. While the UST has not yet challenged the validly of Wells Fargo’s claim by objecting to it, he is entitled to make preliminary inquiries before determining if an objection is warranted. That inquiry is exactly the purpose of a 2004 examination. As noted, the UST seeks production of the Note based on the fact that the copy of the Note affixed to Wells Fargo’s proof of claim, which Note is endorsed in blank, fails to show Wells Fargo as the holder of the Note. Wells Fargo’s ability to provide a copy of the Note does not necessarily equate to it being in possession of the original Note, much less being in its possession at the time it filed its proof of claim. Under these circumstances, the UST may seek to verify Wells Fargo’s entitlement to file the proof of claim, including review of the original Note or such other appropriate documentation to convince the UST that Wells Fargo is in possession of the original Note or otherwise was entitled to file the proof of claim.^[14] In this regard, the court notes that the Debtors’ case is an open Chapter 13 case continuing to be administered by the Chapter 13 Trustee and an objection to the claim could still be made. After conducting its 2004 examination, the UST can decide if it is appropriate to object to Wells Fargo’s proof of claim or to take other appropriate action.

Under the standards described, the UST has established good cause to conduct a 2004 examination. The Debtors’ case is open and being administered. The UST has questioned the status of Wells Fargo as the legitimate holder of the Note and Mortgage attached to Wells Fargo’s proof of claim based on the fact that neither of those documents shows Wells Fargo as the holder. Because the Note was endorsed in blank, the UST seeks production of the original Note by Wells Fargo to evidence Wells Fargo’s possession of that Note. As the recognized “watchdog” of the bankruptcy system, charged with the duties to protect its integrity and to ensure that bankruptcy cases are conducted in accordance with the law, the UST is a party in interest entitled to seek to verify the standing of claimants and their entitlement to payment. Those matters relate to the Debtors’ liabilities and financial condition and may affect the administration of their estate and the dividend paid to unsecured creditors in particular. See BR 2004(b).

Wells Fargo also suggests that a 2004 examination is inappropriate because no objection to Wells Fargo’s proof of claim has been filed, but a contested matter is not required. See Hammond, 140 B.R. at 204 (A 2004 examination is appropriate to determine whether a potential plaintiff has grounds under 11 U.S.C. § 523(d) and BR 9011 for filing an action); In re Johnson, 2007 Bankr. LEXIS 3022 (Bankr. S.D. Ohio July 23, 2007) (2004 examination is normally a pre-litigation device); In re Michalski, 449 B.R. at 281 (“[A] Rule 2004 examination is frequently used as a pre-litigation tool . . . .”); Collier on Bankruptcy, ¶ 2004.01[1]. See also In re Robinson, 2011 Bankr. LEXIS 1667 (Bankr. W.D. Tenn. April 6, 2011) (United States trustee has standing to examine the representative of the holder of an allowed secured claim when no objection has been filed with respect to the claim by the Chapter 13 Trustee or anyone else.).

Having decided that good cause exists for the UST to conduct a 2004 examination, the last issue is whether the scope of the UST’s request is appropriate.

3. The Scope of the Examination

The UST seeks to examine a Wells Fargo representative at the UST’s office in Columbus, Ohio and requests that Wells Fargo produce the following documents:

1. The actual, contemporaneously-kept transactional mortgage loan history on the Debtors’ mortgage loan, along with payments for escrow advances made by Wells Fargo Home Mortgage.

2. Evidence of the chain of assignment of the mortgage and chain of endorsement of the note which would tend to support claimant’s right to make the within claim in Debtor’s bankruptcy case.

Motion, Exhibit A, p. 9.

Wells Fargo argues that the scope of the production of documents is too broad. It explains that it should not have to produce a complete loan history as it is irrelevant to Wells Fargo’s standing to file its proof of claim, the only basis asserted by the UST for his request. In that same vein, Wells Fargo adds that an in-person examination is superfluous as the standing issue can be addressed through the production of documents.

Rule 2004(c) provides with respect to examinations that:

Compelling attendance and production of documents. The attendance of an entity for examination and for the production of documents, whether the examination is to be conducted within or without the district in which the case is pending, may be compelled as provided in Rule 9016 for the attendance of a witness at a hearing or trial. As an officer of the court, an attorney may issue and sign a subpoena on behalf of the court for the district in which the examination is to be held if the attorney is admitted to practice in that court or in the court in which the case is pending.

BR 2004(c).

In Countrywide, the court linked the good cause requirement with the scope of the examination. The court was legitimately concerned with the potential for abuse that could occur if parties were given essentially carte blanche to conduct broad, unlimited investigations resulting in unwarranted expensive burdens on private parties. The court stated:

Countrywide points out that a finding of an unchecked power in the UST to pursue examinations of creditors under Rule 2004 could lead to full-scale “investigations” by the UST that would unfairly intrude into the private business affairs of creditors and chill their participation in the bankruptcy process. That is a legitimate concern which the Court takes seriously. While the UST was undoubtedly intended to be a “watchdog” of the bankruptcy system, that cannot and should not be viewed as providing a license for the UST to engage in potentially invasive and expensive Rule 2004 discovery based on nothing more than her own curiosity. Such a license would be inimical to bedrock principles underlying the relationship between the federal government and the people (intended in the broad sense, including corporations such as Countrywide.)

Countrywide, 384 B.R. at 392 [footnote omitted]. In order to guard against over-reaching intrusions and examinations, the court applied a sliding scale approach to determine whether the United States trustee had sufficient cause to justify the scope of the examination she sought to conduct. The court continued:

The question of whether the UST has shown sufficient good cause to pursue a Rule 2004 examination and the type of discovery implicitly allowed by the Rule in a given matter is not suited to application of a mechanical test. Rather, a totality of circumstances approach is required, taking into account all relevant factors. Consistent with this approach it is appropriate to apply the “good cause” standard in what may be termed a “sliding scale” manner or balancing test. That is to say, the level of good cause required to be established by the UST before she can obtain certain documents or pursue a certain line of inquiry in a Rule 2004 examination involving a creditor will vary depending on the potential intrusiveness involved.

Id. at 393. While such factors may bear on whether good cause exists for a 2004 examination, these considerations are even more useful in determining the appropriate scope of the examination once a party establishes standing and good cause. The more compelling the cause, the greater latitude the court will allow for the 2004 examination.

In this case the UST’s cause for the examination is narrow — determining whether Wells Fargo was legally entitled to file the proof of claim. Accordingly, the scope of any examination granted should likewise be narrowly focused. In order to verify Wells Fargo’s entitlement to file a proof of claim in this case, the UST is entitled to review the original Note and any such documents that establish Wells Fargo is the holder of the Note under the Ohio Uniform Commercial Code and when Wells Fargo came into possession of the original Note. To the extent that the “contemporaneously-kept transactional mortgage loan history on the Debtors’ mortgage loan” is intended by the UST to capture documents in Wells Fargo’s possession relating to the transfer of the Note or interests in the Note from one entity to another until Wells Fargo became the holder of the Note, the request is granted and Wells Fargo shall produce such documents to the UST.^[15] In addition, the request for documents pertaining to “the chain of assignment of the mortgage and chain of endorsement of the note which would tend to support claimant’s right to make the within claim in Debtor’s bankruptcy case” is granted as those documents are clearly relevant to the UST’s inquiry into Wells Fargo’s legal basis and standing for filing the proof of claim. However, to the extent that the UST is seeking a loan history relating to the payments made by the Debtors, charges made by the lender on the account, and other debits and credits relating to the loan evidenced by the Note and Mortgage, or any documents other than the original Note and other documents pertaining to the chain of ownership interests in the Note, the UST’s request is denied. The UST is not challenging the amount of the claim filed by Wells Fargo or any other issue other than the legal basis for its filing the proof of claim and, therefore, any other such documents would unnecessarily burden Wells Fargo. Any production of documentations authorized in this decision shall occur within forty-five (45) days after entry of the court’s order on this decision unless otherwise agreed by the parties.

After the documents are produced by Wells Fargo, if the UST determines that the documents produced do not establish Wells Fargo as the person entitled to enforce the Note under Ohio law and that it had that status at the time the proof of claim was filed, then at the request of the UST, Wells Fargo shall appear for an oral examination through an appropriate representative designated by Wells Fargo to be examined concerning how Wells Fargo became the holder of the Note. Any such examination shall take place at the office of the UST nearest to the principal place of business of the representative designated by Wells Fargo to be orally examined or at such other location or manner as the parties may agree.^[16] To the extent such oral examination is not conducted by consent of the parties, the UST shall comply with the requirements of Rule 2004(c) and (d).

V. Conclusion

For the foregoing reasons, the court grants in part and denies in part the UST’s Motion for Entry of an Order Authorizing the Examination of and Production of Documents by Wells Fargo Home Mortgage Pursuant to Fed. R. Bankr. P. 2004 and 9016 (doc. 27). The court finds that the UST has the authority to investigate the proof of claim filed by Wells Fargo and has standing to conduct a 2004 examination for that purpose and that the UST has demonstrated good cause to conduct a 2004 examination. However, the examination shall be limited as provided by this decision, with an oral examination to occur only in the event that the documentary production is insufficient to establish Wells Fargo’s standing to file the proof of claim. In the event that the UST determines that an oral examination is necessary, the oral examination shall be conducted in accordance with BR 2004(c) and (d) and this decision, unless otherwise agreed upon by the parties.

The court is concurrently entering an order consistent with this decision.

IT IS SO ORDERED.

