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

No. 09-bk-19154-SSC

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA

DATED: January 21, 2011.

Not for Publication-Electronic Docketing ONLY

AMENDED1 MEMORANDUM DECISION

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

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

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

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

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

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

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

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

III. LEGAL DISCUSSION
The Motion for Reconsideration

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SARAH SHARER CURLEY, Bankruptcy Judge

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Via: BankClassActions

UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF WASHINGTON

FOR PUBLICATION
In re:
PETER A. JACOBSON and
MARIA E. JACOBSON,
Debtors.

No. 08-45120

DECISION ON RELIEF FROM STAY

Excerpts:

Before the court is a motion for relief from the automatic stay of § 362(a)2 to enforce a deed of trust on the Debtors’ residence. As it was neither brought in the name of the real party in interest, nor by anyone with standing, the motion for relief from stay will be DENIED.

<SNIP>

Assuming the exhibits to the motion are authentic and are the same as those intended to have been attached to the declaration, the note is indorsed in blank. Without more, that and possession (rather than mere custody) suggests that Wells Fargo is the holder of the note. RCW 62A.3-20114 and 3-30115. Nothing in the record establishes on whose behalf (if other than its own) Wells Fargo Document Custody possesses the note; that (and verification of current possession and present ability to produce the original, if required) would have to come from Wells Fargo.

Nor does anything in the record establish UBS AG’s authority to enforce the Debtors’ note, for whomever holds it; and thus to foreclose the deed of trust. The declaration states that UBS AG is “servicing agent,” a term with no uniform meaning, and no definition cited. At a minimum, there must be an unambiguous representation or declaration setting forth the servicer’s authority from the present holder of the note to collect on the note and enforce the deed of trust. If questioned, the servicer must be able to produce and authenticate that authority.

UBS AG has not shown that it has standing to bring the motion for relief from stay or authority to act for whomever does.

Continue below…

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Excerpts:

A We don’t work in foreclosures.
Q You don’t work in foreclosures?
A No.
Q You don’t sign notices of default starting
foreclosures?
A I sign notices of default, yes.
Q And what do you understand the effect of a
notice of default is?
A It starts the clock ticking on the
formal foreclosure period.
Q But that is not working in foreclosures is your
testimony under oath here today on this video?
A Correct.
Q Does a notice of default put the property in
foreclosure?
A It starts the formal process of the foreclosure
time frames.

<SNIP>

Q What documents do you review prior to signing a
notice of default?
A We don’t review any documents.
Q What documents are provided to you in
connection with a loan where a notice of default t is
presented to you for your signature?
A Nothing.

<SNIP>

Q Let’s look at the second sentence there. It
says the amount is $9,751.03 as of 10/17/2007 and will
increase until your account becomes current.
At the time you signed this document you had
absolutely no knowledge whether that was true; correct?
A Correct.
Q On the second page, the last full paragraph
above your signature line, do you see that, that by
reason thereof, the present beneficiary under such deed
of trust has executed and delivered to the duly
appointed trustee a wri t ten declaration of default and
demand for sale.
You don’t know whether that was ever true, do
you?
A No.

<SNIP>

Q So to be clear, you receive an e-mail from LPS
that has as an attachment to it a notice of default?
A Yes.
Q That has names on that notice of default that
Ticor Title does not have an agency relationship with directly?
A Correct.
Q Correct?
A Right.
Q And then you sign the notice of default without
verifying the accuracy of any information in that notice
of default and cause it to be recorded?
A Correct.

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Excerpt:

COMMITTEE MEMBER: Can you explain what you are in
4 relation to that?
5 MR. HULTMAN: We’re the beneficiary, but we’re an
6 agent of the lender. So instead of having two — one party be
7 both the payee on the note and the beneficiary in deed of
8 trust, we’re the beneficiary as their agent. In other words,
9 we’re holding title to the mortgage lien on their behalf.
10 COMMITTEE MEMBER: Through this process called
11 nominee?
12 MR. HULTMAN: Well, nominee is just another word for
13 agent.

Continue below…

After you read the transcript, you might be interested in reading the post below

Lender can’t modify the mortgage without the “mortgagee’s” consent

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Mike “Mish” Shedlock

Monday, January 17, 2011 1:33 AM

The Salt Lake Tribune has an interesting article on Utah’s “Quiet Title Laws”, MERS, clouded titles, and record keeping. Several people won titles free and clear to their houses or condos when debts as great as $417,000 were dismissed in court. Here are a few snips.

A Utah court case in which the owner of a Draper townhouse got clear title to the property, even though he still owed $132,000 on it, raises new legal and financial questions about a property-records database created by mortgage bankers.

The award of a title free of liens means that whoever owns the promissory note on the Draper property — likely a group of faraway investors — no longer has the right to foreclose to collect on a delinquent loan. Indeed, the townhouse owner has sold the property and kept the money. Those who own the promissory note probably don’t even know what occurred.

Last year, the owner of the Draper property contacted attorney Walter T. Keane to help him deal with lenders, though Keane won’t say what the problem was and the owner declined an interview request.

The lawsuit over the title to the townhouse named Garbett Mortgage and Citibank FSB as the holders of promissory notes as recorded on trust deeds filed with the recorder’s office. Integrated Title Services was listed as trustee of the Garbett Mortgage trust deed, while First American Title was the trustee of the CitiBank trust deed.

But there also was another entity listed on the trust deeds called the Mortgage Electronic Registration Systems (MERS). The Mortgage Bankers Association, the Washington, D.C.-based trade group that represents major mortgage lenders, created MERS in the mid-1990s.

Under the state’s quiet title laws, Keane said he did not have to name MERS or serve it legal papers in the lawsuit because it was not the legal owner of title to the property. Those were title companies. In addition, attorneys contend, MERS cannot be the “beneficiary” or holder of the promissory note because it readily has admitted it has no financial interest in any notes or mortgages.

JAMES KEITH HOOTEN, et al. GERRY RENEE HOOTEN, Plaintiffs,
v.
OCWEN LOAN SERVICING, LLC, Defendant.

Cause No. 1:09cv491-LG-RHW.

United States District Court, S.D. Mississippi, Southern Division.

January 11, 2011.

MEMORANDUM OPINION AND ORDER DENYING SUMMARY JUDGMENT

LOUIS GUIROLA Jr., District Judge.

BEFORE THE COURT is Defendant Ocwen Loan Servicing, LLC’s Motion for Summary Judgment [30]. Plaintiffs James Keith and Gerry Renee Hooten initiated this action against their mortgage holder after their home was lost in a tax sale. Ocwen argues (1) it owed no contractual duty to pay the past due taxes, (2) the Statute of Frauds bars any oral modifications, (3) the Hootens released Ocwen from all claims, (4) and the taxes were not escrowed. The Court has considered the parties’ submissions^[1] and the relevant legal authority. The motion is denied.

Continue below…

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Will leave the comments for you all if you wish on these recorded documents from public records.

NOTE: It appears these were done by pro se individuals.

YOU MUST CONSULT WITH AN ATTORNEY.

REPEAT:

DO NOT try this without consulting an attorney.

Excerpt:

WHEREAS TRUSTOR/GRANTOR STATES AND DECLARES that, in recognition of certain pertinent facts not limited to the fact that the Mortgage contained NO SIGNATURES showing an acceptance of the document by any other party, the above-described Mortgage is, at best, an unconscionable contract and, for that reason alone, said, Mortgage is not an enforceable instrument; and since no other party signed th document, no party would have standing to assert that said party has been damaged in any way, or that a “default” occurred, or that a “breach” occurred; AND…

AND ANOTHER

Before you go down to read the “recent” affidavits to correct/invalidate a previous MIN from WAF to Bank of America.

You have to first read the following…

Every loan is assigned a unique Mortgage Identification Number (MIN) that follows the loan from registration to payoff. The MIN appears on the mortgage or deed of trust.

Process loans, not paperwork ,SVP William C. Hultman

In the mortgage sphere, the MERS Mortgage Identification Number (MIN) has been in use since 1997 and has been assigned to over 65 million loans. The MIN is a combination of a unique loan identifier for the originating lender plus the loan’s internal file number. It is available for residential, multifamily and commercial loans. It can attach to a mortgage as early as the application for a loan. The MIN is then used to track a loan throughout its life cycle, from application through monthly servicing activities until final loan payoff. It is used also used within the loss mitigation and Real Estate Owned (REO) processes. The MIN is well integrated within all facets of the real estate finance industry.

The adoption of a new, different, and/or conflicting numbering system would result in greater confusion, unnecessary system development costs, longer lead times for compliance and decreased transparency by making it more difficult for industry participants to track assets across multiple data and reporting systems. The real estate finance industry would be required to add the new asset number to all of its applications, databases, and file transfers between applications. In certain situations, a new asset number may have unintended consequences in the primary residential mortgage market. If a lender has to decide at the time of application whether to employ the MIN or some other loan numbering system based on the lender’s estimation that the borrower may not qualify for a conforming loan (loans meeting the criteria of Fannie Mae or Freddie Mac) or governmental mortgage (loans meeting the criteria of FHA, VA, or the Rural Housing Service), then the Proposal could unintentionally steer applicants to particular loan types. Alternatively, if a lender starts down one path and then needs to re-key an application, the chances for error increase.

The MIN is the only universally accepted identifier for loans in the mortgage industry across the entire lifecycle of the loan. The major participants in the residential mortgage industry utilize the MIN. Fannie Mae, Freddie Mac and Ginnie Mae all utilize the MIN. MISMO encourages the SEC to adopt the MERS Mortgage Identification Number (MIN) as the primary loan identifier for real estate finance ABS.

