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MORGAN v. HSBC BANK USA | KY Appeals Court Reverses SJ “We note that the particular facts of this case, in particular the sequence of events that unfolded, is troubling”

MORGAN v. HSBC BANK USA | KY Appeals Court Reverses SJ “We note that the particular facts of this case, in particular the sequence of events that unfolded, is troubling”


CHRISTOPHER MORGAN AND SHARON TAKVAM, Appellants,

v.

HSBC BANK USA, NA, Appellee.

No. 2009-CA-000597-MR.

Court of Appeals of Kentucky.

July 29, 2011.

J. Hays Lawson, Louisville, Kentucky, Brief for Appellants.

Kimberlee S. Rohr, Cincinnati, Ohio, Brief for Appellee.

BEFORE: LAMBERT AND MOORE, JUDGES; ISAAC,[1] SENIOR JUDGE.

NOT TO BE PUBLISHED

OPINION

LAMBERT, JUDGE.

Christopher Morgan and Sharon Takvam appeal from the Shelby Circuit Court’s entry of summary judgment in favor of HSBC Bank USA, NA in a foreclosure action. After a careful review of the record and the parties’ briefs, we reverse and remand for proceedings consistent with this opinion.

On August 22, 2005, Morgan and Takvam executed a note in the amount of $101,200.00 to Ownit Mortgage Solutions, Inc. (Ownit). That same day, Morgan and Takvam granted a mortgage to Mortgage Electronic Registration Systems, Inc., (MERS) as nominee for Ownit. The mortgage encumbered the property located at 12233 Mount Eden Road, Mount Eden, Kentucky 40046. After executing the note and mortgage, Morgan and Takvam defaulted on their payments and currently owe for their March 1, 2008, payment. At the time of this appeal, they owed $101,066.87, plus interest at 9.875% per year from February 1, 2008, in addition to court costs, advances, and other charges, including a reasonable attorney fee, as allowed by law.

On July 31, 2008, HSBC Bank USA, National Association, as Trustee for Ownit Mortgage Loan Trust, Mortgage Loan Asset Backed Certificates, Series 2005-5 (HSBC) instituted foreclosure proceedings by filing a complaint against Morgan and Takvam, based on their alleged default under the note and mortgage. In the complaint, HSBC claimed to be the holder of the note on Morgan and Takvam’s home, but stated that a copy of the note was unavailable at the time the complaint was filed. Rather than filing an answer, Morgan[2] moved to dismiss the complaint, arguing that HSBC did not have standing to sue and that the complaint failed to state a claim for which relief may be granted. The basis for Morgan’s motion to dismiss was that HSBC did not attach a copy of the note to its complaint, and thus there was no proof that they had standing to enforce the note.

HSBC responded to the motion to dismiss on September 11, 2008, and in its response attached a copy of an adjustable rate note between Ownit, as lender, and Morgan and Takvam, as borrowers. HSBC was not a party to this note. On August 11, 2008, an assignment of mortgage from Ownit to HSBC dated August 4, 2008, was recorded in Shelby County, Kentucky. While Morgan’s motion to dismiss was still pending, HSBC filed for summary judgment on December 3, 2008. The copy of the note HSBC attached to the motion for summary judgment included an undated “Note Allonge” signed by Richard Williams as Vice President of Litton Loan Servicing, LP and as Attorney in Fact of Ownit. This document purported to negotiate the note to HSBC.

On January 7, 2009, the trial court held a hearing on Morgan’s motion to dismiss and HSBC’s motion for summary judgment. Subsequently, on February 25, 2009, the trial court denied Morgan’s motion to dismiss and entered summary judgment in HSBC’s favor. Morgan filed a timely motion to vacate under Kentucky Rules of Civil Procedure (CR) 59.05 on March 6, 2009, and on March 18, 2009, the trial court orally denied Morgan’s motion and noted the same on the docket sheet.