[1] “United States trustee” includes a designee of the United States Trustee. 11 U.S.C. § 102(9). For simplicity, the court will use the abbreviation “UST” whether referring to the movant, Daniel M. McDermott, United States Trustee for Region 9, his designee, or the United States Trustee program generally.

[2] See e.g., Harker v. Wells Fargo Bank, NA (In re Krause), 414 B.R. 243, 268, n.22 (Bankr. S.D. Ohio 2009); In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008); Nosek v. Ameriquest Mortgage Co. (In re Nosek), 386 B.R. 374 (Bankr. D. Mass 2008), aff’d in part, vacated in part 406 B.R. 434 (D. Mass. 2009), aff’d as modified 609 F.3d 6 (1st Cir. 2010); In re Foreclosure Cases, 521 F. Supp. 2d 650 (N.D. Ohio 2007).

[3] See In re Saffold, 373 B.R. 39, 42 (Bankr. N.D. Ohio 2007); Chris Markus, Ron Taylor & Blake Vogt, From Main Street to Wall Street: Mortgage Loan Securitization and New Challenges Facing Foreclosure Plaintiffs in Kentucky, 36 N. Ky. L. Rev. 395 (2009).

[4] The proof of claim describes the creditor as Wells Fargo Bank, NA and the name to which notices and payments should be sent as Wells Fargo Home Mortgage. The United States Trustee, in his motion, used Wells Fargo Home Mortgage while the creditor used Wells Fargo Bank, NA in its filings. The court will simply refer to Wells Fargo Bank, N.A. and Wells Fargo Home Mortgage collectively as “Wells Fargo.”

[5] Unless otherwise noted, all references to rules of court shall be to the Federal Rules of Bankruptcy Procedure (“BR”).

[6] Some courts have discussed whether § 307 enlarges or further defines the authority granted to the UST § 586. See e.g., In re Parsley, 384 B.R. 138, 147 (Bankr. S.D. Tex. 2008) (it is well within the authority of the UST to investigate the activities of a loan servicer and its local and national counsel); In re South Beach Securities, Inc., 606 F.3d 366, 371 (7th Cir 2010) (finding, among other things, that section 307 gives the United States UST the power to object to a chapter 11 plan of reorganization in his role as guardian of the public interest in bankruptcy proceedings); In re LWD Inc., 342 B.R. 514, 519 (Bankr. W.D. Ky. 2006) (the UST is not limited to the duties set out in § 586); and Zarnel, 619 F.3d at 161-62. Wells Fargo’s argument relies in large part on this debate, wanting this court to conclude that § 586 limits the authority of the UST, while § 307 is merely a standing provision giving the UST authority to act in bankruptcy cases in those areas expressly mentioned in § 586. While the interaction between § 586 and § 307 and the reach of these statutes continues to be debated, this court only finds that under § 586 and § 307 the UST has sufficient authority to conduct a 2004 examination under these circumstances. Even if § 586 circumscribes § 307, the court finds that the UST has sufficient authority under § 586 to monitor the progress of cases, including the claims process, and that includes the ability to object to claims and to conduct 2004 examinations. See In re Borrows, 2011 WL 721842 at *2 (Bankr. W.D. Wash. Feb. 22, 2011) (“Without deciding whether Section 586 is all inclusive as to the permissible activities of the UST in bankruptcy cases, the Court concludes that subsection (a)(3)(G) of Section 586 provides specific authority for the UST to bring an objection to [a] claim under the circumstances of this case.”).

[7] The United States Supreme Court has long recognized that the pecuniary interest test may not be the only test to confer standing and that noneconomic tests may also confer standing as long as the “interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.” Ass’n of Data Processing Servs. Orgs., Inc. v. Camp, 397 U.S. 150, 153 (1970).

[8] See e.g., § 523 (concerning dischargeability of debts); § 524 (c) & (d) (concerning reaffirmation agreements); § 552 (concerning the post-petition effect of prepetition security interests); § 553 (concerning setoffs against claims); § 1111 (deeming proofs of claim or interest in Chapter 11 cases filed for claims or interests scheduled other than as disputed, contingent, or unliquidated and allowing for the “1111(b)” election for secured creditors); and §§ 1122, 1222(a)(3), and 1322(a)(3) (concerning classification and treatment of claims and interests in Chapter 11, 12, and 13 plans).

[9] See e.g., BR 1007 (concerning the filing of the schedules and other documents at the inception of the case); 2016 (professional compensation and reimbursement of expenses); 3021 (distribution to claims under a plan); 4007 (outlining the procedure for determinations of the dischargeability of debts); and 4008 (outlining the reaffirmation process).

[10] Although the obligation to challenge the validity of filed proofs of claim generally falls upon debtors or standing trustees, the overarching duty of the UST is to ensure the proper management of debtors’ debts provides them with the requisite standing to review proofs of claims. See In re Wassenaar, 268 B.R. 477, 479 (W.D. Va. 2001). Wells Fargo argues that the UST cannot interject himself into state law issues as to the validity of proofs of claim. However, in Wassenaar, the court rejected this notion, stating: “[t]he question in this case is whether creditors’ attorney’s fees should be charged as an administrative expense to the bankruptcy estate. While this issue focuses on the state-law question of awarding attorney’s fees, the federal bankruptcy issue remains. The United States Trustee’s interest is plain: to ensure the proper management of Kurt Wassenaar’s debts. The Bankruptcy Court, therefore, properly allowed the Trustee to participate in this case.” Id. at 479. See also Borrows, 2011 WL 721842, at *3 (rejecting BAC Home Loans Servicing, L.P.’s argument that granting the UST authority to investigate proofs of claim “impermissibly encroaches on the province of the Chapter 13 trustee to object to proofs of claim.”).

[11] Wells Fargo also cites to In re Gold Standard Baking, Inc., 179 B.R. 98 (Bankr. N.D. Ill. 1995) and In re Howard Ins. Agency, Inc., 109 B.R. 445, 446 (Bankr. N.D. Okla. 1989). Both cases are distinguishable in that the former dealt with a UST’s attempt to impose a new requirement on Chapter 11 debtors-in-possession to imprint their checks with the phrase “Debtor in Possession” and the latter with the power of the UST to promulgate administrative regulations.

[12] Another court rejected essentially this same argument made by Wells Fargo in In re Michalski, 449 B.R. 273 (Bankr. N.D. Ohio 2011) (“Wells Fargo mistakenly construes the Rule 2004 examination as an attempt by the UST to `unilaterally increase the requirements for filing a valid proof of claim.'” Id. at 280 (internal citations omitted). Noting that determination of proofs of claim in bankruptcy cases frequently requires analysis of state law, the court found that “[t]his argument totally misses the mark” and that the UST could conduct a Rule 2004 examination to obtain information from Wells Fargo concerning the proof of claim it filed in that case. Id.

[13] Under Ohio law, security follows the note and therefore whoever holds the note also holds any security securing such note. See Noland v. Wells Fargo Bank, N.A. (In re Williams), 395 B.R. 33, 47 (Bankr. S.D. Ohio 2008), citing Gemini Services, Inc. v. Mortgage Electronic Registration Systems, Inc. (In re Gemini Services, Inc.), 350 B.R. 74, 82 (Bankr. S.D. Ohio 2006).

[14] The most common, but not exclusive way to establish being the “person entitled to enforce” a negotiable instrument, under the Ohio U.C.C., is to be the holder, such as a typical promissory note. See Ohio Revised Code § 1303.31 (Person entitled to enforce an instrument). If a promissory note is endorsed in blank, possession of the original note, endorsed in blank, establishes the right to enforce it as the holder and, therefore, standing to file a proof of claim. Densmore v. Litton Loan Servicing, L.P. (In re Densmore), ___ B.R. ___, 2011 WL 1181359 (Bankr. D. Ct. March 21, 2011).

[15] It appears that there may be some confusion as to what the UST meant with respect to “transactional loan history.” Wells Fargo appears to construe this request as a request for a “complete loan history,” or in other words, the history of payments made by the Debtors and charges made by the lender relating to the loan account and perhaps this construction of that request is understandable given the ending phrase of that request — “along with payments for escrow advances made by Wells Fargo Home Mortgage.” See doc. 27, pp. 8 & 11.

[16] The UST has suggested the possibility of videoconferencing.

[ipaper docId=60832852 access_key=key-jct15ono0cbshx5gztf height=600 width=600 /]

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

DORIS GASTINEAU, an individual,
Plaintiff,

vs.

CHARLES K. GIFFORD, THOMAS J.
MAY, BRIAN T. MOYNIHAN,
CHARLES O. HOLLIDAY, JR.,
MUKESH D. AMBANI, SUSAN S. BIES,
FRANK P. BRAMBLE, SR., VIRGIS W.
COLBERT, D. PAUL JONES, JR.,
MONICA C. LOZANO, DONALD E.
POWELL, CHARLES O. ROSSOTTI,
ROBERT W. SCULLY, WILLIAM P.
BOARDMAN, BARBARA J. DESOER
and KENNETH D. LEWIS,
Defendants,

and

BANK OF AMERICA CORPORATION,
Nominal Defendant.

[…]

This is a shareholder derivative action brought on behalf and for the benefit of Bank of America against certain of its current and former directors. Bank of America is a global financial services company, and provides consumers, corporations, governments and institutions with a range of financial products and services. Plaintiff seeks to remedy the serious financial and reputational harm that Bank of America has suffered, and will continue to suffer, from the inadequate servicing of its troubled residential mortgage loans. Plaintiff also seeks redress for the Company’s false and  misleading Schedule 14A definitive proxy statement filed with the SEC on March 30, 2011 (the “Proxy”).

