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60 Minutes: The Case Against Lehman Brothers

60 Minutes: The Case Against Lehman Brothers


The case against Lehman Brothers

April 22, 2012 4:00 PM

Steve Kroft talks to the bank examiner whose investigation reveals the how and why of the spectacular financial collapse of Lehman Brothers, the bankruptcy that triggered the world financial crisis.

The case against Lehman Brothers

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The writer/director of Margin Call is the son of a former Merrill Lynch banker. Interview:

The writer/director of Margin Call is the son of a former Merrill Lynch banker. Interview:


Making Margin Call: An Interview with Writer/Director J.C. Chandor

by Jake Bernstein ProPublica, Nov. 23, 2011, 6 a.m.

The genesis of Margin Call occurred in 2005 when the film’s writer and director J.C. Chandor and some friends dabbled in New York’s red-hot real estate market. To their surprise, a bank lent them $10 million, with few questions asked, to buy a building on the edge of SoHo. The plan was to renovate the property, but they quickly found themselves in over their heads. In 2006, the godfather of one of the group — a former investment banker whose unease about the market was growing — told them, forcefully, they should sell. What seemed like a defeat at the time proved to be a blessing when the market collapsed.

“That was the first nugget,” Chandor says. “That idea of the guy who is walking around and thinks he knows what is about to happen but the rest of the world is pressing the accelerator button.”

The son of a former Merrill Lynch banker and visual art consultant, Chandor grew up in banker communities in New York and London, which afforded him insights into the world at the epicenter of the crisis. With a background in commercial and documentary filmmaking, he wanted to write a movie that was cheap enough that he could convince someone to let him direct it. The budget would require it to be confined in place and time, and probably a character study.

“I came up with this conceit of locking these investment bankers in on the night when one of them thinks that he has found out that the world is coming to an end,” he says.

After carrying around the idea for the movie in his head for more than a year, the actual writing came quickly. “I wrote the thing in four days under tremendous duress, frankly,” he says. “I was doing job interviews to go to work in a totally different field.”

His goal of a small movie ended up being a boon rather than a constraint for the type of story he wanted to tell. A short shooting schedule of 17 days and the complex characters in his script attracted a stellar cast.

“What I did was essentially say, let’s just take a limited place and time where these characters are so paranoid about this piece of information getting out that there is no new information,” he says. “There is only one piece of information, and they know that they are the first people to have it, so in a weird way they don’t care what the rest of the world is doing for that 24 hours. They just care about what they are going to do.”

We caught up with Chandor for an interview last week to discuss the ideas behind the movie and the challenges of making it. What follows are edited excerpts from that conversation.

JC: The film for me was supposed to be a tragedy, not the horrible tragedy of someone dying but a tragedy of lost potential. These are the best and brightest that we have. We don’t tax our universities because they are supposed to provide society with a service, which is educated youth ready to come out and work. The abuse that I’ve seen over the last 14 to 15 years since I’ve graduated from college, the manipulation of that system, that training ground, essentially leading toward making money for money’s sake as opposed to banking that is actually serving a purpose was the heart of the movie for me.

Don’t get me wrong. I’m a capitalist. Some wanted this film to be more of an indictment of these people, and that’s not where I come from, obviously. A misuse of tremendous potential is what I wanted the film to be about, in a sort of sad way.

JB: What was so striking about the movie is how there is no hero who comes and saves the day at the end.

JC: In the summer of 2009, we had a largely different, but great cast. It was one year closer to the initial disaster, but it was very difficult to raise money to go make a movie. We had a chance to go out and shoot this movie. If Zachary Quinto’s character had stood up and called in the SEC, and [Kevin] Spacey’s character had been perp-walked out of the building à la Wall Street I, [then] I had a check to go make the movie. It was a very simple change at the end of the movie. It’s often what happens with financiers that come on.

My personal belief was that what drew the actors — which was the only reason that person was offering me the money to make it — was the gray area in which the whole thing takes place. Actors love to play — and they don’t often get the chance to do it, obviously — conflicted characters who don’t always do the quote-unquote thing you think they are going do. So there was the practical part of me that was like, I don’t know if all of these actors will stick with me if I did that.

Then there really was the main reason. I strongly, strongly felt that you did not get a systemic collapse where the tip of the sword of capitalism had to be socialized — which was of course what had just happened, where the government basically had to come in and take over the banking sector — you don’t get that happening just on individual failure.

JB: What is a 17-day shooting schedule like?

JC: It is very unpleasant. It was a union shoot, so there are rules. It is a 12-hour day, which means you are actually active on a set for 12 hours. And it was a 6-day week. These are all things that make things cheaper… Your crew is actively working 12 to 13 hours a day, sometimes more pending overtime. Your average studio movie is anywhere from 45 to 90 days. And your average independent film is 35 days. Again, though, we would never have gotten the cast if I had asked them to come 35 days — two months of the summer and spring, which is the prime shooting time when they are being offered studio movies.

We were constantly rolling. The major, major upside to that — again, embracing your weakness — I had classically trained, unbelievably driven, hyper-, hyper-talented and hyper-experienced actors. The least experienced person on my movie was Penn Badgley, who has been a professional actor supporting himself and part of his family for 10 years. So everyone there was a professional. So the neat thing is I threw those people, who in their profession are very similar to the people that the movie was about: these type-A, very driven, unbelievably trained, never-supposed-to-show-anyone-that-they-are-panicking people on the worst day of their lives. Not that the shoot was the worst day of their lives, because it actually wasn’t at all, but from a challenging standpoint — to be doing 12 pages in a day is not something that Jeremy Irons is used to doing. As I was editing, you started to see moments of underlying panic in the performance at times. The performances felt very alive.

JB: Paul Bettany’s performance is fantastic. In an odd way he is the purest character.

JC: For people who have been in that world or know that world, he is the character that people from a performance standpoint are so drawn to because — sounds sort of silly to say — because the character is supposed to be on the surface a kind of jerk, but it really is most subtle. As a key trader on the floor, your life and your job are very simple. It is a very simple set of tasks. It’s not simple to be good at it, but aspects of it are very simple. He is sort of the assassin. He requires that those behind him, the generals, are making the right choices, and that is all he ever expects for himself. It’s neat because audiences are kind of drawn to him in a way that you would never think for the way that character is. If you actually read that part, it’s a despicable kind of character, some of the things he says, but the way he humanizes it — not even humanizes it but made it real — was a great performance.

JB: You really captured the tribal nature of Wall Street where the only value besides greed is loyalty.

JC: Spacey came a couple of weeks ahead of time. He is a very liberal guy, Spacey, so his original take on the character was far less empathetic than the one I ended up trying to get him to give me. For a couple of days we went to visit exactly that guy in a bunch of banks. At that point, when we went and visited them, they were in total lockdown on their salaries because of the government coming in. They were literally not there for the money. They could have been making a lot of money somewhere else. But it was that they had convinced all their guys and gals to stay, and it was that tribal element that really ended up being what hurt them the most when this whole thing went down. I think Spacey embodied that — hopefully in a way that isn’t as overt as Bettany’s character. But the whole thing with the dog is essentially a diversion for him — in my mind, it’s probably not the way Kevin actually sees it — the whole thing with the dog is supposed to be this sort of absurdist human thing that we do when you are just totally grabbing on to an abstraction to not be thinking about what is actually the problem.

JB: I’m wondering if these insights into how Wall Street operates are only available through fiction?

JC: I can’t tell you when we were trying to raise the money for this movie, how many people came and said, “Isn’t this better served in a documentary? Isn’t someone else going to tell this story?” The main question I was getting at Sundance when we introduced the film was, “Do we need another Wall Street movie?” The first question I got at the press conference when I landed in Berlin was, “Why has there not been more American arts oriented on this topic?” This is something that has affected so many people in your country and around the world. Why aren’t there like 6 movies coming out of different facets?

My belief in doing this film was that out of fiction you actually get — maybe — these guys to sit and watch the movie. The movie obviously doesn’t have a lot of ER type details in it [such as numbers and figures]. And that was for a reason. There were more details in the film. As I was editing it and showed it to a couple of people, and thinking about it myself, that sort of Greek, so to speak, meant nothing to the average audience. You didn’t need it. It just made them feel dumb, basically, and potentially they stopped paying attention because of it. And interestingly, the insider audience started running numbers. They were running my math. They were cross checking what I was saying, and that was not where they need to be either.

When there is bad news, no one ever rushes to call me to tell me that I have been passed over for a job. That is not the first call my agent is looking to make. The minute there is any good news, you’ve got six voice messages on your machine and everyone wants it coming out of their mouth. So I tried to use that human nature kind of trick. This is obviously the worst news that all of these people had ever come across in their professional life, and so there was this total reticence to take any kind of ownership for it. Quinto’s character is the only guy who actually gets bullied into laying it out there, because it’s the CEO doing it to him. It was my out in not having to have all the math, to have all the details in there. Hopefully that allows the people in that world to get lost in the movie.

That line was what I was trying to walk. The only number in the entire movie [beside a brief trading scene near the end] … is at one point Simon Baker says $8 trillion. That [number] wasn’t potentially what they had on their books, that was a more systemic representation of what was moving around the world 2013 so that is the only number in the entire movie, which is of course kind of funny because it is a movie about numbers. But if you kept the movie moving forward you never had to go there.

JB: I wish we could do that!

JC: That’s where the whole fiction thing comes in. That was an experiment. The original script does have some numbers in there. And it actually felt sort of important to the actors. The actors were all a little taken aback — not when they saw the movie, interestingly — but when I told them after what was missing. When they were delivering their performances the number lines where ones that they in their minds had sort of given tremendous depth and worth to. But when they actually saw the movie they realized that it wasn’t necessary.

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Margin Call: A Small Movie Unveils Big Truths About Wall Street

Margin Call: A Small Movie Unveils Big Truths About Wall Street


by Jake Bernstein ProPublica, Nov. 23, 2011, 6 a.m.

Spoiler alert: This article discusses key scenes from the film.

J.C. Chandor has embraced Rahm Emanuel’s dictum “never let a serious crisis go to waste.” The 37-year-old writer and director used the financial crisis as a springboard to create the most insightful Wall Street movie ever filmed. Margin Call captures a day in the life of a Lehman Brothers-like bank as it scrambles to avoid falling into the first cracks of the financial crisis. Briskly paced and marvelously acted, the movie reveals how large financial institutions operate and the motivations of the people who work within them.

Margin Call should not be confused with journalism. It is not a precise overlay of the financial crisis. You’ll never hear the words collateralized debt obligations uttered in the movie. As the reporting [1] I did with my colleague Jesse Eisinger showed, the Wall Street behavior that helped create the financial crisis was often much worse than what’s depicted in the movie. Chandor isn’t looking for villians or lengthy explanations. He’s mining deeper truths than the intricacies of credit default swaps. The societal costs of high finance, the power of self-rationalization, and the easy embrace of personal corruption is his terrain.

As reporters covering the beat know, Wall Street is a reluctant participant in introspection. Journalists investigating the Street have to pierce a code of omertà, borne of the fear of lawsuits and federal investigations. No one wants to have the reputation of being a snitch in an industry where hiring and bonuses are based on relationships as much as quarterly results. The truth is even more tightly held when it hides the origins of financial disaster, but even in the best of times, these are not, by nature, navel gazers. Traders and market makers are like sharks, always wanting to move forward, onto the next deal. There is no percentage in looking back.

All you need to know about the moral universe Margin Call inhabits is on display in the opening scene of the movie. The downturn has begun. The firing squad — represented by two women in identical business suits — arrives on the trading floor trailed by underlings carrying cardboard boxes to cart away personal effects. When they come into view, a series of swift reactions plays across the face of Will Emerson, a senior trader acted brilliantly by Paul Bettany. First fear. Then dismay. And finally, relief and dismissal. After 80 percent of the floor is axed, Emerson’s boss, Sam, a wan Kevin Spacey, gives a pep talk to the traders left standing. “They were good. You are better. Now they are gone. They are not to be thought of again.”

Among the casaulties is the risk manager for the trading group, Eric Dale, played by Stanley Tucci. On the way out the door, Dale tells his young protege, Peter Sullivan, that he has been working on something important. As the elevator closes, he hands Sullivan a zip drive and says cryptically, “Be careful.”

Sullivan, played by Zachary Quinto, who also helped produce the movie, waits until the office clears for the night and then dives into the figures. To his horror, he discovers the bank is massively overleveraged. If trends continue, projected losses are much greater than the value of the firm. Upon learning how dire the situation has become, the CEO John Tuld, portrayed by a scene-chewing Jeremy Irons, says, “So what you are telling me is that the music is about to stop and we are going to be left holding the biggest bag of oderous excrement ever assembled in the history of capitalism.”

Sullivan is the questioning heart of Margin Call. He has a doctorate in engineering with a speciality in propulsion — literally a rocket scientist. And like so many of the best and brightest of his generation, he turned to Wall Street, where Chandor clearly believes his gain is society’s loss. When one of his superiors asks Sullivan why he has foresaken engineering, he responds: “It’s all just numbers really, just changing what you are adding up, and to speak freely, the money here is considerably more attractive.”

Sullivan operates in the constricted space of the Wall Street risk manager. Risk managers and accountants are among the few who actually know what the numbers mean. They see the whole picture. It’s a running joke through the movie that Sullivan’s bosses, right up to the CEO, don’t understand the financial wizardry behind the products they make and sell. When confronted with Sullivan’s analysis, Sam says, “Oh Jesus, you know I can’t read these things. Just speak to me in English.”