MISMO response to SEC adopting MERS, Steve Gozdan Board of Directors 7/2010

Take notes:

• These are 35 individual affidavits to correct invalid MERS MIN’S
  
• Crystal Moore is in fact an employee of Nationwide Title Clearing and NOT MERS
• Look at the parties involved.
• What was the reason for this?
  

Way too many of these recorded for me to go through but these are 35 samples!

Min Correction by DinSFLA on Scribd

This according to Straight Talk by Sharon Horstkamp, MERS Vice President and Corporate Counsel. Below is an excerpt of the newsletter:

The standard modification agreement
is between the Borrower and
the Lender. The agreement amends
and supplements (1) the Mortgage,
Deed of Trust or Deed to Secure
Debt (Security Instrument) and (2)
the Note bearing the same date as,
and secured by, the Security
Instrument. Prior to MERS, the
standard agreement worked
because the Lender was the mortgagee
of record and could modify
the mortgage and also had the
authority to modify the Note.

However, if MERS is the mortgagee
of record, the Lender can’t
modify the mortgage without the
“mortgagee’s” consent. Therefore,
Fannie Mae and Freddie Mac
changed the modification agreements
to reflect MERS as the mortgagee
of record.

Their change states the Agreement
amends and supplements the
Mortgage, Deed of Trust or Deed to
Secure Debt (Security Instrument)
granted or assigned to Mortgage
Electronic Registration Systems,
Inc., as nominee for the Lender.
The change also recommended a
signature line be added for MERS to
sign the agreement in its mortgagee
capacity. A MERS certifying officer
can sign the Agreement. It is important
to note that a MERS signature
doesn’t replace the Lender’s signature,
because MERS isn’t modifying
the note. Therefore, the Lender and
MERS must sign the document.

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA

Minute Entry

Hearing Information:

Debtor: ANDREW C BAILEY
Case Number: 2:09-bk-06979-RTBP Chapter: 11
Date / Time / Room: TUESDAY, NOVEMBER 09, 2010 10:00 AM 7TH FLOOR #701
Bankruptcy Judge: SARAH SHARER CURLEY
Courtroom Clerk: WANDA GARBERICK
Reporter / ECR: ANDAMO PURVIS

Matter:

ADV: 2-09-01728
ANDREW C. BAILEY vs THE BANK OF NEW YORK MELLON, FKA THE BAN
HEARING RE Motion to Dismiss Complaint Defendants’ Motion To Dismiss, With Prejudice, Plaintiff’s Fourth Amended Complaint To Determine The Validity, Priority or Extent Of a Lien or Other Interest in Real Property and Petition For Injunctive Relief filed by KYLE S. HIRSCH of BRYAN CAVE LLP on behalf of BAC HOME LOANS SERVICING
R / M #: 50 / 0

Appearances:

ANDREW C BAILEY

KYLE S. HIRSCH, ATTORNEY FOR THE BANK OF NEW YORK MELLON, FKA THE BANK

Proceedings:

Mr. Hirsch goes over the background of the complaints that have been filed, and notes that this is the fourth amended complaint with no basis. Mr. Bailey gives his statements to the court on the note.

COURT: THE COURT FINDS THAT AT THIS TIME MR. BAILEY HAS NO SUPPORT FOR HIS CLAIMS. MR. HIRSCH IS DIRECTED TO GET THE ORIGINAL CUSTODIAL FILE FROM NEW YORK FOR THE COURT TO REVIEW. HE SHOULD ALSO GET AN AFFIDAVIT FROM THE INDIVIDUAL GETTING THE FILE, THAT THERE HAS NOT BEEN ANY CHANGES SINCE 2006. IT IS ORDERED CONTINUING THIS HEARING TO JANUARY 13, 2011 AT 10:00 A.M.

Case 2:09-ap-01728-SSC Doc 61 Filed 11/09/10 Entered 11/09/10 15:07:05

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• NOVEMBER 1, 2010, 7:53 P.M. ET

Lawmaker Questions Power to Foreclose

By ROBBIE WHELAN

A Virginia lawmaker asked the state’s attorney general to launch an investigation of Mortgage Electronic Registration Systems, the middleman firm in millions of court filings that helps keep the mortgage-securitization machine moving.

Robert G. Marshall, a Republican member of the Virginia House of Delegates, requested that Virginia Attorney General Ken Cuccinelli determine whether the Reston, Va., company violates state law because it doesn’t pay a fee every time a loan changes hands. Opinions differ as to whether MERS must pay local fees every time it sells an interest in a loan.

“There are too many people getting foreclosed on not properly,” said Mr. Marshall, who represents two counties near Washington, adding that he is drafting a Virginia law that would require lenders to pay county fees before being allowed to proceed with foreclosures. “The disdain with which the conditions of law have been treated by those who want to make money too fast is very troubling to me.”

Brian J. Gottstein, a spokesman for Mr. Cuccinelli, said the attorney general is required to produce an opinion on the matter but declined to comment “on any particular industry participant right now.”

R.K. Arnold, MERS’s chief executive, said the company’s activities are legal in all 50 states and have held up under previous scrutiny.

The challenge is the latest sign lawmakers and lawyers for borrowers are taking aim at MERS as the foreclosure mess drags on. Created 13 years ago by Fannie Mae, Freddie Mac and several large U.S. banks as an electronic registry of land records, the company’s name is listed as the agent for mortgage lenders on documents for 65 million home loans. But that same streamlining has made MERS a target of critics who say the company might not have the legal right that it claims to foreclose on borrowers.

In a state-court lawsuit filed in Georgia last week seeking class-action status, lawyer David Ates says MERS isn’t a secured creditor, meaning it lacks the power to foreclose on behalf of lenders, mortgage servicers or other parties.

Mr. Ates said he is seeking to have all Georgia foreclosures by the company “be declared invalid and the title be returned to the debtor.”

Mr. Arnold said the company’s role in foreclosing on a mortgage is unquestionable because every time a loan is registered with MERS, the borrower must sign a document saying the company assumes all rights and responsibilities on behalf of the creditor or lender.

“The legal concept is as sound as any concept in America: You made a loan to a homeowner,” Mr. Arnold said in an interview. “They granted you a mortgage, and that’s recorded in the land records, and the company that has the mortgage and can foreclose is MERS.”

Mr. Arnold added: “We can foreclose in all 50 states, and we will continue to do that.”

Tom Kelly, a spokesman for J.P. Morgan Chase, said last month that the New York bank hasn’t used the MERS record-keeping system since at least 2008 to foreclose in the bank’s name because “some local courts wouldn’t accept MERS.” J.P. Morgan still uses MERS for mortgages originated by other banks or brokers.

.

.

.

.

.

Christopher Lewis Peterson

University of Utah – S.J. Quinney College of Law
Real Property, Probate and Trust Law Journal, Forthcoming

Abstract:

Hundreds of thousands of home foreclosure lawsuits have focused judicial scrutiny on the Mortgage Electronic Registration System (“MERS”). This Article updates and expands upon an earlier piece by exploring the implications of state Supreme Court decisions holding that MERS is not a mortgagee in security agreements that list it as such. In particular this Article looks at: (1) the consequences on land title records of recording mortgages in the name of a purported mortgagee that is not actually mortgagee as a matter of law; (2) whether a security agreement that fails to name an actual mortgagee can successfully convey a property interest; and (3) whether county governments may be entitled to reimbursement of recording fees avoided through the use of false statements associated with the MERS system. This Article concludes with a discussion of steps needed to rebuild trustworthy real property ownership records.

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Back in January 15, 2009 Marcy Kaptur told Foreclosure Victims “Don’t Leave your Home” because we will find out that they don’t have the mortgage.

“They can’t find the paper up there on Wall Street”

You can feel it through her passion she knows what she’s talking about. I have a feeling I may know who might be consulting her 🙂

Go to 3:05 where they clearly mention the problems with MERS

Barry Ritholtz goes at it with Diana Olick

via: Brian Davies

The SEC is the regulator who allowed the Prospectus for many Mortgage Backed Securities to be filed. The Indymac MBS Residential Asset Securitization Trust 2007-A5, mortgage pass through 2007-E, with the Pooling and Servicing Agreement dated 3-1-2007 outlines proper assignment protocols and is the document that is needed for the court record. The SEC will do requests so you may judicially notice these documents for the record.

Your request was received in the certification office on 8/3/10; the time frame is 14+ working days to process

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U.S. Bankruptcy Judge EILEEN W. HOLLOWELL knew exactly where this was going and put an immediate stop to it.

Deutsche not only created the Allonge after it filed its MRS and falsely represented that it was affixed to the Original, but it also relied on the LPA authorizing the transfer of the Note when substantially identical powers of attorney have been held to be ineffective in reported decisions involving Deutsche.

Deutsche, AHMSI and counsel should, however, treat this decision as a warning. If, in the future, the court is confronted with filings as deficient and incorrect as filed in this case, the court will issue an order to show cause and consider imposing sanctions including, but not limited to, an award of fees to debtors’ counsel for having to oppose motions filed without proper evidence or worse with improper evidence.

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Excerpts:

MERS was created in 1995 under the auspices of the Mortgage Bankers Association (MBA), as the mortgage industry’s utility, to streamline the mortgage process by using electronic commerce to eliminate paper. Our Board of Directors and shareholders are comprised of representatives from the MBA, Fannie Mae, Freddie Mac, large and small mortgage companies, the American Land Title Association (ALTA), the CRE Finance Council, title underwriters, and mortgage insurance companies.