[…]

[ipaper docId=60830442 access_key=key-2ojzndxj7anp8ae5fs0v height=600 width=600 /]

NY Times- Gretchen Morgenson

HOW should banks atone for those foreclosure abuses — all the robo-signing and shoddy recordkeeping that jettisoned so many people from their homes?

It has been four months since a deal to remedy this mess was floated. Not much has happened since — at least not publicly.

Last week, banking executives and state attorneys general met in Washington to try to settle their differences. At issue was how much banks should pay, and how and to whom, to make this all go away. The initial terms, which emerged in March, were said to carry a $20 billion price tag.

But here is a crucial question […]

[NEW YORK TIMES]

Not so sure this is really up to the MERSCORP and MERS directors to approve this because this involves certain laws and also involving trusts etc…? Exactly how long ago did these loans close? How about the now DEFUNCT lenders?

Since they made up their own Law, they can change the Law when ever they want?

Excerpts from the bulletin..

Changes and clarifications to Rule 8 of the Rules of Membership (“Rules”) have been approved by the MERSCORP and MERS Boards of Directors and are effective as of July 22, 2011.

Effective July 22, 2011:
• No foreclosure proceeding may be initiated, and no Proof of Claim or Motion for Relief from Stay (Legal Proceedings) in a bankruptcy may be filed, in the name of Mortgage Electronic Registration Systems, Inc. (MERS)
• The Certifying Officer must execute the assignment of the Security Instrument from MERS before initiating foreclosure proceedings or filing Legal Proceedings and promptly send the assignment of the Security Instrument for recording in the applicable public land records

[ipaper docId=60825267 access_key=key-2j55h78k4is0m55iy04q height=600 width=600 /]

BLOOMBERG–

A push by U.S. banks to win broad liability releases has become one of the main obstacles in talks to resolve a nationwide probe of mortgage-servicing and foreclosure practices, two people briefed on the matter said.

The mortgage servicers want protection from additional state and federal claims over their mortgage practices as part of reaching a settlement that may exceed $20 billion, according to the people, who declined to be named because the talks are private. The banks are seeking releases that go beyond servicing of mortgages to include lending and securitization of loans, one of the people said.

Continue reading [BLOOMBERG]

Michigan Messenger-

Ingham County Register of Deeds Curtis Hertel Jr. has referred a top attorney from Orlans Associates, one of Michigan’s largest mortgage foreclosure law firms, to law enforcement for a criminal investigation of allegations of robo-signing.

Hertel tells Michigan Messenger that he referred Marshall Isaacs and examples of his signatures filed at the Ingham County Register of Deeds to law enforcement because he believes Isaacs did not sign all the legal documents. Hertel declined to identify the law enforcement agencies involved, but did note that there were at least two interested in the Isaacs case.

Continue reading [MICHIGAN MESSENGER]

If you look at campaign contributions to Bondi, a certain address comes up a lot: 601 Riverside Avenue in Jacksonville. It’s the home of Lender Processing Services, its subsidiaries, and the company it recently spun off from, Fidelity National Financial.

WUSF-

Attorney General Pam Bondi is fighting back against allegations two of her foreclosure fraud investigators were forced to resign because of political pressure.

The two lawyers helped expose robo-signing and helped shut down so-called “foreclosure mills.”

They were forced to resign in May or be fired. A statement from Attorney General Pam Bondi issued Thursday says they were forced out because of poor performance, while the two women suggest political pressure did them in.

Continue reading [WUSF]

With nearly 30,000 Washington state properties in foreclosure, Cantwell calls on federal agencies to improve transparency in effort to root out ‘robo-signing’

Wednesday, July 20,2011

WASHINGTON, D.C. – Today, U.S. Senator Maria Cantwell (D-WA) joined Senator Robert Menendez (D-NJ) and eight other senators in urging for increased transparency among mortgage servicers’ practices to prevent illegal foreclosures. In a letter sent today to the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation, the senators urged the agencies to release information regarding each mortgage servicer’s performance to the public to prevent illegal foreclosure practices. The letter arrives in the wake of recent reports that illegal foreclosure “robo-signing” by banks is still rampant.

Rooting out illegal foreclosure practices would help ensure that Washington state homeowners are not being unfairly forced to leave their homes. Through the first six months of 2011, Washington state had the 15th highest foreclosure rate in the country. RealtyTrac reports that the state had 4,450 new foreclosure filings in June and that overall, there were 29,398 foreclosure properties.

“We believe it is essential that the items listed above be made available to the general public or the public will lack confidence in both the foreclosure review process and results,” said Cantwell and other Senators in the letter sent today. “This is particularly the case because the foreclosure reviews are being performed by consultants who are chosen by the mortgage servicers themselves, and those consultants often have conflicts of interest in that they are not prohibited from getting future business from those same mortgage servicers.”

Enforcement actions were initiated by federal regulators because of the “robo-signing” scandal from last year that revealed many servicers were wrongfully foreclosing on homeowners and not following existing foreclosure procedures and laws.  Robo-signing is when banks falsely swear that they have reviewed property documents that are necessary to foreclose on a homeowner’s house.  Recently both the Associated Press and Reuters reported that despite regulators’ assurances to the contrary, illegal robo-signing allegedly remains rampant in both foreclosure and non-foreclosure cases.

The request for disclosures is also based upon concern over the fact the consultants performing foreclosure reviews have conflicts of interest since they are chosen by the mortgage servicers they are hired to investigate and have done past or future business with those same mortgage servicers.  The Senators are requesting public release of Engagement Letters, Action Plans, Foreclosure Reviews, and other plans, policies, or processes submitted by mortgage servicers or third-party servicers to ensure that abuses in foreclosure practices are not being ignored by the review process.

The letter sent today was also signed by Senators Richard Blumenthal (D-CT), Al Franken (D-MN), Daniel K. Akaka (D-HI), Mark Begich (D-AK), Bernie Sanders (I-VT), Jon Tester (D-MT), John D.  Rockefeller IV (D-WV), and Sherrod Brown (D-OH). All three regulators to whom the letter is addressed will appear before the Senate Banking Committee for a hearing at 10 a.m. tomorrow on the one-year anniversary of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Mr. John Walsh
Acting Comptroller of the Currency
Office of the Comptroller of the Currency
System Independence Square
250 E Street SW
Washington, DC 20219-0001

The Honorable Ben S. Bernanke
Chairman
Board of Governors of the Federal Reserve
20th Street and Constitution NW
Washington, D.C. 20551

Mr. Martin Gruenberg
Acting Chairman
Federal Deposit Insurance Corporation
Washington, D.C. 20429

Dear Acting Comptroller Walsh, Chairman Bernanke, and Acting Chairman Gruenberg:

We write today to urge you to make public critical information related to enforcement actions taken against mortgage servicers regarding their improper foreclosure practices.  This is especially important given this week’s allegations that mortgage servicers continue to engage in widespread “robo-signing” despite your assurances that these illegal actions would not continue.  Specifically, we request that you make public the following items related to the April 12, 2011 Consent Orders issued by your offices:

•           All “Engagement Letters” governing the mortgage servicers’ contracts with the consultants hired by the servicer to review that servicer’s foreclosure actions;

•           All “Action Plans” that mortgage servicers and third-party service providers are required to provide to regulators and that will outline the financial resources, organizational changes, measurement systems, governance controls, and timelines that will be adopted to correct improper foreclosure practices;

•           All “Foreclosure Reviews” completed by consultants for each bank, which will outline the results of their investigations into whether ownership of promissory notes or mortgages were properly documented, whether foreclosures were undertaken in accordance with state and federal law, whether calculations under the Home Affordable Modification Program and proprietary loan modification programs were done correctly, whether borrowers were charged excessive or improper fees and penalties related to delinquency, and whether any errors identified caused financial injury to borrowers, among other items;

•           Any other plans, policies, or processes submitted to your offices by mortgage servicers or third-party service providers pursuant to the April 12, 2011 Consent Orders whose disclosure is important to instill public confidence in the process and results of the foreclosure reviews.

We believe it is essential that the items listed above be made available to the general public or the public will lack confidence in both the foreclosure review process and results.  This is particularly the case because the foreclosure reviews are being performed by consultants who are chosen by the mortgage servicers themselves, and those consultants often have conflicts of interest in that they are not prohibited from getting future business from those same mortgage servicers.   The information we are requesting is therefore necessary for the public to determine the independence of the consultants being engaged to perform the foreclosure reviews, the accuracy of the foreclosure reviews, the adequacy of the “Action Plans” in responding to your findings, whether servicer performance meets the goals they have established, and whether those homeowners who experienced harm (such as being improperly foreclosed upon or denied mortgage modifications when they should have been granted under existing criteria) are given appropriate remedies.  Based on a legal analysis by the non-partisan Congressional Research Service, we also believe that it is well within your regulatory discretion under existing laws to disclose this information in the public interest.  This is consistent with your previous determination in April that release of the Interagency Review of Foreclosure Policies and Practices, which was essentially an examination report of foreclosure practices, was also in the public interest.  We understand concerns about not revealing mortgage servicers’ proprietary information, but also believe that some disclosure can be done on a bank by bank basis without compromising proprietary information.