The risk manager is not in sales, which is the heart and soul of the institution. He or she only offers recommendations. Throughout Margin Call there are a number of references to warnings unheeded. And indeed, in the real world, the success of investment banks at subverting their risk management rules correlated nicely with how badly they fared when the crisis hit. In the ultimate irony, when it’s time for someone to take the fall for the firm’s risk taking, it’s the head of risk management, played by Demi Moore who is pushed to the scaffold.

Sullivan and his side-kick Seth, played by Penn Badgley, are still new enough to the system to be doubtful of its utility. Seth is enamored with the money Wall Street offers and particularly impressed by his boss Will Emerson, who pulled down $2.5 million the previous year. They briefly wonder whether that’s “right,” but push the unwelcome thought away unanswered.

When Emerson tells the eager young men that “you learn to spend what is in your pocket” and that most of his money is gone, they are incredulous. He itemizes his expenses for them, including $76,520 for hookers, booze and dancers. Their adulation only increases when he admits he claimed most of that back as entertainment expenses.

Later when Seth bemoans the fact that normal people will be hurt by their actions, Emerson’s ferocious response is shocking both for its amorality and its kernels of truth.

“If you really want to do this with your life you have to believe that you’re necessary. And you are. People want to live like this in their cars and their big fucking houses that they can’t even pay for? Then you’re necessary. The only reason they all get to continue living like kings is because we’ve got our fingers on the scales in their favor. I take my hand off and the whole world gets really fucking fair really fucking quickly and nobody actually wants that. They say they do but they don’t. They want what we have to give them, but they also want to play innocent and pretend they have no idea where it came from. That’s more hypocrisy than I’m willing to swallow. Fuck them. Fuck normal people.”

Faced with the pile of excrement on the books, the archly named Tuld (Lehman Brothers CEO was Dick Fuld) decides the bank must unload it, and quickly, before customers wise up. At this point, the movie could just as easily be called, “Damage Control: When Greed Turns to Fear.”

Sam tries to talk Tuld out of his plan. “If you do this, you will kill the market for years. It’s over. And you are selling something that you know has no value,” he says.

Tuld responds with the excuse every Wall Street executive used when investigators came calling after the shit hit the investors: “We are selling to willing buyers at the current fair market price so that we may survive.”

In the real world, the buyers were not as sophisticated and the deals not as transparant as bankers claimed.

The House always wins, Emerson tells his young charges. The corollary is that everybody is for sale. Indeed, anyone who has qualms in the movie finds the right price for their acquiesence. In this world, traders earn bonuses for screwing their customers. Tucci’s character is told he can lose his health care and stock options — or keep them while sitting quietly in a room for a day at $176,476 an hour. “It didn’t seem like much of a choice,” he says.

Beyond the sheer entertainment value of the movie, Chandor’s biggest coup is his willingness to indict a system rather than simply blame the individuals within it. Ultimately, Margin Call is the story of a Wall Street that has evolved from an economic helpmate to an economic predator.

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NY Appeals Court Reversed “Aurora failed to produce evidence of MERS’ authority to assign” | AURORA LOAN SERVS v. WEISBLUM

NY Appeals Court Reversed “Aurora failed to produce evidence of MERS’ authority to assign” | AURORA LOAN SERVS v. WEISBLUM


Decided on May 17, 2011

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE DIVISION : SECOND JUDICIAL DEPARTMENT

MARK C. DILLON, J.P.
DANIEL D. ANGIOLILLO
ARIEL E. BELEN
SHERI S. ROMAN, JJ.
2010-03065
2010-05864
(Index No. 6174/09)

Aurora Loan Services, LLC, respondent,

v

Steven Weisblum, et al., appellants, et al., defendants.

Excerpt:

In order to commence a foreclosure action, the plaintiff must have a legal or equitable interest in the mortgage (see Wells Fargo Bank, N.A. v Marchione, 69 AD3d 204, 207). A plaintiff [*7]has standing where it is both (1) the holder or assignee of the subject mortgage and (2) the holder or assignee of the underlying note, either by physical delivery or execution of a written assignment prior to the commencement of the action with the filing of the complaint (see Wells Fargo Bank, N.A. v Marchione, 69 AD3d at 207-209; U.S. Bank, N.A. v Collymore, 68 AD3d 752, 754). Thus, as long as the plaintiff can establish its lawful status as assignee, either by written assignment or physical delivery, prior to the filing of the complaint, the recording of a written assignment after the commencement of the action does not defeat standing (see U.S. Bank, N.A. v Collymore, 68 AD3d at 754). We find that Aurora has failed to make this showing.

Here, the note and mortgage at issue were originally comprised of a first and second note and mortgage, which were consolidated into a single note in the amount of $704,000 and the single lien reflected in the CEMA. The document submitted by Aurora in support of its motion for summary judgment and in opposition to the Weisblums’ cross motion purports to be an assignment of only the first note and mortgage in the amount of $672,000 to Aurora by MERS, as nominee for Lehman Brothers. However, Aurora failed to produce evidence of MERS’ authority to assign the first note. On its motion for summary judgment, Aurora failed to provide a copy of the first note but submitted a copy of the original first mortgage and a series of assignments culminating in the purported assignment of the first note and mortgage to Aurora. The first mortgage was originally held by MERS, as nominee for Credit Suisse; the mortgage document recites that the lender on the first note is Credit Suisse, but there is nothing in this document to establish the authority of MERS to assign the first note. MERS later assigned the first mortgage “together with” the underlying note, and thereafter, successive assignees assigned the first mortgage “together with” the underlying note. While, in some circumstances, the assignment of a note may effect the transfer of the mortgage as an inseparable incident of the debt (see U.S. Bank, N.A. v Collymore, 68 AD3d at 754), here the assignment instruments purport to do the opposite, without any evidence that MERS initially physically possessed the note or had the authority from the lender to assign it (see LPP Mtge. Ltd. v Sabine Props, LLC, 2010 NY Slip Op 32367[U]; OneWest Bank, F.S.B. v Drayton, 29 Misc 3d 1021, 1038-1041; Bank of N.Y. v Alderazi, 28 Misc 3d 376; cf. Mortgage Elec. Registration Sys., Inc. v Coakley, 41 AD3d 674, 674-675).

Moreover, Aurora produced no documents indicating an assignment to it of the second note and mortgage or of the entire consolidated note and CEMA in the amount of $704,000. Although Aurora’s vice president averred in conclusory fashion that Aurora became holder of the mortgage which is the subject of the action “by delivery without a written assignment,” the affiant failed to give any factual detail of a physical delivery of both the consolidated note and the CEMA to Aurora prior to the commencement of the action. Thus, Aurora failed to establish its standing to commence the action.

Accordingly, the appeal from the order dated February 25, 2010, is dismissed, as that order was superseded by the order dated May 19, 2010, made upon renewal. The order dated May 19, 2010, is reversed insofar as appealed from, on the law and, upon renewal, the order dated February 25, 2010, is vacated, the plaintiff’s motions for summary judgment on the complaint and for an order of reference are denied, and the Weisblums’ cross motion for summary judgment dismissing the complaint insofar as asserted against them is granted.
DILLON, J.P., BELEN and ROMAN, JJ., concur.

ORDERED that the appeal from the order dated February 25, 2010, is dismissed, as that order was superseded by the order dated May 19, 2010, made upon renewal; and it is further,

ORDERED that the order dated May 19, 2010, is reversed insofar as appealed from, on the law, and, upon renewal, the order dated February 25, 2010, is vacated, the plaintiff’s motions for summary judgment on the complaint and for an order of reference are denied, and the cross motion of the defendants Steven Weisblum and Patti Weisblum for summary judgment dismissing the complaint insofar as asserted against them is granted; and it is further,

ORDERED that one bill of costs is awarded to the defendants Steven Weisblum and Patti Weisblum.

ENTER:

Matthew G. Kiernan

Clerk of the Court

Footnotes

Footnote 1:1 Former RPAPL 1304(5)(c) and (d), defined “subprime home loan” as a home loan consummated between January 1, 2003, and September 1, 2008, in which, for a first lien mortgage loan, the annual percentage rate exceeded three percentage points over the yield on treasury securities, or for a subordinate mortgage lien, the annual percentage rate exceeded five percentage points over the yield on treasury securities. The parties here do not dispute that the consolidated loan at issue falls within the definition of subprime.

[ipaper docId=55927284 access_key=key-gamr6rte5348aamgb2m height=600 width=600 /]

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If Wall Street is not going to be held more accountable, we need to know why

If Wall Street is not going to be held more accountable, we need to know why


Don’t Let Go of the Anger


NYTimes- By WILLIAM D. COHAN

One of the most frustrating facts of the recently abated financial crisis is that those who might have been partly responsible for it have got off scot-free. The only two people prosecuted criminally — the Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin — were found not guilty by a jury in Brooklyn. Other potential culprits — Angelo Mozilo, chief executive of Countrywide Financial, Joseph Cassano, chief executive of AIG Financial Products, and Dick Fuld, the chief executive of Lehman Brothers — were either slapped with a small civil penalty, in the case of Mozilo, or the Justice Department made the decision not to prosecute after months of investigation.

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No Possible Charges For Repo 105’s Lehman Brothers Richard Fuld

No Possible Charges For Repo 105’s Lehman Brothers Richard Fuld


From WSJ

People close to the investigation cautioned that no decision has been reached on whether to bring civil charges, adding that new evidence still could emerge. Investigators are reviewing thousands of documents turned over to the SEC since it began its probe shortly after Lehman tumbled into bankruptcy in September 2008 and was sold off in pieces. Officials also have questioned a number of former Lehman executives, some of them multiple times, the people said.

But after zeroing in last summer on the battered real-estate portfolio and an accounting move known as Repo 105, SEC officials have grown more worried they could lose a court battle if they bring civil charges that allege Lehman investors were duped by company executives. The key stumbling block: The accounting move, while controversial, isn’t necessarily illegal.

Read the full story if you can stomach it over at the Wall Street Journal

[Image Credit: Reuters]

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Dimon in the Rough

Dimon in the Rough


By Graydon Carter

April 2011
.

JPMorgan Chase C.E.O. Jamie Dimon is tall. He’s fit. For a banker, he’s nice-looking. And he’s got that head of fluffy white, unbankerish hair. You could argue that Dimon’s single greatest asset is that he doesn’t look like Dick Fuld. Fuld, the former C.E.O. of Lehman Brothers, is a virtual Thomas Nast caricature of the venal banker; all that is missing is the stovepipe hat and the mustache-twirling. Because of his looks, Fuld has probably had a rougher ride of it over the past two and a half years. And because of his looks, Dimon has probably had too easy a ride. While Goldman Sachs C.E.O. Lloyd Blankfein became a piñata for legislators and the press, Dimon fully embraced his role as Wall Street’s fair-haired boy—or “America’s Least-Hated Banker,” as The New York Times Magazine put it just last December.

Continue reading … Vanity Fair

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“Not a single executive has gone to jail” – Charles Ferguson @ The Oscars 2011 – Best Documentary ‘INSIDE JOB’

“Not a single executive has gone to jail” – Charles Ferguson @ The Oscars 2011 – Best Documentary ‘INSIDE JOB’


Forgive me, I must start by pointing out that three years after a horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail and that’s wrong.” – Charles Ferguson 2011

From Academy Award® nominated filmmaker, Charles Ferguson (“No End In Sight”), comes INSIDE JOB, the first film to expose the shocking truth behind the economic crisis of 2008. The global financial meltdown, at a cost of over $20 trillion, resulted in millions of people losing their homes and jobs. Through extensive research and interviews with major financial insiders, politicians and journalists, INSIDE JOB traces the rise of a rogue industry and unveils the corrosive relationships which have corrupted politics, regulation and academia.

Narrated by Academy Award® winner Matt Damon, INSIDE JOB was made on location in the United States, Iceland, England, France, Singapore, and China.

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BLOOMBERG | Merscorp Lacks Right to Transfer Mortgages, Judge Says

BLOOMBERG | Merscorp Lacks Right to Transfer Mortgages, Judge Says


Click this Link to read the entire opinion…in case you missed it over the weekend when SFF posted this hot off the press:

NY BK Court SHREDS MERS “NO RIGHT TO TRANSFER MORTGAGES” In Re: FERREL L. AGARD

By Thom Weidlich – Feb 14, 2011 3:02 PM ET

(Corrects to show parties would come before the judge to lift the automatic ban in 20th paragraph.)

Merscorp Inc., operator of the electronic-registration system that contains about half of all U.S. home mortgages, has no right to transfer the mortgages under its membership rules, a judge said.

U.S. Bankruptcy Judge Robert E. Grossman in Central Islip, New York, in a decision he said he knew would have a “significant impact,” wrote that the membership rules of the company’s Mortgage Electronic Registration Systems, or MERS, don’t make it an agent of the banks that own the mortgages.

“MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not supported by the law,” Grossman wrote in a Feb. 10 opinion. “MERS did not have authority, as ‘nominee’ or agent, to assign the mortgage absent a showing that it was given specific written directions by its principal.”


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NY BK Court SHREDS MERS “NO RIGHT TO TRANSFER MORTGAGES” In Re: FERREL L. AGARD

NY BK Court SHREDS MERS “NO RIGHT TO TRANSFER MORTGAGES” In Re: FERREL L. AGARD


In re: FERREL L. AGARD, Debtor.

Case No. 810-77338-reg

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK.

