“If you’re going to take someone’s home away, you’ve got to prove you have the right to do it, and you have to follow the law when you do it,” Atty Glenn Russell said.
The highest court in Massachusetts is poised to rule as soon as this month on a foreclosure case that could lead to a surge in claims from home owners seeking to overturn seizures.
The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued in front of the nation’s oldest appellate court that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving she was obliged to pay the mortgage.
“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.
The Massachusetts Supreme Judicial Court justices signaled last month they may rule in favor of Eaton when they asked parties in the case to submit briefs arguing whether such a decision should be applied retroactively or only to future lending. If retroactive, it would cloud the titles of the 40,000 Massachusetts properties seized in the last five years and while the ruling only applies to the state, it could serve as a model for homeowners trying to overturn foreclosures in other states.
The highest court in Massachusetts is poised to rule as soon as this month on a foreclosure case that could lead to a surge in claims from home owners seeking to overturn seizures.
The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued in front of the nation’s oldest appellate court that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving she was obliged to pay the mortgage.
“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.
If you want to know where the bodies are buried, look no further. Here are a few snips from Marie’s brief:
In what has become common parlance among those investigating these securitization failures (including the Securities and Exchange Commission and the Department of Justice), we refer to this type of transfer as an “A to D” assignment because it skips over parties “B” and “C” and creates a “wild deed” (especially in title theory states such as Massachusetts).
The assignment of mortgage is the “breeder document” from which all other paperwork necessary to bring the foreclosure action; notice the sale; obtain judgment; and transfer title depends.
“The Eaton Defect” as described in our amicus brief occurs when an entity, such as Green Tree Servicing LLC takes the mortgage by assignment and prosecutes a foreclosure in itsown name when it neither owns nor holds the note.
“The Ibanez Defect” as described in this amicus brief occurs when an entity, such as OptionOne Mortgage Corporation, sells the loan for securitization purposes and later, after the loan has been sold multiple times, assigns the Note and Mortgage (or just the Mortgage) directlyto the Trustee of the Issuing Entity (securitized trust).
Supreme Judicial Court FOR THE COMMONWEALTH OF MASSACHUSETTS NO. SJC-11041 SUFFOLK COUNTY
HENRIETTA EATON, PLAINTIFF-APPELLEE,
FEDERAL NATIONAL MORTGAGE ASSOCIATION & ANOTHER, DEFENDANTS-APPELLANTS.
ON APPEAL FROM AN INTERLOCUTORY ORDER OF THE SUFFOLK SUPERIOR COURT
SUPPLEMENTAL BRIEF OF AMICUS CURIAE MARIE MCDONNELL, CFE
Marie McDonnell, President of McDonnell Property Analytics, Inc., and a pioneer inexposing fraudulent and illegal practices in the mortgage industry through her forensic audits, todaycommends Attorney General Martha Coakley and her staff for filing a comprehensive lawsuit againstBank of America Corp., Wells Fargo & Co., J.P. Morgan Chase & Co., Citigroup, Ally Financial Inc., MERSand MERSCORP, Inc.
“Today, AG Coakley took strong and decisive action to enforce the rule of law and obtain meaningful relief for Massachusetts consumers. As someone who has worked extensively with homeowners who have faced the threat of foreclosure due to unforeseen circumstances such as illness and job loss, or because they were intentionally victimized by these banks for profit motives, I feel it is imperative that the banks be held responsible for the damage they have caused to people’s lives, their communities and the Commonwealth at large. I applaud AG Coakley for having the courage to stand up to these rogues and hold them accountable for what they have done, and I look forward to the relief and restitution that this will bring families moving forward.”
McDonnell was tapped by John O’Brien, Register of the Essex Southern District Registry of Deeds in Salem, to perform an in-depth forensic examination of assignments of mortgage recorded during 2010 to and from JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., and Bank of America, N.A. to test the transparency and integrity of his registry. The audit gained national attention and uncovered massive fraud and defects in title, such as:
· Only 16% of all mortgage assignments examined are valid
· 75% of all assignments examined are invalid and 8.7% are questionable
· 27% of the invalid assignments are fraudulent, 35% are “robo-signed” and 10% violate the
Massachusetts Mortgage Fraud Statute.
· 683 assignments are missing, translating to approximately $180,000 in lost recording fees per
1,000 mortgages whose current ownership can be traced.
The audit also revealed the pervasive role of MERS in the mortgage industry:
· 46% of mortgages are MERS registered
· 47% are owned by Government Sponsored Enterprises (Fannie Mae, Freddie Mac, Ginnie Mae)
· Typically ownership of these mortgages is obscure
One little-known fact revealed by McDonnell’s audit is that when JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Bank of America, N.A. issue mortgage loans directly to consumers, they do not register them into the MERS System. McDonnell also found that these banks do not record interim assignments of mortgage and are in large part responsible for corrupting the chain of title in John O’Brien’s registry.
McDonnell’s audit supports Attorney General Coakley’s allegations that these banks committed unlawful foreclosures and engaged in deceptive practices.
McDonnell Property Analytics has and will continue to assist individual homeowners facing foreclosure and the attorneys who represent them.
Southern Essex District Register of Deeds John O’Brien today is calling for a temporary halt on all foreclosures on Massachusetts homeowners until there is time to sort through the complex issues, including the fraudulent documents that have been recorded in people’s chains of title. In addition, O’Brien has cautioned people that they should think twice before buying a foreclosed property in light of the recent Massachusetts Supreme Judicial Court Decision in Bevilacqua v. Rodriquez.
Although O’Brien commended the Supreme Court and Judge Long for its sound decision in the Bevilacqua Case, he recommends that any lender, servicer or foreclosure law firm be required to attest in an affidavit, under the pains and penalties of perjury, that all the paperwork involved in a foreclosure has been reviewed by someone in authority at the bank with knowledge of the transaction and that the paperwork is correct, truthful and valid. He believes that lenders should also have to prove, through a forensic audit, that they actually own the note and mortgage upon which they are foreclosing upon.
The Bevilacqua Decision makes it clear that a lender must own the mortgage before it may foreclose. “As I have said all along, had Bank of America, J.P. Morgan Chase, Wells Fargo and others followed the law and played by the same rules as everyone else, maybe our economy would not be in this crisis today. There is a good reason that we have registries of deeds in this country. It is so that every document that pertains to a parcel of real property is recorded in a public registry, so that anyone, at any time, may view their chain of title.”
“Since the property involved in the Bevilacqua Case is in Haverhill, which is a part of my district, I have reached out to our mortgage fraud and forensic analyst, Marie McDonnell of McDonnell Property Analytics. Ms. McDonnell has certified to me that there are at least three missing assignments in the Bevilacqua chain of title, and that the one assignment which was recorded on the property is fraudulent. This clearly demonstrates the damage to a chain of title when assignments are not timely filed or not filed at all.” said O’Brien.
In calling for a halt on foreclosures, O’Brien said, “This will send a clear message that Massachusetts will not tolerate the practice of using fraudulent documents to put someone out on the street. This is something that we do not do in America. We all have to remember that foreclosures are not good for anyone; they hurt families, neighborhoods, property values and therefore communities as a whole. These big banks have played fast and loose with peoples property rights, and now courts in Massachusetts and other states are standing up and saying that what they have done is wrong. Fraudulent documents are and always should be unacceptable and never be recorded in a registry of deeds. If the average person recorded a fraudulent document and then attempted to present it to a court of law as evidence, they would be prosecuted. So it begs the question, why are the captains of the bank industry and Wall Street being treated differently? Let me make it clear that this fraudulent activity is being done by major lenders, not our local community banks. I think that the lesson here is if anyone is currently looking for a mortgage, they should be dealing with their local hometown banks who have always played by the rules.” O’Brien continued, “Perhaps if people stop buying these foreclosed properties, which in most cases sell for less than what the original homeowner owed the lender, than maybe the banks will rethink their position and do the right thing, namely begin working with homeowners to create a new payment plan that will keep people in their homes.”
In an attempt to provide people with more assistance, O’Brien is now offering any homeowner in his district who has a document in their chain of title signed by a known robo-signer, an affidavit signed by him as Register of Deeds attesting to the presence of that signature which has been recorded at his Registry. For those homeowners that are currently being foreclosed upon, this affidavit may be presented to their attorney, the lender or the court to show that their chain of title has been corrupted. For those who are not in foreclosure, the affidavit may be presented to their current lender to show that a robo-signed document has in fact been recorded in their chain of title and be part of a request to investigate how this happened and what the lender is going to do to correct it.
Homeowners may check to see if there is a known robo-signer in their chain of title by visiting his website www.salemdeeds.com or by calling his Customer Service Department at 978-542-1704.
It is important to note that in Ibanez, the SJC was not willing to overturn long standing legal principles simply because of recent “innovation” in the way banks chose to record their security interest in real property (e.g. MERS), or because of the extraordinary liability such a ruling would have on what basically amounted to four years of mostly illegal foreclosure activity in the Commonwealth.
The Ibanez article published last January predated Eaton by some ten months, and since the SJC reviewed Eaton “sua sponte”, there was no way to know at the time, that Eaton would make it all the way to the SJC, so the following comments taken from the article are perhaps prescient:
” It is possible that from the banks perspective an invalid assignment of the note is the more serious concern for the following reasons:
1. Without first having proper ownership of the debt, the bank can not initiate any collection activity, let alone foreclosure.
2. Notes (ownership of the debt asset), may be subject to further contention in bankruptcy proceedings where many creditors have a vested interest in the assets of a defunct mortgage lender, particularly since these notes are often sold in bankruptcy for a fraction of their face value.
3. The trusts that are supposed to contain the validly conveyed notes will in fact, not actually contain them (because they are not bearer paper), thus violating the representations and warranties made to investors who purchase these securities. Therefore, it is unsecured debt, and potentially, no debt at all upon which to collect payments.
6. Even if the notes obtain a valid conveyance, or confirmation of conveyance at a later date, it is still may be impossible to place them into the MBS’s:
a. It will have been longer than 90 days (the typical expiry period to transfer assets into the trust)
b. If it is a foreclosure matter, the loan is in default (the PSA’s do not allow for the addition of defaulted loans)
c. Any effort on the part of the trust to insert old or defaulted loans would jeopardize the trusts favorable REMIC status – thus further harming already impaired returns.”
As pointed out in the Ibanez article, clear title to the property is important. If the assignment of the mortgage is invalid, then there is a “cloud on title”. The banks recognizing this, brought Ibanez before the land court of their own volition in order to clear this “cloud on title”. One of the key mistakes counsel for Eaton made, perhaps in their effort to establish the more serious problem of legitimate possession of the note, was overlooking the validity of the Mortgage assignment, (still incredibly important) which, as with most securitized loans, was so clearly fraudulent (see Amicus brief of Marie McDonnell). Incidentally, this was of particular interest to the court during oral arguments, however, because the issue was never raised by Eaton’s counsel in its complaint, it could not be addressed by the court. Thus the opportunity to cite the authority of Crowley v. Adams 22 Mass. 582 (1917) which concerned the fraudulent conveyance of a mortgage without a note, was lost. Within the context of discussing the assignees knowledge of the fraud, the court held:
“[the assignee] should be held to have known as to each transaction, the possession of the note was essential to an enforceable mortgage, without which neither mortgage could be effectively foreclosed.”Id. at 585.
This was a error on the part of counsel, and eliminated a potential fifth source of authority in Eaton, as we wrote in January:
“1. If there must be a perfected interest in the mortgage (according to MA law) at the time of foreclosure, then how many foreclosures have taken place in Massachusetts with the same profile as Ibanez, and are thus invalid?