Morgan filed a notice of appeal on April 2, 2009. On April 8, 2009, this Court, sua sponte, raised the issue of jurisdiction and ordered Morgan to show why the appeal should not be dismissed as being interlocutory because no order appeared in the record denying Morgan’s CR 59.05 motion. After considering Morgan’s response, this Court entered another order on June 8, 2009, ordering that the appeal be held in abeyance for thirty days to allow the circuit court to enter an order in accordance with its March 18, 2009, docket sheet notation overruling Morgan’s motion to vacate.

Although the case was returned to this Court’s active docket automatically at the expiration of that thirty-day period per the Court’s order, the record did not reflect that the trial court ever entered an order denying the motion to vacate. On March 16, 2011, this court again held the matter in abeyance for thirty days to permit the parties to petition the trial court to enter a proper order denying the CR 59.05 motion. On March 31, 2011, the parties tendered an order from the trial court denying the CR 59.05 motion, and this case was returned to our active docket for consideration of the merits on appeal.

On appeal, Morgan raises two arguments; namely, 1) that HSBC was not entitled to a judgment as a matter of law because it did not have authority to enforce the note and 2) that summary judgment was premature because discovery was incomplete and because he did not have time to conduct discovery to determine whether HSBC breached an assumed duty.

In Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001), this Court set forth the standard of review in an appeal from the entry of a summary judgment:

The standard of review on appeal when a trial court grants a motion for summary judgment is “whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law.” The trial court must view the evidence in the light most favorable to the nonmoving party, and summary judgment should be granted only if it appears impossible that the nonmoving party will be able to produce evidence at trial warranting a judgment in his favor. The moving party bears the initial burden of showing that no genuine issue of material fact exists, and then the burden shifts to the party opposing summary judgment to present “at least some affirmative evidence showing that there is a genuine issue of material fact for trial.” The trial court “must examine the evidence, not to decide any issue of fact, but to discover if a real issue exists.” While the Court in Steelvest[, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991),] used the word “impossible” in describing the strict standard for summary judgment, the Supreme Court later stated that that word was “used in a practical sense, not in an absolute sense.” Because summary judgment involves only legal questions and the existence of any disputed material issues of fact, an appellate court need not defer to the trial court’s decision and will review the issue de novo. [Citations in footnotes omitted.]

Morgan’s first argument addresses whether HSBC was entitled to judgment as a matter of law based upon the argument that HSBC lacked standing to enforce the note. Initially, we note that the particular facts of this case, in particular the sequence of events that unfolded, is troubling. In its complaint, HSBC alleged that it was the holder of the note on Morgan’s home but claimed that a copy of the note was unavailable. Morgan moved to dismiss on grounds that HSBC failed to produce the note and thus had no proof that, as the holder of the note, it was entitled to proceed in foreclosure against Morgan and Takvam.

KRS 355.1-201(2)(u) defines a “holder” as “[t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” Morgan argues that at the time it filed suit, HSBC was not a holder of the note and accordingly could not enforce the note. In support of this argument, Morgan points out that the note was payable to a specific, identified entity: Ownit. Morgan argues that Ownit could have transferred or negotiated its rights to HSBC by endorsement, which requires a signature by an authorized representative of Ownit in the signator’s official capacity, see KRS 355.3-402, but that it failed to properly do so.

Initially, HSBC produced a note between Ownit, Morgan, and Takvam, and subsequently, at summary judgment stage, produced another note with the aforementioned note allonge purporting to assign the note to HSBC. In its order granting summary judgment, the trial court held that the endorsement in the note allonge by Richard Williams, as president of Litton Loan Servicing LP and attorney- in- fact for Ownit, was sufficient proof that HSBC was a holder of the note. In support of this holding, the trial court explained that as an attorney- in-fact for Ownit, Williams was authorized to transact business for Ownit. However, we find it troubling that when HSBC initially filed suit, a copy of this note was not attached and that later, this undated note allonge purporting to indorse the note to HSBC appeared in the record.