Furthermore, we believe that the full disclosure of these documents to the public is necessary given the recent reports by both the Associated Press and Reuters of the continued widespread practice of “robo-signing” among mortgage servicers.  Both have alleged that servicers continue to file thousands of property documents that appear to be fabricated. Reuters also quoted a top representative from the mortgage servicing industry saying that the Consent Orders have “not put a stop to questionable practices.”  David Stevens, president of the Mortgage Bankers Association, tellingly said that some loan servicers “continue to cut corners” and “the real question is whether the servicer complied with all legal requirements.”

We respectfully request that all documents be made public and sent to Congress within one week of your office receiving them from mortgage servicers or third-party service providers.  If you have any questions about this request, please contact Amanda Fischer at (202) 225-2201 or Michael Passante at (202) 224-4744.  We appreciate your swift attention to this important matter.

###

source: http://cantwell.senate.gov/news/record.cfm?id=333561

* Negotiations continue despite evidence of continuing irregularities

* Reuters report helps prompt senators to demand information

REUTERS-

NEW YORK, July 20 (Reuters) – State attorneys general are negotiating to give major banks wide immunity over irregularities in handling foreclosures, even as evidence has emerged that banks are continuing to file questionable documents.

A coalition of all 50 states’ attorneys general has been negotiating settlements with five of the biggest U.S. banks that would include payment of up to $25 billion in penalties and commitments to follow new rules. In exchange, the banks would get immunity from civil lawsuits by the states, as well as similar guarantees by the Justice Department and Department of Housing and Urban Development, which have participated in the talks.

continue reading [REUTERS]

By MICHELLE CONLIN, AP Business Writers –

NEW YORK (AP) — Lawmakers and enforcement agencies called for hearings and further investigation Tuesday after learning that the illegal practice known as robo-signing has continued in the mortgage industry.

The Associated Press reported on Monday that county officials in at least three states — Massachusetts, North Carolina and Michigan — say they have received thousands of mortgage documents with questionable signatures since last fall. That’s when forged signatures and false affidavits — also called robo-signing — led to a temporary halt to foreclosures. Banks and mortgage processers promised to stop the practice. But the findings of the county officials indicate that robo-signing is still a widespread problem.

Sen. Sherrod Brown, D-Ohio., chair of the Financial Institutions and Consumer Protection Subcommittee, said the subcommittee will hold a hearing on the robo-signing issue.

“Wall Street and some in Washington want us to believe that robo-signing is a thing of the past,” said Brown. “But the same risky practices that put our economy on the brink of collapse continue to infect the housing market.”

Rep. Maxine Waters, D-Calif., a senior member of the House Committee on Financial Services said the lenders who continue the practice “need to be investigated and prosecuted.” She told The Associated Press that she believed regulators should step in and that the absence of stronger regulation is “the reason why the system broke down in the first place.” She said the county officials’ findings show lenders will not stop practices like robo-signing on their own.

“(The lenders) have complete disregard for the damage they have already caused and have no intention of changing their ways,” said Waters, who also called for more hearings on the issue.

County officials who are responsible for keeping land records, including property deeds, say that they have received thousands of robo-signed documents filed in their offices since October.

In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of “Linda Green,” but in 22 different handwriting styles and with many different titles.

In Guilford County, N.C., the office that records deeds says it received 456 documents with suspect signatures from Oct. 1, 2010, through June 30. And in Michigan, a fraud investigator who works on behalf of homeowners says he has uncovered documents filed this year bearing the purported signature of Marshall Isaacs, an attorney with foreclosure law firm Orlans Associates.

Early Tuesday, an official from the office of Minnesota attorney general, Lori Swanson, contacted the Essex County’s John O’Brien to get more information for its own investigation into robo-signing. The Massachusetts attorney general’s office also confirmed that it is meeting with several of the state’s 21 registers of deeds to assess the extent of robo-signing in the state.

Also on Tuesday, nine recorders of deeds in Illinois held a press conference to say they will assist the state’s attorney general Lisa Madigan who is investigating robo-signing in her state.

Rep. Waters, meanwhile, says the Office of the Comptroller of the Currency, or the OCC, is the main federal regulator for banks. As such, it’s the OCC’s responsibility to investigate the banks.

The OCC has been criticized by lawmakers and consumer advocates for going easy on banks in the past. The same criticism has resurfaced since the robo-signing scandal broke in September. Last fall, The Associated Press found that robo-signed documents led to banks wrongfully foreclosing on people who had paid their mortgages in full. When asked about the issue, an OCC spokesman flatly denied that any such thing had ever occurred.

The OCC partnered with other federal regulators and conducted a review of bank procedures including robo-signing in December. In April, the 14 largest national banks entered into a consent decree with the OCC in which they vowed to submit action plans as to how they would address such systemic issues as robo-signing.

Last week, the banks delivered those action plans to the OCC, which is now reviewing them, a spokesman said.

Copyright © 2011 The Associated Press. All rights reserved.

By MICHELLE CONLIN, AP Business Writers –

Mortgage industry employees are still signing documents they haven’t read and using fake signatures more than eight months after big banks and mortgage companies promised to stop the illegal practices that led to a nationwide halt of home foreclosures.

County officials in at least three states say they have received thousands of mortgage documents with questionable signatures since last fall, suggesting that the practices, known collectively as “robo-signing,” remain widespread in the industry.

The documents have come from several companies that process mortgage paperwork, and have been filed on behalf of several major banks. One name, “Linda Green,” was signed almost two dozen different ways.

Lenders say they are working with regulators to fix the problem but cannot explain why it has persisted.

Last fall, the nation’s largest banks and mortgage lenders, including JPMorgan Chase, Wells Fargo, Bank of America and an arm of Goldman Sachs, suspended foreclosures while they investigated how corners were cut to keep pace with the crush of foreclosure paperwork.

Critics say the new findings point to a systemic problem with the paperwork involved in home mortgages and titles. And they say it shows that banks and mortgage processors haven’t acted aggressively enough to put an end to widespread document fraud in the mortgage industry.

“Robo-signing is not even close to over,” says Curtis Hertel, the recorder of deeds in Ingham County, Mich., which includes Lansing. “It’s still an epidemic.”

In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of “Linda Green,” but in 22 different handwriting styles and with many different titles.

Linda Green worked for a company called DocX that processed mortgage paperwork and was shut down in the spring of 2010. County officials say they believe Green hasn’t worked in the industry since. Why her signature remains in use is not clear.

“My office is a crime scene,” says John O’Brien, the registrar of deeds in Essex County, which is north of Boston and includes the city of Salem.

In Guilford County, N.C., the office that records deeds says it received 456 documents with suspect signatures from Oct. 1, 2010, through June 30. The documents, mortgage assignments and certificates of satisfaction, transfer loans from one bank to another or certify a loan has been paid off.

Suspect signatures on the paperwork include 290 signed by Bryan Bly and 155 by Crystal Moore. In the mortgage investigations last fall, both admitted signing their names to mortgage documents without having read them. Neither was charged with a crime.

And in Michigan, a fraud investigator who works on behalf of homeowners says he has uncovered documents filed this year bearing the purported signature of Marshall Isaacs, an attorney with foreclosure law firm Orlans Associates. Isaacs’ name did not come up in last year’s investigations, but county officials across Michigan believe his name is being robo-signed.

O’Brien caused a stir in June at a national convention of county clerks by presenting his findings and encouraging his counterparts to investigate continued robo-signing.

The nation’s foreclosure machine almost came to a standstill when the nation’s largest banks suspended foreclosures last fall. Part of the problem, banks contended, was that foreclosures became so rampant in 2009 and 2010 that they were overwhelmed with paperwork.

The banks reviewed thousands of foreclosure filings, and where they found problems, they submitted new paperwork to courts handling the cases, with signatures they said were valid. The banks slowly started to resume foreclosures this winter and spring.

The 14 biggest U.S. banks reached a settlement with federal regulators in April in which they promised to clean up their mistakes and pay restitution to homeowners who had been wrongly foreclosed upon. The full amount of the settlement has not been determined. But it will not involve independent mortgage processing firms, the companies that some banks use to handle and file paperwork for mortgages.

So far, no individuals, lenders or paperwork processors have been charged with a crime over the robo-signed signatures found on documents last year. Critics such as April Charney, a Florida homeowner and defense lawyer, called the settlement a farce because no real punishment was meted out, making it easy for lenders and mortgage processors to continue the practice of robo-signing.

Robo-signing refers to a variety of practices. It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive’s signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing to their accuracy without verifying any of the information.

Most of the tainted mortgage documents in question last fall were related to homes in foreclosure. But much of the suspect paperwork that has been filed since then is for refinancing or for new purchases by people who are in good standing in the eyes of the bank. In addition, foreclosures are down 30 percent this year from last. Home sales have also fallen. So the new suspect documents come at a time when much less paperwork is streaming through the nation’s mortgage machinery.

None of the almost 1,300 suspect Linda Green-signed documents from O’Brien’s office, for example, involve foreclosures. And Jeff Thigpen, the register of deeds in North Carolina’s Guilford County, says fewer than 40 of the 456 suspect documents filed to his office since October involved foreclosures.

Banks and their partner firms file mortgage documents with county deeds offices to prove that there are no liens on a property, that the bank owns a mortgage or that a bank filing for foreclosure has the authority to do so.

The signature of a qualified bank or mortgage official on these legal documents is supposed to guarantee that this information is accurate. The paper trail ensures a legal chain of title on a property and has been the backbone of U.S. property ownership for more than 300 years.