Filed: February 10, 2011

MEMORANDUM DECISION

Before the Court is a motion (the “Motion”) seeking relief from the automatic stay pursuant to 11 U.S.C. § 362(d)(1) and (2), to foreclose on a secured interest in the Debtor’s real property located in Westbury, New York (the “Property”). The movant is Select Portfolio Servicing, Inc. (“Select Portfolio” or “Movant”), as servicer for U.S. Bank National Association, as Trustee for First Franklin Mortgage Loan Trust 2006-FF12, Mortgage Pass-Through Certificates, Series 2006-FF12 (“U.S. Bank”). The Debtor filed limited opposition to the Motion contesting the Movant’s standing to seek relief from stay. The Debtor argues that the only interest U.S. Bank holds in the underlying mortgage was received by way of an assignment from the Mortgage Electronic Registration System a/k/a MERS, as a “nominee” for the original lender. The Debtor’s argument raises a fundamental question as to whether MERS had the legal authority to assign a valid and enforceable interest in the subject mortgage. Because U.S. Bank’s rights can be no greater than the rights as transferred by its assignor-MERS-the Debtor argues that the Movant, acting on behalf of U.S. Bank, has failed to establish that it holds an enforceable right against the Property.1 The Movant’s initial response to the Debtor’s opposition was that MERS’s authority to assign the mortgage to U.S. Bank is derived from the mortgage itself which allegedly grants to MERS its status as both “nominee” of the mortgagee and “mortgagee of record.” The Movant later supplemented its papers taking the position that U.S. Bank is a creditor with standing to seek relief from stay by virtue of a judgment of foreclosure and sale entered in its favor by the state court prior to the filing of the bankruptcy. The Movant argues that the judgment of foreclosure is a final adjudication as to U.S. Bank’s status as a secured creditor and therefore the Rooker-Feldman doctrine prohibits this Court from looking behind the judgment and questioning whether U.S. Bank has proper standing before this Court by virtue of a valid assignment of the mortgage from MERS.

The Court received extensive briefing and oral argument from MERS, as an intervenor in these proceedings which go beyond the arguments presented by the Movant. In addition to the rights created by the mortgage documents themselves, MERS argues that the terms of its membership agreement with the original lender and its successors in interest, as well as New York state agency laws, give MERS the authority to assign the mortgage. MERS argues that it holds legal title to mortgages for its member/lenders as both “nominee” and “mortgagee of record.” As such, it argues that any member/lender which holds a note secured by real property, that assigns that note to another member by way of entry into the MERS database, need not also assign the mortgage because legal title to the mortgage remains in the name of MERS, as agent for any member/lender which holds the corresponding note. MERS’s position is that if a MERS member directs it to provide a written assignment of the mortgage, MERS has the legal authority, as an agent for each of its members, to assign mortgages to the member/lender currently holding the note as reflected in the MERS database.

For the reasons that follow, the Debtor’s objection to the Motion is overruled and the Motion is granted. The Debtor’s objection is overruled by application of either the Rooker-Feldman doctrine, or res judicata. Under those doctrines, this Court must accept the state court judgment of foreclosure as evidence of U.S. Bank’s status as a creditor secured by the Property. Such status is sufficient to establish the Movant’s standing to seek relief from the automatic stay. The Motion is granted on the merits because the Movant has shown, and the Debtor has not disputed, sufficient basis to lift the stay under Section 362(d).

Although the Court is constrained in this case to give full force and effect to the state court judgment of foreclosure, there are numerous other cases before this Court which present identical issues with respect to MERS and in which there have been no prior dispositive state court decisions. This Court has deferred rulings on dozens of other motions for relief from stay pending the resolution of the issue of whether an entity which acquires its interests in a mortgage by way of assignment from MERS, as nominee, is a valid secured creditor with standing to seek relief from the automatic stay. It is for this reason that the Court’s decision in this matter will address the issue of whether the Movant has established standing in this case notwithstanding the existence of the foreclosure judgment. The Court believes this analysis is necessary for the precedential effect it will have on other cases pending before this Court.

The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law.

Facts

Procedural Background

On September 20, 2010, the Debtor filed for relief under Chapter 7 of the Bankruptcy Code. In Schedule A to the petition, the Debtor lists a joint ownership interest in the Property described as follows:

A “[s]ingle family home owned with son, deed in son’s name since 2007; used as primary residence…. Debtor was on original deed and is liable on the mortgage, therefore has equitable title. Debtor is in default of the mortgage with a principal balance of over $450,000.00. The house is worth approximately $350,000. A foreclosure sale was scheduled 9/21/10.”

According to Schedule D, the Property is valued at $350,000 and is encumbered by a mortgage in the amount of $536,920.67 held by “SPS Select Portfolio Servicing.”


On October 14, 2010, the Movant filed the Motion seeking relief from the automatic stay pursuant to 11 U.S.C. §362(d) to foreclose on the Property. The Motion does not state that a foreclosure proceeding had been commenced or that a judgment of foreclosure was granted prior to the filing of the bankruptcy petition. Nor does it mention that the Debtor holds only equitable title and does not hold legal title to the Property. Instead, Movant alleges that U.S. Bank is the “holder” of the Mortgage; that the last mortgage payment it received from the Debtor was applied to the July, 2008 payment; and that the Debtor has failed to make any post-petition payments to the Movant. Movant also asserts that as of September 24, 2010, the total indebtedness on the Note and Mortgage was $542,902.33 and the Debtor lists the value of the Property at $350,000 in its schedules. On that basis, Movant seeks entry of an order vacating the stay pursuant to 11 U.S.C. § 362(d)(1) and (d)(2).

Annexed to the Motion are copies of the following documents:

  • SPECIAL-CHARS-DOT Adjustable Rate Note, dated June 9, 2006, executed by the Debtor as borrower and listing First Franklin a Division of Na. City Bank of In. (“First Franklin”) as the lender (“Note”);
  • SPECIAL-CHARS-DOT Balloon Note Addendum to the Note, dated June 9, 2006;
  • SPECIAL-CHARS-DOT Mortgage, dated June 9, 2006 executed by the Debtor and listing First Franklin as lender, and MERS as nominee for First Franklin and First Franklin’s successors and assigns (“Mortgage”);
  • SPECIAL-CHARS-DOT Adjustable Rate and Balloon Rider, dated June 9, 2006;
  • SPECIAL-CHARS-DOT Addendum to Promissory Note and Security Agreement executed by the Debtor; and
  • SPECIAL-CHARS-DOT Assignment of Mortgage, dated February 1, 2008, listing MERS as nominee for First Franklin as assignor, and the Movant, U.S. Bank National Association, as Trustee for First Franklin Mortgage Loan Trust 2006-FF12, Mortgage Pass-through Certificates, Series 2006-FF12, as assignee (“Assignment of Mortgage”).

The Arguments of the Parties

On October 27, 2010, the Debtor filed “limited opposition” to the Motion, alleging that the Movant lacks standing to seek the relief requested because MERS, the purported assignor to the Movant, did not have authority to assign the Mortgage and therefore the Movant cannot establish that it is a bona fide holder of a valid secured interest in the Property.

The Movant responded to the Debtor’s limited opposition regarding MERS’s authority to assign by referring to the provisions of the Mortgage which purport to create a “nominee” relationship between MERS and First Franklin. In conclusory fashion, the Movant states that it therefore follows that MERS’s standing to assign is based upon its nominee status.

On November 15, 2010, a hearing was held and the Court gave both the Debtor and Movant the opportunity to file supplemental briefs on the issues raised by the Debtor’s limited opposition.

On December 8, 2010, the Movant filed a memorandum of law in support of the Motion arguing that this Court lacks jurisdiction to adjudicate the issue of whether MERS had authority to assign the Mortgage, and even assuming the Court did have jurisdiction to decide this issue, under New York law the MERS assignment was valid. In support of its jurisdictional argument, the Movant advises the Court (for the first time) that a Judgement of Foreclosure and Sale (“Judgment of Foreclosure”) was entered by the state court in favor of the Movant on November 24, 2008, and any judicial review of the Judgment of Foreclosure is barred by the doctrines of res judicata, Rooker-Feldman, and judicial estoppel.2 The Movant argues that the Debtor had a full and fair opportunity to litigate these issues in state court, but chose to default, and cannot now challenge the state court’s adjudication as to the Movant’s status as a secured creditor or holder of the Note and Mortgage, or its standing to seek relief from the automatic stay in this Court. The Movant also notes that the Debtor admits in her petition and schedules that she is liable on the Mortgage, that it was in default and the subject of a foreclosure sale, and thus judicial estoppel bars her arguments to the contrary.

In addition to its preclusion arguments, on the underlying merits of its position the Movant cites to caselaw holding that MERS assignments similar to the assignment in this case, are valid and enforceable. See U.S. Bank, N.A. v. Flynn, 897 N.Y.S. 2d 855, 858 (N.Y. Sup. Ct. 2010); Kiah v. Aurora Loan Services, LLC, 2010 U.S. Dist. LEXIS 121252, at *1 (D. Mass. Nov. 16, 2010); Perry v. Nat’l Default Servicing Corp., 2010 U.S. Dist. LEXIS 92907, at *1 (Dist. N.D. Cal. Aug. 20, 2010). It is the Movant’s position that the provisions of the Mortgage grant to MERS the right to assign the Mortgage as “nominee,” or agent, on behalf of the lender, First Franklin. Specifically, Movant relies on the recitations of the Mortgage pursuant to which the “Borrower” acknowledges that MERS holds bare legal title to the Mortgage, but has the right “(A) to exercise any or all those rights, including, but not limited to, the right to foreclose and sell the Property; and (B) to take any action required of Lender including, but not limited to, releasing and canceling [the Mortgage].” In addition, the Movant argues that MERS’s status as a “mortgagee” and thus its authority to assign the Mortgage is supported by the New York Real Property Actions and Proceedings Law (“RPAPL”) and New York Real Property Law (“RPL”). Movant cites to RPAPL § 1921-a which allows a “mortgagee” to execute and deliver partial releases of lien, and argues that MERS falls within the definition of “mortgagee” which includes the “current holder of the mortgage of record… or… their… agents, successors or assigns.” N.Y. Real Prop. Acts. Law § 1921(9)(a) (McKinney 2011). Although the definition of “mortgagee” cited to by the Movant only applies to RPAPL § 1921, Movant argues that it is a “mortgagee” vested with the authority to execute and deliver a loan payoff statement; execute and deliver a discharge of mortgage and assign a mortgage pursuant to RPL §§ 274 and 275.

In addition to its status as “mortgagee,” Movant also argues that the assignment is valid because MERS is an “agent” of each of its member banks under the general laws of agency in New York, see N.Y. Gen. Oblig. Law § 5-1501(1) (McKinney 2011), 3 and public policy requires the liberal interpretation and judicial recognition of the principal-agent relationship. See Arens v. Shainswitt, 37 A.D.2d 274 (N.Y. App. Div. 1971), aff’d 29 N.Y.2d 663 (1971). In the instant case, Movant argues, the Mortgage appoints MERS as “nominee,” read “agent,” for the original lender and the original lender’s successors and assigns. As nominee/agent for the lender, and as mortgagee of record, Movant argues MERS had the authority to assign the Mortgage to the Movant, U.S. Bank, “in accordance with the principal’s instruction to its nominee MERS, to assign the mortgage lien to U.S. Bank….”


Finally, Movant argues that even absent a legally enforceable assignment of the Mortgage, it is entitled to enforce the lien because U.S. Bank holds the Note. The Movant argues that if it can establish that U.S. Bank is the legal holder the Note, the Mortgage by operation of law passes to the Movant because the Note and the Mortgage are deemed to be inseparable. See In re Conde-Dedonato, 391 B.R. 247 (Bankr. E.D.N.Y. 2008). The Movant represents, but has not proven, that U.S. Bank is the rightful holder of the Note, and further argues that the assignment of the Note has to this point not been contested in this proceeding.

MERS moved to intervene in this matter pursuant to Fed. R. Bankr. P. 7024 because:

12. The Court’s determination of the MERS Issue directly affects the business model of MERS. Additionally, approximately 50% of all consumer mortgages in the United States are held in the name of MERS, as the mortgagee of record.

13. The Court’s determination of the MERS Issue will have a significant impact on MERS as well as the mortgage industry in New York and the United States.

14.MERS has a direct financial stake in the outcome of this contested matter, and any determination of the MERS Issue has a direct impact on MERS. (Motion to Intervene, ¶¶12-14).

Permission to intervene was granted at a hearing held on December 13, 2010.

In addition to adopting the arguments asserted by the Movant, MERS strenuously defends its authority to act as mortgagee pursuant to the procedures for processing this and other mortgages under the MERS “system.” First, MERS points out that the Mortgage itself designates MERS as the “nominee” for the original lender, First Franklin, and its successors and assigns. In addition, the lender designates, and the Debtor agrees to recognize, MERS “as the mortgagee of record and as nominee for ‘Lender and Lender’s successors and assigns'” and as such the Debtor “expressly agreed without qualification that MERS had the right to foreclose upon the premises as well as exercise any and all rights as nominee for the Lender.” (MERS Memorandum of Law at 7). These designations as “nominee,” and “mortgagee of record,” and the Debtor’s recognition thereof, it argues, leads to the conclusion that MERS was authorized as a matter of law to assign the Mortgage to U.S. Bank.