Further, HSBC argues that under KRS 355.3-203(2), it has the power to enforce the note. That statute states that “[t]he transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument.” The Official comment to Section 203(2) states: “If the transferee is not a holder because the transferor did not indorse; the transferee is nevertheless a person entitled to enforce the instrument under Section 3-301 if the transferor was a holder at the time of transfer.”

Thus, according to HSBC, even if Ownit did not properly indorse the note, as Morgan claims on appeal, it can enforce the note if Ownit was a holder at the time of the transfer, or at the time the note allonge was signed. The difficulty in determining the applicability of the note allonge is the fact that it is not dated, and thus there is nothing in the record to determine whether the transferor, Ownit, was a holder at the time it allegedly transferred its interest in the note to HSBC.

This case is further complicated by the fact that the mortgage was not assigned to HSBC until August 4, 2008, and was subsequently recorded on August 11, 2008. HSBC filed suit on July 31, 2008, and the parties were served on August 2, 2008. Morgan argues that because HSBC did not have possession of the note and the mortgage when it filed suit, and thus had no standing, it cannot cure its lack of standing by subsequently acquiring an interest in the mortgage.

Because this is an issue of first impression in the state of Kentucky, Morgan cites to Wells Fargo Bank, N.A. v. Marchione, 887 N.Y.S.2d 615 (N.Y.A.D. 2 Dept. 2009), in support of this argument. In that case, the parties executed a mortgage with Option One Mortgage Corporation on September 2, 2005. Id. at 616. The parties allegedly failed to make payments beginning on April 1, 2007, and Wells Fargo initiated suit by filing a summons and complaint on November 30, 2007. Id. Option One assigned its “right, title and interest” in the aforementioned mortgage to Wells Fargo in an assignment dated December 4, 2007. Id. The assignment contained a provision stating that it became effective on October 28, 2007. Id. The Appellate Court held that because Wells Fargo did not have an interest in the note and mortgage before they filed suit and only acquired such an interest after filing suit, the bank lacked standing to bring the suit. Id. at 617. Specifically, the trial court held, “[i]n order to commence a foreclosure action, the plaintiff must have a legal or equitable interest in the mortgage. . . . Here, Wells Fargo lacked standing to bring this foreclosure action because it was not the assignee of the mortgage on November 30, 2007, the day the action was commenced.” Id. Ohio also requires that banks have an interest in the mortgage when suit is filed. See Wells Fargo Bank, N.A. v. Byrd, 897 N.E.2d 722 (Ohio App. 1 Dist. 2008) (“bank that was not the mortgagee when suit was filed cannot cure its lack of standing by subsequently obtaining an interest in the mortgage.”).

Because it is impossible to determine from the record when Ownit transferred its interest in the note to HSBC and because the mortgage was not assigned to HSBC until August 4, 2008, after HSBC filed suit against Morgan, we simply cannot say that HSBC had standing to bring the instant action. CR 17.01 provides that “every action shall be prosecuted in the name of the real party in interest, but…an assignee for the benefit of creditors…may bring an action…” It follows that, where a cause of action has been assigned, the assignee becomes the real party in interest. See CR 17.01. However, “[i]n no event may an assignee maintain an action for any part of a claim which has not been assigned to him.” Works v. Winkle, 234 S.W.2d 312, 315 (Ky. App. 1950). A mere expectancy is not enough to establish standing, a party must prove a “present or substantial interest.” Plaza B.V. v. Stephens, 913 S.W2d 319, 322 (Ky. 1996) (quoting Ashland v. Ashland F.O.P. No.3, Inc., 888 S.W.2d 667 (Ky. 1994)). In the instant case, HSBC cannot prove when it obtained a present or substantial interest in the note and it did not receive an interest in the mortgage until after it filed suit. Accordingly, the trial court’s judgment as a matter of law that HSBC had standing to pursue its claims was in error.

For the foregoing reasons, we reverse the Shelby Circuit Court’s summary judgment and remand this matter for further proceedings consistent with this opinion.

ISAAC, SENIOR JUDGE, CONCURS.