Our initial focus was to eliminate the need to prepare and record assignments when trading mortgage loans. Our members make MERS the mortgagee and their nominee on the security instruments they record in the county land records. Then they register their loans on the MERS® System so they can electronically track changes in ownership over the life of the loans. This process eliminates the need to record assignments every time the loans are traded. Over 3000 MERS members have registered more than 65 million loans on the MERS® System, saving the mortgage industry hundreds of millions of dollars in the process. The Federal Housing Administration (FHA) and Veterans Administration (VA) approved MERS for government loans because they recognized the value to consumers. On table-funded loans, MERS eliminates the cost to the consumer of the mortgage assignment ($30 – $150). In addition, the MERS process ensures that lien releases are not delayed by eliminating potential breaks in the chain of title. Similar to the residential product, we also addressed the assignment problem in the commercial market with MERS® Commercial, on which is registered over $110 billion in Commercial Mortgage-Backed Securities (CMBS) loans.

More than 60 percent of existing mortgages have an assigned MIN, making a total of 65,000,000 loans registered since the inception of the system in 1997. The corresponding data for these mortgages is tracked on the MERS® System from origination through sale and until payoff. MERS therefore offers a substantial base of historical data about existing loans that can be harnessed to bring transparency to existing MBS products. Attached are letters from the MBA, FHA, Fannie Mae and Freddie Mac on this point.

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Related:

MERS May NOT Foreclose for Fannie Mae effective 5/1/2010

_________________________________________

Fannie Mae’s Announcing Miscellaneous Servicing Policy Changes

Boulder Creek family bought worthless second mortgage from Wells Fargo at foreclosure auction

Via: b.daviesmd6605

Does a lender’s failure to explore options to prevent foreclosure in clear violation of Civil Code section 2923.5 affect title to foreclosed property when the property is purchased — not by a bona fide purchaser for value — but by the very lender who violated the statute?

NATURE OF THE CASE AND PROCEDURAL HISTORY
This case arises under the recently enacted Civil Code section 2923.5 which requires residential mortgage lenders to explore alternatives to foreclosure with borrowers before initiating non-judicial foreclosure proceedings
The is a Plaintiff Petition for review of cc 2923.5 regarding reversal of all violations of the act. The decision in the Appeal Court IV. Division 3 has shown no tender, no preemption etc. This goes for all people regardless if they have been foreclosed. If foreclosed with sale asking Court to review reversal for all.

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SHOW ME THE LOAN

A legal doctrine developed by: John Chester; of the family Stuart

The government did not want to end prohibition. It was great for the politicians. Over a period of time, over 70,000 lawsuits were filed against prohibition. The government could not fight them anymore and got rid of prohibition.

The new concepts are based on these concepts of law which fall under contract law. Specific performance in real estate: You go to buy a house, they screw up and you don’t get the house. Under specific performance you can refuse to take another house or your money returned – you want that house. You have to go into a replevin concept where they give you some reasonable value. Those are fights that you have in contract law, which is what we want to use.

The nice aspect of it is that we have come along this far to the documentation and everything we are going to be claiming here, they have already confessed to by fighting us. Now they cannot change their minds. A lot of what kind of blackballed me from the guru aspect of this was the fact that I was right. But, they don’t need to be right. They just need to make money. A lot of it was based on the concept, in law, that most people do not really understand. It is the difference between a covenant and a contract.

There is a difference between a contract and a covenant. If you read the law and the legal definitions, they are substantially different. If you remember when you were in school, you said the Pledge of Allegiance. “I pledge allegiance to the flag of the united States of America.” Exactly what was that flag giving in return? Nothing. That is a pledge. “I pledge allegiance.” A pledge is a covenant. It’s unilateral.

When you do a covenant:
Go through your Deed of Trust, your Mortgage, etc., they use the word “covenant.” They do not use the word “contract.” There is a reason for it. They are never going to give you anything. You already have everything. It is legalese for, “I’m going to shaft you really bad and you’re going to thank me later.” You have to understand the difference between a contract and a covenant. The laws are so applicable that you enter into it believing it was a contract.

Here is the issue: We go through this whole thing, and the whole time the banks are yelling and screaming that, “We never separated the Note and the Deed of Trust.” Are they telling the truth or are they lying? They are telling the truth because those two documents were never together. That is where they have you. They were never intended to be together. They can never be together in law. The Deed of Trust got recorded and the Note went to the lender.

We have all kinds of evidence of that. The first thing they do with the Note is they give it over to someone to cash it. The first thing they do with the Deed of Trust is they run it over to the County Recorder’s Office. Did they separate them which would invalidate everything, or were they never together? They were never together to begin with. They never lied about that. They tricked us.

The Deed of Trust (Mortgage) – that contractual agreement which is truly a covenant says, “This Deed of Trust is evidenced by the Note.” There is no note. That is all a separate deal. What is the Deed of Trust evidenced by? Nothing. It does not exist in law. It is a mortgage. It is dead. You eventually bring it back to life because you send them a check or cash or money order every month. In law, if you make someone an offer, and behind that offer is written ‘in valuable consideration’ (in this instance, it would be cash) and they accept that cash, then we have brought that deal back to life.

The mortgage was dead. There were two deals. You sold them a Promissory Note, i.e., you are buying a house for $500,000. You give them a Promissory Note, they give you the $500,000 or they give it to the home builder and now you have the house. That is a fair and even exchange, lawful and legal. You are done.

Now, for some reason, you wanted to borrow $500,000 from them. That is a separate deal. This deal (Promissory Note) is done, now you want to do this other deal. If you pay them, when did you get the $500,000? There is a bit of an issue there. Here is what happened in law and in reality, and here is what the law has to say about this… Example/concept: Now that we are here and now that the banks say, “It is our note.” Okay, it is your note. You bought it fair and square.

If I sell you my car, can I come back yelling at you saying, “You can’t take the doors off it, you can’t paint it pink, you can’t do anything.” Do I have a legal right to say that? No. They can do whatever they want. They don’t even need to bring it to court.

When you sold them the Note, what did they do with it? They stamped the note: “Paid to the Order of __________ (put a third party name on it) without recourse.” According to the Federal Reserve, what is that Note now? It’s a check. Did they cash the check? It is a bearer instrument payable to the holder. Do we have a name for that? Check. It’s a bearer’s instrument. It’s a check. What is a check? A check is a bearer’s instrument. If I have a check given from you by you to me, am I the bearer of that? Yes. They cashed the check.

Do you understand what happened here? If I sell you this book for $1.00 and you go away with this book, is that all right? Yes. What does this other book have to do with that deal? Nothing. It is a separate book. We now want to make a deal over this book. How do we know this for certain?

We have to start talking about the Mortgage. You sold them the check (Note), that deal is done. Now we have to talk about the other deal. What is happening is, everyone is saying, “Show me the note.” We should be saying, “Show me the Loan.” Because you sold them your check for $500,000. You got the $500,000. That Note is completed and perfected. It’s done.

Now we are over here talking about a Mortgage – a Deed of Trust – a loan – a contract that is really a covenant where you are borrowing $500,000. You are paying them every month. When did they loan you the $500,000? They never did. Who, by law, is in default? They are. Who is responsible to inform the Court when the other party is in default? You are. If you don’t inform the Court the other party is in default, what must the Court therefore presume? They are not in default. The Court and law are very clear on these aspects. It is not the Court’s job to come and do your job for you. The Court does not know who is in default. The bank says you are in default through the non-judicial process. You don’t argue it – that’s it. In Connolly v. General Accounting and numerous other cases: acquiescence is agreement. If you don’t say anything, you are in agreement.

Credit card companies operate on this concept. They send you a note or a letter stating you owe us this much money, and you don’t respond. By the time you respond, you are already being garnished. Do you understand why? Because you never argued. Affidavits stand in law if un-rebutted. If somebody says something and you don’t rebut it, you are in agreement with it. That is not in all cases.

For instance, in this case of the last couple of weeks. I don’t deal with the plaintiff who was not at all prepared to get on trial. She gets up on the stand and says that the bank says, “Well, didn’t we loan you the money?” And, she said, “Well, yes.”

Part of learning how to do this is going to be very direct and honest. There are all kinds of maxims of law and court rulings where, if you don’t have clean hands, then they have an argument. If one side of the hands are dirty, then there is your claim. You just win by default.

They asked her a simple question: “Did you get a loan from the bank?” It was over with for her. She said “yes.”

She never got a loan from the bank. Not only is she a liar, but she destroyed her own case. If she had said, “I never got a loan from the bank. I sold them the Promissory Note, they gave me the money, I bought the house with the money and I paid them for the loan, but they never gave me loan.” That would have been it. There is one sum certain, one lump of money (in this case, $500,000). Where did it go? It’s only one lump sum. You sold them the Promissory Note.

This is about winning. It is about doing the right thing. It is very simple. You sold them the Promissory Note, they gave you the cash, you went over and bought the house. Do you all understand that? I don’t care about the Note.

There is a thing in law called res judicata. Those that are attorneys or paralegals understand res judicata. Once it’s done, once it has been decided, it is over with. Res judicata means, “Shut the hell up. Don’t bring it in my Court.”

I can give you a million arguments on this. Do you know which one of them matters? The one that proves whether or not this happened. Nothing else happened. Everything in the documents, the banks have confessed this happened. They cannot argue about this any more. They have already tried to bitch-slap us in thirty different ways to say, “This is over with.” Ok. You bought the Note. This is done.

Now we must discuss this. Did you make your payments for an extended period of time? Shannon and I have a deal. Shannon, I need to borrow $1,000. Shannon agrees and says, “I’ll tell you what. I have plenty of money. You send me $10 a week for the next two years; that’s $1,040. I will lend you the $1,000 now and I will make $40 in the two years after. I am way under the usury laws, etc.” We are both happy. How many $10 payments do I have to make before I say, give me my $1,000? None. If I made a few payments, what number of payments that I have made can I come back and take him into court if he does not give me that $1,000? One-third. That’s it. He is in total default. If I made three payments and he does not give me the money, who is in default? He is.