Although MERS believes that the mortgage documents alone provide it with authority to effectuate the assignment at issue, they also urge the Court to broaden its analysis and read the documents in the context of the overall “MERS System.” According to MERS, each participating bank/lender agrees to be bound by the terms of a membership agreement pursuant to which the member appoints MERS to act as its authorized agent with authority to, among other things, hold legal title to mortgages and as a result, MERS is empowered to execute assignments of mortgage on behalf of all its member banks. In this particular case, MERS maintains that as a member of MERS and pursuant to the MERS membership agreement, the loan originator in this case, First Franklin, appointed MERS “to act as its agent to hold the Mortgage as nominee on First Franklin’s behalf, and on behalf of First Franklin’s successors and assigns.” MERS explains that subsequent to the mortgage’s inception, First Franklin assigned the Note to Aurora Bank FSB f/k/a Lehman Brothers Bank (“Aurora”), another MERS member. According to MERS, note assignments among MERS members are tracked via self-effectuated and self-monitored computer entries into the MERS database. As a MERS member, by operation of the MERS membership rules, Aurora is deemed to have appointed MERS to act as its agent to hold the Mortgage as nominee. Aurora subsequently assigned the Note to U.S. Bank, also a MERS member. By operation of the MERS membership agreement, U.S. Bank is deemed to have appointed MERS to act as its agent to hold the Mortgage as nominee. Then, according to MERS, “U.S. Bank, as the holder of the note, under the MERS Membership Rules, chose to instruct MERS to assign the Mortgage to U.S. Bank prior to commencing the foreclosure proceedings by U.S. Bank.” (Affirmation of William C. Hultman, ¶ 12).

MERS argues that the express terms of the mortgage coupled with the provisions of the MERS membership agreement, is “more than sufficient to create an agency relationship between MERS and lender and the lender’s successors in interest” under New York law and as a result establish MERS’s authority to assign the Mortgage. (MERS Memorandum of Law at 7).

On December 20, 2010, the Debtor filed supplemental opposition to the Motion. The Debtor argues that the Rooker-Feldman doctrine should not preclude judicial review in this case because the Debtor’s objection to the Motion raises issues that could not have been raised in the state court foreclosure action, namely the validity of the assignment and standing to lift the stay. The Debtor also argues that the Rooker-Feldman doctrine does not apply because the Judgment of Foreclosure was entered by default. Finally, she also argues that the bankruptcy court can review matters “which are void or fraudulent on its face.” See In re Ward, 423 B.R. 22 (Bankr. E.D.N.Y. 2010). The Debtor says that she is “alleging questionable, even possibly fraudulent conduct by MERS in regards to transferring notes and lifting the stay.” (Debtor’s Supplemental Opposition at 3).

The Movant filed supplemental papers on December 23, 2010 arguing that the Motion is moot because the Property is no longer an asset of the estate as a result of the Chapter 7 Trustee’s “report of no distribution,” and as such, the Section 362(a) automatic stay was dissolved upon the entry of a discharge on December 14, 2010. See Brooks v. Bank of New York Mellon, No. DKC 09-1408, 2009 WL 3379928, at *2 (D. Md. Oct. 16, 2009); Riggs Nat’l Bank of Washington, D.C. v. Perry, 729 F.2d 982, 986 (4th Cir. 1984).

The Movant also maintains that Rooker-Feldman does apply to default judgments because that doctrine does not require that the prior judgment be a judgment “on the merits.” Charchenko v. City of Stillwater, 47 F.3d 981, 983 n.1 (8th Cir. 1995); see also Kafele v. Lerner, Sampson & Rothfuss, L.P.A., No. 04-3659, 2005 WL 3528921, at *2-3 (6th Cir. Dec. 22, 2005); In re Dahlgren, No. 09-18982, 2010 WL 5287400, at *1 (D.N.J. Dec. 17, 2010). The Movant points out that the Debtor seems to be confusing the Rooker-Feldman doctrine with issue and claim preclusion and that the Debtor has misapplied Chief Judge Craig’s ruling in In re Ward.

Discussion

As a threshold matter, this Court will address the Movant’s argument that this Motion has been mooted by the entry of the discharge order.

Effect of the Chapter 7 discharge on the automatic stay

Section 362(c) provides that:

Except as provided in subsections (d), (e), (f), and (h) of this section–

(1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate;

(2) the stay of any other act under subsection (a) of this section continues until the earliest of–
(A) the time the case is closed;

(B) the time the case is dismissed; or

(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied;

11 U.S.C. § 362(c) (emphasis added).

Pursuant to Section 362(c)(1), the automatic stay which protects “property of the estate,” as opposed to property of the debtor, continues until the property is no longer property of the estate regardless of the entry of the discharge. The provision of the statute relied upon by the Movant for the proposition that the automatic stay terminates upon the entry of a discharge, relates only to the stay of “any other act under subsection(a), “, i.e., an act against property that is not property of the estate, i.e., is property “of the debtor.” The relationship between property of the estate and property of the debtor is succinctly stated as follows:

Property of the estate consists of all property of the debtor as of the date of the filing of the petition. 11 U.S.C. § 541. It remains property of the estate until it has been exempted by the debtor under § 522, abandoned by the trustee under § 554(a), or sold by the trustee under § 363. If property of the estate is not claimed exempt, sold, or abandoned by the trustee, it is abandoned to the debtor at the time the case is closed if the property was scheduled under § 521(1). If the property is not scheduled by the debtor and is not otherwise administered, it remains property of the estate even after the case has been closed.

If the property in question is property of the estate, it remains subject to the automatic stay until it becomes property of the debtor and until the earlier of the time the case was closed, the case is dismissed, or a discharge is granted or denied in a chapter 7 case.

In re Pullman, 319 B.R. 443, 445 (Bankr. E.D. Va. 2004).

Movant’s position seems to be that the Chapter 7 Trustee’s filing of a “report of no distribution,” otherwise known as a “no asset report,” effectuated an abandonment of the real property at issue in this case, and therefore the Property has reverted back to the Debtor. However, Movant fails to cite the relevant statute. Section 554(c) provides that “[u]nless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.” 11 U.S.C. § 554(c) (emphasis added); Fed. R. Bankr. P. 6007. Cases interpreting Section 554(c) hold that the filing of a report of no distribution does not effectuate an abandonment of estate property. See, e.g., In re Israel, 112 B.R. 481, 482 n.3 (Bankr. D. Conn. 1990) (“The filing of a no-asset report does not close a case and therefore does not constitute an abandonment of property of the estate.”) (citing e.g., Zlogar v. Internal Revenue Serv. (In re Zlogar), 101 B.R. 1, 3 n.3 (Bankr. N.D. Ill. 1989); Schwaber v. Reed (In re Reed), 89 B.R. 100, 104 (Bankr. C.D. Cal. 1988); 11 U.S.C. § 554(c)).

Because the real property at issue in this case has not been abandoned it remains property of the estate subject to Section 362(a) unless and until relief is granted under Section 362(d).

Rooker-Feldman and res judicata4

The Movant argues that U.S. Bank’s status as a secured creditor, which is the basis for its standing in this case, already has been determined by the state court and that determination cannot be revisited here. The Movant relies on both the Rooker-Feldman doctrine and res judicata principles to support this position.

The Rooker-Feldman doctrine is derived from two Supreme Court cases, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and D.C. Court of Appeals v. Feldman, 460 U.S. 462 (1983), which together stand for the proposition that lower federal courts lack subject matter jurisdiction to sit in direct appellate review of state court judgments. The Rooker-Feldman doctrine is a narrow jurisdictional doctrine which is distinct from federal preclusion doctrines. See McKithen v. Brown, 481 F.3d 89, 96-97 (2d Cir. 2007) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005), and Hoblock v. Albany County Board of Elections, 422 F.3d 77, 85 (2d Cir. 2005)). In essence, the doctrine bars “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments. Rooker-Feldman does not otherwise override or supplant preclusion doctrine or augment the circumscribed doctrines that allow federal courts to stay or dismiss proceedings in deference to state-court actions.” Exxon Mobil, 544 U.S. at 283.

The Second Circuit has delineated four elements that must be satisfied in order for Rooker-Feldman to apply:

First, the federal-court plaintiff must have lost in state court. Second, the plaintiff must “complain [] of injuries caused by [a] state-court judgment[.]” Third, the plaintiff must “invit[e] district court review and rejection of [that] judgment [].” Fourth, the state-court judgment must have been “rendered before the district court proceedings commenced”-i.e., Rooker-Feldman has no application to federal-court suits proceeding in parallel with ongoing state-court litigation. The first and fourth of these requirements may be loosely termed procedural; the second and third may be termed substantive.

McKithen, 481 F.3d at 97 (internal citation omitted and alteration in original) (quoting Hoblock,422 F.3d at 85).

In a case with facts similar to the instant case, Chief Judge Craig applied the Rooker-Feldman doctrine to overrule a debtor’s objection to a motion for relief from the automatic stay. See In re Ward, 423 B.R. 22 (Bankr. E.D.N.Y. 2010). In In re Ward, a foreclosure sale was conducted prior to the filing of the bankruptcy petition. When the successful purchaser sought relief from stay in the bankruptcy case to proceed to evict the debtor, the debtor opposed the motion. The debtor argued that the foreclosure judgment was flawed because “no original note was produced”, “the mortgage was rescinded”, “the plaintiff in the action doesn’t exist” or “was not a proper party to the foreclosure action”, and that “everything was done irregularly and underneath [the] table.” In re Ward, 423 B.R. at 27. Chief Judge Craig overruled the debtor’s opposition and found that each of the elements of the Rooker-Feldman doctrine were satisfied:

The Rooker-Feldman doctrine applies in this case because the Debtor lost in the state court foreclosure action, the Foreclosure Judgment was rendered before the Debtor commenced this case, and the Debtor seeks this Court’s review of the Foreclosure Judgment in the context of her opposition to the Purchaser’s motion for relief from the automatic stay. The injury complained of, i.e., the foreclosure sale to the Purchaser, was “caused by” the Foreclosure Judgment because “the foreclosure [sale] would not have occurred but-for” the Foreclosure Judgment. Accordingly, the Rooker-Feldman doctrine does not permit this Court to disregard the Foreclosure Judgment.

In re Ward, 423 B.R. at 28 (citations omitted and alteration in original).

In the instant case, the Debtor argues that the Rooker-Feldman doctrine does not apply because the Judgment of Foreclosure was entered on default, not on the merits. She also argues that Rooker-Feldman should not apply because she is alleging that the Judgment of Foreclosure was procured by fraud in that the MERS system of mortgage assignments was fraudulent in nature or void. However, this Court is not aware of any exception to the Rooker-Feldman doctrine for default judgments, or judgments procured by fraud and the Court will not read those exceptions into the rule. See Salem v. Paroli, 260 B.R. 246, 254 (S.D.N.Y. 2001) (applying Rooker-Feldman to preclude review of state court default judgment); see also Lombard v. Lombard, No. 00-CIV-6703 (SAS), 2001 WL 548725, at *3-4 (S.D.N.Y. May 23, 2001) (applying Rooker-Feldman to preclude review of stipulation of settlement executed in connection with state court proceeding even though applicant argued that the stipulation should be declared null and void because he was under duress at the time it was executed).

The Debtor also argues that Rooker-Feldman does not apply in this case because she is not asking this Court to set aside the Judgment of Foreclosure, but rather is asking this Court to make a determination as to the Movant’s standing to seek relief from stay. The Debtor argues that notwithstanding the Rooker-Feldman doctrine, the bankruptcy court must have the ability to determine the standing of the parties before it.

Although the Debtor says she is not seeking affirmative relief from this Court, the net effect of upholding the Debtor’s jurisdictional objection in this case would be to deny U.S. Bank rights that were lawfully granted to U.S. Bank by the state court. This would be tantamount to a reversal which is prohibited by Rooker-Feldman.

Even if Rooker-Feldman were found not to apply to this determination, the Court still would find that the Debtor is precluded from questioning U.S. Bank’s standing as a secured creditor under the doctrine of res judicata. The state court already has determined that U.S. Bank is a secured creditor with standing to foreclose and this Court cannot alter that determination in order to deny U.S. Bank standing to seek relief from the automatic stay.

The doctrine of res judicata is grounded in the Full Faith and Credit Clause of the United States Constitution. U.S. Const. art. IV, § 1. It prevents a party from re-litigating any issue or defense that was decided by a court of competent jurisdiction and which could have been raised or decided in the prior action. See Burgos v. Hopkins, 14 F.3d 787, 789 (2d Cir. 1994) (applying New York preclusion rules); Swiatkowski v. Citibank, No. 10-CV-114, 2010 WL 3951212, at *14 (E.D.N.Y. Oct. 7, 2010) (citing Waldman v. Vill. of Kiryas Joel, 39 F.Supp.2d 370, 377 (S.D.N.Y. 1999)). Res judicata applies to judgments that were obtained by default, see Kelleran v. Andrijevic, 825 F.2d 692, 694-95 (2d Cir. 1987), but it may not apply if the judgment was obtained by extrinsic fraud or collusion. “Extrinsic fraud involves the parties’ ‘opportunity to have a full and fair hearing, ‘ while intrinsic fraud, on the other hand, involves the ‘underlying issue in the original lawsuit.'” In re Ward, 423 B.R. at 29. The Debtor’s assertions that the MERS system of assignments may have been fraudulent is more appropriately deemed an intrinsic fraud argument. The Debtor has not alleged any extrinsic fraud in the procurement of the Judgment of Foreclosure which prevented a full and fair hearing before the state court.

As a result, the Court finds that the Judgment of Foreclosure alone is sufficient evidence of the Movant’s status as a secured creditor and therefore its standing to seek relief from the automatic stay. On that basis, and because the Movant has established grounds for relief from stay under Section 362(d), the Motion will be granted.