The county officials say the problem could be even worse than what they’re reporting. That’s because they are working off lists of known robo-signed names, such as Linda Green and Crystal Moore, that were identified during the investigation that began last fall. Officials suspect that other names on documents they have received since then are also robo-signed.

It is a federal crime to sign someone else’s name to a legal document. It is also illegal to sign your name to an affidavit if you have not verified the information you’re swearing to. Both are punishable by prison.

In Michigan, the attorney general took the rare step in June of filing criminal subpoenas to out-of-state mortgage processing companies after 23 county registers of deeds filed a criminal complaint with his office over robo-signed documents they say they have received. New York Attorney General Eric Schneiderman’s office has said it is conducting a banking probe that could lead to criminal charges against financial executives. The attorneys general of Delaware, California and Illinois are conducting their own probes.

The legal issues are grave, deeds officials across the country say. At worst, legal experts say, the document debacle has opened the property system to legal liability well beyond the nation’s foreclosure crisis. So someone buying a home and trying to obtain title insurance might be delayed or denied if robo-signed documents turn up in the property’s history. That’s because forged signatures call into question who owns mortgages and the properties they are attached to.

“The banks have completely screwed up property records,” says L. Randall Wray, an economics professor and senior scholar at the University of Missouri-Kansas City.

In the Massachusetts case, The Associated Press tried to reach Linda Green, whose name was purportedly signed 1,300 times since October. The AP, using a phone number provided by lawyers who have been investigating the documents since last year, reached a person who said she was Linda Green, but not the Linda Green involved in the mortgage investigation.

In the Michigan case, a lawyer for the Orlans Associates law firm, where Isaacs works, denies that Isaacs or the firm has done anything wrong. “People have signatures that change,” says Terry Cramer, general counsel for the firm. “We do not engage in ‘robo-signing’ at Orlans.”

To combat the stream of suspect filings, O’Brien and Jeff Thigpen, the register of deeds in North Carolina’s Guilford County, stopped accepting questionable paperwork June 7. They say they had no choice after complaining to federal and state authorities for months without getting anywhere.

Since then, O’Brien has received nine documents from Bank of America purportedly signed by Linda Burton, another name on authorities’ list of known robo-signers. For years, his office has regularly received documents signed with Burton’s name but written in such vastly different handwriting that two forensic investigators say it’s highly unlikely it all came from the same person.

O’Brien returned the nine Burton documents to Bank of America in mid-June. He told the bank he would not file them unless the bank signed an affidavit certifying the signature and accepting responsibility if the title was called into question down the road. Instead, Bank of America sent new documents with new signatures and new notaries.

A Bank of America spokesman says Burton is an assistant vice president with a subsidiary, ReconTrust. That company handles mortgage paperwork processing for Bank of America.

“She signed the documents on behalf of the bank,” spokesman Richard Simon says. The bank says providing the affidavit O’Brien asked for would have been costly and time-consuming. Instead, Simon says Bank of America sent a new set of documents “signed by an authorized associate who Mr. O’Brien wasn’t challenging.”

The bank didn’t respond to questions about why Burton’s name has been signed in different ways or why her signature appeared on documents that investigators in at least two states have deemed invalid.

Several attempts by the AP to reach Burton at ReconTrust were unsuccessful.

O’Brien says the bank’s actions show “consciousness of guilt.” Earlier this year, he hired Marie McDonnell, a mortgage fraud investigator and forensic document analyst, to verify his suspicions about Burton’s and other names on suspect paperwork.

She compared valid copies of Burton’s signature with the documents O’Brien had received in 2008, 2009 and 2010 and found that Burton’s name was fraudulently signed on hundreds of documents.

Most of the documents reviewed by McDonnell were mortgage discharges, which are issued when a home changes hands or is refinanced by a new lender and are supposed to confirm that the previous mortgage has been paid off. Bank of America declined comment on McDonnell’s findings.

In Michigan, recorder of deeds Hertel and his counterparts in 23 other counties found numerous suspect signatures on documents filed since the beginning of the year.

In June, their findings led the Michigan attorney general to issue criminal subpoenas to several firms that process mortgages for banks, including Lender Processing Services, the parent company of DocX, where Linda Green worked. On July 6, the CEO of that company, which is also under investigation by the Florida Attorney General’s office, resigned, citing health reasons.

Copyright © 2011 The Associated Press. All rights reserved.

New York’s and Delaware’s investigation could lead to criminal charges against financial executives. ‘California was disproportionately harmed by the mortgage crisis, and our homeowners badly need relief,’ the state’s attorney general says

La Times–

California is considering joining New York and Delaware in a wide-ranging investigation into Wall Street’s role in the mortgage meltdown that could lead to criminal charges against financial executives.

California Atty. Gen. Kamala Harris met with New York Atty. Gen. Eric Schneiderman on Thursday in San Francisco to discuss cooperating on the investigation, which is already one of the broadest to probe how banks encouraged the financial crisis through the creation of risky financial instruments backed by mortgages.

[LA TIMES]

FIGHTING ON THE HOME FRONT: THE GROWING PROBLEM OF ILLEGAL FORECLOSURES AGAINST U.S. SERVICEMEMBERS

Democratic Staff Report Prepared for:

Senator John D. (Jay) Rockefeller IV
Chairman Committee on Commerce, Science, and Transportation

United States Senate Representative Elijah E. Cummings
Ranking Member Committee on Oversight and Government Reform United States House of Representatives

July 12, 2011

[ipaper docId=60066591 access_key=key-2k30zn87wpfb9gdulc80 height=600 width=600 /]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

Bloomberg-

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said clashes over faulty mortgages may drag on as investors and regulators demand compensation for soured loans issued at the peak of the housing market.

“There have been so many flaws in mortgages that it’s been an unmitigated disaster,” Dimon said during a conference call today. “We just really need to clean it up for the sake of everybody. And everybody is going to sue everybody else, and it’s going to go on for a long time.”

[BLOOMBERG]

Decided on July 14, 2011

First Judicial Department
David B. Saxe, J.P.
James M. Catterson
Rolando T. Acosta
Sheila Abdus-Salaam
Nelson S. Román, JJ.
Index 650259/09
5034

Plaintiff appeals from an order of the Supreme Court, New York County (Barbara R. Kapnick, J.), entered March 25, 2010, which granted defendant’s motion to dismiss the complaint.

Shapiro Forman Allen & Sava LLP, New York
(Michael I. Allen and Yoram Miller
of counsel), for appellant.
Paul, Weiss, Rifkind, Wharton & Garrison LLP, New
York (Richard A. Rosen,
John F. Baughman, Farrah R.
Berse and Jennifer K.
Vakiener of counsel), for
respondent.

CATTERSON, J.

In this breach of contract action, the plaintiff seeks to recover damages for the loss of [*2]more than $1 billion from investment accounts created to fund notes it guaranteed. The plaintiff alleges that the defendant, investment manager J.P. Morgan Investment Management Inc., failed to manage the accounts. Instead, defendant continued to hold toxic subprime securities in the accounts while its corporate parent, J.P. Morgan Chase, reduced its exposure to the same type of securities based on its knowledge that they “could go up in smoke.”

We are asked to determine if the plaintiff’s allegations are sufficient to survive a CPLR 3211 motion to dismiss where the plaintiff concedes that the defendant adhered to the contractual limitations on purchasing subprime securities.

The undisputed facts of the case are as follows: The plaintiff, Ambac Assured U.K., guaranteed timely payment of principal and interest for certain notes issued by Ballantyne, a special purpose vehicle established to reinsure term life insurance policies. To capitalize itself and finance the required reserves, Ballantyne issued more than $2 billion in securities.

On May 2, 2006, Ballantyne and the defendant entered into an investment management agreement (hereinafter referred to as the “IMA”) pursuant to which defendant agreed to act as the investment advisor for $1.65 billion of the proceeds raised by Ballantyne via its sale of the notes ^[FN1]. Pursuant to the IMA, Ballantyne opened two accounts: the Reinsurance Trust Account and the Pre-Funded Account over which the defendant had full investment authority subject to the investment guidelines.

The guidelines state that the goal of the investment policy “is to obtain reasonable income while providing a high level of safety of capital” (emphasis added). They identify the nature, quality and diversification requirements of the investments and contain specific limitations for investments on the basis of sectors and ratings.

The guidelines set forth the percentage of account assets which could be invested in each class and sector. Accordingly, permitted securities included home equity loan asset-backed securities (hereinafter referred to as “HELOS”) and mortgage-backed securities like Alt-A’s (hereinafter referred to as “MBS”). These securities required ratings of “A” through “AAA,” and could not exceed percentages of 60% and 50% of the accounts, respectively.

The IMA also contains a “Discharge of Liability” provision which states that the defendant does not guarantee the future performance of the accounts or any specific level of performance. It further states that the defendant shall have no liability for any losses “except to the extent such [l]osses are judicially determined to be proximately caused by the gross negligence or willful misconduct of [defendant] (emphasis added).” While the IMA is governed by New York law, it further requires that investments be made in compliance with Chapter 13 of the Delaware Insurance Code.

As of May 2006, the defendant began purchasing securities for the accounts. The record reflects that as of January 2007, approximately 30% of the assets in each account was invested in [*3]MBS, and approximately 59% of assets in both accounts was invested in HELOS. Subsequently, the accounts began sustaining losses. On December 28, 2007, after the accounts suffered significant losses, the guidelines were modified to require the defendant to seek approval from Ballantyne and the plaintiff before buying or selling assets for the accounts. The amended guidelines contained the same investment goal as the original guidelines, namely, obtaining “reasonable income while providing a high level of safety of capital.”