2. Clear title is important – In the statement of the case, the banks actually brought the complaint before the land court as independent actions in order to “remove a cloud on the title” – thus the banks recognize that such defects are a problem for future conveyance. All MA homeowners should be worried about the same (discussed further below).
3. To foreclose on a mortgage securing property in the commonwealth, one must be the holder of the mortgage. To be the holder of the mortgage, the bank must:
a. Be the original mortgagee
b. Be an assignee under a valid assignment of the mortgage
c. It is not sufficient to possess the mortgagor’s promissory note (bearer paper). Apparently most if not all securitized mortgages were endorsed in “blank”, in other words to the bearer.
4. The notice requirements set forth in G.L.c. 244, ss 14 unequivocally requires that the foreclosure notice must identify the present holder of the mortgage. This likely was not the case in past foreclosures in MA. For future foreclosure actions the question is can the real mortgage holder be found and will they cooperate in assigning the security interest?
5. Assignees of a mortgage must hold a written statement conveying the mortgage that satisfied the statute of Frauds or even the most basic elements of contractual requirements.
AG Coakley acknowledges that “the securitization regime was required to conform to state law prior to foreclosing, to ensure simply that legal ownership ‘caught up’ in order that the creditor foreclose legally in MA. The lenders, trustees and servicers could have done this, but apparently elected not to, perhaps on a ‘Massive Scale’ ” Saying that they “could have done this” within the context of MA law is one thing, within the context of IRS tax code, or NY trust law, is another.”
Further the article points out that a holder of the mortgage without the note, really only holds the security instrument in trust for the debt holder (thus anticipating Eaton), as pointed out in the following taken from the Ibanez article:
“4. The holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment. If the average MBS has 5,000 notes for example, then we have to assume 5000 separate actions would have to be filed in court to ensure they are truly “Mortgage Backed Securities”, and that is only if the REMIC status isn’t jeopardized by such a revelation or action.”
However, the impasse for banks is the fact, that even if the court recognizes the authority of MERS to assign the mortgage to the foreclosing entity (usually the servicer), the following conditions still must be met:
a) The assignment must still be a valid assignment (most are not)
b) There must also be a valid assignment of the note to establish who exactly owns the debt.
The vast majority of these loans were sold into securitization trusts and are merely endorsed “in blank” (if they can even be found in the trust at all). Most schedules attached to the trust documents include little or no information on the details of the particular loans (as was the case in Ibanez), or sometimes include the address of particular properties, but no information on the barrowers, or curiously the loan amounts. Other failures include post-dated or otherwise invalid notarizations, and fraudulent signatures etc., which are all suggestive of fraud.
Given this, to speak of Eaton merely as a question over the validity of MERS and its assignments is incorrect. Even if Eaton is not affirmed by the SJC, the issue of validly conveyed notes, remains of vital importance.
That having been said, we believe the Appellants chances of prevailing are precisely zero, or maybe less. Taken together with Ibanez, this means serious problems for the bond holders in these securitization trusts and their bank administrators. With all the nuance of every day speak we could muster, we think it is put best by saying just; some of the debt-servants might escape. That isn’t to say that all measures won’t be taken to try to prevent this outcome.
On contemporary Pheronic thinking and the Pyramids that debt-servants build
We believe that this situation lends itself to the possibility of violence, as tragic an outcome as that is and would be. On June 3rd, 2011 we published our follow up to the Ibanez article entitled simply “On the ethics of mortgage loan default“. Four days later, the Essex county registrar of deeds John O’Brian, who we quote in the article, stopped recording fraudulent mortgage assignments (which many if not most are). It seems logical that this would be a “wake-up” call to the average homeowner, particularly since other registrars are prepared to follow suit. With the registrar’s decision, it has become a fact that title may no longer be recordable and ownership is in question. As it turns out, the homeowner who faithfully sends in monthly mortgage payments for years or decades (in an effort to “do the right thing”), may have no more clear ownership rights in the related property than a perfect stranger.
As the article “On the ethics of mortgage loan default” spread throughout the Internet with countless links and references, we were surprised to find comments that included (not unlike the allegory of the cave) the desire that the author “be shot“. We were equally surprised when the Hacktivist group “Anonymous” (which was not our target audience either) featured the article prominently in several of their sites.
It has been said “the rich rules over the poor, and the borrower is servant to the lender”. Perhaps in our Naiveté, we did not understand the sensitivity around the suggestion that a servant might want to be free one day. Nor did we recognize that the powerful human inclination to denial might elicit more than just a passive reaction. Like the prisoner who is freed from the cave and comes to understand that the shadows on the wall do not make up reality at all – later puts their life in danger from those who remain in the cave. Yet, the source of the light is truth and intelligence and those who would act prudently must see it.
These implications give rise to powerful questions in the current context. One such question regards the difference between a debt and a moral obligation? Why do we confuse the two so often in our society? Such that those who seek forgiveness of debt, are made to feel as if they are violating a moral code, or a cultural taboo? Perhaps the explanation lies in a more clear definition of the two. A moral obligation is something that can be forgiven with some flexibility, there is hardly exactness involved.
A monetary debt on the other hand can be calculated with the accuracy and immutability of math and the related science of accounting, and grown with the power of compounded interest, and therefore, in proper monetary debt, exist the possibility of subjugation in perpetuity, or at least for the entire natural life of the debtor.
Oddly, our society adds insult to injury in this failing of human civilization, and as if this dreadful revelation were not enough, adds on top of these accurately calculated and compounded financial obligations, the fallacy of a moral obligation, and in so doing the debt-servant is made to feel guilt regarding his moral character as well as his failure to pay.
When this sleight of hand is wedded to exhaustion (a pre-existing condition of many debt-servants), the odds of one actually fighting back against such a system, corrupt though it may be, are only minute. It must have been a genius who figured out that slavery with chains is inefficient. If a human could be conditioned to believe he is a free man, when he is not, and that already disillusioned he might be convinced that he is also a rich man, when he is not, then chains and their related complications are wholly unnecessary. All that is necessary then is to lower his idea of freedom and wealth substantially, and provide him with cut-rate imitations.
Under these circumstances, the average man would in fact work extraordinary hours, even if his paycheck was essentially diminished to less than zero by his existing debts (thus requiring him to take on new ones), and if by chance he was able to save, those funds too would be safely transferred to the hands of strangers (through “innovations” such as 401K’s, which could be convenient deducted from his paycheck electronically and instantly). These strangers are there to help the debt-servant loose what meager savings might be possible through sub-par investments (like internet stocks) which he never understood, but which is broker was always paid for trading.
Notably, this shell game can never be revealed to a debt-servant, because then he would understand that he is not really a free man, even though the real law is “…not on tablets of stone but on tablets of human hearts”, and yet this inclination of the heart is often resisted, even with violence. Nonetheless, In this law of the heart lies “a desire” which is so great that it over powers all other human constructs, including offensive debts.
In this respect, surely a few folks in Europe must have believed that the entire trade in chained slaves made the United States look like an economically and operationally primitive bunch – for the cost of that variety of servant is actually much higher, and had a far smaller pool of candidates, namely those with a particular tint to their skin. Yet, telling someone that they are inferior based merely on the color of their skin is a hard sell year after year. Conversely, telling someone they are free, when they have never tasted real freedom because they were born into debt, is easier to maintain, because it deals with more subtle issues, and the likelihood of confusion with moral obligation, and exploits the power of human denial.
The earliest evidence regarding market places and trade indicate that if you have something to sell that is of far lesser value than you are indicating, than it is wise to have the greatest physical distance possible between yourself and your counterpart – for in such a trade lies the inherent possibility of a violent reaction to the discovery on the part of the unsuspecting buyer, particularly when accurate accounts of credit and debt are kept and ruthlessly enforced. Some of the oldest recorded documents in history are of this variety; they are surprisingly, accounts of credit and debt. Perhaps human history is really a history of subjugation then. Cultural anthropologists are quite familiar with this idea of credit and debt in (even ancient) market places. It’s an old story. However, Americans are bread as consumers, not as economic or cultural anthropologist, because in that knowledge rests power, and power, by definition must belong to a coterie. For the greater the number of those subdued, the greater the power of the few who would subdue, just as with money, power deals only in transfers.
That is why the average American home owner is not allowed to have the true owner of their mortgage debts revealed – they are the counter party to an impolite deal. In these trades great profits were made, and in the pricing of the assets, great misrepresentations regarding intrinsic value. Wealth destruction therefore is a misleading expression in describing what happened; the accurate term is wealth transfer. During the housing “Pyramid” (this term is far more accurate than “bubble”, because it accurately describes an order) one of the greatest logical errors of all time was sold; that the intrinsic value of a home, which had within it the possibility of calculating (accurately) fair price was tied instead to a hyper speculative measure, that which is inherently impossible to price with any degree of accuracy, and which is immaterial; our notion of an ideal. As one might imagine, no price is too high to live an “ideal” – think of it as a seller’s paradise. After, a difficult stock market collapse, and an even more difficult terrorist attack, why would anyone be interested in mere stocks or bonds? After all the very place where these electronic slips are traded was very nearly destroyed. This new investment was allegedly concrete, and also patriotic. Americans were led to believe they had “…discovered a pearl of great value”, the only security whose price could never go down – it was like a “Dream”, like an “American Dream”.
However, when loan documents were to be signed a new broker suddenly appeared. Without any forewarning, with a name that was not before heard, or with anyone who had actually seen him, or understood how he operated, he made a subtle but powerful arrival on the scene. His name is Mr. MERS, and he instituted even greater secrecy than stock brokers and fund managers. Few have seen his physical appearance, or pulled back the curtain, it’s uninteresting anyways, because Mr. MERS is nothing more than a relational database, which only a very small fraction of the world’s population have access to (even democratically elected bodies, such as county recorders have no such access). He brokers the movements of trillions of dollars in capital. He is a construct of your trading partner, and because of his existence, you can never have a “level playing field”, or hope of a fair trade. In this brave new world, the requisite distance that precedes a bad trade, is no longer a measure of geography, it is a piece of software.
With this surreptitious matrix of relational database fields safely in place, how are all those houses, like so many stone blocks cut by ancient hands, turned into a pyramid? The answer seems self-evident; through a pyramid scheme naturally.
How would a contemporary mass exodus from such bondage look? Just as Fannie Mae and Green Tree divided the essential components of their security, It might look like ordinary debt-servants parting and dividing a sea of concrete, and traversing the depth of high rise buildings in New York, just as “by faith the people passed through the Red Sea as on dry land”.
The people in New York are criticized for their lack of direction, the fact that they appear to be lost in a veritable desert – but they are free, and in their hearts live an almost child-like innocence that we should desire to have. After all, their predecessors spent a good deal more time lost, and through it discovered a greater revelation, one that would lay the foundation to ultimate answers.
The popular accounts promulgated by Adam Smith and the contemporary science of modern economics as we were made to understand them, rely on more than one myth regarding the engineering of debt, and its related instrument – money. These underlying misrepresentations give rise to the possibility of great abuses, for the very nature of trade, and all else which rests upon it is thus misunderstood.
There are many reasons to despair over the future of our fragile state in the US today. However, the Massachusetts Supreme Judicial Court is not one of those reasons. By upholding the rule of law, and observing the incredibly important, and notably democratic foundations of land recording practice in the commonwealth they serve as a beacon for the rest of the country to follow and impart hope. This comes at a time when such hope is in scarce supply. If it is God’s will, than the light of wisdom handed down from prior ages on this point will shine through the darkness that has been created by corrupt forces. We can only hope.