How many people understand there are two difference cases here? They confessed they bought the Note. This is all done. So we only have the Deed of Trust argument. On their side of the Deed of Trust it says says: “This Deed of Trust is evidenced by the Note.” What Note? It’s sold. It’s gone. So what is the Deed of Trust evidenced by? Nothing. They have no evidence. So what did you do? You paid them. Even though the Mortgage/Deed of Trust has negotiations, that deal is dead. When you pay them, under the law of acceptance (equity chancery law), when this is on the table and no one has actually picked it up. If you go ahead and you start sending them the payment, did you pick it up and hand it to them by giving them payment? In law, if they accepted by payment, what did they also accept? The check. So what must they also do? They have to give you that $500,000 loan. There is only one $500,000 lump sum.

When you look at this deal, you see what is called a “specific performance.” You had a job to do. Did the bank have a job to do? What was your job to do? Make the monthly payments. What was the bank’s job to do? Loan you. Did you specifically perform your duties in pursuance of this convenant/contract?

You performed your job. You sent them a check. They cashed it.

This whole thing is a scam. How can you tell if a bank or a lawyer or a politician is lying? There are two rabbit holes. Everyone is going down the wrong rabbit hole. You are not going to find any rabbits down there. You are going to find snakes and worms, etc. Here is the rabbit. That is what you need to argue. That is what it is all about. Inside of there is the right to take your house. In the covenant, they have all kinds of rights. You don’t have any rights. Fraud in the factum; fraud in the inducement. When you believe it is a contract because you do not understand legalese, but it was a covenant, so they really are not tied in to be punished if they fail. Isn’t that the reason they probably made it a covenant and not contract? It’s all there. They did not lie to you, verbally. They did not make a misstatement and they had a liable mission so you can use that against them.

Militia/patriot groups sprung up. The most famous being the Posse Comitatus. Posse Comitatus was an Act by Congress after the Civil War. It states the United States will never use the military against its own people. That was the United States, not the corporate entity of the United States of America. We all remember Waco. That whole Act has some issues. When the Posse Comitatus sprung up, they used the legal doctrine of filing documents which we call liens. What these different groups did was they put liens on sheriffs and judges and government employees creating a nightmare. The way the government attacked these groups through the law was under certain aspects of the law that says when you record something and it is not correct, that is a crime. They had a lot of recordings to deprive people of their property so that it fell into terrorism. They did it in mass quantities to deprive whole areas of their land.

This is important. If you look up Arizona Revised Statutes §13-2301 and read it through (D)(4)(b)45, it defines filing false documents to deprive people of their lands as terrorism. It is terrorism for a group of people to get together and file false, fraudulent or forged documents in a public office. It is defined in Arizona law as one type of criminal act: terrorism.

Under terrorist laws, they do not have to prove you are a terrorist. The onus probandi is extrapolated from the Patriot Act to all acts of terrorism. The terrorists must disprove they were a terrorist. When you get charged as a terrorist and there is any evidence therein, you have to dispute it. There are all kinds of people in Guantanamo Bay who don’t have anything to do with anything, but they had some kind of association somewhere where they got charged as terrorists. They are there waiting to dispute that they are terrorists.

The law states that if you record documents that are fraudulent, forged or false, to deprive people of property, you are a terrorist. How many people have looked at the documents that the banks have filed and recorded? How many people have found one that is not false, fraudulent or forged? It goes a prima facie evidence.

The nuclear option
There is no way, under Arizona or U.S. law, that a CEO of any bank in this country can disprove that he is not a terrorist. They cannot. The law defines every CEO of every bank in this country as a terrorist. There are judicial notices of case law in support of this. That will get posted. Read it. It shows this. The banks did this about a thousand times every day.

It is ground in legal fact. We’ve got the recorded documents and I have the laws. They cannot state they accidentally recorded it. Accident a thousand times a day throughout the country?

For all of these people, it is imprisonment for life. If you read the Posse Comitatus, the banks are following their playbook. The only difference in the laws between the bankers and the so-called terrorists that are doing life imprisonment in recording this stuff is they wore camping t-shirts and the bankers are in Armani suits. You talk about whether or not you can prove this or whether or not it is factual: they have already admitted to it. They gave us all the evidence we need. It really is this simple. They have done everything we need to do to jump over to the nuclear option and go against them. They have already said they own the note, they have already recorded the documents – all those documents are fraudulent.

The documents that they record that lead to the criminal acts that Arizona law defines as terrorism are: a substitution of trustee. In other words, this person gets to steal that property because we have a financial interest, etc. That is what the bank does. The other one is an assignment of rights where that leads to who has the rights to do what. They are going to record those documents. Some of them now they are stamping that they are recorded and not recording them. The crime happens when you record. Either way, they are still claiming it and using it to steal your property.

In criminal law, after the prosecution rests, you claim Rule 20, that they have not proved their prima facie case. They may have proved a lot of things, but they did not prove you did the act. That case gets dismissed, with prejudice.

In civil law you do not get it dismissed, but you get summary judgment in favor of the plaintiff or the defendant. That, basically, is reliant on the same concepts of the prima facie case. Then someone proves, prima facially, a certain concept. When we say, “Here is the law that says you are a terrorist and it states that if you do this, you are a terrorist.” And we put all the other with it; that is a prima facie evidence. They are a terrorist. How many times do you think we have done a prima facie case? Under the law, you only have to do it once. We have about a dozen cases.

That is the nuclear option.

There is a little confusion that I am going to clear up.

When the banks bought your Promissory Note, they did not actually give you money. When the banks bought your Promissory Note from you, they stamped it, “paid to the order of (the third party name) without recourse” and turned it into a check. They took that check and cashed it. They bought the house and you got the house. It is just the same as if you got the money. Here is the fraud: they bought everything in their name. You sold them the Promissory Note, yes, they paid you. They paid the builders, the builder gave you the house. The thing is, they bought everything in their name. That is illegal. That is a criminal act in and of itself.

If they upheld the law and did things not as a criminal enterprise – you sold them the Promissory Note, they took the money, they paid for the builder in your name, you were given the house in your name – this would not have generated the fraud. They were not supposed to purchase anything with that money using their name. They got the Promissory Note. They should have just given you the money, but they did all these little tricks to confuse everyone. They did everything in their name to make it look like they were doing the purchase, but they were using your money. They were really just an agent for you.

The money that they were supposed to give you, instead of giving it to you, they took that money and bought your old lien or bought your house with the money. It is spelled out in the handout.

Under the adjustable rate note, “In return for the loan that I have received, I promise to pay… ” Now we are playing a game of legalese: “In return for a loan that I received” is past tense, not current tense. We are talking about something that is extraneous. Whether it did or did not happen is not intrinsic to our argument.

They are playing these games and you are falling for it. You are making assumptions that you have got to get away from. What if you never had a loan before? Then that is just a fraudulent statement. What if you had a loan before? That would be what they are talking about. No where do they really claim that they were. You just read it, took it for granted, because you were doing this all at the same time. The whole thing is: where is the loan? Everyone is screaming, “Where is the Note?”, show me the loan. The loan I had received was in past tense, why are we bringing that up? That is intrinsic to the argument, but it is not substantial when we get into the case. It will be brought up. It is just evidence in the process.

Image Credit: Jerry Maguire

2010 NY Slip Op 50927(U)

HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES

2006-AF1,, Plaintiff,
v.
LOVELY YEASMIN, ET. AL., Defendants.

34142/07

Supreme Court, Kings County.

Decided May 24, 2010.

Steven J Baum, PC, Amherst NY, Plaintiff — US Bank.

ARTHUR M. SCHACK, J.

Plaintiff’s renewed motion for an order of reference, for the premises located at 22 Jefferson Street, Brooklyn, New York (Block 3170, Lot 20, County of Kings), is denied with prejudice. The instant action is dismissed and the notice of pendency for the subject property is cancelled. Plaintiff HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES 2006-AF1 (HSBC) failed to comply with my May 2, 2008 decision and order in the instant matter (19 Misc 3d 1127 [A]), which granted plaintiff HSBC leave:

to renew its application for an order of reference for the premises located at 22 Jefferson Street, Brooklyn, New York (Block 3170, Lot 20, County of Kings), upon presentation to the Court, within forty-five (45) days of this decision and order of:

(1) a valid assignment of the instant mortgage and note to plaintiff, HSBC . . .;

(2) an affirmation from Steven J. Baum, Esq., the principal of Steven J. Baum, P.C., explaining if both MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. [MERS], the assignor of the instant mortgage and note, and HSBC . . . the assignee of the instant mortgage and note, pursuant to 22 NYCRR § 1200.24, consented to simultaneous representation in the instant action, with “full disclosure of the implications of the simultaneous representation and the advantages and risks involved” explained to them;

(3) compliance with the statutory requirements of CPLR § 3215 (f), by an affidavit of facts executed by someone with authority to execute such an affidavit, and if the affidavit of facts is executed by a loan servicer, a copy of a valid power of attorney to the loan servicer, and the servicing agreement authorizing the affiant to act in the instant foreclosure action; and

(4) an affidavit from an officer of plaintiff HSBC . . . explaining why plaintiff HSBC . . . purchased a nonperforming loan from MERS, as nominee for CAMBRIDGE HOME CAPITAL, LLC [CAMBRIDGE].

[Emphasis added]

Plaintiff made the instant motion on January 6, 2009, 249 days subsequent to the May 2, 2008 decision and order. Thus, the instant motion is 204 days late. Plaintiff’s unavailing lateness explanation, in ¶ 16 of plaintiff’s counsel’s January 6, 2009 affirmation of regularity, states:

A previous application has been made for this or like relief but was subsequently denied without prejudice with leave to renew upon proper papers. By Decision and Order of this court dated the 2nd day of May 2008, plaintiff had 45 days to renew its application.