Approximately, one year later, in October 2008, Ballantyne terminated the defendant as its investment advisor. By this time, the accounts allegedly had lost $1 billion of the $1.65 billion entrusted to the defendant just 30 months earlier.
Ballantyne subsequently failed to make scheduled payments under the notes, and the plaintiff’s guarantees were called upon.

In or about June 2009, the plaintiff commenced this action on behalf of Ballantyne seeking damages arising from the defendant’s alleged breaches of the IMA, and of Chapter 13 of the Delaware Insurance Code. The plaintiff also alleges a breach of fiduciary duty, and a tort cause of action in gross negligence.

The plaintiff’s allegations stem from an article in Fortune magazine, published in September 2008 in which J.P. Morgan Chase CEO, Jamie Dimon, was quoted as having concluded as early as October 2006 that the subprime securities market “could go up in smoke.” He was further described as having instructed his subordinates to “watch out for subprime,” directing the head of securitized products to “sell a lot of our positions.” Shawn Tully, Fortune, Jamie Dimon’s Swat Team, How J.P. Morgan’s CEO and his crew are helping the big bank beat the credit crunch, September 2, 2008.^[FN2]

The plaintiff alleges that the defendant continued to purchase and hold such subprime securities as the HELOS and MBS in Ballantyne’s accounts even after J.P. Morgan Chase had “evidence about the growing risk of collapse of the [s]ubprime [s]ecurities market.”^[FN3] Hence, the plaintiff alleges that the defendant breached the agreement by failing to manage the accounts in [*4]accordance with the stated objective of seeking a “reasonable income and a high level of safety of capital.”

The defendant made a pre-answer motion to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7). It argued, inter alia, that the breach of contract claim should be dismissed because the defendant had complied with the guidelines, and did not act with gross negligence or willful misconduct or violate the Delaware Insurance Code. The defendant further argued that Dimon’s statements, as reported in Fortune, did not concern the type of securities at issue here. It also argued that the tort claims were pre-empted by the Martin Act.^[FN4]

The court granted the motion dismissing the complaint, and noted, inter alia, that the plaintiff had conceded that the defendant had not exceeded the percentage limitations contained in the guidelines. The court, relying on our determination in Guerrand-Hermès v Morgan & Co. (2 AD3d 235, 769 N.Y.S.2d 240 (1st Dept. 2003), lv. denied, 2 NY3d 707, 781 N.Y.S.2d 288, 814 N.E.2d 460 (2004)), held that “[m]erely alleging failure to pursue an investment objective, where defendant actually followed the specific diversification requirements contained in the Guidelines that were intended to implement that objective, is not sufficient to set forth a claim for breach of contract.”

The court further found that statements made by Dimon concerning the market, as reported in Fortune and MarketWatch articles, referred to collateralized debt obligations (CDOs) and mortgage lending, and did not concern the type of mortgage-backed securities at issue here.

We now reverse and reinstate the complaint in its entirety. We find that, at this stage of the pleadings the motion court should have accepted the plaintiff’s allegations as true, given the plaintiff the benefit of every possible inference, and simply ascertained whether plaintiff’s allegations evidenced a cognizable cause of action. See Assured Guar.(UK) Ltd. v. J.P. Morgan Inv. Mgt. Inc., 80 AD3d 293, 915 N.Y.S.2d 7 (1st Dept. 2010), lv. granted, N.Y. Slip Op. 64361[u] (1st Dept. 2011), supra, citing Samiento v. World Yacht Inc., 10 NY3d 70, 79, 854 N.Y.S.2d 83, 87, 883 N.E.2d 990, 994 (2008). For the reasons set forth below, we further find that the motion court erred in failing to conclude that the plaintiff’s allegations are sufficient to sustain a breach of contract claim.

As a threshold matter, we reject the motion court’s observation that the basis for the plaintiff’s allegations, namely, CEO Dimon’s statements in Fortune did not concern the type of securities held in the subject accounts. For the same reasons, we also reject the defendant’s [*5]reiteration, on appeal, that the articles are not evidence of the defendant’s knowledge about the subject securities because the securities referred to in the article are SIVs and CDOs which were never purchased for the accounts.

We are not required to determine at this stage if, at the time of the events described in the complaint, there was a distinction for investment purposes between the Dimon-referenced CDOs (the underlying value of which was based on subprime mortgages)^[FN5] and the securities in the subject accounts which were home equity loan asset-backed securities and mortgage-backed securities allegedly also comprised of subprime loans. As the plaintiff asserts, and as the articles in the record establish, Dimon’s concern embraced the entire mortgage market, including mortgage lending and mortgage products. Particularly relevant is the following excerpt from Fortune :

“One red flag came from the mortgage servicing business… [I]n October 2006, the chief of servicing said that late payments on subprime loans were rising at an alarming rate. The data showed that loans originated by competitors like First Franklin and American Home were performing three times worse than J.P. Morgan’s subprime mortgages. We concluded that underwriting standards were deteriorating across the industry’ says Dimon.”

This, the article states, led to his team “mostly exiting the business of securitizing subprime mortgages” with the result that in late 2006, J.P. Morgan Chase “started slashing its holdings of subprime debt. It sold more than $12 billion in subprime mortgages that it had originated.”

The plaintiff’s breach of contract claim rests on the allegation that while J.P. Morgan was actively divesting itself of the risky subprime mortgages it had originated, the defendant was doing nothing about riskier subprime mortgages originated by others and held in the subject accounts ^[FN6]. In other words, that the defendant continued to invest in securities which it knew were [*6]entirely incompatible with plaintiff’s investment objective and stated goal to “obtain reasonable income while providing a high level of safety of capital.”

Precedent, therefore would appear to mandate a finding that the plaintiff, at the very least, has sufficiently alleged gross negligence as a basis for its breach of contract claim. See Assured Guar. (U.K.) Ltd. v. J.P. Morgan Inv. Mgt. Inc., 80 AD3d at 305, 915 N.Y.S.2d at 16 (plaintiff’s stated goal was “reasonable income while providing a high level of safety of capital”, but defendant invested “substantially all” of the assets in subprime securities which it knew were risky), citing Colnaghi, U.S.A. v. Jewelers Protection Servs., 81 N.Y.2d 821, 823-824, 595 N.Y.S.2d 381, 383, 611 N.E.2d 282, 284 (1993) (gross negligence consists of conduct that evinces a reckless disregard for the rights of others or smacks’ of intentional wrongdoing”).

This is entirely consistent with our holding in Assured. The defendant in this case misapprehends our holding by relying merely on the decretal paragraph in Assured ^[FN7]. The defendant thus argues that Assured mandates dismissal of a breach of contract claim where an investment manager has discretionary authority, and is in compliance with the contractual diversification requirements.

This is error. The omission in the decretal paragraph is not reflective of the holding. In Assured, we simply did not address the issue that the defendant raises here, viz., that compliance with the sector and ratings limitation provision forecloses a breach of contract action. To the extent that it was silent as to this argument, no principle was enunciated.

Nor does our ruling in CMMF, LLC v. J.P. Morgan Inv. Mgt. Inc. (78 AD3d 562, 915 N.Y.S.2d 2 (2010)) help the defendant as to this issue. In that case, this Court sustained a breach of contract cause of action on the basis of the plaintiff’s allegations that the defendant breached the sector and ratings limitations provision of the agreement. CMMF, 78 AD3d at 563, 915 N.Y.S.2d at 5. That determination, however, does not stand for the proposition that the provision must be allegedly violated in order for a plaintiff’s breach of contract claim to survive. [*7]It simply means, the Court did not need to reach the issue we are now asked to determine.

Here, the defendant asserts — and the plaintiff concedes — that the subject subprime securities did not exceed the percentages set forth in the agreement — even after the guidelines were amended. Thus, contends the defendant, the motion court properly dismissed the breach of contract claim finding that defendant had followed the “specific diversification requirements.”

Notwithstanding its concession, the plaintiff asserts that the motion court erred in its ruling because it ignored fundamental principles of contract construction. We agree. See e.g. Greenfield v. Philles Records, 98 N.Y.2d 562, 569, 750 N.Y.S.2d 565, 569, 780 N.E.2d 166, 170 (2002)(well established that unambiguous contracts must be interpreted in accordance with their plain meaning); see also Two Guys from Harrison-N.Y. v. S.F.R. Realty Assoc., 63 N.Y.2d 396, 403, 482 N.Y.S.2d 465, 468, 472 N.E.2d 315, 318 (1984); 150 Broadway N.Y. Assoc. L.P. v. Bodner, 14 AD3d 1, 6, 784 N.Y.S.2d 63, 66 (1st Dept. 2004) (contracts must be construed to “avoid an interpretation that would leave contractual clauses meaningless”) (internal quotation marks and citations omitted).

In this case, the motion court overlooked the plain meaning of the IMA by misreading the limitations provision as a requirements provision. Indeed, the defendant’s argument that the accounts, at any one time, did not hold more than the 50 to 60% of subprime Alt-A mortgage securities as permitted by the IMA suggests that the distinction between “limitation” and “requirement” still eludes the defendant.