A Road Map for Homeowners: Four Authoritative Guidelines
In Massachusetts law there exists four authoritative guidelines by which property may be foreclosed upon in order to redeem a debt (Five if Crowley v. Adams is included from above). Incidentally division is not a problem for these four authorities, for they stand equally well alone as they do in combination as requirements to validly exercise the power of sale of real property. Both the spirit and the letter of these sources are echoed in laws of other states, and as such can be taken as fundamentally universal. They are as follows:
The Common Law and the problem of Division
In Summary Eaton dealt with the following three realities of long standing Massachusetts law:
1. The assignee of a mortgage with no claim to the underlying debt cannot foreclose.
2. A mortgage separated from the debt it secures has no value in and of itself; it can only be held in trust for the note holder (naked title)
3. The trust relationship implied for the benefit of the note holder does not empower a mortgage assignee to foreclose as a “fiduciary” at any time.
It should be offensive even to the casual observer that in the case of Eaton, as would be the case for most home owners today, a valid promissory note memorializing the debt was and is missing. Who held it at the time of the foreclosure, how they obtained it, and what relationship they had if any to the appellants was and is still unknown.
Although a photo copy of the note was produced with the typical “endorsement in blank” markings, the appellants provided no document or other information indicating when the note was endorsed or who held it either then or now. The required assignments between intermediaries were never produced. Interestingly neither of the defending entities offered any testimony or other evidence in either court action to resolve these all important questions or otherwise identify the holder of the note. However, they did concede, that it was not the foreclosing entity Green Tree, LLC.
Conceivably this is because they do not know, and they do not want to know, and maybe they would even like to forget. Perhaps the note it is evidence.
Not surprisingly counsel for the appellants, despite this revelation, argued that the whereabouts and history of the promissory note was “irrelevant” and that they were entitled to foreclose nonetheless.
After a careful review of the full history of the mortgage foreclosure law in Massachusetts, as well as the related statutes and appellate decisions, The Superior court didn’t exactly see it that way – determining that no decision had ever overturned the established common law rule that a mortgage assignee must hold the note in order to enforce it through foreclosure.
Needless to say, this is of great concern to the banks, as predicted in the Ibanez article (cited above). Given the audacity of their claims, we believe it is reasonable to assume these folks would, if given the opportunity “send an orphan into slavery or sell a friend”. It has been difficult and time consuming to discover that notes were sold multiple times into multiple trust, thus creating a out-and-out pyramid of securities, upon which even more derivatives could be sold. However, something even more simple and obvious has been taking place in broad daylight, something peculiar that has been overlooked – the awkward problem of entire houses being stolen, by folks who have categorically no financial interest or otherwise is the properties.
Since this is the direct opposite of “The American Dream”, possibly the moniker “the American Nightmare” is appropriate.
Taking a step back, it is awful to consider that GreenTree, LLC had no interest in the debt, no interest in holding the property pre or post foreclosure, and had no material interest in the entire affair whatsoever, and yet they were the entity which sought to foreclose (or steal). Does it not appear as Les Trois Perdants with GreenTree, LLC acting as a shill?
For centuries promissory notes and the mortgages securing their repayment were held or assigned together. The separation of these two instruments, until recently was an anomaly and exception. Albeit no longer an anomaly, but rather the general business practice of approximately the last ten years, the SJC reaffirmed in Ibanez, that a trust implied by operation of law gave the note holder the right to sue to obtain an equitable assignment of the mortgage (U.S. Bank v. Ibanez, 458 Mass. 637 (2011) – which implies surprising possibilities (e.g. every note allegedly held in every securitized pool, would have an individual and related suit to perfect it’s claim). Implications aside, the court’s ruling established nonetheless a method by which the note holder (the person to whom the debt is owed) could be empowered to collect payment.
Incidentally, long before the bifurcation of the notes and mortgages was ubiquitous, this operation of law was periodically challenged by mortgage assignees who believed that they, as “mortgagees” could simply foreclose in their own names. However, since the 19th century, and as pointed out above, the SJC has ruled otherwise. In a series of decisions it articulated the rule that a mortgagee who has no interest in the debt underlying the note cannot conduct a foreclosure, insisting instead that that right is reserved for a holder of a valid note along with a valid mortgage.
Green Tree, LLC and their Government handlers suggest that the parts of the whole, when taken independently have the properties of the whole. That is to say in this case, that since the mortgage contains the power to foreclose, the mortgage must have with it all the powers of the note – this proposition is patently wrong, and is the fallacy of Division. The instruments may function properly together, but have incomplete authority independently – and that is exactly what long standing statute (as outlined below) has upheld.
In Summary, Ibanez brought to light that banks holding only notes have only an unsecured debt – that is to say one that could be negotiated like any other. Eaton, on the other hand brings to our attention something of far greater importance; namely that a holder of a mortgage alone (even if validly assigned), without proper ownership of the underlying debt, has in fact nothing.
Call us speculators, but if SJC affirms the lower court’s decision we have a funny feeling more than one banks share price might be adversely affected.
In the end, suggesting independent authority of the mortgage, regardless of any concern for the note or the debt is just a bad argument – it’s not only “Division” it is also a great candidate for the “Non Sequitur” argument of the year award.
GreenTree, LLC – Affirming the Consequent
A thorough discussion of Massachusetts foreclosure law can be found in Howe v. Wilder, 77 Mass. 267 (1858). which resolved a foreclosure dispute by holding that a mortgagee, without the note, could not foreclose on the mortgage.
The court goes on to elaborate that because the party who would otherwise seek to foreclose was owed no debt, he cannot recover possession:
“For in pursuing such a suit [the party] has only the rights of a mortgagee, and is limited by the restriction imposed upon him…if nothing is found due to the plaintiff, it follows by necessary implication, from the provisions of the statute, that he can recover no judgment at all; none to have possession at common law, because that is expressly prohibited; and none under the statute, because where there is no condition to be performed, there can be no failure of performance, and no consequences can follow a contingency which in nature of things can never occur.”
Suggesting that by being an assignee of the mortgage, encompasses the right to foreclose is simply “Affirming the Consequent” and is just another logical fallacy.
MGL 244 § 14 and the Straw Man
Bifurcating the note and the mortgage was an extraordinary circumstance when the legislature decided the subject laws. At the time these laws were ameliorated there was no reason to explicitly delineate between the debt and the mortgage instrument securing it. To argue, as Green Tree has, that the term “Mortgagee” as used in MGL 244 § 14 means also “naked mortgagee”, (a mortgage holder not having any interest in the underlying debt) is a “Straw Man“. This suggestion overlooks the historical context in which the law was authored, the rise of the mortgage securitization industry, its related practices and the compulsory changes to recording which has taken place over the last decade. It is to overlook the privatization of land records that (as far as we know), no elected official or law maker had blessed beforehand.
If Green Tree’s argument were accurate, they would not assign the mortgages to third party servicers at all, and rather continue to foreclose in MERS name (more efficient) as had been the practice until several states supreme courts ruled against it, citing the fact that MERS had no economic interest in the mortgage, which is “but an incident to the note” or “a mere technical interest” (Wolcott v. Winchester) – this of course reaffirms the spirit of the law which Henrietta Eaton asserts in her complaint.
In particular the court stated that the assignee of a “naked Mortgage”:
“…must have known that the possession of the debt was essential to an effective mortgage, and that without it he could not maintain an action to foreclose the mortgage.” Wolcott v. Winchester, 81 Mass. 462 (1860)
Despite all of this, the bright idea of the securitization industry was to simply transfer the mortgage instrument to the servicer – a related party, sort of.
If Eaton is not affirmed by the SJC, we might as well make Three Card Monte our national pastime and get rid of baseball altogether. In such a scenario handicapping the future of the US economy and the ability to affectively and profitably speculate in the CDS market will be “duck soup”.
The authority of the UCC codified at G.L.c. 106
Because the common law involves a great deal of common sense, it just so happens to be mirrored in the Uniform Commercial Code. In particular G.L.c. 106. Article 3 of the UCC governs the negotiation and enforcement of negotiable instruments, including promissory notes secured by mortgages. Section 3-301, like the common law, provides that one must hold a (valid) note in order to validly enforce it. This rule serves the purpose of protecting consumers and barrowers against the very real possibility of double liability created when a debt is enforced. As in the current matter, Green Tree, LLC or any other mere mortgagee (even if they could get a valid assignment), would have no power or authority to discharge the actual debt. Thus if the operation of law were in any other capacity than it currently is, the mortgagee could foreclose on a property, while the debtor would still be left with a valid debt outstanding to an entirely unrelated party.
This lends itself to the requirement for transparency. During the oral arguments before the SJC, one justice asked why it mattered if the homeowner knew to whom they owed their debt. The answer is that homeowners have an important role to play in the outcome of the final settlement and discharge of their debt, and are above all the most interested party in ensuring that their payments are in fact reducing the outstanding principle balance as they are made. Otherwise, they may as well be directed to make their payments to any random stranger. It is absurd to suggest that a debtor be required to simply make payments to anybody who asks for it. That is to suggest that he is not only a debtor-servant, but also a mindless sheep – then again, perhaps that is the desired outcome.
In fact the entire matter may only be possible in a non-judicial foreclosure state, for if it were a civil complaint for the collection of an amount due, than would the debt instrument itself not be scrutinized as a first priority in the proceedings? Perhaps small unimportant questions like who actually owns the debt and is bringing the action would be relevant under such circumstances.
The authority of loan contracts
In the end, the entire action by Fannie Mae and Green Tree, violates the very contract which is being disputed. Even if no other statues or laws had operated or ever existed, Eaton’s argument would survive on this one point alone – and Eaton is not unaccompanied – she stands with some 60 million other homeowners in the US with virtually identical contracts.
In the case of Eaton standard mortgage loan documents were used, and they essentially all look alike. The terms of Eaton’s mortgage contract, as with virtually all others, authorizes only the note holder to exercise the power of sale. The one concession Green Tree, LLC made was that they are not the note holder and have neither argued, nor provided evidentiary support for the claim, that a foreclosure by anyone other than the note holder was necessary (not that it would be possible).
A bitter Fruit: Double Liability
It has been said, “By their fruit you will recognize them. Do people pick grapes from thorn bushes, or figs from thistles?”. No, because “every good tree bears good fruit, but a bad tree bears bad fruit” . Is Green Tree’s lawyer actually advocating that homeowners should just rely on the banks and servicers to be “nice guys” and not go after the debtors twice? It is already known that certain elements in the industry were willing to sell the same note multiple times into multiple pools which given Burnett v. Pratt, 39 Mass. 556 (1839), presents interesting problems for RMBS investors, who were essentially their business partners. If the architects of these systems can sell the same note twice, to their own business partners and customers, why would they not try to also collect twice from their debt-servants, who rank many orders below business partners and real customers?
If the severity of compound interest is not enough, the result may be plan “B” – “doubling up” where needed.
If the fact that being named on a valid mortgage is not sufficient to authorize a foreclosure, than automatically the question becomes who holds the note? The answer to the latter question is a bit more serious, for in the answer lies a good deal more than the banks would like to reveal.
Does greed have rational limits? It does not and it cannot because greed is not rational to begin with. Since nobody knows how the foreclosing mortgagee would actually go about paying the note holder, are homeowners to rely on a system of document management (which usually involves an Iron Mountain truck, and a whole lot of paper shredding) to ensure that debt-servants are set free if they ever pay off their “debts”?
Did barrowers really sign up for that when they signed their mortgage and note? If not, when and where are the limits?
It’s only a matter of time
Homeowners must examine the assignments on their mortgages and notes. If a foreclosure is imminent, a preliminary injunction should be sought in order to have an opportunity to examine the documents thoroughly and also to give time to the SJC to issue its ruling – Jurisprudence matters. When the final Eaton ruling is taken together with Ibanez, there will be a sea change – it’s only a matter of time.