MOORE, JUDGE, CONCURS IN RESULT BY SEPARATE OPINION.

Respectfully, I concur with the result that HSBC Bank did not establish that it had standing to file a complaint at the time it commenced this action. Although a bankruptcy action, I agree with the analysis and detailed explanation set forth in In re Veal, ___ B.R. ___, 2011 WL 2304200 (9th Cir. BAP, June 20, 2011) and find it to be persuasive and an excellent explanation relevant to the issue presently before the Court.

[1] Senior Judge Sheila R. Isaac sitting as Special Judge by assignment of the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes (KRS) 21.580.

[2] We note that while Takvam was named on the Notice of Appeal, she does not appear to have actively participated at the trial court level below, and she has not filed a separate brief on appeal. Thus we refer only to Morgan throughout the opinion.

[ipaper docId=61901445 access_key=key-rvpjr78h5lui22v5isn height=600 width=600 /]

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FOUST VS. WELLS FARGO | Nevada Supreme Court Reverses/Remands “Substitution of AHMSI Default as trustee may have been an error, Remand as to whether Wells Fargo was entitled to Enforce the Note”

FOUST VS. WELLS FARGO | Nevada Supreme Court Reverses/Remands “Substitution of AHMSI Default as trustee may have been an error, Remand as to whether Wells Fargo was entitled to Enforce the Note”


IN THE SUPREME COURT OF THE STATE OF NEVADA

GEORGE M. FOUST AND BECKY H.
FOUST, AS HUSBAND AND WIFE,
Appellants,

vs.

WELLS FARGO, N.A., STATE OF
INCORPORATION PRESENTLY
UNKNOWN; MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC.; AND AMERICAN
HOME SERVICING MORTGAGES,
INC., A DELAWARE CORPORATION,
Respondents.

ORDER OF REVERSAL AND REMAND

This is an appeal from a district court order dismissing a complaint as to respondents, certified as final under NRCP 54(b), in a foreclosure action. Eighth Judicial District Court, Clark County; Timothy C. Williams, Judge.

EXCERPTS:

On January 30, 2009, Wells Fargo signed a document substituting AHMSI Default Services, Inc. (AHMSI Default), as a substitute trustee, but did not have this document acknowledged until February 2, 2009. Also on January 30, 2009, AHMSI Default, acting as a substitute trustee for Wells Fargo, signed and acknowledged a notice of default against the Fousts, and recorded the same on February 2, 2009. However, Wells Fargo’s status as of January 30, 2009, is unclear.

According to the record, American Home Mortgage Servicing, Inc., executed an assignment of the deed of trust to Wells Fargo on February 20, 2009, which was recorded on February 25, 2009. It included a provision stating “Misc. Comments: EFFECTIVE DATE OF ASSIGNMENTS: 01/02/2009.” This effective date is prior to the date on which Wells Fargo substituted AHMSI Default as trustee.

[…]

The issues the Fousts raise on appeal are: (1) whether AHMSI Default wrongfully commenced a foreclosure against them because AHMSI Default was not a proper substitute trustee, as Wells Fargo was not entitled to enforce the note; and (2) whether Wells Fargo was assigned the deed of trust prior to the date on which AHMSI Default entered the notice of default. We conclude that the district court erred in granting the motion to dismiss because the Fousts presented a claim upon which relief could be granted. Thus, we reverse and remand this matter to the district court for further proceedings consistent with this order.

Standard of review

We review the district court’s legal conclusions, including a determination that a plaintiff has failed to state any legitimate causes of action under NRCP 12(b)(5), de novo. See Buzz Stew, LLC v. City of N. Las Vegas, 124 Nev. 224,  228, 181 P.3d 670, 672 (2008). In reviewing motions to dismiss pursuant to NRCP 12(b)(5), we accept all facts in the complaint as true, construe the pleadings liberally, and draw all possible inferences in favor of the nonmoving party: Id.; Blackjack Bonding v. Las Vegas Mun. Ct., 116 Nev. 1213, 1217, 14 P.3d 1275, 1278 (2000). This standard of review is rigorous, and the plaintiffs “complaint should be dismissed only if it appears beyond a doubt that it could prove no set of facts, which, if true, would entitle it to relief.” Buzz Stew, 124 Nev. at 227-28, 181 P.3d at 672.