However on June 29, 2008 the Plaintiff permitted the mortgagor to enter into a foreclosure forbearance agreement. Said agreement was entered into with the hope that the Defendant would be able to keep her home. The agreement was not kept by the mortgagor and Plaintiff has since resumed the foreclosure action. The defects of the original application are addressed in the Affirmation attached hereto at Tab F [sic].

June 29, 2008 was 58 days subsequent to May 2, 2008. This was 13 days subsequent to the Court ordered deadline for plaintiff to make a renewed motion for an order of reference. While it’s laudatory for plaintiff HSBC to have granted defendant a forbearance agreement, plaintiff HSBC never notified the Court about this or sought Court approval of extending the 45-day deadline to make the instant motion. However, even if the instant motion was timely, the documents plaintiff’s counsel refers to at Tab F [exhibit F of motion] do not cure the defects the Court found with the original motion and articulated in the May 2, 2008 decision and order.

Background

Defendant LOVELY YEASMIN borrowed $624,800.00 from CAMBRIDGE on May 10, 2006. The note and mortgage were recorded by MERS, as nominee for CAMBRIDGE, for purposes of recording the mortgage, in the Office of the City Register, New York City Department of Finance, on May 23, 2006, at City Register File Number (CRFN) XXXXXXXXXXXXX. Then, MERS, as nominee for CAMBRIDGE, assigned the mortgage to plaintiff HSBC on September 10, 2007, with the assignment recorded in the Office of the City Register, on September 20, 2007, at CRFN XXXXXXXXXXXXX. The assignment was executed by “Nicole Gazzo, Esq., on behalf of MERS, by Corporate Resolution dated 7/19/07.” Neither a corporate resolution nor a power of attorney to Ms. Gazzo were recorded with the September 10, 2007 assignment. Therefore, the Court found the assignment invalid and plaintiff HSBC lacked standing to bring the instant foreclosure action. Ms. Gazzo, the assignor, according to the Office of Court Administration’s Attorney Registration, has as her business address, “Steven J. Baum, P.C., 220 Northpointe Pkwy Ste G, Buffalo, NY 14228-1894.” On September 10, 2008, the same day that Ms. Gazzo executed the invalid assignment for MERS, as nominee for CAMBRIDGE, plaintiff’s counsel, Steven J. Baum, P.C., commenced the instant action on behalf of purported assignee HSBC by filing the notice of pendency, summons and complaint in the instant action with the Kings County Clerk’s Office. The Court, in the May 2, 2008 decision and order, was concerned that the simultaneous representation by Steven J. Baum, P.C. of both MERS and HSBC was a conflict of interest in violation of 22 NYCRR § 1200.24, the Disciplinary Rule of the Code of Professional Responsibility entitled “Conflict of Interest; Simultaneous Representation,” then in effect. Further, plaintiff’s moving papers for an order of reference and related relief failed to present an “affidavit made by the party,” pursuant to CPLR § 3215 (f). The instant application contained an “affidavit of merit and amount due,” dated November 16, 2007, by Cathy Menchise, “Senior Vice President of WELLS FARGO BANK, N.A. D/B/A AMERICA’S SERVICING COMPANY, Attorney in Fact for HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES 2006-AF1.” Ms. Menchise stated “[t]hat a true copy of the Power of Attorney is attached hereto.” Actually attached was a photocopy of a “Limited Power of Attorney,” dated July 19, 2004, from HSBC, appointing WELLS FARGO BANK, N.A. as its attorney-in-fact to perform various enumerated services, by executing documents “if such documents are required or permitted under the terms of the related servicing agreements . . . in connection with Wells Fargo Bank, N.A.[‘s] . . . responsibilities to service certain mortgage loans . . . held by HSBC . . . as Trustee of various trusts.” The “Limited Power of Attorney” failed to list any of these “certain mortgage loans.” The Court was unable to determine if plaintiff HSBC’s subject mortgage loan was covered by this “Limited Power of Attorney.” The original motion stated that defendant YEASMIN defaulted on her mortgage payments by failing to make her May 1, 2007 and subsequent monthly loan payments. Yet, on September 10, 2007, 133 days subsequent to defendant YEASMIN’S alleged May 1, 2007 payment default, plaintiff HSBC took the ssignment of the instant nonperforming loan from MERS, as nominee for CAMBRIDGE. Thus, the Court required, upon renewal of the motion for an order of reference, a satisfactory explanation of why HSBC purchased a nonperforming loan from MERS, as nominee for CAMBRIDGE.

Plaintiff HSBC needed “standing” to proceed in the instant action. The Court of Appeals (Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d 801, 912 [2003]), cert denied 540 US 1017 [2003]), held that “[s]tanding to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked. The plaintiff who has standing, however, may cross the threshold and seek judicial redress.” In Carper v Nussbaum, 36 AD3d 176, 181 (2d Dept 2006), the Court held that “[s]tanding to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request.” If a plaintiff lacks standing to sue, the plaintiff may not proceed in the action. (Stark v Goldberg,297 AD2d 203 [1d Dept 2002]). “Since standing is jurisdictional and goes to a court’s authority to resolve litigation [the court] can raise this matter sua sponte.” (Axelrod v New York State Teachers’ Retirement System, 154 AD2d 827, 828 [3d Dept 1989]).

In the instant action, the September 10, 2007 assignment from MERS, as nominee for CAMBRIDGE, to HSBC was defective. Therefore, HSBC had no standing to bring this action. The recorded assignment by “Nicole Gazzo, Esq. on behalf of MERS, by Corporate Resolution dated 7/19/07,” had neither the corporate resolution nor a power of attorney attached. Real Property Law (RPL) § 254 (9) states: Power of attorney to assignee. The word “assign” or other words of assignment, when contained in an assignment of a mortgage and bond or mortgage and note, must be construed as having included in their meaning that the assignor does thereby make, constitute and appoint the assignee the true and lawful attorney, irrevocable, of the assignor, in the name of the assignor, or otherwise, but at the proper costs and charges of the assignee, to have, use and take all lawful ways and means for the recovery of the money and interest secured by the said mortgage and bond or mortgage and note, and in case of payment to discharge the same as fully as the assignor might or could do if the assignment were not made. [Emphasis added]

To have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage. “No special form or language is necessary to effect an assignment as long as the language shows the intention of the owner of a right to transfer it [Emphasis added].” (Tawil v Finkelstein Bruckman Wohl Most & Rothman, 223 AD2d 52, 55 [1d Dept 1996]). (See Suraleb, Inc. v International Trade Club, Inc., 13 AD3d 612 [2d Dept 2004]). To foreclose on a mortgage, a party must have title to the mortgage. The instant assignment was a nullity. The Appellate Division, Second Department (Kluge v Fugazy, 145 AD2d 537, 538 [2d Dept 1988]), held that a “foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity.” Citing Kluge v Fugazy, the Court inKatz v East-Ville Realty Co. (249 AD2d 243 [1d Dept 1998]), held that “[p]laintiff’s attempt to foreclose upon a mortgage in which he had no legal or equitable interest was without foundation in law or fact.” Plaintiff HSBC, with the invalid assignment of the instant mortgage and note from MERS, lacked standing to foreclose on the instant mortgage. The Court, in Campaign v Barba (23 AD3d 327 [2d Dept 2005]), held that “[t]o establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence of the mortgage and the mortgage note, ownership of the mortgage, and the defendant’s default in payment [Emphasis added].” (See Household Finance Realty Corp. of New York v Wynn, 19 AD3d 545 [2d Dept 2005]; Sears Mortgage Corp. v Yahhobi, 19 AD3d 402 [2d Dept 2005]; Ocwen Federal Bank FSB v Miller, 18 AD3d 527 [2d Dept 2005]; U.S. Bank Trust Nat. Ass’n v Butti, 16 AD3d 408 [2d Dept 2005]; First Union Mortgage Corp. v Fern, 298 AD2d 490 [2d Dept 2002]; Village Bank v Wild Oaks Holding, Inc., 196 AD2d 812 [2d Dept 1993]). Even if plaintiff HSBC can cure the assignment defect, plaintiff’s counsel has to address his conflict of interest in the representation of both assignor MERS, as nominee for CAMBRIDGE, and assignee HSBC. 22 NYCRR § 1200.24, of the Disciplinary Rules of the Code of Professional Responsibility, entitled “Conflict of Interest; Simultaneous Representation,” states in relevant part: (a) A lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under subdivision (c) of this section. (b) A lawyer shall not continue multiple employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the lawyer’s representation of another client, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under subdivision (c) of this section. (c) in the situations covered by subdivisions (a) and (b) of this section, a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer can competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved. [Emphasis added]

The Court, upon renewal of the instant motion for an order of reference wanted to know if both MERS and HSBC were aware of the simultaneous representation by plaintiff’s counsel, Steven J. Baum, P.C., and whether both MERS and HSBC consented. Upon plaintiff’s renewed motion for an order of reference, the Court required an affirmation by Steven J. Baum, Esq., the principal of Steven J. Baum, P.C., explaining if both MERS and HSBC consented to simultaneous representation in the instant action with “full disclosure of the implications of the simultaneous representation and the advantages and risks involved.” The Appellate Division, Fourth Department, the Department, in which both Ms. Gazzo and Mr. Baum are registered (In re Rogoff, 31 AD3d 111 [2006]), censured an attorney for, inter alia, violating 22 NYCRR § 1200.24, by representing both a buyer and sellers in the sale of a motel. The Court, at 112, found that the attorney “failed to make appropriate disclosures to either the sellers or the buyer concerning dual representation.” Further, the Rogoff Court, at 113, censured the attorney, after it considered the matters submitted by respondent in mitigation, including: that respondent undertook the dual representation at the insistence of the buyer, had no financial interest in the transaction and charged the sellers and the buyer one half of his usual fee. Additionally, we note that respondent cooperated with the Grievance Committee and has expressed remorse for his misconduct. Then, if counsel for plaintiff HSBC cures the assignment defect and explains his simultaneous representation, plaintiff HSBC needs to address the “affidavit of merit” issue. The May 2, 2008 decision and order required that plaintiff comply with CPLR § 3215 (f) by providing an “affidavit made by the party,” whether by an officer of HSBC, or someone with a valid power of attorney from HSBC, to execute foreclosure documents for plaintiff HSBC. If plaintiff HSBC presents a power of attorney and it refers to a servicing agreement, the Court needs to inspect the servicing agreement. (Finnegan v Sheahan, 269 AD2d 491 [2d Dept 2000];Hazim v Winter, 234 AD2d 422 [2d Dept 1996]; EMC Mortg. Corp. v Batista, 15 Misc 3d 1143 [A] [Sup Ct, Kings County 2007]; Deutsche Bank Nat. Trust Co. v Lewis, 4 Misc 3d 1201 [A] [Sup Ct, Suffolk County 2006]).