It seems reasonable that in a world where bandwidth intensive videos can be encoded and uploaded over a high speed 4G network from the New York Stock Exchange and on the Internet in 30 sec. using a smartphone with 64 gigs of memory (that can fit on a SanDisk card the size of your fingernail), and join billions of other files that have highly accurate GPS data embedded in their metadata, that finding a note for multiple six or seven figures debt and bringing it to court with you would really be no big deal – but apparently it is.
Foreclosures that took place before Ibanez, likely involve an assignment of the mortgage which is invalid because it would have been assigned post foreclosure (as was the common practice at the time), thus invalidating a huge number of existing foreclosures.
For foreclosures or those facing foreclosure in the post Ibanez era, than it is highly likely that the assignment of the mortgage is both invalid and fraudulent, as Mrs. McDonnell so accurately points out is endemic in most registry of deeds. If it’s the note than that servicers intend to rely on, they may need to dream up a new strategy, because those are all “missing” as we see in Eaton. New strategies it seems are now in short supply.
A few more questions and thoughts
The “pump and dump” is as old as “market places” are. Whether it’s a street vendor in morocco extolling the virtues of his wares he wants to sell, or a the salesmen of shares in Netflix and Linkedin at impossiblele valuations – this “pump and dump” technique often is done with considerable misrepresentations, which result in artificially high prices for a time, and makes true price discovery impossible for buyers.
If you’re on the wrong side of the transfer, as a buyer of such stocks or bonds, you would have claims against the salesman – it’s called securities fraud. Now this ‘old time’ operation has been executed in the real estate market as well, and real estate, although most people don’t think of it this way, is also a security just like any other (it’s really not the American Dream, as has been sold – because as pointed out above, when something goes beyond the parameters of a mere security, to that of a “dream”, no price is too high). Just like stocks, these securities were pumped, and then dumped (but only after the related CDS’s were purchased by the architects).
What’s being described is an activity based on fraudulent misrepresentations, like most other such schemes. The “Pump” part involved a lot of paper shuffling, so that when the “dump” took place, the profiteers could not be easily identified. The same is true today. That is why debt-servants are not allowed to know their lender-masters – because it is the beginning of the paper trail, and as any certified fraud examiner will indicate, it all starts with the paper trail.
By focusing the attention of the court and the people on the intricacies of the letter of the law – even though they are wrong at that as well, the banks are taking attention away from the more obvious question, which is why? Why fight to interpret the law that way? That is the real question: Why. Why not produce the note. Why not reunite the note with the Mortgage?
Why would notes go missing? These are not credit card bills, they are documents outlining typically multi-six figure sums, or seven figure sums in some cases. Isn’t it logical that these documents would be kept in a safe place? And tracked? How could so many notes just disappear?
Why would the SJC and the American people at large not be alarmed by entities who foreclose on a property and yet have no idea who actually holds the debt?
The securitization process, in which so many notes were resold is subtle, but complex and riddled with a taxonomy that makes it as understandable as a foreign language to the casual observer. Yet, more careful scrutiny reveals that there is nothing even vaguely sophisticated about it’s operation.
The business of taking homes without any debt being owed is so obvious and simple so as to lend itself to denial. For example, one member of the SJC panel actually asked the attorney for Eaton why the barrower needed to know who owned the debt that they were paying? We thought maybe it was a joke – sadly it may not have been.
Yet, we know that notes have been sold multiple times into multiple pools and trusts, thus creating multiple creditors.
Any consumer should want to know if there debt is actually going to be discharged, and in order to know this, they would have to know who the actual debt holder is.
These debts are not secured. They are negotiable. This week alone, there was talk of bankruptcy proceedings for Eastman Kodak and American Airlines, Friendly’s, after more than 80 years in business, including operating during the last depression, actually did file. As commercial entities, they will be allowed before, during and after bankruptcy to work with their creditors in a completely transparent way.
Why is the average American expressly forbidden this simple aspect of business dealing? Though they entered into such obligations at far greater disadvantage than their corporate cousins?
It is clear that by introducing multiple parties that there are conflicting incentives and interests. It was surprising that the SJC brought up inadvertently during the oral arguments that the lender may have contractually sold their rights to have any say whatsoever in negotiations with the debt holder.
The following question regarding Green Tree, MERS and the Eaton case are worth asking:
– Why would they go to such great lengths to keep the “lender” or holder of the debt in “secret”? What is there to gain? Would it not be much more expeditious to just reunite the note with the mortgage and then foreclose?
– Foreclosing with just a mortgage used to be an anomaly? But now it is the rule – what changed? Why would lenders take such an extraordinary risk with trillions of dollars?
– Does the claim that the notes are “lost”, or “missing” seem credible in light of the extraordinary technological world we live in?
– Is the imbalance in power between the home buyer (as signer) and the lawyer (as author) of the contract important? 99% of home buyers had no clue what they were signing – their attorney’s didn’t understand the assignee aspect of MERS or how it functioned either.
– Why would the servicer hide the debt holder? Why go through all of this trouble? Is it because it is really the US government by proxy of Fannie and Freddie?
– Were the notes used in a pyramid scheme? Were they sold multiple times intentionally in order to accommodate increasing degrees of leverage that the derivatives market required to sustain itself?
In the Commonwealth of Massachusetts servicers in possession of mortgages only (which is basically all of those who represent securitized notes) are barred by common law rule, by statute, by the Uniform Commercial Code, and by the terms of the mortgages themselves from conducting foreclosures. If they have already done so, those foreclosures are void. We believe these principles do and will extend beyond the commonwealth eventually to all of the US.
The reason the banks are fighting this is because there exists a very real fear that homeowners stuck with inflated debts, which are the equivalent to indentured servents, might actually gain some negotiating power to settle these debts, at prices which not only reflect the prudent risk management which should have taken place in prior years, but also the related and more realistic asset prices which should have prevailed at the time of the original transactions.
From a purely business point of view, the asset prices were inflated, and the average home buyer with a home loan vintage 2002-2007 had little or no choice in the setting of those prices. However, there is another group who did, and they were writing “loans” and selling them as fast as the CPU and the RAMM on MERS’ servers would allow them (thankfully cloud computing, with its superior ability to process data, and elastic memory and bandwidth wasn’t yet widely used).
Yet the securitization industry and their very elite and very wealthy captains are not having any of that – because it is a reverse transfer. To be a debt-servant is to be the servant of another man by force. Humans are not designed or built for that – that is a construct of an unfortunate human condition, which we should want to change.
How a mortgage payment can be made with fidelity every month into a authentic black hole, and the attendant psychology which enables this behavior is beyond the scope of this article. The Common Law, the MGL and UCC and even the contracts themselves make it clear though, if a mortgagor expects a discharge of the debt, they need to know who exactly they are paying.
Taking a step forward requires some courage, but less than those who have taken to the streets in NY, Boston or other cities – they are doing really hard and courageous work. Not paying a mortgage in light of the a priori evidence cannot even qualify as an act of civil disobedience. The average homeowner and mortgagor is not called to such a high calling in this instance – they are merely called to follow the mundane laws of the land which have been set down for over 150 years. It is just simple prudence. It is the lack of denial, and a willingness to recognize the truth, no matter how unpleasant. Participation in the system as it is, while concurrently declining to examine the issues intelligently is not defensible.
Paradoxically the hand of the strong which moved to Divide (the notes) and Affirm (title interest) – when taken in God’s hands, has destroyed (the notes) and preserved (the legitimate ownership).
About Gregory M. Lemelson
Author – Amvona.com blog. Entrepreneur. Find joy in teaching and writing. Founded companies in retail, real estate and Internet technology.
Supreme Judicial Court FOR THE COMMONWEALTH OF MASSACHUSETTS NO. SJC-11041
HENRIETTA EATON, PLAINTIFF-APPELLEE, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION & ANOTHER, DEFENDANTS-APPELLANTS.
ON APPEAL FROM THE APPEALS COURT SINGLE JUSTICE
BRIEF OF AMICUS CURIAE MARIE MCDONNELL, CFE
“It is incumbent upon consumers, their attorneys,
registry staff, clerks of court, and judges to learn
how to recognize these sham assignments because they
are corrupting the chain of title in our land records;
and because, once recorded, courts afford them
deference rather than seeing them for what they are:
counterfeits, forgeries and utterings.
The MERS System is no replacement for the timehonored
public land recording system that is the
foundation of our freedom, our prosperity, and our
American way of life. By privatizing property transfer
records MERS has been allowed to set up a “control
fraud” of epic proportions that has facilitated the
largest transfer of wealth in human history, and it
should be abolished.”
NEW YORK (AP) — Lawmakers and enforcement agencies called for hearings and further investigation Tuesday after learning that the illegal practice known as robo-signing has continued in the mortgage industry.
The Associated Press reported on Monday that county officials in at least three states — Massachusetts, North Carolina and Michigan — say they have received thousands of mortgage documents with questionable signatures since last fall. That’s when forged signatures and false affidavits — also called robo-signing — led to a temporary halt to foreclosures. Banks and mortgage processers promised to stop the practice. But the findings of the county officials indicate that robo-signing is still a widespread problem.
Sen. Sherrod Brown, D-Ohio., chair of the Financial Institutions and Consumer Protection Subcommittee, said the subcommittee will hold a hearing on the robo-signing issue.
“Wall Street and some in Washington want us to believe that robo-signing is a thing of the past,” said Brown. “But the same risky practices that put our economy on the brink of collapse continue to infect the housing market.”
Rep. Maxine Waters, D-Calif., a senior member of the House Committee on Financial Services said the lenders who continue the practice “need to be investigated and prosecuted.” She told The Associated Press that she believed regulators should step in and that the absence of stronger regulation is “the reason why the system broke down in the first place.” She said the county officials’ findings show lenders will not stop practices like robo-signing on their own.
“(The lenders) have complete disregard for the damage they have already caused and have no intention of changing their ways,” said Waters, who also called for more hearings on the issue.
County officials who are responsible for keeping land records, including property deeds, say that they have received thousands of robo-signed documents filed in their offices since October.
In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of “Linda Green,” but in 22 different handwriting styles and with many different titles.
In Guilford County, N.C., the office that records deeds says it received 456 documents with suspect signatures from Oct. 1, 2010, through June 30. And in Michigan, a fraud investigator who works on behalf of homeowners says he has uncovered documents filed this year bearing the purported signature of Marshall Isaacs, an attorney with foreclosure law firm Orlans Associates.
Early Tuesday, an official from the office of Minnesota attorney general, Lori Swanson, contacted the Essex County’s John O’Brien to get more information for its own investigation into robo-signing. The Massachusetts attorney general’s office also confirmed that it is meeting with several of the state’s 21 registers of deeds to assess the extent of robo-signing in the state.
Also on Tuesday, nine recorders of deeds in Illinois held a press conference to say they will assist the state’s attorney general Lisa Madigan who is investigating robo-signing in her state.
Rep. Waters, meanwhile, says the Office of the Comptroller of the Currency, or the OCC, is the main federal regulator for banks. As such, it’s the OCC’s responsibility to investigate the banks.
The OCC has been criticized by lawmakers and consumer advocates for going easy on banks in the past. The same criticism has resurfaced since the robo-signing scandal broke in September. Last fall, The Associated Press found that robo-signed documents led to banks wrongfully foreclosing on people who had paid their mortgages in full. When asked about the issue, an OCC spokesman flatly denied that any such thing had ever occurred.