The Fousts stated a claim upon which relief can be granted

This appeal focuses on the Fousts’ fifth cause of action, in which the Fousts alleged that Wells Fargo may not own the note and mortgage and, therefore, lacked standing to foreclose. Construing this allegation liberally and drawing all possible inferences in favor of the Fousts, the first amended complaint presents a claim upon which relief could be granted.

While deeds of trust and mortgage notes work together in the context of mortgage lending, they are distinct documents with separate functions. Leyva v. National Default Servicing Corp., 127 Nev. „ P.3d , (Adv. Op. No. 40, July 7, 2011). We do not analyze those distinctions here, but possessing only the deed of trust does not create an entitlement to enforce the underlying note. See In re Veal, No. 09-14808, 2011 WL 2304200, at *12 (B.A.P. 9th Cir. June 10, 2011). To enforce a debt secured by a deed of trust and mortgage note, a person must be entitled to enforce the note pursuant to Article 3 of the Uniform Commercial Code. Id. at *7; see also Restatement (Third) of Property: Mortgages § 5.4(c) (1997) (“A mortgage may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation the mortgage secures.”). “Article 3 is codified in NRS 104.3101-.3605.” Levva, 127 Nev. at n.6, P.3d at n.6. If Wells Fargo was not entitled to enforce the note, then the substitution of AHMSI Default as trustee and the subsequent foreclosure notice against the Fousts may have been in error.

Therefore, the central inquiry on remand is whether Wells Fargo was entitled to enforce the note. 5

[ipaper docId=61586486 access_key=key-i7h01aw8cljs5u6snq2 height=600 width=600 /]

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Posted in STOP FORECLOSURE FRAUDComments (1)

Nevada Supreme Court: You Gotta Prove Chain of Title

Nevada Supreme Court: You Gotta Prove Chain of Title


Credit Slips-

A pair of very interesting foreclosure rulings were handed down today by the Nevada Supreme Court. They provide further evidence that documentation problems are rife in the mortgage industry, including documents showing chain of title. They also provide another example of a state supreme court demanding proof of valid chain of title before permitting foreclosure.

Both cases arise from Nevada’s foreclosure mediation program. In one case, Pasillas v. HSBC Bank USA, the Nevada Supreme Court ordered sanctions against HSBC for failing to mediate in good faith. What was the failure? HSBC failed to show up at the mediation with the required loan documentation, namely two pages of the mortgage note were missing, the assignment to HSBC was incomplete, a BPO rather than an appraisal was provided.  Moreover, HSBC didn’t show up at the mediation with authority to settle because it still required “investor approval.” The foreclosure mediator refused on these ground to authorize the foreclosure. The district court ordered the foreclosure to proceed, but the Nevada Supreme Court reversed the ruling and remanded with instructions for the district court to determine appropriate sanctions.

Continue reading [CREDIT SLIPS]

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Draft Report of the PEB on the UCC Rules Applicable to the Assignment of Mortgage Notes and to the Ownership and Enforcement of Those Notes and the Mortgages Securing Them

Draft Report of the PEB on the UCC Rules Applicable to the Assignment of Mortgage Notes and to the Ownership and Enforcement of Those Notes and the Mortgages Securing Them


This Draft was mentioned in the [IN RE VEAL]

On March 29, 2011, the PEB released for public comment its Draft Report on UCC Rules Applicable to the Assignment of Mortgage Notes and to the Ownership and Enforcement of Those Notes and the Mortgages Securing Them. The PEB is now reviewing the comments received by the submission deadline of May 28, 2011.