MERS

Because of the broad applicability of the issues raised in this case the Court believes that it is appropriate to set forth its analysis on the issue of whether the Movant, absent the Judgment of Foreclosure, would have standing to bring the instant motion. Specifically MERS’s role in the ownership and transfer of real property notes and mortgages is at issue in dozens of cases before this Court. As a result, the Court has deferred ruling on motions for relief from stay where the movants’ standing may be affected by MERS’s participation in the transfer of the real property notes and mortgages. In the instant case, the issues were resolved under the Rooker-Feldman doctrine and the application of res judicata. Most, if not all, of the remainder of the “MERS cases” before the Court cannot be resolved on the same basis. For that reason, and because MERS has intervened in this proceeding arguing that the validity of MERS assignments directly affects its business model and will have a significant impact on the national mortgage industry, this Court will give a reasoned opinion as to the Movant’s standing to seek relief from the stay and how that standing is affected by the fact that U.S. Bank acquired its rights in the Mortgage by way of assignment from MERS.

Standing to seek relief from the automatic stay

The Debtor has challenged the Movant’s standing to seek relief from the automatic stay. Standing is a threshold issue for a court to resolve. Section 362(d) states that relief from stay may be granted “[o]n request of a party in interest and after notice and a hearing.” 11 U.S.C. § 362(d). The term “party in interest” is not defined in the Bankruptcy Code, however the Court of Appeals for the Second Circuit has stated that “[g]enerally the ‘real party in interest’ is the one who, under the applicable substantive law, has the legal right which is sought to be enforced or is the party entitled to bring suit.” See Roslyn Savings Bank v. Comcoach (In re Comcoach), 698 F.2d 571, 573 (2d Cir. 1983). The legislative history of Section 362 “suggests that, notwithstanding the use of the term ‘party in interest’, it is only creditors who may obtain relief from the automatic stay.” Id. at 573-74. (citing H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 175, reprinted in 1978 U.S.Code Cong. & Ad. News 5787, 6136); see also Greg Restaurant Equip. And Supplies v. Toar Train P’ship (In re Toar Train P’ship), 15 B.R. 401, 402 (Bankr. D. Vt.1981) (finding that a judgment creditor of the debtor was not a “party in interest” because the judgment creditor was not itself a direct creditor of the bankrupt).

Using the standard established by the Second Circuit, this Court must determine whether the Movant is the “one who, under applicable substantive law, has the legal right” to enforce the subject Note and Mortgage, and is therefore a “creditor” of this Debtor. See In re Toar, 15 B.R. at 402; see also In re Mims, 438 B.R. 52, 55 (Bankr. S.D.N.Y. 2010). The Bankruptcy Code defines a “creditor” as an “entity that has a claim against the debtor that arose at the time of or before the order for relief….” 11 U.S.C. § 101(10). “Claim” is defined as the “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured….” 11 U.S.C. § 101(5)(A). In the context of a lift stay motion where the movant is seeking to commence or continue with an action to foreclose a mortgage against real property, the movant must show that it is a “party in interest” by showing that it is a creditor with a security interest in the subject real property. See Mims, 438 B.R. at 57 (finding that as movant “failed to prove it owns the Note, it has failed to establish that it has standing to pursue its state law remedies with regard to the Mortgage and Property”). Cf. Brown Bark I L.P. v. Ebersole (In re Ebersole), 440 B.R. 690, 694 (Bankr. W.D. Va. 2010) (finding that movant seeking relief from stay must prove that it is the holder of the subject note in order to establish a ‘colorable claim’ which would establish standing to seek relief from stay).

Noteholder status

In the Motion, the Movant asserts U.S. Bank’s status as the “holder” of the Mortgage. However, in order to have standing to seek relief from stay, Movant, which acts as the representative of U.S. Bank, must show that U.S. Bank holds both the Mortgage and the Note. Mims, 438 B.R. at 56. Although the Motion does not explicitly state that U.S. Bank is the holder of the Note, it is implicit in the Motion and the arguments presented by the Movant at the hearing. However, the record demonstrates that the Movant has produced no evidence, documentary or otherwise, that U.S. Bank is the rightful holder of the Note. Movant’s reliance on the fact that U.S. Bank’s noteholder status has not been challenged thus far does not alter or diminish the Movant’s burden to show that it is the holder of the Note as well as the Mortgage.
Under New York law, Movant can prove that U.S. Bank is the holder of the Note by providing the Court with proof of a written assignment of the Note, or by demonstrating that U.S. Bank has physical possession of the Note endorsed over to it. See, eg., LaSalle Bank N.A. v. Lamy, 824 N.Y.S.2d 769, 2006 WL 2251721, at *1 (N.Y. Sup. Ct. Aug. 7, 2006). The only written assignment presented to the Court is not an assignment of the Note but rather an “Assignment of Mortgage” which contains a vague reference to the Note. Tagged to the end of the provisions which purport to assign the Mortgage, there is language in the Assignment stating “To Have and to Hold the said Mortgage and Note, and also the said property until the said Assignee forever, subject to the terms contained in said Mortgage and Note.” (Assignment of Mortgage (emphasis added)). Not only is the language vague and insufficient to prove an intent to assign the Note, but MERS is not a party to the Note and the record is barren of any representation that MERS, the purported assignee, had any authority to take any action with
respect to the Note. Therefore, the Court finds that the Assignment of Mortgage is not sufficient to establish an effective assignment of the Note.

By MERS’s own account, it took no part in the assignment of the Note in this case, but merely provided a database which allowed its members to electronically self-report transfers of the Note. MERS does not confirm that the Note was properly transferred or in fact whether anyone including agents of MERS had or have physical possession of the Note. What remains undisputed is that MERS did not have any rights with respect to the Note and other than as described above, MERS played no role in the transfer of the Note.

Absent a showing of a valid assignment of the Note, Movant can demonstrate that U.S. Bank is the holder of the Note if it can show that U.S. Bank has physical possession of the Note endorsed to its name. See In re Mims, 423 B.R. at 56-57. According to the evidence presented in this matter the manner in which the MERS system is structured provides that, “[w]hen the beneficial interest in a loan is sold, the promissory note is [] transferred by an endorsement and delivery from the buyer to the seller [sic], but MERS Members are obligated to update the MERS® System to reflect the change in ownership of the promissory note….” (MERS Supplemental Memorandum of Law at 6). However, there is nothing in the record to prove that the Note in this case was transferred according to the processes described above other than MERS’s representation that its computer database reflects that the Note was transferred to U.S. Bank. The Court has no evidentiary basis to find that the Note was endorsed to U.S. Bank or that U.S. Bank has physical possession of the Note. Therefore, the Court finds that Movant has not satisfied its burden of showing that U.S. Bank, the party on whose behalf Movant seeks relief from stay, is the holder of the Note.

Mortgagee status

The Movant’s failure to show that U.S. Bank holds the Note should be fatal to the Movant’s standing. However, even if the Movant could show that U.S. Bank is the holder of the Note, it still would have to establish that it holds the Mortgage in order to prove that it is a secured creditor with standing to bring this Motion before this Court. The Movant urges the Court to adhere to the adage that a mortgage necessarily follows the same path as the note for which it stands as collateral. See Wells Fargo Bank, N.A. v. Perry, 875 N.Y.S.2d 853, 856 (N.Y. Sup. Ct. 2009). In simple terms the Movant relies on the argument that a note and mortgage are inseparable. See Carpenter v. Longan, 83 U.S. 271, 274 (1872). While it is generally true that a mortgage travels a parallel path with its corresponding debt obligation, the parties in this case have adopted a process which by its very terms alters this practice where mortgages are held by MERS as “mortgagee of record.” By MERS’s own account, the Note in this case was transferred among its members, while the Mortgage remained in MERS’s name. MERS admits that the very foundation of its business model as described herein requires that the Note and Mortgage travel on divergent paths. Because the Note and Mortgage did not travel together, Movant must prove not only that it is acting on behalf of a valid assignee of the Note, but also that it is acting on behalf of the valid assignee of the Mortgage.5

MERS asserts that its right to assign the Mortgage to U.S. Bank in this case, and in what it estimates to be literally millions of other cases, stems from three sources: the Mortgage documents; the MERS membership agreement; and state law. In order to provide some context to this discussion, the Court will begin its analysis with an overview of mortgage and loan processing within the MERS network of lenders as set forth in the record of this case.

In the most common residential lending scenario, there are two parties to a real property mortgage-a mortgagee, i.e., a lender, and a mortgagor, i.e., a borrower. With some nuances and allowances for the needs of modern finance this model has been followed for hundreds of years. The MERS business plan, as envisioned and implemented by lenders and others involved in what has become known as the mortgage finance industry, is based in large part on amending this traditional model and introducing a third party into the equation. MERS is, in fact, neither a borrower nor a lender, but rather purports to be both “mortgagee of record” and a “nominee” for the mortgagee. MERS was created to alleviate problems created by, what was determined by the financial community to be, slow and burdensome recording processes adopted by virtually every state and locality. In effect the MERS system was designed to circumvent these procedures. MERS, as envisioned by its originators, operates as a replacement for our traditional system of public recordation of mortgages.

Caselaw and commentary addressing MERS’s role in the mortgage recording and foreclosure process abound. See Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. Cin. L. Rev. 1359 (2010). In a 2006 published opinion, the New York Court of Appeals described MERS system as follows:

In 1993, the MERS system was created 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.

The initial MERS mortgage is recorded in the County Clerk’s office with ‘Mortgage Electronic Registration Systems, Inc.’ named as the lender’s nominee or mortgagee of record on the instrument. During the lifetime of the mortgage, the beneficial ownership interest or servicing rights may be transferred among MERS members (MERS assignments), but these assignments are not publicly recorded; instead they are tracked electronically in MERS’s private system. In the MERS system, the mortgagor is notified of transfers of servicing rights pursuant to the Truth in Lending Act, but not necessarily of assignments of the beneficial interest in the mortgage.

Merscorp, Inc., v. Romaine, 8 N.Y.3d 90 (N.Y. 2006) (footnotes omitted).

In the words of MERS’s legal counsel, “[t]he essence of MERS’ business is to hold legal title to beneficial interests under mortgages and deeds of trust in the land records. The MERS® System is designed to allow its members, which include originators, lenders, servicers, and investors, to accurately and efficiently track transfers of servicing rights and beneficial ownership.” (MERS Memorandum of Law at 5). The MERS® System “… eliminate[s] the need for frequent, recorded assignments of subsequent transfers.” (MERS Supplemental Memorandum of Law at 4). “Prior to MERS, every time a loan secured by a mortgage was sold, the assignee would need to record the assignment to protect the security interest. If a servicing company serviced the loan and the servicing rights were sold,-an event that could occur multiple times during the life of a single mortgage loan-multiple assignments were recorded to ensure that the proper servicer appeared in the land records in the County Clerk’s office.” (MERS Supplemental Memorandum of Law at 4-5).

“When the beneficial interest in a loan is sold, the promissory note is still transferred by an endorsement and delivery from the buyer to the seller, but MERS Members are obligated to update the MERS® System to reflect the change in ownership of the promissory note…. So long as the sale of the note involves a MERS Member, MERS remains the named mortgagee of record, and continues to act as the mortgagee, as the nominee for the new beneficial owner of the note (and MERS’ Member). The seller of the note does not and need not assign the mortgage because under the terms of that security instrument, MERS remains the holder of title to the mortgage, that is, the mortgagee, as the nominee for the purchaser of the note, who is then the lender’s successor and/or assign.” (MERS Supplemental Memorandum of Law at 6). “At all times during this process, the original mortgage or an assignment of the mortgage to MERS remains of record in the public land records where the security real estate is located, providing notice of MERS’s disclosed role as the agent for the MERS Member lender and the lender’s successors and assigns.” (Declaration of William C. Hultman, ¶9).

MERS asserts that it has authority to act as agent for each and every MERS member which claims ownership of a note and mortgage registered in its system. This authority is based not in the statutes or caselaw, but rather derives from the terms and conditions of a MERS membership agreement. Those terms and conditions provide that “MERS shall serve as mortgagee of record with respect to all such mortgage loans solely as a nominee, in an administrative capacity, for the beneficial owner or owners thereof from time to time.” (Declaration of William C. Hultman, ¶5). MERS “holds the legal title to the mortgage and acts as the agent or nominee for the MERS Member lender, or owner of the mortgage loan.” (Declaration of William C. Hultman, ¶6). According to MERS, it is the “intent of the parties… for MERS to serve as the common nominee or agent for MERS Member lenders and their successors and assigns.” (MERS Supplemental Memorandum of Law at 19) (emphasis added by the Court). “Because MERS holds the mortgage lien for the lender who may freely transfer its interest in the note, without the need for a recorded assignment document in the land records, MERS holds the mortgage lien for any intended transferee of the note.” (MERS Supplemental Memorandum of Law at 15) (emphasis added by the Court). If a MERS member subsequently assigns the note to a non-MERS member, or if the MERS member which holds the note decides to foreclose, only then is an assignment of the mortgage from MERS to the noteholder documented and recorded in the public land records where the property is located. (Declaration of William C. Hultman, ¶12).

Before commenting on the legal effect of the MERS membership rules or the alleged “common agency” agreement created among MERS members, the Court will review the relevant portions of the documents presented in this case to evaluate whether the documentation, on its face, is sufficient to prove a valid assignment of the Mortgage to U.S. Bank.

The Mortgage

First Franklin is the “Lender” named in the Mortgage. With reference to MERS’s role in the transaction, the Mortgage states:

MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, MI 48501-2026, tel. (888) 679 MERS. FOR PURPOSES OF RECORDING THIS MORTGAGE, MERS IS THE MORTGAGEE OF RECORD.

(Mortgage at 1 (emphasis added by the Court)).