The OCC partnered with other federal regulators and conducted a review of bank procedures including robo-signing in December. In April, the 14 largest national banks entered into a consent decree with the OCC in which they vowed to submit action plans as to how they would address such systemic issues as robo-signing.
Last week, the banks delivered those action plans to the OCC, which is now reviewing them, a spokesman said.
Mortgage industry employees are still signing documents they haven’t read and using fake signatures more than eight months after big banks and mortgage companies promised to stop the illegal practices that led to a nationwide halt of home foreclosures.
County officials in at least three states say they have received thousands of mortgage documents with questionable signatures since last fall, suggesting that the practices, known collectively as “robo-signing,” remain widespread in the industry.
The documents have come from several companies that process mortgage paperwork, and have been filed on behalf of several major banks. One name, “Linda Green,” was signed almost two dozen different ways.
Lenders say they are working with regulators to fix the problem but cannot explain why it has persisted.
Last fall, the nation’s largest banks and mortgage lenders, including JPMorgan Chase, Wells Fargo, Bank of America and an arm of Goldman Sachs, suspended foreclosures while they investigated how corners were cut to keep pace with the crush of foreclosure paperwork.
Critics say the new findings point to a systemic problem with the paperwork involved in home mortgages and titles. And they say it shows that banks and mortgage processors haven’t acted aggressively enough to put an end to widespread document fraud in the mortgage industry.
“Robo-signing is not even close to over,” says Curtis Hertel, the recorder of deeds in Ingham County, Mich., which includes Lansing. “It’s still an epidemic.”
In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of “Linda Green,” but in 22 different handwriting styles and with many different titles.
Linda Green worked for a company called DocX that processed mortgage paperwork and was shut down in the spring of 2010. County officials say they believe Green hasn’t worked in the industry since. Why her signature remains in use is not clear.
“My office is a crime scene,” says John O’Brien, the registrar of deeds in Essex County, which is north of Boston and includes the city of Salem.
In Guilford County, N.C., the office that records deeds says it received 456 documents with suspect signatures from Oct. 1, 2010, through June 30. The documents, mortgage assignments and certificates of satisfaction, transfer loans from one bank to another or certify a loan has been paid off.
Suspect signatures on the paperwork include 290 signed by Bryan Bly and 155 by Crystal Moore. In the mortgage investigations last fall, both admitted signing their names to mortgage documents without having read them. Neither was charged with a crime.
And in Michigan, a fraud investigator who works on behalf of homeowners says he has uncovered documents filed this year bearing the purported signature of Marshall Isaacs, an attorney with foreclosure law firm Orlans Associates. Isaacs’ name did not come up in last year’s investigations, but county officials across Michigan believe his name is being robo-signed.
O’Brien caused a stir in June at a national convention of county clerks by presenting his findings and encouraging his counterparts to investigate continued robo-signing.
The nation’s foreclosure machine almost came to a standstill when the nation’s largest banks suspended foreclosures last fall. Part of the problem, banks contended, was that foreclosures became so rampant in 2009 and 2010 that they were overwhelmed with paperwork.
The banks reviewed thousands of foreclosure filings, and where they found problems, they submitted new paperwork to courts handling the cases, with signatures they said were valid. The banks slowly started to resume foreclosures this winter and spring.
The 14 biggest U.S. banks reached a settlement with federal regulators in April in which they promised to clean up their mistakes and pay restitution to homeowners who had been wrongly foreclosed upon. The full amount of the settlement has not been determined. But it will not involve independent mortgage processing firms, the companies that some banks use to handle and file paperwork for mortgages.
So far, no individuals, lenders or paperwork processors have been charged with a crime over the robo-signed signatures found on documents last year. Critics such as April Charney, a Florida homeowner and defense lawyer, called the settlement a farce because no real punishment was meted out, making it easy for lenders and mortgage processors to continue the practice of robo-signing.
Robo-signing refers to a variety of practices. It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive’s signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing to their accuracy without verifying any of the information.
Most of the tainted mortgage documents in question last fall were related to homes in foreclosure. But much of the suspect paperwork that has been filed since then is for refinancing or for new purchases by people who are in good standing in the eyes of the bank. In addition, foreclosures are down 30 percent this year from last. Home sales have also fallen. So the new suspect documents come at a time when much less paperwork is streaming through the nation’s mortgage machinery.
None of the almost 1,300 suspect Linda Green-signed documents from O’Brien’s office, for example, involve foreclosures. And Jeff Thigpen, the register of deeds in North Carolina’s Guilford County, says fewer than 40 of the 456 suspect documents filed to his office since October involved foreclosures.
Banks and their partner firms file mortgage documents with county deeds offices to prove that there are no liens on a property, that the bank owns a mortgage or that a bank filing for foreclosure has the authority to do so.
The signature of a qualified bank or mortgage official on these legal documents is supposed to guarantee that this information is accurate. The paper trail ensures a legal chain of title on a property and has been the backbone of U.S. property ownership for more than 300 years.
The county officials say the problem could be even worse than what they’re reporting. That’s because they are working off lists of known robo-signed names, such as Linda Green and Crystal Moore, that were identified during the investigation that began last fall. Officials suspect that other names on documents they have received since then are also robo-signed.
It is a federal crime to sign someone else’s name to a legal document. It is also illegal to sign your name to an affidavit if you have not verified the information you’re swearing to. Both are punishable by prison.
In Michigan, the attorney general took the rare step in June of filing criminal subpoenas to out-of-state mortgage processing companies after 23 county registers of deeds filed a criminal complaint with his office over robo-signed documents they say they have received. New York Attorney General Eric Schneiderman’s office has said it is conducting a banking probe that could lead to criminal charges against financial executives. The attorneys general of Delaware, California and Illinois are conducting their own probes.
The legal issues are grave, deeds officials across the country say. At worst, legal experts say, the document debacle has opened the property system to legal liability well beyond the nation’s foreclosure crisis. So someone buying a home and trying to obtain title insurance might be delayed or denied if robo-signed documents turn up in the property’s history. That’s because forged signatures call into question who owns mortgages and the properties they are attached to.
“The banks have completely screwed up property records,” says L. Randall Wray, an economics professor and senior scholar at the University of Missouri-Kansas City.
In the Massachusetts case, The Associated Press tried to reach Linda Green, whose name was purportedly signed 1,300 times since October. The AP, using a phone number provided by lawyers who have been investigating the documents since last year, reached a person who said she was Linda Green, but not the Linda Green involved in the mortgage investigation.
In the Michigan case, a lawyer for the Orlans Associates law firm, where Isaacs works, denies that Isaacs or the firm has done anything wrong. “People have signatures that change,” says Terry Cramer, general counsel for the firm. “We do not engage in ‘robo-signing’ at Orlans.”
To combat the stream of suspect filings, O’Brien and Jeff Thigpen, the register of deeds in North Carolina’s Guilford County, stopped accepting questionable paperwork June 7. They say they had no choice after complaining to federal and state authorities for months without getting anywhere.
Since then, O’Brien has received nine documents from Bank of America purportedly signed by Linda Burton, another name on authorities’ list of known robo-signers. For years, his office has regularly received documents signed with Burton’s name but written in such vastly different handwriting that two forensic investigators say it’s highly unlikely it all came from the same person.
O’Brien returned the nine Burton documents to Bank of America in mid-June. He told the bank he would not file them unless the bank signed an affidavit certifying the signature and accepting responsibility if the title was called into question down the road. Instead, Bank of America sent new documents with new signatures and new notaries.
A Bank of America spokesman says Burton is an assistant vice president with a subsidiary, ReconTrust. That company handles mortgage paperwork processing for Bank of America.
“She signed the documents on behalf of the bank,” spokesman Richard Simon says. The bank says providing the affidavit O’Brien asked for would have been costly and time-consuming. Instead, Simon says Bank of America sent a new set of documents “signed by an authorized associate who Mr. O’Brien wasn’t challenging.”
The bank didn’t respond to questions about why Burton’s name has been signed in different ways or why her signature appeared on documents that investigators in at least two states have deemed invalid.
Several attempts by the AP to reach Burton at ReconTrust were unsuccessful.
O’Brien says the bank’s actions show “consciousness of guilt.” Earlier this year, he hired Marie McDonnell, a mortgage fraud investigator and forensic document analyst, to verify his suspicions about Burton’s and other names on suspect paperwork.
She compared valid copies of Burton’s signature with the documents O’Brien had received in 2008, 2009 and 2010 and found that Burton’s name was fraudulently signed on hundreds of documents.
Most of the documents reviewed by McDonnell were mortgage discharges, which are issued when a home changes hands or is refinanced by a new lender and are supposed to confirm that the previous mortgage has been paid off. Bank of America declined comment on McDonnell’s findings.
In Michigan, recorder of deeds Hertel and his counterparts in 23 other counties found numerous suspect signatures on documents filed since the beginning of the year.
In June, their findings led the Michigan attorney general to issue criminal subpoenas to several firms that process mortgages for banks, including Lender Processing Services, the parent company of DocX, where Linda Green worked. On July 6, the CEO of that company, which is also under investigation by the Florida Attorney General’s office, resigned, citing health reasons.
Southern Essex Registry of Deeds Audit Reveals That 75% of Assignments of Mortgage Are Invalid; O’Brien Says Banks Responsible for an Epidemic of Fraud. Once again urges Attorney’s General to stop Bank settlement talks.
Yesterday at the Annual Conference of The International Association of Clerks, Recorders, Election Officials and Treasurers (IACREOT), Register John O’Brien revealed the results of an independent audit of his registry. The audit, which is released as a legal affidavit was performed by McDonnell Property Analytics, examined assignments of mortgage recorded in the Essex Southern District Registry of Deeds issued to and from JPMorgan Chase Bank, Wells Fargo Bank, and Bank of America during 2010. In total, 565 assignments related to 473 unique mortgages were analyzed.
McDonnell’s Report includes the following key findings:
– Only 16% of assignments of mortgage are valid
– 75% of assignments of mortgage are invalid.
– 9% of assignments of mortgage are questionable
– 27% of the invalid assignments are fraudulent, 35% are “robo-signed” and 10% violate the Massachusetts Mortgage Fraud Statute.
– The identity of financial institutions that are current owners of the mortgages could only be determined for 287 out of 473 (60%)
– There are 683 missing assignments for the 287 traced mortgages, representing approximately $180,000 in lost recording fees per 1,000 mortgages whose current ownership can be traced.
McDonnell told O’Brien, “I have been auditing residential mortgage loans for the past twenty years on a one-by-one basis. In the process, I have been cataloging the ramp up in predatory lending and mortgage fraud for all of those years, but I was not prepared for the shocking results of my audit. What this means is that the degradation in standards of commerce by which the banks originated, sold and securitized these mortgages are so fatally flawed that the institutions, including many pension funds, that purchased these mortgages don’t actually own them because the assignments of mortgage were never prepared, executed and delivered to them in the normal course of business at the time of the transaction. In a blatant attempt to engineer a ‘fix’ to the problem, the banks set up in-house document execution teams, or outsourced the preparation of their assignments to third parties who manufactured them out of thin air without researching who really owns the mortgage.”
O’Brien asked McDonnell what this means for his constituents. “It is vitally important for your constituents to know that if they are in foreclosure now or if their homes have been foreclosed upon, they can stop the foreclosure from proceeding, or institute a court action to vacate a completed foreclosure. The Massachusetts Supreme Judicial Court has established the law of the land in its decisions U.S. Bank, N.A. v. Ibanez and Wells Fargo Bank, N.A. v. LaRace and I can tell you that every single assignment of mortgage that was recorded for the purpose of foreclosing the homeowner is invalid, overtly fraudulent, or criminally fraudulent. My findings also show that your constituents who are not in foreclosure, and have never been delinquent in their payments also have clouds on title due to the recording of defective and invalid discharges and assignments of mortgage.”