Last, the Court required an affidavit from an officer of HSBC, explaining why, in the middle of our national mortgage financial crisis, plaintiff HSBC purchased from MERS, as nominee for CAMBRIDGE, the subject nonperforming loan. It appears that HSBC violated its corporate fiduciary duty to its stockholders by purchasing the instant mortgage loan, which became nonperforming on May 1, 2007, 133 days prior to its assignment from MERS, as nominee for CAMBRIDGE, to HSBC, rather than keep the subject mortgage loan on CAMBRIDGE’s books.

Discussion

The instant renewed motion is dismissed for untimeliness. Plaintiff made its renewed motion for an order of reference 204 days late, in violation of the Court’s May 2, 2008 decision and order. Moreover, even if the instant motion was timely, the explanations offered by plaintiff’s counsel, in his affirmation in support of the instant motion and various documents attached to exhibit F of the instant motion, attempting to cure the four defects explained by the Court in the prior May 2, 2008 decision and order, are so incredible, outrageous, ludicrous and disingenuous that they should have been authored by the late Rod Serling, creator of the famous science-fiction televison series, The Twilight Zone. Plaintiff’s counsel, Steven J. Baum, P.C., appears to be operating in a parallel mortgage universe, unrelated to the real universe. Rod Serling’s opening narration, to episodes in the 1961-1962 season of The Twilight Zone (found at www.imdb.com/title/tt005250/quotes), could have been an introduction to the arguments presented in support of the instant motion by plaintiff’s counsel, Steven J. Baum, P.C. — “You are traveling through another dimension, a dimension not only of sight and sound but of mind. A journey into a wondrous land of imagination. Next stop, the Twilight Zone.” With respect to the first issue for the renewed motion for an order of reference, the validity of the September 10, 2007 assignment of the subject mortgage and note by MERS, as nominee for CAMBRIDGE, to plaintiff HSBC by “Nicole Gazzo, Esq., on behalf of MERS, by Corporate Resolution dated 7/19/07,” plaintiff’s counsel claims that the assignment is valid because Ms. Gazzo is an officer of MERS, not an agent of MERS. Putting aside Ms. Gazzo’s conflicted status as both assignor attorney and employee of assignee’s counsel, Steven J. Baum, P.C., how would the Court have known from the plain language of the September 10, 2007 assignment that the assignor, Ms. Gazzo, is an officer of MERS? She does not state in the assignment that she is an officer of MERS and the corporate resolution is not attached. Thus, counsel’s claim of a valid assignment takes the Court into “another dimension” with a “journey into a wondrous land of imagination,” the mortgage twilight zone. Next, plaintiff’s counsel attached to exhibit F the July 17, 2007 “Agreement for Signing Authority” between MERS, Wells Fargo Home Mortgage, a Division of Wells Fargo Bank NA (WELLS FARGO), a MERS “Member” and Steven J. Baum, P.C., as WELLS FARGO’s “Vendor.” The parties agreed, in ¶ 3, that “in order for Vendor [Baum] to perform its contractual duties to Member [WELLS FARGO], MERS, by corporate resolution, will grant employees of Vendor [Baum] the limited authority to act on behalf of MERS to perform certain duties. Such authority is set forth in the Resolution, which is made a part of this Agreement.” Also attached to exhibit F is the MERS corporate resolution, certified by William C. Hultman, Corporate Secretary of MERS, that MERS’ Board of Directors adopted this resolution, effective July 19, 2007, resolving:

that the attached list of candidates are employee(s) of Steven J. Baum, P.C. and are hereby appointed as assistant secretaries and vice presidents of Mortgage Electronic Registration Systems, Inc., and as such are authorized to: Execute any and all documents necessary to foreclose upon the property securing any mortgage loan registered on the MERS System that is shown to be registered to the Member . . . Take any and all actions and execute all documents necessary to protect the interest of the Member, the beneficial owner of such mortgage loan, or MERS in any bankruptcy proceedings . . . Assign the lien of any mortgage loan registered on the MERS System that is shown to be registered to Wells Fargo.

Then, the resolution certifies five Steven J. Baum, P.C. employees [all currently admitted to practice in New York and listing Steven J. Baum, P.C. as their employer in the Office of Court Administration Attorney Registry] as MERS officers. The five are Brian Kumiega, Nicole Gazzo, Ron Zackem, Elpiniki Bechakas, and Darleen Karaszewski. The language of the MERS corporate resolution flies in the face of documents recorded with the City Register of the City of New York. The filed recordings with the City Register show that the subject mortgage was owned first by MERS, as nominee for CAMBRIDGE, and then by HSBC as Trustee for a Nomura collateralized debt obligation. However, if the Court follows the MERS’corporate resolution and enters into a new dimension of the mind, the mortgage twilight zone, the real owner of the subject mortgage is WELLS FARGO, the MERS Member and loan servicer of the subject mortgage, because the corporate resolution states that the Member is “the beneficial owner of such mortgage loan.” The MERS mortgage twilight zone was created in 1993 by several large “participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system.” (MERSCORP, Inc. v Romaine, 8 NY3d 90, 96 [2006]). Next, with respect to Ms. Gazzo’s employer, Steven J. Baum, P.C, and its representation of MERS, through Ms. Gazzo, the Court continues to journey through the mortgage twilight zone. Also, attached to exhibit F of the instant motion is the August 11, 2008 affirmation of Steven J. Baum, Esq., affirmed “under the penalties of perjury.” Mr. Baum states, in ¶ 3, that “My firm does not represent HSBC . . . and MERS simultaneously in the instant action.” Then, apparently overlooking that the subject notice of pendency, summons, complaint and instant motion, which all clearly state that Steven J. Baum, P.C. is the attorney for plaintiff HSBC, Mr. Baum states, in ¶ 4 of his affirmation, that “My firm is the attorney of record for Wells Fargo Bank, N.A., d/b/a America’s Servicing Company, attorney in fact for HSBC Bank USA, N.A., as Trustee for Nomura Asset-Backed Certificate Series 2006-AF1. My firm does not represent . . . [MERS] as an attorney in this action.” In the mortgage world according to Steven J. Baum, Esq., there is a fine line between acting as an attorney for MERS and as a vendor for a MERS member. If Mr. Baum is not HSBC’s attorney, but the attorney for WELLS FARGO, why did he mislead the Court and defendants by stating on all the documents filed and served in the instant action that he is plaintiff’s attorney for HSBC? Further, in ¶ 6 of his affirmation, he states “Nowhere does the Resolution indicate that Ms. Gazzo, or my firm, or any attorney or employee of my firm, shall act as an attorney for MERS. As such I am unaware of any conflict of interest of Steven J. Baum, P.C. or any of its employees, in this action.” While Mr. Baum claims to be unaware of the inherent conflict of interest, the Court is aware of the conflict. ¶ 3 of the MERS “Agreement for Signing Authority,” cited above, states that “in order for Vendor [Baum] to perform its contractual duties to Member [WELLS FARGO], MERS, by corporate resolution, will grant employees of Vendor [Baum] the limited authority to act on behalf of MERS to perform certain duties. Such authority is set forth in the Resolution, which is made a part of this Agreement.” As the Court continues through the MERS mortgage twilight zone, attached to exhibit F is the June 30, 2009-affidavit of MERS’ Secretary, William C. Hultman. Mr. Hultman claims, in ¶ 3, that Steven J. Baum, P.C. is not acting in the instant action as attorney for MERS and, in ¶ 4, Ms. Gazzo in her capacity as an officer of MERS executed the September 10, 2007 subject assignment “to foreclose on a mortgage loan registered on the MERS System that is being serviced by Wells Fargo Bank, N.A.” Thus, Mr. Hultman perceives that mortgages registered on the MERS system exist in a parallel universe to those recorded with the City Register of the City of New York. While Mr. Hultman waives, in ¶ 9, any conflict that might exist by Steven J. Baum, P.C. in the instant action, neither he nor Mr. Baum address whether MERS, pursuant to 22 NYCRR § 1200.24, consented to simultaneous representation in the instant action, with “full disclosure of the implications of the simultaneous representation and the advantages and risks involved” explained to MERS. Then, attached to exhibit F, there is the June 11, 2008-affidavit of China Brown, Vice President Loan Documentation of WELLS FARGO. This document continues the Court’s trip into “a wondrous land of imagination.” Despite the affidavit’s caption stating that HSBC is the plaintiff, Mr. or Ms. Brown (the notary public’s jurat refers several times to China Brown as “he/she”), states, in ¶ 4, that “Steven J. Baum, P.C. represents us as an attorney of record in this action.” The Court infers that “us” is WELLS FARGO. Moving to the third issue that plaintiff was required to address in the instant motion, compliance with the statutory requirements of CPLR § 3215 (f) with an affidavit of facts executed by someone with authority to execute such an affidavit, plaintiff’s instant motion contains an affidavit of merit, attached as exhibit C, by Kim Miller, “Vice President of Wells Fargo Bank, N.A. as Attorney in Fact for HSBC,” executed on December 8, 2008, 220 days after my May 2, 2008 decision and order. The affidavit of merit is almost six months late. Again, plaintiff attached a photocopy of the July 19, 2004 “Limited Power of Attorney” from HSBC [exhibit D], which appointed WELLS FARGO as its attorney-in-fact to perform various enumerated services, by executing documents “if such documents are required or permitted under the terms of the related servicing agreements . . . in connection with Wells Fargo[‘s] . . . responsibilities to service certain mortgage loans . . . held by HSBC . . . as Trustee of various trusts.” Further, the “Limited Power of Attorney” fails to list any of these “certain mortgage loans.” Therefore, the Court is unable to determine if the subject mortgage loan is one of the mortgage loans that WELLS FARGO services for HSBC. The “Limited Power of attorney” gives WELLS FARGO the right to execute foreclosure documents “if such documents are required or permitted under the terms of the related servicing agreements.” Instead of presenting the Court with the “related servicing agreement” for review, plaintiff’s counsel submits copies of the cover page and redacted pages 102, 104 and 105 of the October 1, 2006 Pooling and Servicing Agreement between WELLS FARGO, as Master Servicer, HSBC, as Trustee, and other entities. This is in direct contravention of the Court’s May 2, 2008-directive to plaintiff HSBC that it provides the Court with the entire pooling and servicing agreement upon renewal of the instant motion. Thomas Westmoreland, Vice President Loan Documentation of HSBC, in ¶ 10 of his attached June 13, 2008-affidavit, also in exhibit F, claims that the snippets of the pooling and servicing agreement provided to the Court are “a copy of the non-proprietary portions of the Pooling and Servicing Agreement that was entered into when the pool of loans that contained the subject mortgage was purchased.” The Court cannot believe that there is any proprietary or trade secret information in a boilerplate pooling and servicing agreement. If plaintiff HSBC utilizes an affidavit of facts by a loan servicer, not an HSBC officer, to secure a judgment on default, pursuant to CPLR § 3215 (f), then the Court needs to examine the entire pooling and servicing agreement, whether proprietary or non-p