The Mortgage also purports to contain a transfer to MERS of the Borrower’s (i.e., the Debtor’s) rights in the subject Property as follows:

BORROWER’S TRANSFER TO LENDER OF RIGHTS IN THE PROPERTY

[The Borrower] mortgage[s], grant[s] and convey[s] the Property to MERS (solely as nominee for Lender and Lender’s successors in interest) and its successors in interest subject to the terms of this Security Instrument. This means that, by signing this Security Instrument, [the Borrower is] giving Lender those rights that are stated in this Security Instrument and also those rights that Applicable Law gives to lenders who hold mortgage on real property. [The Borrower is] giving Lender these rights to protect Lender from possible losses that might result if [the Borrower] fail[s] to [comply with certain obligations under the Security Instrument and accompanying Note.]

[The Borrower] understand[s] and agree[s] that MERS holds only legal title to the rights granted by [the Borrower] in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lenders’s successors and assigns) has the right: (A) to exercise any or all those rights, including, but not limited to, the right to foreclose and sell the Property; and (B) to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

[The Borrower gives] MERS (solely as nominee for Lender and Lender’s successors in interest), rights in the Property…

(Mortgage at 3) (emphasis added).

The Assignment of Mortgage references the Mortgage and defines the “Assignor” as “‘Mers’ Mortgage Electronic Registration Systems, Inc., 2150 North First Street, San Jose, California 95131, as nominee for First Franklin, a division of National City Bank of IN, 2150 North First Street San Jose, California 95153.” (Emphasis added by the Court). The “Assignee” is U.S. Bank.

Premised on the foregoing documentation, MERS argues that it had full authority to validly execute the Assignment of Mortgage to U.S. Bank on February 1, 2008, and that as of the date the foreclosure proceeding was commenced U.S. Bank held both the Note and the Mortgage. However, without more, this Court finds that MERS’s “nominee” status and the rights bestowed upon MERS within the Mortgage itself, are insufficient to empower MERS to effectuate a valid assignment of mortgage.

There are several published New York state trial level decisions holding that the status of “nominee” or “mortgagee of record” bestowed upon MERS in the mortgage documents, by itself, does not empower MERS to effectuate an assignment of the mortgage. These cases hold that MERS may not validly assign a mortgage based on its nominee status, absent some evidence of specific authority to assign the mortgage. See Bank of New York v. Mulligan, No. 29399/07, 2010 WL 3339452, at *7 (N.Y. Sup. Ct. Aug. 25, 2010); One West Bank, F.S.B. v. Drayton, 910 N.Y.S.2d 857, 871 (N.Y. Sup. Ct. 2010); Bank of New York v. Alderazi, 900 N.Y.S.2d 821, 824 (N.Y. Sup. Ct. 2010) (the “party who claims to be the agent of another bears the burden of proving the agency relationship by a preponderance of the evidence”); HSBC Bank USA v. Yeasmin, No. 34142/07, 2010 WL 2089273, at *3 (N.Y. Sup. Ct. May 24, 2010); HSBC Bank USA v. Vasquez, No. 37410/07, 2009 WL 2581672, at *3 (N.Y. Sup. Ct. Aug. 21, 2010); LaSalle Bank N.A. v. Lamy, 824 N.Y.S.2d 769, 2006 WL 2251721, at *2 (N.Y. Sup. Ct. Aug. 7, 2006) (“A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.”). See also MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (“MERS’s only right is to record the mortgage. Its designation as the ‘mortgagee of record’ in the document does not change or expand that right…”). But see US Bank, N.A. v. Flynn, 897 N.Y.S.2d 855 (N.Y. Sup. Ct. 2010) (finding that MERS’s “nominee” status and the mortgage documents give MERS authority to assign); Crum v. LaSalle Bank, N.A., No. 2080110, 2009 WL 2986655, at *3 (Ala. Civ. App., Sept. 18, 2009) (finding MERS validly assigned its and the lender’s rights to assignee); Blau v. America’s Servicing Company, et al., No. CV-08-773-PHX-MHM, 2009 WL 3174823, at *8 (D. Ariz. Sept. 29, 2009) (finding that assignee of MERS had standing to foreclose).

In LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2 (N.Y. Sup. Aug. 26, 2010), the court analyzed the relationship between MERS and the original lender and concluded that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves. The court stated:

MERS… recorded the subject mortgage as “nominee” for FFFC. The word “nominee” is defined as “[a] person designated to act in place of another, usu. in a very limited way” or “[a] party who holds bare legal title for the benefit of others.” (Black’s Law Dictionary 1076 [8th ed 2004]). “This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves.” (Landmark National Bank v. Kesler, 289 Kan 528, 538 [2009]). The Supreme Court of Kansas, in Landmark National Bank, 289 Kan at 539, observed that:

The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship. See In re Sheridan, 2009 WL631355, at *4 (Bankr. D. Idaho, March 12, 2009) (MERS “acts not on its own account. Its capacity is representative.”); Mortgage Elec. Registrations Systems, Inc. v. Southwest, 2009 Ark. 152 -, 301 SW3d 1, 2009 WL 723182 (March 19, 2009) (“MERS, by the terms of the deed of trust, and its own stated purposes, was the lender’s agent”); La Salle Nat. Bank v. Lamy, 12 Misc.3d 1191[A], at *2 [Sup Ct, Suffolk County 2006])… (“A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.”).

LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2; see also Bank of New York v. Alderazi, 900 N.Y.S.2d 821, 823 (N.Y. Sup. Ct. 2010) (nominee is “‘[a] person designated to act in place of another, usually in a very limited way.'”) (quoting Black’s Law Dictionary)).

In LaSalle Bank, N.A. v. Bouloute the court concluded that MERS must have some evidence of authority to assign the mortgage in order for an assignment of a mortgage by MERS to be effective. Evidence of MERS’s authority to assign could be by way of a power of attorney or some other document executed by the original lender. See Bouloute, 2010 WL 3359552, at *1; Alderazi, 900 N.Y.S.2d at 823 (“‘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.'”) (quoting HSBC Bank USA, NA v. Yeasmin, 866 N.Y.S.2d 92 (N.Y. Sup. Ct. 2008)).

Other than naming MERS as “nominee”, the Mortgage also provides that the Borrower transfers legal title to the subject property to MERS, as the Lender’s nominee, and acknowledges MERS’s rights to exercise certain of the Lender’s rights under state law. This too, is insufficient to bestow any authority upon MERS to assign the mortgage. In Bank of New York v. Alderazi, the court found “[t]he fact that the borrower acknowledged and consented to MERS acting as nominee of the lender has no bearing on what specific powers and authority the lender granted MERS.” Alderazi, 900 N.Y.S.2d at 824. Even if it did bestow some authority upon MERS, the court in Alderazi found that the mortgage did not convey the specific right to assign the mortgage.

The Court agrees with the reasoning and the analysis in Bouloute and Alderazi, and the other cases cited herein and finds that the Mortgage, by naming MERS a “nominee,” and/or “mortgagee of record” did not bestow authority upon MERS to assign the Mortgage.

The MERS membership rules

According to MERS, in addition to the alleged authority granted to it in the Mortgage itself, the documentation of the Assignment of Mortgage comports with all the legal requirements of agency when read in conjunction with the overall MERS System. MERS’s argument requires that this Court disregard the specific words of the Assignment of Mortgage or, at the very least, interpret the Assignment in light of the overall MERS System of tracking the beneficial interests in mortgage securities. MERS urges the Court to look beyond the four corners of the Mortgage and take into consideration the agency relationship created by the agreements entered into by the lenders participating in the MERS System, including their agreement to be bound by the terms and conditions of membership.

MERS has asserted that each of its member/lenders agrees to appoint MERS to act as its agent. In this particular case, the Treasurer of MERS, William C. Hultman, declared under penalty of perjury that “pursuant to the MERS’s Rules of Membership, Rule 2, Section 5… First Franklin appointed MERS to act as its agent to hold the Mortgage as nominee on First Franklin’s behalf, and on behalf of First Franklin’s successors and assigns.” (Affirmation of William C. Hultman, ¶7).

However, Section 5 of Rule 2, which was attached to the Hultman Affirmation as an exhibit, contains no explicit reference to the creation of an agency or nominee relationship. Consistent with this failure to explicitly refer to the creation of an agency agreement, the rules of membership do not grant any clear authority to MERS to take any action with respect to the mortgages held by MERS members, including but not limited to executing assignments. The rules of membership do require that MERS members name MERS as “mortgagee of record” and that MERS appears in the public land records as such. Section 6 of Rule 2 states that “MERS shall at all times comply with the instructions of the holder of mortgage loan promissory notes,” but this does not confer any specific power or authority to MERS.

State law

Under New York agency laws, an agency relationship can be created by a “manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and the consent by the other to act.” Meisel v. Grunberg, 651 F.Supp.2d 98, 110 (S.D.N.Y. 2009) (citing N.Y. Marine & Gen. Ins. Co. v. Tradeline, L.L.C., 266 F.3d 112, 122 (2d Cir.2001)).

‘Such authority to act for a principal may be actual or apparent.’… Actual authority arises from a direct manifestation of consent from the principal to the agent…. The existence of actual authority ‘depends upon the actual interaction between the putative principal and agent, not on any perception a third party may have of the relationship.’

Meisel v. Grunberg, 651 F.Supp.2d at 110 (citations omitted).

Because MERS’s members, the beneficial noteholders, purported to bestow upon MERS interests in real property sufficient to authorize the assignments of mortgage, the alleged agency relationship must be committed to writing by application of the statute of frauds. Section 5-703(2) of the New York General Obligations Law states that:

An estate or interest in real property, other than a lease for a term not exceeding one year, or any trust or power, over or concerning real property, or in any manner relating thereto, cannot be created, granted, assigned, surrendered or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the person creating, granting, assigning, surrendering or declaring the same, or by his lawful agent, thereunto authorized by writing.

See N.Y. Gen. Oblig. Law § 5-703(1) (McKinney 2011); Republic of Benin v. Mezei, No. 06 Civ. 870 (JGK), 2010 WL 3564270, at *3 (S.D.N.Y. Sept. 9, 2010); Urgo v. Patel, 746 N.Y.S.2d 733 (N.Y. App. Div. 2002) (finding that unwritten apparent authority is insufficient to satisfy the statute of frauds) (citing Diocese of Buffalo v. McCarthy, 91 A.D.2d 1210 (4th Dept. 1983)); see also N.Y. Gen. Oblig. Law § 5-1501 (McKinney 2011) (“‘agent’ means a person granted authority to act as attorney-in-fact for the principal under a power of attorney…”). MERS asks this Court to liberally interpret the laws of agency and find that an agency agreement may take any form “desired by the parties concerned.” However, this does not free MERS from the constraints of applicable agency laws.

The Court finds that the record of this case is insufficient to prove that an agency relationship exists under the laws of the state of New York between MERS and its members. According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents. For example, MERS argues that its agent status can be found in the Mortgage which states that MERS is a “nominee” and a “mortgagee of record.” However, the fact that MERS is named “nominee” in the Mortgage is not dispositive of the existence of an agency relationship and does not, in and of itself, give MERS any “authority to act.” See Steinbeck v. Steinbeck Heritage Foundation, No. 09-18360cv, 2010 WL 3995982, at *2 (2d Cir. Oct. 13, 2010) (finding that use of the words “attorney in fact” in documents can constitute evidence of agency but finding that such labels are not dispositive); MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (designation as the ‘mortgagee of record’ does not qualify MERS as a “mortgagee”). MERS also relies on its rules of membership as evidence of the agency relationship. However, the rules lack any specific mention of an agency relationship, and do not bestow upon MERS any authority to act. Rather, the rules are ambiguous as to MERS’s authority to take affirmative actions with respect to mortgages registered on its system.

In addition to casting itself as nominee/agent, MERS seems to argue that its role as “mortgagee of record” gives it the rights of a mortgagee in its own right. MERS relies on the definition of “mortgagee” in the New York Real Property Actions and Proceedings Law Section 1921 which states that a “mortgagee” when used in the context of Section 1921, means the “current holder of the mortgage of record… or their agents, successors or assigns.” N.Y. Real Prop. Acts. L. § 1921 (McKinney 2011). The provisions of Section 1921 relate solely to the discharge of mortgages and the Court will not apply that definition beyond the provisions of that section in order to find that MERS is a “mortgagee” with full authority to perform the duties of mortgagee in its own right. Aside from the inappropriate reliance upon the statutory definition of “mortgagee,” MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best.

Adding to this absurdity, it is notable in this case that the Assignment of Mortgage was by MERS, as nominee for First Franklin, the original lender. By the Movant’s and MERS’s own admission, at the time the assignment was effectuated, First Franklin no longer held any interest in the Note. Both the Movant and MERS have represented to the Court that subsequent to the origination of the loan, the Note was assigned, through the MERS tracking system, from First Franklin to Aurora, and then from Aurora to U.S. Bank. Accordingly, at the time that MERS, as nominee of First Franklin, assigned the interest in the Mortgage to U.S. Bank, U.S. Bank allegedly already held the Note and it was at U.S. Bank’s direction, not First Franklin’s, that the Mortgage was assigned to U.S. Bank. Said another way, when MERS assigned the Mortgage to U.S. Bank on First Franklin’s behalf, it took its direction from U.S. Bank, not First Franklin, to provide documentation of an assignment from an entity that no longer had any rights to the Note or the Mortgage. The documentation provided to the Court in this case (and the Court has no reason to believe that any further documentation exists), is stunningly inconsistent with what the parties define as the facts of this case.

However, even if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that MERS did not have authority, as “nominee” or agent, to assign the Mortgage absent a showing that it was given specific written directions by its principal.

This Court finds that MERS’s theory that it can act as a “common agent” for undisclosed principals is not support by the law. The relationship between MERS and its lenders and its distortion of its alleged “nominee” status was appropriately described by the Supreme Court of Kansas as follows: “The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant-their description depended on which part they were touching at any given time.” Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2010).