“My registry is a crime scene as evidenced by this forensic examination,” stated John O’Brien. “This crime that has affected thousands of homeowners in Essex County who, through no fault of their own, have had their property rights trampled on and their chain of title compromised. This evidence has made it clear to me that the only way we can ever determine the total economic loss and the amount damage done to the taxpayers is by conducting a full forensic audit of all registry of deeds in Massachusetts. I suspect that at the end of the day we are going to find that the taxpayers have been bilked in this state alone of over 400 million dollars not including the accrued interest plus costs and penalties. The Audit makes the finding that this was not only a MERS problem, but a scheme also perpetuated by MERS shareholder banks such Bank of America, Wells Fargo, JP Morgan and others. I am stunned and appalled by the fact that America’s biggest banks have played fast and loose with people’s biggest asset – their homes. This is disgusting, and this is criminal,” said O’Brien.
O’Brien continued “Once again I am asking Attorney General Martha Coakley and the other state Attorney’s General to follow the lead of New York Attorney General Eric Schneiderman and stop any settlement talks with the banks. The results of this report are only for my registry, but I can assure you that this type of criminal fraud is rampant across the nation. This leaves me to question why anyone would consider settling with these banks until we know the full extent of the damage that they have caused to the homeowners chain of title across this country and the amount of money they have bilked the taxpayers for their failure to pay recording fees.”
If you’ve ever bought or sold a home…you need to hear this. Hank found a signature buried deep in your mortgage documents could be a ticking time bomb for thousands of Massachusetts homeowners. For those in foreclosure: it could be a lifesaver. It’s a shocking, amazing, unbelievable story. Hank Investigates.
The Ibanezforeclosure decision by the Massachusetts Supreme Judicial Court has gotten a lot of attention since it came down on Friday. The case is, not surprisingly being taken to heart by both bulls and bears. While I don’t think Ibanez is a death blow to the securitization industry, at the very least it should make investors question the party line that’s been coming out of the American Securitization Forum. At the very least it shows that the ASF’s claims in its White Paper and Congressional testimony are wrong on some points, as I’ve argued elsewhere, including on this blog. I would argue that at the very least, Ibanez shows that there is previously undisclosed material risk in all private-label MBS.
The Ibanez case itself is actually very simple. The issue before the court was whether the two securitization trusts could prove a chain of title for the mortgages they were attempting to foreclose on.
There’s broad agreement that absent such a chain of title, they don’t have the right to foreclose–they’d have as much standing as I do relative to the homeowners. The trusts claimed three alternative bases for chain of title:
(1) that the mortgages were transferred via the pooling and servicing agreement (PSA)–basically a contract of sale of the mortgages
(2) that the mortgages were transferred via assignments in blank.
(3) that the mortgages follow the note and transferred via the transfers of the notes.
The Supreme Judicial Court (SJC) held that arguments #2 and #3 simply don’t work in Massachusetts. The reasoning here was heavily derived from Massachusetts being a title theory state, but I think a court in a lien theory state could easily reach the same result. It’s hard to predict if other states will adopt the SJC’s reasoning, but it is a unanimous verdict (with an even sharper concurrence) by one of the most highly regarded state courts in the country. The opinion is quite lucid and persuasive, particularly the point that if the wrong plaintiff is named is the foreclosure notice, the homeowner hasn’t received proper notice of the foreclosure.
Regarding #1, the SJC held that a PSA might suffice as a valid assignment of the mortgages, if the PSA is executed and contains a schedule that sufficiently identifies the mortgage in question, and if there is proof that the assignor in the PSA itself held the mortgage. (This last point is nothing more than the old rule of nemo dat–you can’t give what you don’t have. It shows that there has to be a complete chain of title going back to origination.)
On the facts, both mortgages in Ibanez failed these requirements. In one case, the PSA couldn’t even be located(!) and in the other, there was a non-executed copy and the purported loan schedule (not the actual schedule–see Marie McDonnell’s amicus brief to the SJC) didn’t sufficiently identify the loan. Moreover, there was no proof that the mortgage chain of title even got to the depositor (the assignor), without which the PSA is meaningless:
Today my friend’s history was made. The Massachusetts decision represents a major victory for consumers as well as for the handful of attorneys and advocates who dedicated their lives to protecting the defenseless. Perhaps the critical game-changing event in the Massachusetts litigation was the Amicus Brief submitted by Marie McDonnell setting forth and outlining the securitization paradigm and the defects in the chain of title.
Her analysis exposed both the material deficits contained and the subsequent fraudulent actions taken by the banks in foreclosing the properties. If you recall correctly it was Marie who first made the discovery in Antonio Ibanez’s loan in which it may have been securitized twice? Lets not forget who the robo-signer was that assigned the mortgage to U.S. Bank but non other than Linda Green.
And after two and half very long years post-foreclosure who would have thought that Mark and Tammy LaRace would move back home!
I would like to personally thank all the attorney’s involved and a special thanks to my good friend Marie McDonnell for her brilliant work and who deserves a mighty high five from all of us…
Marie McDonnell is the President of McDonnell Property Analytics, Inc. (www.mcdonnellanalytics.com), a company dedicated to helping consumers, and training and supporting attorneys in defending foreclosures.
The Massachusetts Supreme Court on Friday upheld a lower court ruling voiding two foreclosures because the banks failed to show the proper paperwork to prove they owned the loans-a decision that challenges the way mortgages were bundled and sold around the world.
Shares of Wells Fargo and U.S. Bancorp–the banks involved in the case–as well as those of other banks fell following the announcement of the decision. Wells Fargo was down 3.4 percent and US Bancorp 1.1 percent at midday.
The Massachusetts court is the highest to ruled on this issue and the decision has the potential to invalidate thousands of foreclosures across the state. It also provides more ammunition to borrowers in other states who could push the case to the U.S. Supreme Court. If the nation’s highest court rules that these transfers are not legal, the multi-trillion-dollar mortgage-backed securitization industry could face massive liability.
U.S. Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real-estate law. The ruling drove down bank stocks.
The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were transferred into two mortgage-backed trusts without the recipients’ being named.
Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., called the decision “a landmark ruling” showing that at least in Massachusetts a mortgage “must name the assignee to be valid.”
“This is likely to open the floodgates to more suits in Massachusetts and strengthens cases in other states,” Rosner said.
“We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote for a unanimous court.
NOTICE: All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports. If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA 02108-1750; (617) 557-1030 (617) 557-1030
U.S. BANK NATIONAL ASSOCIATION, trustee1 vs. ANTONIO IBANEZ (and a consolidated case2,3).
Real Property, Mortgage, Ownership, Record title. Mortgage, Real estate, Foreclosure, Assignment. Notice, Foreclosure of mortgage.
Civil actions commenced in the Land Court Department on September 16 and October 30, 2008.
Motions for entry of default judgment and to vacate judgment were heard by Keith C. Long, J.
The Supreme Judicial Court granted an application for direct appellate review.
R. Bruce Allensworth (Phoebe S. Winder & Robert W. Sparkes, III, with him) for U.S. Bank National Association & another.
Paul R. Collier, III (Max W. Weinstein with him) for Antonio Ibanez.
Glenn F. Russell, Jr., for Mark A. LaRace & another.
The following submitted briefs for amici curiae:
Martha Coakley, Attorney General, & John M. Stephan, Assistant Attorney General, for the Commonwealth.
Kevin Costello, Gary Klein, Shennan Kavanagh & Stuart Rossman for National Consumer Law Center & others.
Ward P. Graham & Robert J. Moriarty, Jr., for Real Estate Bar Association for Massachusetts, Inc.
Marie McDonnell, pro se.
GANTS, J. After foreclosing on two properties and purchasing the properties back at the foreclosure sales, U.S. Bank National Association (U.S. Bank), as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z; and Wells Fargo Bank, N.A. (Wells Fargo), as trustee for ABFC 2005-OPT 1 Trust, ABFC Asset Backed Certificates, Series 2005-OPT 1 (plaintiffs) filed separate complaints in the Land Court asking a judge to declare that they held clear title to the properties in fee simple. We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied.5
Procedural history. On July 5, 2007, U.S. Bank, as trustee, foreclosed on the mortgage of Antonio Ibanez, and purchased the Ibanez property at the foreclosure sale. On the same day, Wells Fargo, as trustee, foreclosed on the mortgage of Mark and Tammy LaRace, and purchased the LaRace property at that foreclosure sale.
In September and October of 2008, U.S. Bank and Wells Fargo brought separate actions in the Land Court under G. L. c. 240, § 6, which authorizes actions “to quiet or establish the title to land situated in the commonwealth or to remove a cloud from the title thereto.” The two complaints sought identical relief: (1) a judgment that the right, title, and interest of the mortgagor (Ibanez or the LaRaces) in the property was extinguished by the foreclosure; (2) a declaration that there was no cloud on title arising from publication of the notice of sale in the Boston Globe; and (3) a declaration that title was vested in the plaintiff trustee in fee simple. U.S. Bank and Wells Fargo each asserted in its complaint that it had become the holder of the respective mortgage through an assignment made after the foreclosure sale.
In both cases, the mortgagors — Ibanez and the LaRaces — did not initially answer the complaints, and the plaintiffs moved for entry of default judgment. In their motions for entry of default judgment, the plaintiffs addressed two issues: (1) whether the Boston Globe, in which the required notices of the foreclosure sales were published, is a newspaper of “general circulation” in Springfield, the town where the foreclosed properties lay. See G. L. c. 244, § 14 (requiring publication every week for three weeks in newspaper published in town where foreclosed property lies, or of general circulation in that town); and (2) whether the plaintiffs were legally entitled to foreclose on the properties where the assignments of the mortgages to the plaintiffs were neither executed nor recorded in the registry of deeds until after the foreclosure sales.6 The two cases were heard together by the Land Court, along with a third case that raised the same issues.
On March 26, 2009, judgment was entered against the plaintiffs. The judge ruled that the foreclosure sales were invalid because, in violation of G. L. c. 244, § 14, the notices of the foreclosure sales named U.S. Bank (in the Ibanez foreclosure) and Wells Fargo (in the LaRace foreclosure) as the mortgage holders where they had not yet been assigned the mortgages.7 The judge found, based on each plaintiff’s assertions in its complaint, that the plaintiffs acquired the mortgages by assignment only after the foreclosure sales and thus had no interest in the mortgages being foreclosed at the time of the publication of the notices of sale or at the time of the foreclosure sales.8
The plaintiffs then moved to vacate the judgments. At a hearing on the motions on April 17, 2009, the plaintiffs conceded that each complaint alleged a postnotice, postforeclosure sale assignment of the mortgage at issue, but they now represented to the judge that documents might exist that could show a prenotice, preforeclosure sale assignment of the mortgages. The judge granted the plaintiffs leave to produce such documents, provided they were produced in the form they existed in at the time the foreclosure sale was noticed and conducted. In response, the plaintiffs submitted hundreds of pages of documents to the judge, which they claimed established that the mortgages had been assigned to them before the foreclosures. Many of these documents related to the creation of the securitized mortgage pools in which the Ibanez and LaRace mortgages were purportedly included.9
The judge denied the plaintiffs’ motions to vacate judgment on October 14, 2009, concluding that the newly submitted documents did not alter the conclusion that the plaintiffs were not the holders of the respective mortgages at the time of foreclosure. We granted the parties’ applications for direct appellate review.