roprietary, to determine if the pooling and servicing agreement grants authority, pursuant to a power of attorney, to the affiant to execute the affidavit of facts.

Further, there is hope that Mr. Westmoreland, unlike Steven J. Baum, Esq., is not in another dimension. Mr. Westmoreland, in ¶ 1 of his affidavit, admits that HSBC is the plaintiff in this action. However, with respect to why plaintiff HSBC purchased the subject nonperforming loan, Mr. Westmoreland admits to a lack of due diligence by plaintiff HSBC. His admissions are straight from the mortgage twilight zone. He states in his affidavit, in ¶’s 4-7 and part of ¶ 10: 4. The secondary mortgage market is, essentially, the buying and selling of “pools” of mortgages. 5. A mortgage pools is the packaging of numerous mortgage loans together so that an investor may purchase a significant number of loans in one transaction. 6. An investigation of each and every loan included in a particular mortgage pool, however, is not conducted, nor is it feasible. 7. Rather, the fact that a particular mortgage pool may include loans that are already in default is an ordinary risk of participating in the secondary market . . . 10. . . . Indeed, the performance of the mortgage pool is the measure of success, not any one individual loan contained therein. [Emphasis added] The Court can only wonder if this journey through the mortgage twilight zone and the dissemination of this decision will result in Mr. Westmoreland’s affidavit used as evidence in future stockholder derivative actions against plaintiff HSBC. It can’t be comforting to investors to know that an officer of a financial behemoth such as plaintiff HSBC admits that “[a]n investigation of each and every loan included in a particular mortgage pool, however, is not conducted, nor is it feasible” and that “the fact that a particular mortgage pool may include loans that are already in default is an ordinary risk of participating in the secondary market.”

Cancelling of notice of pendency

The dismissal with prejudice of the instant foreclosure action requires the cancellation of the notice of pendency. CPLR § 6501 provides that the filing of a notice of pendency against a property is to give constructive notice to any purchaser of real property or encumbrancer against real property of an action that “would affect the title to, or the possession, use or enjoyment of real property, except in a summary proceeding brought to recover the possession of real property.” The Court of Appeals, in 5308 Realty Corp. v O & Y Equity Corp. (64 NY2d 313, 319 [1984]), commented that “[t]he purpose of the doctrine was to assure that a court retained its ability to effect justice by preserving its power over the property, regardless of whether a purchaser had any notice of the pending suit,” and, at 320, that “the statutory scheme permits a party to effectively retard the alienability of real property without any prior judicial review.” CPLR § 6514 (a) provides for the mandatory cancellation of a notice of pendency by: The Court, upon motion of any person aggrieved and upon such notice as it may require, shall direct any county clerk to cancel a notice of pendency, if service of a summons has not been completed within the time limited by section 6512; or if the action has beensettled, discontinued or abated; or if the time to appeal from a final judgment against the plaintiff has expired; or if enforcement of a final judgment against the plaintiff has not been stayed pursuant to section 551. [emphasis added] The plain meaning of the word “abated,” as used in CPLR § 6514 (a) is the ending of an action. “Abatement” is defined (Black’s Law Dictionary 3 [7th ed 1999]) as “the act of eliminating or nullifying.” “An action which has been abated is dead, and any further enforcement of the cause of action requires the bringing of a new action, provided that a cause of action remains (2A Carmody-Wait 2d § 11.1).” (Nastasi v Natassi, 26 AD3d 32, 40 [2d Dept 2005]). Further, Nastasi at 36, held that the “[c]ancellation of a notice of pendency can be granted in the exercise of the inherent power of the court where its filing fails to comply with CPLR § 6501 (see 5303 Realty Corp. v O & Y Equity Corp., supra at 320-321; Rose v Montt Assets, 250 AD2d 451, 451-452 [1d Dept 1998]; Siegel, NY Prac § 336 [4th ed]).” Thus, the dismissal of the instant complaint must result in the mandatory cancellation of plaintiff HSBC’s notice of pendency against the property “in the exercise of the inherent power of the court.”

Conclusion

Accordingly, it is ORDERED, that the renewed motion of plaintiff, HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES 2006-AF1, for an order of reference, for the premises located at 22 Jefferson Street, Brooklyn, New York (Block 3170, Lot 20, County of Kings), is denied with prejudice; and it is further

ORDERED, that the instant action, Index Number 34142/07, is dismissed with prejudice; and it is further

ORDERED that the Notice of Pendency in this action, filed with the Kings County Clerk on September 10, 2007, by plaintiff, HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES 2006-AF1, to foreclose a mortgage for real property located at 22 Jefferson Street, Brooklyn New York (Block 3170, Lot 20, County of Kings), is cancelled.

This constitutes the Decision and Order of the Court.

You should see these bird houses Mr. Geeai is building.   They really are fun.  He took me into his shop to show off his work.  Lined up on his workbench were a series of seven birdhouses in various stages of construction.  My favourite  looks rather like the sorting hat from Hogwarts only it is covered in beehive paper.   Only from Mr. Geeai.

After the appropriate ooh’s and ah’s  on my part (genuine,  I assure you, for I do enjoy his work) he looked up at me and grinned.  “Guess what?”

“What?” I ask.

“I checked all eight of my houses on MERS’s own website and I don’t have MERS on any of my mortgages.”  He seemed rather pleased with himself.

Something didn’t sit right with this news.  You see,  there are 60MM+ mortgages on the MERS system.  Countrywide was one of the worst offenders of the MERS system and Countrywide did bang up business in this area during the hay days.    I could see not having one house with MERS on the mortgage,  but all eight?  Something just didn’t add up.   I’m no statistician,  but I took enough of it in college to know that there was just something wrong with this information.

“Mr. Geeai”,  I said.  “Something is just not right here.”

“Hey,  I did what you said,  I checked with the website and it showed no records on my name and addresses.”

I explained to him the idea of statistical abnormalities and why it didn’t make sense that all of his houses should not be in the system.  Then I asked him if I could take his tax information,  go to the courthouse and do a little title search of my own on his behalf.  I knew he wouldn’t,  and I knew something was wrong.  He heartily agreed with this idea and  was well pleased he was going to get the information without having to deal with the courthouse.  So he gave me the information on his eight houses and I left.

As work was awaiting me,  piling up,  actually,  I wasn’t able to get to the courthouse until later that afternoon.  I finally got to the recorder’s office about 4:30.  I had to get help finding what I was looking for and I ran out of time before I was  able to look up all eight properties.    MERS was on four out of the four I was able to find before I was kicked out.

I stopped by Mr. Geeai’s house on the way home and found him happily ensconced in his workshop playing with his birdhouses.  I waved the printouts at him and said “Guess what?  You have MERS on every mortgage I was able to find.  Four out of four.    I would have gotten the others but before I was able to get to them,  the nice lady came into the room to tell me that while I didn’t have to go home,  I couldn’t stay there.”

Mr. Geeai put down his paper mache goo,  wiped his hands,  looked over his glasses at me and said,  “what do you mean?  Let me see those”

So I showed him the printouts and where the Mortgage Identification Numbers (MIN) was.

“Those numbers right there means you have MERS on your mortgage.”

Mr. Geeai was not pleased with the information.  “Now what do I do?”  he asked?

“Now”,  I said,  “you have a choice.  You can choose to do nothing with the full knowledge that you are buying into a fraud,  or,  you can take action to make sure that you aren’t.”

“What do I do?”