The plain meaning of “limitations” connotes a point beyond which a party may not proceed. It is not a target that a party is obligated to meet which would instead constitute a “requirement.” Accordingly, any reliance by the motion court or defendant on our determination to dismiss the breach of contract claim in Guerrand-Hermes v. Morgan & Co. (2 AD3d 235, 769 N.Y.S.2d 240 (2003), supra) is misplaced. The facts and contract language are distinguishable. In that case, there were, indeed, specific “investment guidelines diversification requirements” that were intended to implement the objective. Guerrand-Hermes, 2 AD3d at 238, 769 N.Y.S.2d at 244. The investment management agreement provided, inter alia, that $18 million was to be invested in a leveraged portfolio of emerging market debt securities. Moreover, the plaintiff acknowledged that he understood there were risks associated with investing in emerging markets, and that investment in such markets “can lead to losses of principal, including all of the $18 million equity invested, or more.” 2 AD3d at 236, 769 N.Y.S.2d at 241.

In this case, there were no specific requirements as to investing in any particular types of securities. Certainly, there was no warning or any acknowledgement that all assets could be lost. The diversification provision listed HELOS and Alt-A’s as securities in which the defendant was permitted to invest, up to certain percentage limits of the account assets. However, the diversification provision did not require the defendant to invest in them at all.

The plaintiff asserts therefore, that adhering to the maximum contractually permitted percentages despite “seismic changes to the economy, to world markets and J.P. Morgan’s own internal conclusion[s] [about an impending financial meltdown in the housing market],” suggests the very opposite of managing the accounts and exercising discretion as to whether the securities should be held at all. We agree. [*8]

Action or non-action in accordance with a provision that limits rather than mandates certain actions does not immunize defendant from a breach of contract claim when that action/non-action is egregiously at odds with the stated contractual requirement that defendant pursue the investment objective of reasonable income and high level of safety of capital. As the plaintiff correctly asserts, the motion court’s holding that there was no breach of agreement so long as the defendant did not exceed the maximums stated in the sector and ratings provisions would allow the defendant to insulate itself from liability by closing its eyes to known risks, and so would render the contract’s stated goal of “a high level of safety of capital” impermissibly meaningless. See e.g. Two Guys From Harrison-N.Y., 63 N.Y.2d at 403, 482 N.Y.S.2d at 468.

Contrary to the defendant’s argument, plaintiff’s claim is not based on the allegation of failure to achieve — no matter how strenuously the defendant attempts to recast the allegations so that it can then cite to precedent mandating dismissal of the complaint on such basis. See CMMF, LLC, 78 AD3d at 563, 915 N.Y.S.2d at 5 (no breach of contract claim may be sustained based on a failure to achieve an investment objective where investment manager has discretionary authority), citing Vladimir v. Cowperthwait, 42 AD3d 413, 839 N.Y.S.2d 761 (1st Dept. 2007). That the defendant failed to achieve the goal of reasonable income and high safety of capital is undisputed, as is the foreclosure of plaintiff’s pursuit of a claim on that basis. See CMMF, LLC, at 563, 915 N.Y.S.2d at 5. Here, however, the plaintiff’s claim rests on the allegations that, notwithstanding its adherence to certain limitations, the defendant failed to manage the accounts in accordance with the agreed upon objective. Had it done so, plaintiff asserts, it might have followed the path taken by JP Morgan Chase to divest itself of securities based on subprime mortgages before the losses turned catastrophic.^[FN8] Instead, as the defendant concedes, the accounts were for the most part invested by January 2007, “with minimal subsequent account activity” until Ballantyne closed the accounts almost two years later. As such the plaintiff’s allegations are sufficient to sustain a breach of contract claim. See Sergeants Benevolent Assn. Annuity Fund v. Renck, 2004 WL 5278824 (Sup. Ct, N.Y. County 2004)(plaintiffs’ breach of contract claim upheld against defendant investment brokerage on allegations that defendant would not have lost $27 million had it pursued the conservative investment plan required by the contract), rev’d on other grounds, 19 AD3d 107, 796 N.Y.S.2d 77 (1st Dept 2005); see also Scalp & Blade v. Advest, Inc., 281 AD2d 882, 883 [4th Dept 2001].

We reject the defendant’s contention that Sergeants Benevolent Assn. Annuity Fund is [*9]distinguishable. The defendant argues that, in that case, defendant breached the agreement to pursue “conservative capital appreciation” by investing in highly volatile, risky tech, communications and internet stocks which were not permitted by any provision of the contract. We find this argument unpersuasive for the reasons already stated above. Whether permitted or not, once the defendant acquired information about the riskiness of subprime securities it was also aware that such securities were incompatible with the stated investment objective of the accounts.

The plaintiff has also sufficiently alleged that defendant breached the Delaware Insurance Code. 18 Del C. § 1305(4) provides: “An insurer shall not at any [one] time have more than 50% of its assets invested in obligations under § 1323 of this title, exclusive of that portion of such obligations guaranteed or insured by an agency of the United States government.” Obligations under § 1323(a) are “bonds, notes or other evidences of indebtedness secured by first or second mortgages,” and are not limited to individual mortgages. Therefore, section 1323 covers more than 50% of the securities contained in the accounts. See Assured, 80 AD3d at 305, 915 N.Y.S.2d at 16.

We further reject the defendant’s argument that it complied with § 1308 of the Delaware Code, and that compliance with any section is sufficient to render an investment compliant with the Code. The defendant maintains that the securities at issue met the requirements contained in § 1308, as they were all rated “A” or higher by Standard and Poor’s, or “A2” or higher by Moody’s at the time of purchase. However, the statements of record only reflect holdings in the accounts as of two dates, May 31, 2006 and January 31, 2007, and do not, on their face, establish any regulatory compliance. Thus, defendant has failed to demonstrate conclusively, through documentary evidence, that it complied with this section.

The defendant has not established entitlement to dismissal of plaintiff’s claims as time-barred. Section 7(d) of the IMA provided that the plaintiff was obligated to “object in writing” as “to any act or transaction […] within a period of ninety (90) days from the date of receipt of any statement” from the defendant. The holding in Assured is not applicable here since the plaintiff did not initially assert that the amended guidelines (in writing) constituted an objection as they did in Assured (80 AD3d at 304, 915 N.Y.S.2d at 15); nor does the record reflect that Ballantyne made a prior oral objection that resulted in the amended guidelines. In any event, whereas the amended guidelines in Assured restricted the defendant making future investments in cash equivalents, no such restriction applied here, but on the contrary included the list of the permitted securities.

However, as the motion court correctly noted, the plaintiff’s claims are based on defendant’s failure to manage the accounts in accordance with the investment objective rather than upon any specific act or transaction. Hence, they are based on conduct that would not have shown on any statement, namely, that defendant failed to follow a course of action with respect to the accounts despite its awareness of the declining subprime securities market and its own divestiture of such securities. Such knowledge, which is the cornerstone of the plaintiff’s allegations, is not a fact which would be evident in the statements. Thus, the defendant has not established entitlement to pre-answer dismissal on the ground that the action is time-barred. [*10]

Finally, assuming, arguendo, that the appeal pending in the Court of Appeals affirms this Court’s finding that plaintiff’s tort claims for gross negligence and breach of fiduciary duty are not preempted by New York General Business Law § 352 et seq. (the Martin Act), we find that neither are they duplicative of the breach of contract claim. See Assured, 80 AD3d at 306, 915 N.Y.S.2d at 17.

Accordingly, the order of the Supreme Court, New York County (Barbara R. Kapnick, J.), entered March 25, 2010, which granted defendant’s motion to dismiss the complaint, should be reversed, on the law, with costs, and the motion denied.

Order, Supreme Court, New York County (Barbara R. Kapnick, J.), entered March 25, 2010, reversed, on the law, with costs, and the motion to dismiss the complaint denied.

Opinion by Catterson, J. All concur.
Saxe, J.P., Catterson, Acosta, Abdus-Salaam, Román, JJ.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: JULY 14, 2011

DEPUTY CLERK

Footnote 1:Plaintiff is a third-party beneficiary of the IMA and is entitled to enforce Ballantyne’s rights thereunder.

Footnote 2: The article states that “J.P. Morgan mostly exited the business of securitizing subprime mortgages when it was still booming, shunning now notorious instruments such as SIVs (structured investment vehicles) and CDOs (collateralized debt obligations).”

Footnote 3:The article also indicates that any information available to J.P. Morgan Chase would have been made available to its affiliates. It states: “The Dimon team…mine every part of the business for detailed information – especially data that point to trouble – then share it at warp speed throughout the corporation.”

Footnote 4:This issue is not argued by the parties on appeal in light of this Court’s decisions in Assured Guar. (U.K.) Ltd. v. J.P. Morgan Inv. Mgt. Inc., 80 AD3d 293, 915 N.Y.S.2d 7 (1st Dept. 2010), lv. granted, N.Y. Slip Op. 64361[u](1st Dept. 2011) and CMMF, LLC v. J.P. Morgan Inv. Mgt. Inc., 78 AD3d 562, 915 N.Y.S.2d 2 (1st Dept. 2010), but defendant reserved its right to so argue, if appropriate, following consideration of the issue by the Court of Appeals.

Footnote 5:A fact established in the record by defendant’s exhibit, an article titled, “Turmoil in the Financial Markets,” which states as follows: “The credit crisis arose from losses in mortgage loans… Many of these loans were subprime’ loans… Mortgage originators sold the home loan mortgages to others, including off balance sheet entities created by investment banks. These entities issued structured notes called collateralized debit [sic] obligation[s] (CDOs), secured by groups of home mortgage loans.”

Footnote 6:These apparently included — as reflected in the record though not noted by the plaintiff — mortgages originated by the above-named competitor First Franklin, whose defaults were apparently known to J.P. Morgan Chase in October 2006 to be three times worse than its own, but which were still being held for the accounts at the time of amended guidelines in December 2007.