Factual background. We discuss each mortgage separately, describing when appropriate what the plaintiffs allege to have happened and what the documents in the record demonstrate.10
The Ibanez mortgage. On December 1, 2005, Antonio Ibanez took out a $103,500 loan for the purchase of property at 20 Crosby Street in Springfield, secured by a mortgage to the lender, Rose Mortgage, Inc. (Rose Mortgage). The mortgage was recorded the following day. Several days later, Rose Mortgage executed an assignment of this mortgage in blank, that is, an assignment that did not specify the name of the assignee.11 The blank space in the assignment was at some point stamped with the name of Option One Mortgage Corporation (Option One) as the assignee, and that assignment was recorded on June 7, 2006. Before the recording, on January 23, 2006, Option One executed an assignment of the Ibanez mortgage in blank.
According to U.S. Bank, Option One assigned the Ibanez mortgage to Lehman Brothers Bank, FSB, which assigned it to Lehman Brothers Holdings Inc., which then assigned it to the Structured Asset Securities Corporation,12 which then assigned the mortgage, pooled with approximately 1,220 other mortgage loans, to U.S. Bank, as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z. With this last assignment, the Ibanez and other loans were pooled into a trust and converted into mortgage-backed securities that can be bought and sold by investors — a process known as securitization.
For ease of reference, the chain of entities through which the Ibanez mortgage allegedly passed before the foreclosure sale is:
U.S. Bank National Association, as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z
According to U.S. Bank, the assignment of the Ibanez mortgage to U.S. Bank occurred pursuant to a December 1, 2006, trust agreement, which is not in the record. What is in the record is the private placement memorandum (PPM), dated December 26, 2006, a 273-page, unsigned offer of mortgage-backed securities to potential investors. The PPM describes the mortgage pools and the entities involved, and summarizes the provisions of the trust agreement, including the representation that mortgages “will be” assigned into the trust. According to the PPM, “[e]ach transfer of a Mortgage Loan from the Seller [Lehman Brothers Holdings Inc.] to the Depositor [Structured Asset Securities Corporation] and from the Depositor to the Trustee [U.S. Bank] will be intended to be a sale of that Mortgage Loan and will be reflected as such in the Sale and Assignment Agreement and the Trust Agreement, respectively.” The PPM also specifies that “[e]ach Mortgage Loan will be identified in a schedule appearing as an exhibit to the Trust Agreement.” However, U.S. Bank did not provide the judge with any mortgage schedule identifying the Ibanez loan as among the mortgages that were assigned in the trust agreement.
On April 17, 2007, U.S. Bank filed a complaint to foreclose on the Ibanez mortgage in the Land Court under the Servicemembers Civil Relief Act (Servicemembers Act), which restricts foreclosures against active duty members of the uniformed services. See 50 U.S.C. Appendix §§ 501, 511, 533 (2006 & Supp. II 2008).13 In the complaint, U.S. Bank represented that it was the “owner (or assignee) and holder” of the mortgage given by Ibanez for the property. A judgment issued on behalf of U.S. Bank on June 26, 2007, declaring that the mortgagor was not entitled to protection from foreclosure under the Servicemembers Act. In June, 2007, U.S. Bank also caused to be published in the Boston Globe the notice of the foreclosure sale required by G. L. c. 244, § 14. The notice identified U.S. Bank as the “present holder” of the mortgage.
At the foreclosure sale on July 5, 2007, the Ibanez property was purchased by U.S. Bank, as trustee for the securitization trust, for $94,350, a value significantly less than the outstanding debt and the estimated market value of the property. The foreclosure deed (from U.S. Bank, trustee, as the purported holder of the mortgage, to U.S. Bank, trustee, as the purchaser) and the statutory foreclosure affidavit were recorded on May 23, 2008. On September 2, 2008, more than one year after the sale, and more than five months after recording of the sale, American Home Mortgage Servicing, Inc., “as successor-in-interest” to Option One, which was until then the record holder of the Ibanez mortgage, executed a written assignment of that mortgage to U.S. Bank, as trustee for the securitization trust.14 This assignment was recorded on September 11, 2008.
The LaRace mortgage. On May 19, 2005, Mark and Tammy LaRace gave a mortgage for the property at 6 Brookburn Street in Springfield to Option One as security for a $103,200 loan; the mortgage was recorded that same day. On May 26, 2005, Option One executed an assignment of this mortgage in blank.
According to Wells Fargo, Option One later assigned the LaRace mortgage to Bank of America in a July 28, 2005, flow sale and servicing agreement. Bank of America then assigned it to Asset Backed Funding Corporation (ABFC) in an October 1, 2005, mortgage loan purchase agreement. Finally, ABFC pooled the mortgage with others and assigned it to Wells Fargo, as trustee for the ABFC 2005-OPT 1 Trust, ABFC Asset-Backed Certificates, Series 2005-OPT 1, pursuant to a pooling and servicing agreement (PSA).
For ease of reference, the chain of entities through which the LaRace mortgage allegedly passed before the foreclosure sale is:
Option One Mortgage Corporation (originator and record holder)
Bank of America
Asset Backed Funding Corporation (depositor)
Wells Fargo, as trustee for the ABFC 2005-OPT 1, ABFC Asset-Backed Certificates, Series 2005-OPT 1
Wells Fargo did not provide the judge with a copy of the flow sale and servicing agreement, so there is no document in the record reflecting an assignment of the LaRace mortgage by Option One to Bank of America. The plaintiff did produce an unexecuted copy of the mortgage loan purchase agreement, which was an exhibit to the PSA. The mortgage loan purchase agreement provides that Bank of America, as seller, “does hereby agree to and does hereby sell, assign, set over, and otherwise convey to the Purchaser [ABFC], without recourse, on the Closing Date . . . all of its right, title and interest in and to each Mortgage Loan.” The agreement makes reference to a schedule listing the assigned mortgage loans, but this schedule is not in the record, so there was no document before the judge showing that the LaRace mortgage was among the mortgage loans assigned to the ABFC.
Wells Fargo did provide the judge with a copy of the PSA, which is an agreement between the ABFC (as depositor), Option One (as servicer), and Wells Fargo (as trustee), but this copy was downloaded from the Securities and Exchange Commission website and was not signed. The PSA provides that the depositor “does hereby transfer, assign, set over and otherwise convey to the Trustee, on behalf of the Trust . . . all the right, title and interest of the Depositor . . . in and to . . . each Mortgage Loan identified on the Mortgage Loan Schedules,” and “does hereby deliver” to the trustee the original mortgage note, an original mortgage assignment “in form and substance acceptable for recording,” and other documents pertaining to each mortgage.
The copy of the PSA provided to the judge did not contain the loan schedules referenced in the agreement. Instead, Wells Fargo submitted a schedule that it represented identified the loans assigned in the PSA, which did not include property addresses, names of mortgagors, or any number that corresponds to the loan number or servicing number on the LaRace mortgage.Wells Fargo contends that a loan with the LaRace property’s zip code and city is the LaRace mortgage loan because the payment history and loan amount matches the LaRace loan.
On April 27, 2007, Wells Fargo filed a complaint under the Servicemembers Act in the Land Court to foreclose on the LaRace mortgage. The complaint represented Wells Fargo as the “owner (or assignee) and holder” of the mortgage given by the LaRaces for the property. A judgment issued on behalf of Wells Fargo on July 3, 2007, indicating that the LaRaces were not beneficiaries of the Servicemembers Act and that foreclosure could proceed in accordance with the terms of the power of sale. In June, 2007, Wells Fargo caused to be published in the Boston Globe the statutory notice of sale, identifying itself as the “present holder” of the mortgage.
At the foreclosure sale on July 5, 2007, Wells Fargo, as trustee, purchased the LaRace property for $120,397.03, a value significantly below its estimated market value. Wells Fargo did not execute a statutory foreclosure affidavit or foreclosure deed until May 7, 2008. That same day, Option One, which was still the record holder of the LaRace mortgage, executed an assignment of the mortgage to Wells Fargo as trustee; the assignment was recorded on May 12, 2008. Although executed ten months after the foreclosure sale, the assignment declared an effective date of April 18, 2007, a date that preceded the publication of the notice of sale and the foreclosure sale.
Discussion. The plaintiffs brought actions under G. L. c. 240, § 6, seeking declarations that the defendant mortgagors’ titles had been extinguished and that the plaintiffs were the fee simple owners of the foreclosed properties. As such, the plaintiffs bore the burden of establishing their entitlement to the relief sought. Sheriff’s Meadow Found., Inc. v. Bay-Courte Edgartown, Inc., 401 Mass. 267, 269 (1987). To meet this burden, they were required “not merely to demonstrate better title . . . than the defendants possess, but . . . to prove sufficient title to succeed in [the] action.” Id. See NationsBanc Mtge. Corp. v. Eisenhauer, 49 Mass. App. Ct. 727, 730 (2000). There is no question that the relief the plaintiffs sought required them to establish the validity of the foreclosure sales on which their claim to clear title rested.
Massachusetts does not require a mortgage holder to obtain judicial authorization to foreclose on a mortgaged property. See G. L. c. 183, § 21; G. L. c. 244, § 14. With the exception of the limited judicial procedure aimed at certifying that the mortgagor is not a beneficiary of the Servicemembers Act, a mortgage holder can foreclose on a property, as the plaintiffs did here, by exercise of the statutory power of sale, if such a power is granted by the mortgage itself. See Beaton v. Land Court, 367 Mass. 385, 390-391, 393, appeal dismissed, 423 U.S. 806 (1975).
Where a mortgage grants a mortgage holder the power of sale, as did both the Ibanez and LaRace mortgages, it includes by reference the power of sale set out in G. L. c. 183, § 21, and further regulated by G. L. c. 244, §§ 11-17C. Under G. L. c. 183, § 21, after a mortgagor defaults in the performance of the underlying note, the mortgage holder may sell the property at a public auction and convey the property to the purchaser in fee simple, “and such sale shall forever bar the mortgagor and all persons claiming under him from all right and interest in the mortgaged premises, whether at law or in equity.” Even where there is a dispute as to whether the mortgagor was in default or whether the party claiming to be the mortgage holder is the true mortgage holder, the foreclosure goes forward unless the mortgagor files an action and obtains a court order enjoining the foreclosure.15 See Beaton v. Land Court, supra at 393.
Recognizing the substantial power that the statutory scheme affords to a mortgage holder to foreclose without immediate judicial oversight, we adhere to the familiar rule that “one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void.” Moore v. Dick, 187 Mass. 207, 211 (1905). See Roche v. Farnsworth, 106 Mass. 509, 513 (1871) (power of sale contained in mortgage “must be executed in strict compliance with its terms”). See also McGreevey v. Charlestown Five Cents Sav. Bank, 294 Mass. 480, 484 (1936).16
One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose. The “statutory power of sale” can be exercised by “the mortgagee or his executors, administrators, successors or assigns.” G. L. c. 183, § 21. Under G. L. c. 244, § 14, “[t]he mortgagee or person having his estate in the land mortgaged, or a person authorized by the power of sale, or the attorney duly authorized by a writing under seal, or the legal guardian or conservator of such mortgagee or person acting in the name of such mortgagee or person” is empowered to exercise the statutory power of sale. Any effort to foreclose by a party lacking “jurisdiction and authority” to carry out a foreclosure under these statutes is void. Chace v. Morse, 189 Mass. 559, 561 (1905), citing Moore v. Dick, supra. See Davenport v. HSBC Bank USA, 275 Mich. App. 344, 347-348 (2007) (attempt to foreclose by party that had not yet been assigned mortgage results in “structural defect that goes to the very heart of defendant’s ability to foreclose by advertisement,” and renders foreclosure sale void).