Conclusion

For all of the foregoing reasons, the Court finds that the Motion in this case should be granted. However, in all future cases which involve MERS, the moving party must show that it validly holds both the mortgage and the underlying note in order to prove standing before this Court.

Dated: Central Islip, New York February 10, 2011
Hon. Robert E. Grossman, Bankruptcy Judge

——–
Notes:

1. The Debtor also questions whether Select Portfolio has the authority and the standing to seek relief from the automatic stay. The Movant argues that Select Portfolio has standing to bring the Motion based upon its status as “servicer” of the Mortgage, and attaches an affidavit of a vice president of Select Portfolio attesting to that servicing relationship. Caselaw has established that a mortgage servicer has standing to seek relief from the automatic stay as a party in interest. See, e.g., Greer v. O’Dell, 305 F.3d 1297 (11th Cir. 2002); In re Woodberry, 383 B.R. 373 (Bankr. D.S.C. 2008). This presumes, however, that the lender for whom the servicer acts validly holds the subject note and mortgage. Thus, this Decision will focus on whether U.S. Bank validly holds the subject note and mortgage.

2. The Judgment of Foreclosure names the Debtor and an individual, Shelly English, as defendants. Shelly English is the Debtor’s daughter-in-law. At a hearing held on December 13, 2010, the Debtor’s counsel stated that he “believed” the Debtor transferred title to the Property to her son, Leroy English, in 2007. This is consistent with information provided by the Debtor in her petition and schedules. Leroy English, however, was not named in the foreclosure action. No one in this case has addressed the issue of whether the proper parties were named in the foreclosure action. However, absent an argument to the contrary, this Court can only presume that the Judgment of Foreclosure is a binding final judgment by a court of competent jurisdiction.

3. Movant cites to New York General Obligations Law for the proposition that “an agency agreement may take any form ‘desired by the parties concerned.'” The direct quote “desired by the parties concerned” seems to be attributed to the General Obligations Law citation, however, the Court could find no such language in the current version of § 5-1501(1). That provision, rather, defines an agent as “a person granted authority to act as attorney-in-fact for the principal under a power of attorney, and includes the original agent and any co-agent or successor agent. Unless the context indicates otherwise, an ‘agent’ designated in a power of attorney shall mean ‘attorney-in-fact’ for the purposes of this title. An agent acting under a power of attorney has a fiduciary relationship with the principal.” N.Y. Gen. Oblig. Law § 5-1501(1) (McKinney 2011) (emphasis added).

4. Because the Debtor’s objection is overruled under Rooker-Feldman and res judicata, the Court will not address the merits of the Movant’s judicial estoppel arguments.

5. MERS argues that notes and mortgages processed through the MERS System are never “separated” because beneficial ownership of the notes and mortgages are always held by the same entity. The Court will not address that issue in this Decision, but leaves open the issue as to whether mortgages processed through the MERS system are properly perfected and valid liens. See Carpenter v. Longan, 83 U.S. at 274 (finding that an assignment of the mortgage without the note is a nullity); Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2009) (“[I]n the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable”).

in re: AGARD New York Bankruptcy Case

[ipaper docId=48696398 access_key=key-1pyj91zniq8e4gdszuq4 height=600 width=900 /]

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Newsweek | WALL STREET COVERS ITS FANNIE MAE

Newsweek | WALL STREET COVERS ITS FANNIE MAE


October 18, 2004

When Wall Street’s biggest firms settled with regulators in April 2003 over charges of fraudulent stock research, the industry promised a new era of independence. Marc Lackritz, president of the Securities Industry Association, promised Wall Street would ensure that “the quality and integrity of financial analysis is beyond reproach.”

The recent highly critical report by federal regulators on Fannie Mae’s accounting practices, though, may rekindle questions about Wall Street’s ability to issue unbiased research. Fannie is one of Wall Street’s best clients, issuing close to $2 trillion in debt to provide cheap loans for home buyers, and those figures don’t include other huge fees Wall Street earns in helping Fannie. Fannie’s top five underwriters have earned close to $700 million in fees since 1999, according to Thomson Financial. Those same firms have provided continuing upbeat assessments despite growing signs Fannie was facing financial difficulties. Merrill Lynch, Fannie’s largest underwriter, maintained its “buy” rating last week. A Merrill spokesman said the firm’s research is objective, adding: “Our buy rating is in line with the consensus of research on this company.” Other leading underwriters–Goldman Sachs, Lehman Brothers, Morgan Stanley, and JPMorgan–declined to comment.

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NYTIMES | A Coming Nightmare of Homeownership?

NYTIMES | A Coming Nightmare of Homeownership?


By GRETCHEN MORGENSON
Published: October 3, 2004

IT is literally a trillion-dollar question: What will a humbled, reined-in Fannie Mae, the nation’s biggest mortgage provider, mean to the economy, the financial markets, interest rates and housing in America?

Since regulators disclosed evidence of widespread accounting improprieties at the company, which carries almost $1 trillion in mortgages on its books, the response from the financial markets has been surprisingly muted. To be sure, Fannie Mae’s stock has lost 14 percent of its value, but its debt securities have held fairly steady and the pools of mortgages it sells to investors have continued to attract buyers.

Even if Fannie Mae’s troubles are eventually worked out, there may be other, potentially nasty reverberations from the company’s weakened position. These include a possible hit to the dollar if foreign investors, who have bought so much of the company’s debt, become alarmed by the accounting problems and sell.

James A. Bianco of Bianco Research in Chicago, said he thinks foreigners might well cut back on their Fannie Mae debt holdings, as they seem to have done when Freddie Mac, another government-sponsored enterprise in the mortgage business, had its own accounting problems last year. ”If Freddie spooked foreigners, the Fannie scandal will exacerbate the trend,” he said.

In addition, Fannie Mae’s woes could work against the Federal Reserve Board as it moves to keep inflation in check by raising interest rates. If the company, under heightened scrutiny, decides that it must manage its interest rate risk more aggressively, it would have to buy huge amounts of Treasury securities. Doing so would push rates down further, creating a vicious cycle in which more homeowners refinance their mortgages, leaving Fannie Mae with a larger mismatch between the longer-term debt they have issued to buy the mortgages and the shorter-lived mortgages themselves.



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Usage of Federal Reserve Credit and Liquidity Facilities “BAILOUT FUNDS”

Usage of Federal Reserve Credit and Liquidity Facilities “BAILOUT FUNDS”


This section of the website provides detailed information about the liquidity and credit programs and other monetary policy tools that the Federal Reserve used to respond to the financial crisis that emerged in the summer of 2007. These programs fall into three broad categories–those aimed at addressing severe liquidity strains in key financial markets, those aimed at providing credit to troubled systemically important institutions, and those aimed at fostering economic recovery by lowering longer-term interest rates.

The emergency liquidity programs that the Federal Reserve set up provided secured and mostly short-term loans. Over time, these programs helped to alleviate the strains and to restore normal functioning in a number of key financial markets, supporting the flow of credit to businesses and households. As financial markets stabilized, the Federal Reserve closed most of these programs. Indeed, many of the programs were intentionally priced to be unattractive to borrowers when markets are functioning normally and, as a result, wound down as market conditions improved. The programs achieved their intended purposes with no loss to taxpayers.

The Federal Reserve also provided credit to several systemically important financial institutions. These actions were taken to avoid the disorderly failure of these institutions and the potential catastrophic consequences for the U.S. financial system and economy. All extensions of credit were fully secured and are in the process of being fully repaid.

Finally, the Federal Reserve provided economic stimulus by lowering interest rates. Over the course of the crisis, the Federal Open Market Committee (FOMC) reduced its target for the federal funds rate to a range of 0 to 1/4 percent. With the federal funds rate at its effective lower bound, the FOMC provided further monetary policy stimulus through large-scale purchases of longer-term Treasury debt, federal agency debt, and agency mortgage-backed securities (agency MBS). These asset purchases helped to lower longer-term interest rates and generally improved conditions in private credit markets.

The links to the right provide detailed information about the programs that were established in response to the crisis. Details for each loan include: the borrower, the date that credit was extended, the interest rate, information about the collateral, and other relevant terms. Similar information is supplied for swap line draws and repayments. Details for each agency MBS purchase include: the counterparty to the transaction, the date of the transaction, the amount of the transaction, and the price at which each transaction was conducted. The transaction data are provided in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Federal Reserve will revise the data to ensure that they are accurate and complete.

No rules about executive compensation or dividend payments were applied to borrowers using Federal Reserve facilities. Executive compensation restrictions were imposed by statute on firms receiving assistance through the U.S. Treasury’s Troubled Asset Relief Program (TARP). Dividend restrictions were the province of the appropriate supervisors and were imposed by the Federal Reserve on bank holding companies in that role, but not because of borrowing through the facilities discussed here.

Additional information about the Federal Reserve’s credit and liquidity programs is available on the Credit and Liquidity Programs and the Balance Sheet section.

Facilities and Programs

Source: federalreserve.gov

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BLOOMBERG | No Breaks for Robo-signing Computer Stamping Mortgage Documents

BLOOMBERG | No Breaks for Robo-signing Computer Stamping Mortgage Documents


EXCELLENT JOB! Now this is what I am talking about…no affidavits…it’s the “assignments”, the destroyed notes, the Break in Chain, the E-Signatures, no supervision!

Bryan Bly is a pen-wielding “robo- signer” at Nationwide Title Clearing Inc., inking his name on an average 5,000 mortgage documents a day for companies such as Citigroup Inc. and JPMorgan Chase & Co.

Those are just the ones that cross his desk.

Nationwide Title employs a computer system that automatically inserts a copy of Bly’s signature on thousands of digital files that he never sees. The system even affixes an electronic notary seal.

“The problem with the way these documents are created isn’t because a computer is used,” said Gloria Einstein, a legal aid attorney in Green Cove Springs, Florida, who deposed Bly in a case in a which her client faces foreclosure by a unit of Deutsche Bank AG. “It’s because an enterprise has decided to use a computer to create a system where nobody is responsible for the information and the decisions.”

The rush to securitize more than $4 trillion of mortgages as U.S. home sales peaked in 2005 and 2006 inundated loan servicers and contractors like Palm Harbor, Florida-based Nationwide Title that help them handle paperwork. Lawsuits fighting some of the more than 4 million foreclosures since then have exposed sloppy recordkeeping and raised questions about the validity of documents used to seize properties.

Signatures Draw Scrutiny

Bly is just one of more than a dozen robo-signers deposed in the past two years by lawyers for borrowers seeking to block foreclosures. Spurred by descriptions in depositions of employees signing thousands of affidavits a week without checking their accuracy as legally required, the attorneys general in all 50 states last month opened an investigation into whether banks and loan servicers used faulty documents or improper practices to foreclose.

Nationwide Title, which has about 175 employees, provides document imaging, tracking, retrieval, recording and processing on bulk loan transfers for lenders, servicers and investors. It’s the largest third-party processor of mortgage assignments, handling more than 350,000 last year, Senior Vice President Jeremy Pomerantz said in a telephone interview. The company also prepares lien releases, which show that a mortgage has been paid off by the borrower.

Assignments, which are usually recorded with county land record departments, list the buyer and seller of a loan as it’s sold or packaged with other loans into a mortgage-backed security. Lawyers for homeowners are challenging the legitimacy of the documents, which are relied on by lenders to show they have the right to foreclose.

Batches of 30,000

(While closely held Nationwide Title in the past offered a package of foreclosure-specific services, it had just one client, Pomerantz said. The company doesn’t handle foreclosure affidavits — submitted by banks to assert ownership of a loan when they’ve lost the promissory note or to show that borrowers are in default — and often it doesn’t know when clients are requesting documents for defaulted loans, he said.)

Nationwide Title’s proprietary system isn’t entirely automated, said Erika Lance, senior vice president of administration. Employees receive requests from clients for lien releases and mortgage assignments, which are often sent in batches of as many as 30,000. They review the information and images of loan documents sent along with the request, and the information is keyed into the computer system.

The computer system fills in the electronic assignments in the format and wording each county requires, and places a signature and notary seal from a list of employees approved by each bank. Bly and other signers are given a title at the bank requesting the documents, such as “vice president” or “assistant secretary,” depending on what the individual counties require, Lance said.

Laws Catching Up

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THEODORE “THEO” SCHULTZ CORPORATE BANK TITLES

THEODORE “THEO” SCHULTZ CORPORATE BANK TITLES


Mr. Schultz and his various Corporate Hats. These sensitive documents are part of homes being sold today in a county near you.

Vice President of:

  • MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC.,
  • Aurora Loan Servicing,
  • Household Bank,
  • Decision One Mortgage Company,
  • Nations Home Funding,
  • First National Bank of Arizona,
  • Pinnacle Financial,
  • First Magnus Financial
  • Lehman Brothers

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RHODE ISLAND: One judge to hear all MERS-related cases in the state

RHODE ISLAND: One judge to hear all MERS-related cases in the state


One judge to hear all MERS-related cases in the state

01:00 AM EDT on Sunday, October 31, 2010

By Christine Dunn

Journal Staff Writer

PROVIDENCE –– One Providence Superior Court judge, Allen P. Rubine, has been assigned to hear all cases in Rhode Island that are related to the Mortgage Electronic Registration System.

Alice B. Gibney, presiding justice of the Superior Court, issued an administrative order in September directing the courts in Kent, Washington and Newport counties to transfer all their MERS-related cases to Justice Rubine.

Formed by the mortgage finance industry, MERS was created to increase profits and efficiency by eliminating the need to record changes in mortgage ownership at local government property registries when loans are sold multiple times and/or bundled and sold together in pools. MERS is a corporation that also acts as a nominee for lenders and their successors.