From: John A. Sebert, Chair, Permanent Editorial Board for the Uniform Commercial Code (PEB)

Summary

The Uniform Commercial Code provides four sets of rules that determine matters that are important in the context of enforcement of mortgage notes and the mortgages that secure them:

  • First, in the case of a mortgage note that is a negotiable instrument, Article 3 of the UCC determines the identity of the person who is entitled to enforce the note and to whom the maker owes its payment obligation; payment to the person entitled to enforce the note discharges the maker’s obligation, but failure to pay that party when the note is due constitutes dishonor.
  • Second, for both negotiable and non-negotiable mortgage notes, Article 9 of the UCC determines whether a transferee of the note from its owner has obtained an attached property right in the note.
  • Third, Article 9 of the UCC provides that a transferee of a mortgage note whose property right in the note has attached also automatically has an attached property right in the mortgage that secures the note.
  • Finally, Article 9 of the UCC provides a mechanism by which the owner of a note and the mortgage securing it may, upon default of the maker of the note, record its interest in the mortgage in the realty records in order to conduct a non-judicial foreclosure.

[ipaper docId=58135658 access_key=key-1k731amd1w9ox5m5gxre height=600 width=600 /]

Source: The American Law Institue and The National Conference of Commissioners on Uniform State Laws

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Posted in STOP FORECLOSURE FRAUDComments (1)

BANK OF NEW YORK MELLON v. FAULK | “Capacity, Possession of the fourth page of the note, which includes a blank endorsement”

BANK OF NEW YORK MELLON v. FAULK | “Capacity, Possession of the fourth page of the note, which includes a blank endorsement”


Via: Prof. Adam Levitin

You have to read Do We Have a Fraud Problem? The Case of the Mysteriously Appearing Allonge, to understand where this is coming from but here is a sample of what the professor says about the case below:

Which brings us to BONY v. Faulk. In this case, the foreclosure filing included a 3 page note. The note lacked endorsements connecting the originator to BONY as trustee for the foreclosing securitziation trust. This set up a motion to dismiss on the grounds that BONY didn’t have any right to do anything–it had no connection with the note.

But wait!  Suddenly BONY’s attorney tells the court that she is in possession of the fourth page of the note, which includes a blank endorsement. Puhlease…  What a ridiculous deus ex machina ending. Are we do believe that this attorney filed 3 pages of the note, but not the 4th? If so, I sure hope she’s not billing for that screw up.

But here’s what perplexes me. Suppose that an allonge is produced. How are we going to know when that allonge was created or that it even relates to the note in question? (Just so everyone’s clear–if the endorsement were created later, then BONY as trustee for CWABS 2006-13 trust had no standing at the time the action was filed because the trust didn’t own the note at that time.) How do we know that this attorney isn’t engaged in fraud on the court (and a host of other violations of state and federal law)?

And this isn’t even getting into the question of whether the PSA at issue requires specific endorsements, not endorsements in blank. As it turns out that’s a problem in this particular case. Here’s the PSA for CWABS 2006-13 trust.  Section 2.01(g)(1) provides that the Depositor deliver to the trustee:

the original Mortgage Note, endorsed by manual of facsimile signature in blank in the following form: “Pay to the order of _______ without recourse”, with all intervening endorsements that show a complete chain of endorsement from the originator to the Person endorsing the Mortgage Note…

[ipaper docId=58072124 access_key=key-5pqgrklvsxpy24zpled height=600 width=600 /]

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ADAM LEVITIN | Do We Have a Fraud Problem? The Case of the Mysteriously Appearing Allonge

ADAM LEVITIN | Do We Have a Fraud Problem? The Case of the Mysteriously Appearing Allonge


“Now allonges. An allonge isn’t a delicious throat-soothing lozenge from Switzerland. It’s a piece of paper that goes a-long with the note. The allonge is basically an overflow sheet for extra endorsements”

Prof. Adam Levitin:

I have generally been willing to give mortgage servicers, servicer support shops (like LPS), and foreclosure attorneys the benefit of the doubt when it comes to documentation irregularities (to put it mildly) in foreclosures. My working assumption up to this point has been that the documentation problems have been a function of corner cutting with securitization based on the assumptions that (1) the loans would perform better than they did and (2) those that defaulted would result in default judgments in foreclosure, so no one would ever notice the problems. I’ve also assumed that lack of capacity has played a critical role in problems in the default management chain–the system is held together by Scotch tape at this point. In other words, the problems in the system weren’t caused by malice.