Footnote 7:Compare Assured, 80 AD3d at 305, 915 N.Y.S.2d at 16 (plaintiff’s contract claim sufficiently alleges gross negligence to survive a motion to dismiss) with Assured, 80 AD3d at 306, 915 N.Y.S.2d at 17 (order “should be modified […] to reinstate the contract claims based on alleged violation of Delaware Insurance Code Chapter 13 that accrued on or after June 26, 2007, as well as its claims for breach of fiduciary duty and gross negligence […]and otherwise affirmed).

Footnote 8:At oral argument, defendant argued that management of the accounts included its assessment of whether to sell, or whether securities would regain their value. For purposes of the defendant’s motion to dismiss, we reject that theory of management in view of the plaintiff’s allegations that J.P. Morgan’s concerns in October 2006 led to it divesting itself of similar securities when subprime securities were still being held in the subject accounts 15 months later.

[ipaper docId=60041277 access_key=key-ugsqu10gyjhhwo1rhso height=600 width=600 /]

California lender to pay $3.1 million and dissolve sham joint ventures

WASHINGTON, DC – July 13, 2011 — The U.S. Department of Housing and Urban Development (HUD) today announced an agreement with Prospect Mortgage, LLC (Prospect) to settle allegations the California-based mortgage lender created sham affiliated business arrangements for the purpose of paying improper kickbacks or referral fees in violation of Federal Housing Administration (FHA) guidelines and the Real Estate Settlement Procedures Act (RESPA).  Prospect agreed to dissolve these sham joint ventures and pay $3.1 million to resolve the complaint.

HUD claimed Prospect operated as a “series limited liability company,” a business structure unauthorized by FHA, and that Prospect used this business structure to create hundreds of sham joint ventures with real estate brokers, mortgage brokers, mortgage lenders, servicers and other settlement service providers and to share profits for the referral of real estate settlement services.  Through these affiliated business arrangements, Prospect allowed non-approved branch offices to originate FHA-insured mortgages in violation of FHA’s guidelines.  Read the full text of the agreement announced today.

“The real test for any bona fide affiliate business arrangement is whether the affiliate has sufficient capital and employees to stand on its own two feet,” said Acting FHA Commissioner Carol Galante.  “In this case, it was clear that these sham companies had neither and were merely sharing profits for the referral of business.”

HUD alleges that Prospect entered into “series” or “subscription agreements” with real estate brokers, agents, banks, mortgage servicers and others to give the appearance that it was creating legitimate joint ventures to provide real and compensable services.  HUD discovered these sham businesses had little or no employees, capital and/or offices; that all core mortgage origination services were performed by Prospect itself; and that Prospect had allowed these affiliated businesses to participate in the origination of FHA-insured loans out of branch offices registered with FHA as exclusive to Prospect.  In return for the referral of business, Prospect shared 50 percent of its profits with these entities which HUD determined were not bona fide affiliated businesses, and many of which were not FHA-approved lenders.

RESPA was enacted in 1974 to provide consumers advance disclosures of settlement charges and to prohibit illegal kickbacks and excessive fees in the homebuying process. Section 8(a) of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement service business and Section 8(b) prohibits unearned fees.

###

HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes: utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination; and transform the way HUD does business. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov.

Contact:
Brian Sullivan
202) 708-0980

[ipaper docId=60037741 access_key=key-29sy3uc681o97nlq8x9h height=600 width=600 /]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

IN THE SUPREME COURT OF THE STATE OF NEVADA

PHILIP REDMON AND PATRICIA
REDMON,
Appellants,

vs.

HOMEQ SERVICING, INC.; BANK OF
NEW YORK MELLON TRUST
COMPANY; PATRICK KING; AND
ADMINISTRATIVE OFFICE OF THE
COURTS FORECLOSURE MEDIATION
PROGRAM,
Respondents.

ORDER VACATING JUDGMENT AND REMANDING

This is an appeal from a district court order denying a petition for judicial review arising in a foreclosure mediation action. Second Judicial District Court, Washoe County; Patrick Flanagan, Judge.

Following an unsuccessful mediation conducted under Nevada’s Foreclosure Mediation Program, appellants Philip and Patricia Redmon (the Redmons) filed a petition for judicial review seeking sanctions against their loan servicer,  respondent HomEq Servicing, Inc. (HomEq). The district court concluded that HomEq’s conduct was not sanctionable and ordered that a foreclosure certificate be issued. As explained below, we vacate the district court’s order and  remand this matter to the district court.

The Redmons’ mediation was scheduled for December 28, 2009. On that day, the Redmons met with the mediator and an attorney representing HomEq. Due to an apparent miscommunication, HomEq’s attorney was unable to contact via telephone a HomEq employee who ostensibly had the authority to  negotiate the Redmons’ loan. Two days later, a follow-up conference call was held in which the mediator, HomEq’s attorney, and the HomEq employee articipated—but not the Redmons.

The Redmons’ petition for judicial review contended that, among other things, HomEq should be sanctioned for its failure to make someone available during the mediation who had the authority to negotiate their loan. See NRS 107.086(5) (indicating that the mediator shall recommend sanctions when the beneficiary or its representative “does not have the authority or access to a person with the authority” to negotiate a loan modification). In denying their petition, the district court failed to explain the basis for its conclusion that HomEq had made someone with authority available during the mediation. Specifically, the district court’s order does not explain who had authority on HomEq’s behalf, nor does it explain on what day or days the mediation took place.

On remand, we direct the district court to make the factual findings necessary to determine whether HomEq made someone available during the mediation who had the authority to negotiate the Redmons’ loan. If the district court concludes that HomEq failed in this regard, the district court shall determine how HomEq should be appropriately sanctioned. Pasillas v. HSBC Bank USA, 127 Nev.     , P• 3d (2011) (construing NRS 107.086(5) to mean that a violation of one of the four statutory requirements must be sanctioned and that the district court is to consider several factors in determining what sanctions are appropriate). Accordingly, we

ORDER the judgment of the district court VACATED AND REMAND this matter to the district court for proceedings consistent with this order.

[…]

[ipaper docId=59993939 access_key=key-hskm3cn2kccv2n7s0j6 height=600 width=600 /]

.
.
.
.

AN EXAMINATION OF ATTACKS AGAINST THE FINANCIAL CRISIS INQUIRY COMMISSION

Democratic Staff Committee on Oversight and Government
Reform U.S. House of Representatives

Prepared for Ranking Member Elijah E. Cummings July 13, 2011

[ipaper docId=59990349 access_key=key-1eeamyxvdz92hodh1wo6 height=600 width=600 /]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

You Just Got Served!

Boston Herald-

Facebook isn’t just for your “friends” anymore, as unlucky home-owners facing foreclosure are finding out.

After failing to reach an Australian couple who defaulted on their mortgage by mail or phone, the bank’s lawyer served foreclosure documents via Facebook after verifying their identity by matching names and birth dates and “friending” them on the social media Web site.

[BOSTON HERALD]

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION

MICHAEL M. CARNEY, Plaintiff,

vs.

BANK OF AMERICA CORPORATION, ET AL., Defendant

EXCERPT:

ANALYSIS

Mr. Carney has made a showing that ReconTrust might not be the proper trustee with legal authority to conduct the trustee’s sale scheduled for July 11, 2011. The issue is whether MERS properly substituted ReconTrust as trustee in place of First American Title Company prior to MERS assigning its beneficial interest in the deed of trust to US Bank, and whether US Bank has approved of the foreclosure sale. See FAC Ex. 9 (Corporation Assignment of Deed of Trust assigning MERS’ beneficial interest in the deed of trust to US Bank dated June 24, 2010 and recorded July 7, 2010); id. Ex. 6-2 (Substitution of Trustee listing MERS as the beneficiary and ReconTrust as the new trustee but not indicating the date of execution), id. Ex. 6-3 (Affidavit of Mailing for Substitution of Trustee by Code dated May 19, 2011); id. Ex. 6-1 (Notice of Trustee’s Sale listing ReconTrust as trustee and June 9, 2011 sale date); id. ¶ 72 (verified FAC alleging that no properly executed substitution of trustee was recorded prior to ReconTrust filing a Notice of Trustee’s Sale on October 29, 2010). Defendants have asserted in their opposition to Mr. Carney’s ex parte application that “MERS substituted ReconTrust as trustee in place of First American Title Company – and this substitution was recorded,” Opp’n at 5, but they have not produced the records indicating that this substitution properly occurred during the time period that MERS was the beneficiary.

[…]

[ipaper docId=59912252 access_key=key-1q0hpdf9rytq0bh82n5g height=600 width=600 /]

We all should be extremely grateful to these two courageous women. They both were the ones who made the power point titled “Unfair, Deceptive and Unconscionable Acts in Foreclosure Cases,” demonstrating the massive fraud that went viral.

From Palm Beach Post-

A lead foreclosure fraud investigator for the state said she and a colleague were forced to resign from the Florida attorney general’s office, unexpectedly ending their nearly yearlong pursuit to hold law firms and banks accountable.

Former Assistant Attorney General Theresa Edwards and colleague June Clarkson had been investigating the state’s so-called “foreclosure mills,” uncovering evidence of legal malpractice that also implicated banks and loan serv­icers.

Despite positive performance evaluations, Edwards said the two were told during a meeting with their supervisor in late May to give up their jobs voluntarily or be let go. Edwards said no reason was given for the move.

[PALM BEACH POST]