“Well,  the first thing you should do is file a request to your service provider in accordance with 15 USC whatever it is asking them to provide you with the name and contact information of the person or entity who holds the beneficial interest in your mortgage.  When they blow you off,  which they probably will,  you file it a second time.  When they blow you off the second time,  you hire an attorney and tell them you want to file a chain of title action to make sure your title is clear.”

He looked at me for a few moments.  I could tell his mind was ticking as he weighed information and possible consequences of various courses of action.  “What’s up?  I asked.

He shook his head.  “I don’t like it,”  he said.

“What don’t you like?”

He sighed,  pulled his glasses from his nose and looked at me for about 10 seconds.   “There are several things I don’t like,”  he finally began.  “I don’t like having to hire a lawyer,  I don’t like having to take action,  and I feel ….  weird about going down this road because from what you are telling me,  if I am successful,  I end up with my house and no mortgage.  I feel weird about that because I did borrow the money and if you borrow the money,  you are obligated to pay it back.  And I worry that if I take action,  they will foreclose on me while I go through it and I have too much to lose to risk that.”

“Well,”  I began,  “let’s look at this.  Do you see the danger of having MERS on your mortgage?”

He nodded.

“Do you understand that if they are not able to show a clear chain of title and you take no action,  you will never see clear title to your houses or worse,  that you may believe your house is paid off only to have someone show up years later claiming to have a valid assignment trying to force you to pay a second time?”

“Yes”

“And do you see that if that last part happens you will have to hire an attorney to figure a way out of it 20 years down the road?”

“Yes”

“I understand your fear,”  I said.  “But there is a way you can do away with the issue of foreclosure while you are in this lawsuit,  assuming it goes there.  There is a thing called an interpleader action which is where you pay the money to the court while the action is pending.  The court then demands your mortgage service provider not do anything until the suit is resolved.  The service provider is secure because all of your mortgage payments are going to the court.  You won’t have to pay any penalties,  that whole issue goes away.  Do you understand that?”

“Yes”

“As far as hiring a lawyer,  let me ask you something.  Supposing you spend $10K on attorney fees only to end up owning  several hundred thousand dollars worth of property free and clear.  Is that a good business decision?”

Long pause,  “yes.  But I feel weird.”

“Why do you feel weird,  Mr Geeai?”

“I borrowed the money,  I made an agreement.”

“But they are stealing from you.”

“Yes”.

“Mr. Geeai,  I understand your reluctance to pursue this because you feel you are getting something for nothing.  But I ask you,  what is the greater moral hazard,  you supporting the fraud or you calling a stop to it even though  in the process you come out ahead?  And let me ask you another question;  we talked last week about how dangerous it is to have a second,  very private database where the chain of title is hidden from view,  where there is no public,  transparent record of just who owns what.  What is the greater moral hazard?  Letting them get away with stealing all of this property AND controlling critical information with absolutely no oversight,  or you coming out ahead because you stopped them from stealing your property from you and putting you at risk from their bogus data?”

Mr. Geeai did not respond.  He just looked at me.  And then he looked at the papers I had handed him.

“And let me point out to you Mr.  Geeai,  they lied to you.  You went to the MERS website and they told you that you didn’t have anything to worry about.  They told you that their private database which they control absolutely was correct,  that you did not have MERS on your mortgage,  that you had nothing to worry about.  They told you everything was fine.  I went to the courthouse,  which is the only database that matters,  and looked.  They lied to you.  You do have MERS on your mortgage.”

Mr. Geeai just looked at me.

I looked at my watch.  “My goodness,  will you look at the time.  I have to go home and prepare dinner for the little ones.”

I started to leave.  “I hate you”  he called out in a friendly voice as I let myself through his back gate.

“I know,”  I called back.

“I don’t want to deal with this.  I just want to play with my birdhouses.”

“I know Mr. Geeai.  But while you are playing with your birdhouses,  they are playing with your real houses.”

I’ll let you know what happens.

Source: Chink In The Armor

I was told “I haven’t seen anything yet” stay tuned folks this is going to get interesting!

Source: Livinglies

From Max Gardner – QUIET TITLE GRANTED

Mortgage Declared Unenforceable in DOT Case: NOTE DECLARED UNSECURED

“When MERS assigned the note to Ocwen, the note became unsecured and the deed of trust became worthless”

Editor’s Note:

We know that MERS is named as nominee as beneficiary. We know that MERS is NOT named on the note. This appellate case from Missouri, quoting the Restatement 3^rd, simply says that the note was split from the security instrument, and that there is no enforcement mechanism available under the Deed of Trust. Hence, the court concludes, quiet title was entirely appropriate and the only remedy to the situation because once the DOT and note are split they is no way to get them back together.

NOTE: THIS DOES NOT MEAN THE NOTE WAS INVALIDATED. BUT IT DOES MEAN THAT IN ORDER TO PROVE A CLAIM UNDER THE NOTE OR TO VERIFY THE DEBT, THE HOLDER MUST EXPLAIN HOW IT ACQUIRED ANY RIGHTS UNDER THE NOTE AND WHETHER IT IS ACTING IN ITS OWN RIGHT OR AS AGENT FOR ANOTHER.

The deed of trust, …did not name BNC [AN AURORA/LEHMAN FRONT ORGANIZATION TO ORIGINATE LOANS] as the beneficiary, but instead names Mortgage Electronic Registration System (MERS), solely as BNC’s nominee. The promissory note does not make any reference to MERS. The note and the deed of trust both require payments to be made to the lender, not MERS.

a party “must have some actual, justiciable interest.” Id. They must have a recognizable stake. Wahl v. Braun, 980 S.W.2d 322 (Mo. App. E.D. 1998). Lack of standing cannot be waived and may be considered by the court sua sponte. Brock v. City of St. Louis, 724 S.W.2d 721 (Mo. App. E.D. 1987). If a party seeking relief lacks standing, the trial court does not have jurisdiction to grant the requested relief. Shannon, 21 S.W.3d at 842.

A Missouri appellate court, without trying, may have drawn a map to a defense to foreclosures-if borrowers can figure it out before the Missouri Supreme Court overturns the decision in Bellistri v Ocwen. The opinion shows how an assignment of a loan to a servicing company for collection can actually make the loan uncollectible from the mortgaged property.

This case concerns the procedures of MERS, which is short for Mortgage Electronic Registration Service, created to solve problems created during the foreclosure epidemic of the 1980s, when it was sometimes impossible to track the ownership of mortgages after several layers of savings and loans and banks had failed without recording assignments of the mortgages. The MERS website contains this explanation:

MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.

MERS is the named mortgage holder in transactions having an aggregate dollar value in the hundreds of billions, and its service of providing a way to trace ownership of mortgages has played a large role in the securitization of mortgages and the marketability of derivative mortgage-backed securities, because it seemed to eliminate the necessity of recording assignments of mortgages in county records each time the ownership of a mortgage changed, allowing mortgage securities (packages of many mortgages) to be traded in the secondary market, with less risk.

This case began as a routine quiet title case on a collector’s deed, also known as a tax deed. Following the procedure by which people can pay delinquent property taxes and obtain the ownership of the delinquent property if the owner or lien holder fails after notice to redeem, Bellistri obtained a deed from the Jefferson County (Mo.) collector.

Because of the possibility of defects in the procedures of the county collectors and in the giving of proper notices, the quality of title conferred by a collector’s deed is not insurable.

A suit to cure the potential defects (called a “quiet title suit”) is required to make title good, so that the property can be conveyed by warranty deed and title insurance issued to new lenders and owners. The plaintiff in a quiet title suit is required to give notice of the suit to all parties who had an interest in the property identified in the collector’s deed.

A borrower named Crouther had obtained a loan from BCN Mortgage. The mortgage document (called a deed of trust) named MERS as the holder of the deed of trust as BCN’s nominee, though the promissory note secured by the deed of trust was payable to BCN Mortgage and didn’t mention MERS.

Crouther failed to pay property taxes on the mortgaged property.

Bellistri paid the taxes for three years, then sent notice to Crouther and  BNC that he was applying for a collector’s deed. After BNC failed to redeem (which means “pay the taxes with interest and penalties,” so that Bellistri could be reimbursed), the county collector issued a collector’s deed to Bellistri, in 2006.

Meanwhile, MERS assigned the promissory note and deed of trust to Ocwen Servicing, probably because nobody was making mortgage payments, so that Ocwen would be in a position to attempt to (a) get Crouther to bring the loan payments up to date or (b) to foreclose, if necessary. But this assignment, as explained below, eliminated Ocwen’s right to foreclose and any right to the property.

Bellistri filed a suit for quiet title and to terminate any right of Crouther to possess the property. After discovering the assignment of the deed of trust to Ocwen, Bellistri added Ocwen as a party to the quiet title suit, so that Ocwen could have an opportunity to prove that it had an interest in the property, or be forever silenced.

Bellistri’s attorney Phillip Gebhardt argued that Ocwen had no interest in the property, because the deed of trust that it got from MERS could not be foreclosed. As a matter of law, the right to foreclose goes away when the promissory note is “split”  from the deed of trust that it is supposed to secure. The note that Crouther signed and gave to BNC didn’t mention MERS, so MERS had no right to assign the note to Ocwen. The assignment that MERS made to Ocwen conveyed only the deed of trust, splitting it from the note.

When MERS assigned the note to Ocwen, the note became unsecured and the deed of trust became worthless. Ironically, the use of MERS to make ownership of the note and mortgage easier to trace also made the deed of trust unenforceable. Who knows how many promissory notes are out there that don’t mention MERS, even though MERS is the beneficiary of the deed of trust securing such notes?

O. Max Gardner III

Gardner & Gardner PLLC

PO Box 1000

Shelby NC 28151-1000

704.418.2628 (C)

704.487.0616 (O)

888.870.1647 (F)

704.475.0407 (S)

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Next Boot Camp:  May 20 to May 24, 2010

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