Continue reading [CREDITSLIPS]

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FALSE STATEMENTS: Veal v. American Home Mortgage Servicing, BAP No. AZ-10-1055-MkKiJu

FALSE STATEMENTS: Veal v. American Home Mortgage Servicing, BAP No. AZ-10-1055-MkKiJu


By Lynn Szymoniak, ESQ.

False Statements

American Home Mortgage Servicing
DocX, LLC
Lender Processing Services
Sand Canyon Corporation
Wells Fargo Bank, N.A.

Action Date: June 12, 2011
Location: Phoenix, AZ

On June 10, 2011, the U.S. Bankruptcy Appellate Panel of the Ninth Circuit issued an important and lengthy analysis of standing and real-party-in-interest issues in a foreclosure case in Veal v. American Home Mortgage Servicing, BAP No. AZ-10-1055-MkKiJu.

GSF Mortgage Corporation was the original lender in this case. Wells Fargo Bank, as Trustee for Option One Mortgage Loan Trust 2006-3, and its servicer, American Home Mortgage Servicing, Inc., sought to set aside the automatic bankruptcy stay in order to foreclose on the Veals. The note was not endorsed to Wells Fargo or to the trust. As part of their efforts to establish standing, and real-party-in-interest status, Wells Fargo and American Home Mortgage Servicing, the servicer for the Trust, filed a mortgage assignment.

The Assignment was prepared by Docx, LLC in Alpharetta, GA, the document mill made famous by Fraud Digest, then by 60 Minutes, Reuters, The Washington Post, the New York Times, Huffington Post, Firedoglake, Naked Capitalism, Foreclosure Hamlet, 4closure Fraud, Stop Foreclosure Fraud, the Wall Street Journal, and many others. While Docx is now closed, its documents live on in courts and recorders offices across the country.

The Veal Assignment was signed by Tywanna Thomas and Cheryl Thomas who claimed to be officers of Sand Canyon Corporation formerly known as Option One Mortgage. From deposition testimony of Cheryl Thomas, it is known that both Cheryl and Tywanna Thomas were actually employees of Lender Processing Services, the company that owned Docx. There are many different versions of the Tywanna Thomas signature because, as we now know, the employees in Alpharetta forged each other’s names on witnessed and notarized documents.

The Assignment was signed (by someone) on November 10, 2009, but a line on the Assignment right underneath the legal description of the property states:
“Assignment Effective Date 10/13/2009.”

The closing date of the trust was October 27, 2006, almost three years prior to the Assignment effective date. Investors were told the trust would obtain actual Assignments to the Trust of the mortgages pooled in that trust by the closing date.

Dale Sugimoto, the president of Sand Canyon, said in a sworn affidavit on March 18, 2009, filed in the Ron Wilson bankruptcy case in the Eastern District of Louisiana, Case No. 10-51328, Document 52-3, that Sand Canyon does not own any residential mortgages and has no servicing rights.

To summarize:

1. Cheryl Thomas and Tywanna Thomas were not officers of Sand Canyon, as represented on the Assignment. Someone other than Tywanna Thomas and Cheryl Thomas often forged their names.

2. The Veal loan was not transferred to the Option One trust effective October 13, 2009, as represented on the Assignment.

3. Sand Canyon did not own the Veal mortgage and, therefore, had no authority to assign the mortgage to the Option One Trust. The Latin phrase – Nemo dat quod non habit – best covers this situation. Translation: one cannot give what one does not have.