An Aug. 25, 2009, decision by Providence Superior Court Judge Michael A. Silverstein upheld the right of MERS to foreclose in Rhode Island.

The case, brought by Anthony and Stephanie Bucci, of Cranston, through their lawyer, George E. Babcock, of Providence, has been appealed to the Rhode Island Supreme Court. The defendants in the case are Lehman Brothers Bank, FSB, a federal savings bank, MERS, and Aurora Loan Services, LLC.

Judge Silverstein ruled that Rhode Island law “does not prohibit MERS from invoking the Statutory Power of Sale [foreclosure]” because “statutes should not be construed to reach an absurd result.”


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Handcuffs for Wall Street, Not Happy-Talk

Handcuffs for Wall Street, Not Happy-Talk


“If the people cannot trust their government to do the job for which it exists
– to protect them and to promote their common welfare – all else is lost.”
– BARACK OBAMA, speech, Aug. 28, 2006

Zach Carter

Zach Carter

Economics Editor, AlterNet; Fellow, Campaign for America’s Future

Posted: September 12, 2010 02:52 PM

The Washington Post has published a very silly op-ed by Chrystia Freeland accusing President Barack Obama of unfairly “demonizing” Wall Street. Freeland wants to see Obama tone down his rhetoric and play nice with executives in pursuit of a harmonious economic recovery. The trouble is, Obama hasn’t actually deployed harsh words against Wall Street. What’s more, in order to avoid being characterized as “anti-business,” the Obama administration has refused to mete out serious punishment for outright financial fraud. Complaining about nouns and adjectives is a little ridiculous when handcuffs and prison sentences are in order.

Freeland is a long-time business editor at Reuters and the Financial Times, and the story she spins about the financial crisis comes across as very reasonable. It’s also completely inaccurate. Here’s the key line:

“Stricter regulation of financial services is necessary not because American bankers were bad, but because the rules governing them were.”

Bank regulations were lousy, of course. But Wall Street spent decades lobbying hard for those rules, and screamed bloody murder when Obama had the audacity to tweak them. More importantly, the financial crisis was not only the result of bad rules. It was the result of bad rules and rampant, straightforward fraud, something a seasoned business editor like Freeland ought to know. Seeking economic harmony with criminals seems like a pretty poor foundation for an economic recovery.

The FBI was warning about an “epidemic” of mortgage fraud as early as 2004. Mortgage fraud is typically perpetrated by lenders, not borrowers — 80 percent of the time, according to the FBI. Banks made a lot of quick bucks over the past decade by illegally conning borrowers. Then bankers who knew these loans were fraudulent still packaged them into securities and sold them to investors without disclosing that fraud. They lied to their own shareholders about how many bad loans were on their books, and lied to them about the bonuses that were derived from the entire scheme. When you do these things, you are stealing lots of money from innocent people, and you are, in fact, behaving badly (to put it mildly).

The fraud allegations that have emerged over the past year are not restricted to a few bad apples at shady companies– they involve some of the largest players in global finance. Washington Mutual executives knew their company was issuing fraudulent loans, and securitized them anyway without stopping the influx of fraud in the lending pipeline. Wachovia is settling charges that it illegally laundered $380 billion in drug money in order to maintain access to liquidity. Barclays is accused of illegally laundering money from Iran, Sudan and other nations, jumping through elaborate technical hoops to conceal the source of their funds. Goldman Sachs set up its own clients to fail and bragged about their “shitty deals.” Citibank executives deceived their shareholders about the extent of their subprime mortgage holdings. Bank of America executives concealed heavy losses from the Merrill Lynch merger, and then lied to their shareholders about the massive bonuses they were paying out. IndyMac Bank and at least five other banks cooked their books by backdating capital injections.

Continue reading…..The  Huffington Post


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Posted in Bank Owned, citi, conspiracy, Economy, FED FRAUD, foreclosure, foreclosure fraud, foreclosure mills, foreclosures, goldman sachs, hamp, indymac, investigation, jobless, lehman brothers, MERS, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., OCC, racketeering, RICO, rmbs, Wall Street, wamu, washington mutual, wells fargoComments (0)

Global Collapse of the Fiat Money System: Too Big To Fail Global Banks Will Collapse Between Now and First Quarter 2011

Global Collapse of the Fiat Money System: Too Big To Fail Global Banks Will Collapse Between Now and First Quarter 2011


When Quantitative Easing Has Run Its Course and Fails

By Matthias Chang

Global Research, August 31, 2010

Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history.

Quantitative Easing (QE I) spearheaded by the Chairman of  delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.

That is why in November of 2009, I was so confident to warn my readers that by the end of the first quarter of 2010 at the earliest or by the second quarter of 2010 at the latest, the global economy will go into a tailspin. The recent alarm that the US economy has slowed down and in the words of Bernanke “the recent pace of growth is less vigorous than we expected” has all but vindicated my analysis. He warned that the outlook is uncertain and the economy “remains vulnerable to unexpected developments”.

Obviously, Bernanke’s words do not reveal the full extent of the fear that has gripped central bankers and the financial elites that assembled at the annual gathering at Jackson Hole, Wyoming. But, you can take it from me that they are very afraid.

Why?

Let me be plain and blunt. The “unexpected developments” Bernanke referred to is the collapse of the global banks. This is FED speak and to those in the loop, this is the dire warning.

So many renowned economists have misdiagnosed the objective and consequences of quantitative easing. Central bankers’ scribes and the global mass media hoodwinked the people by saying that QE will enable the banks to lend monies to cash-starved companies and jump start the economy. The low interest rate regime would encourage all and sundry to borrow, consume and invest.

This was the fairy tale.

Then, there were some economists who were worried that as a result of the FED’s printing press (electronic or otherwise) working overtime, hyper-inflation would set in soon after.

But nothing happened. The multiplier effect of fractional reserve banking did not take off. Bank lending in fact stalled.

Why?

What happened?

Let me explain in simple terms step by step.

1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.

2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.

3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.

4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.

5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?

6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?

7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!

8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. .

Let me explain: A House was sold for say US$500,000. Borrower has a mortgage of US$450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent.

It is my estimation that they have to QE up to US$20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.

9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.

10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.

11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?

12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.

Now that you fully understand this SCAM, it is left to be seen how the FED will get away with the next round of quantitative easing – QE II.

Obviously, the FED and the other central banks are hoping that in time, asset prices will recover and resume their previous values before the crisis. This is a fantasy. QE II will fail just as QE I failed to save the banks.

The patient is in intensive care and is for all intent and purposes brain dead, although the heart is still pumping albeit faintly. The Too Big To Fail Banks cannot be rescued and must be allowed to be liquidated. It will be painful, but it is necessary before there is recovery. This is a given.

Warning:

When the ball hits the ceiling fan, sometime early 2011 at the earliest, there will be massive bank runs.

I expect that the FED and other central banks will pre-empt such a run and will do the following:

1) Disallow cash withdrawals from banks beyond a certain amount, say US$1,000 per day; 2) Disallow cash transactions up to a certain amount, say US$10,000 for certain transactions; 3) Transactions (investments) for metals (gold and silver) will be restricted; 4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II. 5) Imposition of capital controls etc.; 6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards; 7) Legislations to make it a criminal offence for any contraventions of the above.

Solution:

Maintain a bank balance sufficient to enable you to comply with the above potential impositions.

Start diversifying your assets away from dollar assets. Have foreign currencies in sufficient quantities in those jurisdictions where the above anticipated impositions are least likely to be implemented.

CONCLUSION

There will be a financial tsunami (round two) the likes of which the world has never seen.

Global banks will collapse!

Be ready.

© Copyright Matthias Chang, Future Fast Forward, 2010

The url address of this article is: www.globalresearch.ca/index.php?context=va&aid=20853

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Posted in bernanke, cdo, chain in title, conflict of interest, CONTROL FRAUD, corruption, FED FRAUD, federal reserve board, foreclosure, foreclosure fraud, foreclosures, geithner, securitization, STOP FORECLOSURE FRAUD, sub-prime, trade secrets, Wall StreetComments (2)

MUST WATCH | ‘INSIDE JOB’ The Global Financial Meltdown

MUST WATCH | ‘INSIDE JOB’ The Global Financial Meltdown


From Academy Award® nominated filmmaker, Charles Ferguson (“No End In Sight”), comes INSIDE JOB, the first film to expose the shocking truth behind the economic crisis of 2008. The global financial meltdown, at a cost of over $20 trillion, resulted in millions of people losing their homes and jobs. Through extensive research and interviews with major financial insiders, politicians and journalists, INSIDE JOB traces the rise of a rogue industry and unveils the corrosive relationships which have corrupted politics, regulation and academia.

Narrated by Academy Award® winner Matt Damon, INSIDE JOB was made on location in the United States, Iceland, England, France, Singapore, and China.

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in bear stearns, conspiracy, CONTROL FRAUD, corruption, fannie mae, FED FRAUD, federal reserve board, foreclosure, foreclosure fraud, foreclosure mills, foreclosures, geithner, goldman sachs, insider, investigation, jobless, lehman brothers, mbs, mortgage, Mortgage Foreclosure Fraud, note, racketeering, Real Estate, repossession, RICO, securitization, STOP FORECLOSURE FRAUD, sub-prime, trade secrets, Trusts, Wall StreetComments (0)

BETH COTTRELL step right up …your the next ROBO-SIGNER on STOP FORECLOSURE FRAUD!

BETH COTTRELL step right up …your the next ROBO-SIGNER on STOP FORECLOSURE FRAUD!


Folks there is just way too many. Eventually this will all be released.

Every Foreclosure/REO/Short Sale out there is virtually like this!

via ForeclosureHamlet.org & 4closurefraud.org

The attached documents are almost always the sole “evidence” showing the right of a foreclosing entity/servicer (or their shell National Bank Cover ie: US Bank) to foreclose on an American family’s home, evicting them from the only shelter that may be available to them.

Millions of examples of this and other “robo-signers” available upon request.

Of note, please see the last attachment; her deposition where she denies any “personal knowledge” or even a cursory glance at the facts of the case.

America………..what a heartache……….

ANOTHER POINT IS THEY seem to be different signatures. Some have loops and some do not.


DEPOSITION_OF_BETH-COTTRELL-CHASE-HOME-FINANCE

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in ben-ezra, concealment, conspiracy, corruption, FDLG, florida default law group, foreclosure, foreclosure fraud, foreclosure mills, hamleteers, MERS, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., REO, robo signer, robo signers, short sale, stop foreclosure fraud, stopforeclosurefraud.comComments (0)

Hedge Funds and the Global Economic Meltdown: MUST WATCH VIDEOS!

Hedge Funds and the Global Economic Meltdown: MUST WATCH VIDEOS!


Do you know who is the next Lehman? Sit back and relax…ENJOY!

[youtube=http://www.youtube.com/watch?v=xUKSU1qahgE]

[youtube=http://www.youtube.com/watch?v=NcjssQSthNU]

[youtube=http://www.youtube.com/watch?v=Q48eSoTNByQ]

Source: writerjudd

Posted in bear stearns, concealment, conspiracy, corruption, naked short sellingComments (0)

National foreclosure auctions go online via LPS: "CAVEAT EMPTOR"

National foreclosure auctions go online via LPS: "CAVEAT EMPTOR"


Submitted by Kevin Turner on April 16, 2010 – 4:56pm Market Value

The Duval County Clerk’s Office has offered online bidding for foreclosed properties for some time, and now Jacksonville-based Lender Processing Services is bringing bank-foreclosures all over the U.S. online.

Through its LPSAuctions.com Web site, LPS is to open bidding on single-family homes, condominiums and town homes from Coral Springs to Tacoma, Wash. The bid deadline for the homes listed in the “Spring Clearance” auction on the site is May 10.

So now it’s official they have they’re hands in all Real Estate! My question is how…why would any state permit them to sell anything if they are under the scope of the FEDS?? Take a look below.

RELATED ARTICLES:

AGENTS BEWARE! HERE COME THE HAFA VENDORS aka LPS AFTER YOUR COMMISSION

LPS Asset Management Launches Short-Sale Service: “CAVEAT EMPTOR”

LENDER PROCESSING SERVICES (LPS) Hits Local NEWS!

After ongoing INVESTIGATIONS: Lender Processing Services (LPS) closed the offices of its subsidiary, Docx, LLC, in Alpharetta, Georgia

EXTRA! EXTRA! Read All about the misconduct of Lender Processing Services f/k/a FIDELITY a/k/a LPS

U.S. Probing LPS Unit Docx LLC: Report REUTERS

U.S. Probes Foreclosure-Data Provider:Lender Processing Services Unit Draws Inquiry Over the Steps That Led to Faulty Bank Paperwork (LPS VIDEOS)

Feds Investigating LPS Subsidiary DOCX: Jacksonville Business Journal

Fidelity’s LPS Secret Deals With Mortgage Companies and Law Firms

TOPAKO LOVE; LAURA HESCOTT; CHRISTINA ALLEN; ERIC TATE …Officers of way, way too many banks Part Deux “The Twilight Zone”

Stopping A Defective Title Wave With A Coupla Outstretched Helping Hands

BOGUS ASSIGNMENTS 2…I’m LOVING this!! LPS DOCx ADMISSIONS SEC 10K ROOFTOP SHOUT OUT!

 

Posted in concealment, conspiracy, corruption, DOCX, foreclosure fraud, foreclosure mills, forensic mortgage investigation audit, fraud digest, Lender Processing Services Inc., LPS, Lynn Szymoniak ESQ, MERS, Mortgage Foreclosure FraudComments (1)

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