Investors in this Option One trust, the Bankruptcy Judge in the Veal case, bankruptcy trustees with similar documents, homeowners and their lawyers, the SEC, and the Justice Department must all demand answers (and reparations) from the Trustee, the document custodian, the servicer and Lender Processing Servicing.


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IN RE VEAL | AZ 9th Circuit BAP “Reverses Stay, Wells Fargo & AHMSI Lack of Standing, PSA Fail, Assignment Fail, UCC Articles 3 & 9 Applied”

IN RE VEAL | AZ 9th Circuit BAP “Reverses Stay, Wells Fargo & AHMSI Lack of Standing, PSA Fail, Assignment Fail, UCC Articles 3 & 9 Applied”


UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT

In re:
HOWARD RICHARD VEAL, JR., and
SHELLI AYESHA VEAL,
Debtors.

HOWARD RICHARD VEAL, JR.;
SHELLI AYESHA VEAL,
Appellants,

v.

AMERICAN HOME MORTGAGE SERVICING,
INC.; WELLS FARGO BANK, N.A., as
Trustee for Option One Mortgage
Loan Trust 2006-3 Asset-Backed
Certificates, Series 2006-3, and
its successor and/or assignees,
Appellees.

Argued and Submitted on June 18, 2010
at Phoenix, Arizona
Filed – June 10, 2011
Appeal From The United States Bankruptcy Court
for the District of Arizona

Honorable Randolph J. Haines, Bankruptcy Judge, Presiding

Before: MARKELL, KIRSCHER and JURY, Bankruptcy Judges.

EXCERPTS:

The Substantive Law Related to Notes Secured by Real Property

Real party in interest analysis requires a determination of the applicable substantive law, since it is that law which defines and specifies the wrong, those aggrieved, and the redress they may receive. 6A Federal Practice and Procedure § 1543, at 480-81 (“In order to apply Rule 17(a)(1) properly, it is necessary to identify the law that created the substantive right being asserted . . . .”). See also id. § 1544.

1. Applicability of UCC Articles 3 and 9
Here, the parties assume that the Uniform Commercial Code (“UCC”) applies to the Note. If correct, then two articles of the UCC potentially apply. If the Note is a negotiable instrument, Article 3 provides rules governing the payment of the obligation represented by and reified in the Note.

[…]

In particular, because it did not show that it or its agent had actual possession of the Note, Wells Fargo could not establish that it was a holder of the Note, or a “person entitled to enforce” the Note. In addition, even if admissible, the final purported assignment of the Mortgage was insufficient under Article 9 to support a conclusion that Wells Fargo holds any interest, ownership or otherwise, in the Note. Put another way, without any evidence tending to show it was a “person entitled to enforce” the Note, or that it has an interest in the Note, Wells Fargo has shown no right to enforce the Mortgage securing the Note. Without these rights, Wells Fargo cannot make the threshold showing of a colorable claim to the Property that would give it prudential standing to seek stay relief or to qualify as a real party in interest.

Accordingly, the bankruptcy court erred when it granted Wells Fargo’s motion for relief from stay, and we must reverse that ruling.

[…]

AHMSI apparently conceded that Wells Fargo held the economic interest in the Note, as it filed the proof of claim asserting that it was Wells Fargo’s authorized agent. Rule 3001(b) permits such assertions, and such assertions often go unchallenged. But here the Veals did not let it pass; they affirmatively questioned AHMSI’s standing. In spite of this challenge, AHMSI presented no evidence showing any agency or other relationship with Wells Fargo and no evidence showing that either AHMSI or Wells Fargo was a “person entitled to enforce” the Note. That failure should have been fatal to its position.

[…]

IV. CONCLUSION

For all of the foregoing reasons, the bankruptcy court’s order granting Wells Fargo’s relief from stay motion is REVERSED, and the order overruling the Veals’ claim objection is VACATED and REMANDED for further proceedings consistent with this opinion.

[ipaper docId=57568003 access_key=key-21zui8wgrizbsty2ugqa height=600 width=600 /]

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