A related statutory requirement that must be strictly adhered to in a foreclosure by power of sale is the notice requirement articulated in G. L. c. 244, § 14. That statute provides that “no sale under such power shall be effectual to foreclose a mortgage, unless, previous to such sale,” advance notice of the foreclosure sale has been provided to the mortgagee, to other interested parties, and by publication in a newspaper published in the town where the mortgaged land lies or of general circulation in that town. Id. “The manner in which the notice of the proposed sale shall be given is one of the important terms of the power, and a strict compliance with it is essential to the valid exercise of the power.” Moore v. Dick, supra at 212. See Chace v. Morse, supra (“where a certain notice is prescribed, a sale without any notice, or upon a notice lacking the essential requirements of the written power, would be void as a proceeding for foreclosure”). See also McGreevey v. Charlestown Five Cents Sav. Bank, supra. Because only a present holder of the mortgage is authorized to foreclose on the mortgaged property, and because the mortgagor is entitled to know who is foreclosing and selling the property, the failure to identify the holder of the mortgage in the notice of sale may render the notice defective and the foreclosure sale void.17 See Roche v. Farnsworth, supra (mortgage sale void where notice of sale identified original mortgagee but not mortgage holder at time of notice and sale). See also Bottomly v. Kabachnick, 13 Mass. App. Ct. 480, 483-484 (1982) (foreclosure void where holder of mortgage not identified in notice of sale).
For the plaintiffs to obtain the judicial declaration of clear title that they seek, they had to prove their authority to foreclose under the power of sale and show their compliance with the requirements on which this authority rests. Here, the plaintiffs were not the original mortgagees to whom the power of sale was granted; rather, they claimed the authority to foreclose as the eventual assignees of the original mortgagees. Under the plain language of G. L. c. 183, § 21, and G. L. c. 244, § 14, the plaintiffs had the authority to exercise the power of sale contained in the Ibanez and LaRace mortgages only if they were the assignees of the mortgages at the time of the notice of sale and the subsequent foreclosure sale. See In re Schwartz, 366 B.R. 265, 269 (Bankr. D. Mass. 2007) (“Acquiring the mortgage after the entry and foreclosure sale does not satisfy the Massachusetts statute”).18 See also Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885, 886 (Fla. Dist. Ct. App. 1990) (per curiam) (foreclosure action could not be based on assignment of mortgage dated four months after commencement of foreclosure proceeding).
The plaintiffs claim that the securitization documents they submitted establish valid assignments that made them the holders of the Ibanez and LaRace mortgages before the notice of sale and the foreclosure sale. We turn, then, to the documentation submitted by the plaintiffs to determine whether it met the requirements of a valid assignment.
Like a sale of land itself, the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor. See G. L. c. 183, § 3; Saint Patrick’s Religious, Educ. & Charitable Ass’n v. Hale, 227 Mass. 175, 177 (1917). In a “title theory state” like Massachusetts, a mortgage is a transfer of legal title in a property to secure a debt. See Faneuil Investors Group, Ltd. Partnership v. Selectmen of Dennis, 458 Mass. 1, 6 (2010). Therefore, when a person borrows money to purchase a home and gives the lender a mortgage, the homeowner-mortgagor retains only equitable title in the home; the legal title is held by the mortgagee. See Vee Jay Realty Trust Co. v. DiCroce, 360 Mass. 751, 753 (1972), quoting Dolliver v. St. Joseph Fire & Marine Ins. Co., 128 Mass. 315, 316 (1880) (although “as to all the world except the mortgagee, a mortgagor is the owner of the mortgaged lands,” mortgagee has legal title to property); Maglione v. BancBoston Mtge. Corp., 29 Mass. App. Ct. 88, 90 (1990). Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone’s home or farm and must be treated as such.
Focusing first on the Ibanez mortgage, U.S. Bank argues that it was assigned the mortgage under the trust agreement described in the PPM, but it did not submit a copy of this trust agreement to the judge. The PPM, however, described the trust agreement as an agreement to be executed in the future, so it only furnished evidence of an intent to assign mortgages to U.S. Bank, not proof of their actual assignment. Even if there were an executed trust agreement with language of present assignment, U.S. Bank did not produce the schedule of loans and mortgages that was an exhibit to that agreement, so it failed to show that the Ibanez mortgage was among the mortgages to be assigned by that agreement. Finally, even if there were an executed trust agreement with the required schedule, U.S. Bank failed to furnish any evidence that the entity assigning the mortgage — Structured Asset Securities Corporation — ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale.19 Thus, based on the documents submitted to the judge, Option One, not U.S. Bank, was the mortgage holder at the time of the foreclosure, and U.S. Bank did not have the authority to foreclose the mortgage.
Turning to the LaRace mortgage, Wells Fargo claims that, before it issued the foreclosure notice, it was assigned the LaRace mortgage under the PSA. The PSA, in contrast with U.S. Bank’s PPM, uses the language of a present assignment (“does hereby . . . assign” and “does hereby deliver”) rather than an intent to assign in the future. But the mortgage loan schedule Wells Fargo submitted failed to identify with adequate specificity the LaRace mortgage as one of the mortgages assigned in the PSA. Moreover, Wells Fargo provided the judge with no document that reflected that the ABFC (depositor) held the LaRace mortgage that it was purportedly assigning in the PSA. As with the Ibanez loan, the record holder of the LaRace loan was Option One, and nothing was submitted to the judge which demonstrated that the LaRace loan was ever assigned by Option One to another entity before the publication of the notice and the sale.
Where a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at the time of the notice of sale and foreclosure, or was one of the parties authorized to foreclose under G. L. c. 183, § 21, and G. L. c. 244, § 14. A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 (“When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them”). See also Bayview Loan Servicing, LLC v. Nelson, 382 Ill. App. 3d 1184, 1188 (2008) (reversing grant of summary judgment in favor of financial entity in foreclosure action, where there was “no evidence that [the entity] ever obtained any legal interest in the subject property”).
We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder. However, there must be proof that the assignment was made by a party that itself held the mortgage. See In re Samuels, 415 B.R. 8, 20 (Bankr. D. Mass. 2009). A foreclosing entity may provide a complete chain of assignments linking it to the record holder of the mortgage, or a single assignment from the record holder of the mortgage. See In re Parrish, 326 B.R. 708, 720 (Bankr. N.D. Ohio 2005) (“If the claimant acquired the note and mortgage from the original lender or from another party who acquired it from the original lender, the claimant can meet its burden through evidence that traces the loan from the original lender to the claimant”). The key in either case is that the foreclosing entity must hold the mortgage at the time of the notice and sale in order accurately to identify itself as the present holder in the notice and in order to have the authority to foreclose under the power of sale (or the foreclosing entity must be one of the parties authorized to foreclose under G. L. c. 183, § 21, and G. L. c. 244, § 14).
The judge did not err in concluding that the securitization documents submitted by the plaintiffs failed to demonstrate that they were the holders of the Ibanez and LaRace mortgages, respectively, at the time of the publication of the notices and the sales. The judge, therefore, did not err in rendering judgments against the plaintiffs and in denying the plaintiffs’ motions to vacate the judgments.20
We now turn briefly to three other arguments raised by the plaintiffs on appeal. First, the plaintiffs initially contended that the assignments in blank executed by Option One, identifying the assignor but not the assignee, not only “evidence and confirm the assignments that occurred by virtue of the securitization agreements,” but “are effective assignments in their own right.” But in their reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages. Their concession is appropriate. We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment. See Flavin v. Morrissey, 327 Mass. 217, 219 (1951); Macurda v. Fuller, 225 Mass. 341, 344 (1916). See also G. L. c. 183, § 3.
Second, the plaintiffs contend that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage. Barnes v. Boardman, 149 Mass. 106, 114 (1889). Rather, the holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment. Id. (“In some jurisdictions it is held that the mere transfer of the debt, without any assignment or even mention of the mortgage, carries the mortgage with it, so as to enable the assignee to assert his title in an action at law. . . . This doctrine has not prevailed in Massachusetts, and the tendency of the decisions here has been, that in such cases the mortgagee would hold the legal title in trust for the purchaser of the debt, and that the latter might obtain a conveyance by a bill in equity”). See Young v. Miller, 6 Gray 152, 154 (1856). In the absence of a valid written assignment of a mortgage or a court order of assignment, the mortgage holder remains unchanged. This common-law principle was later incorporated in the statute enacted in 1912 establishing the statutory power of sale, which grants such a power to “the mortgagee or his executors, administrators, successors or assigns,” but not to a party that is the equitable beneficiary of a mortgage held by another. G. L. c. 183, § 21, inserted by St. 1912, c. 502, § 6.
Third, the plaintiffs initially argued that postsale assignments were sufficient to establish their authority to foreclose, and now argue that these assignments are sufficient when taken in conjunction with the evidence of a presale assignment. They argue that the use of postsale assignments was customary in the industry, and point to Title Standard No. 58 (3) issued by the Real Estate Bar Association for Massachusetts, which declares: “A title is not defective by reason of . . . [t]he recording of an Assignment of Mortgage executed either prior, or subsequent, to foreclosure where said Mortgage has been foreclosed, of record, by the Assignee.”21 To the extent that the plaintiffs rely on this title standard for the proposition that an entity that does not hold a mortgage may foreclose on a property, and then cure the cloud on title by a later assignment of a mortgage, their reliance is misplaced because this proposition is contrary to G. L. c. 183, § 21, and G. L. c. 244, § 14. If the plaintiffs did not have their assignments to the Ibanez and LaRace mortgages at the time of the publication of the notices and the sales, they lacked authority to foreclose under G. L. c. 183, § 21, and G. L. c. 244, § 14, and their published claims to be the present holders of the mortgages were false. Nor may a postforeclosure assignment be treated as a pre-foreclosure assignment simply by declaring an “effective date” that precedes the notice of sale and foreclosure, as did Option One’s assignment of the LaRace mortgage to Wells Fargo. Because an assignment of a mortgage is a transfer of legal title, it becomes effective with respect to the power of sale only on the transfer; it cannot become effective before the transfer. See In re Schwartz, supra at 269.
However, we do not disagree with Title Standard No. 58 (3) that, where an assignment is confirmatory of an earlier, valid assignment made prior to the publication of notice and execution of the sale, that confirmatory assignment may be executed and recorded after the foreclosure, and doing so will not make the title defective. A valid assignment of a mortgage gives the holder of that mortgage the statutory power to sell after a default regardless whether the assignment has been recorded. See G. L. c. 183, § 21; MacFarlane v. Thompson, 241 Mass. 486, 489 (1922). Where the earlier assignment is not in recordable form or bears some defect, a written assignment executed after foreclosure that confirms the earlier assignment may be properly recorded. See Bon v. Graves, 216 Mass. 440, 444-445 (1914). A confirmatory assignment, however, cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time. See Scaplen v. Blanchard, 187 Mass. 73, 76 (1904) (confirmatory deed “creates no title” but “takes the place of the original deed, and is evidence of the making of the former conveyance as of the time when it was made”). Where there is no prior valid assignment, a subsequent assignment by the mortgage holder to the note holder is not a confirmatory assignment because there is no earlier written assignment to confirm. In this case, based on the record before the judge, the plaintiffs failed to prove that they obtained valid written assignments of the Ibanez and LaRace mortgages before their foreclosures, so the postforeclosure assignments were not confirmatory of earlier valid assignments.
Finally, we reject the plaintiffs’ request that our ruling be prospective in its application. A prospective ruling is only appropriate, in limited circumstances, when we make a significant change in the common law. See Papadopoulos v. Target Corp., 457 Mass. 368, 384 (2010) (noting “normal rule of retroactivity”); Payton v. Abbott Labs, 386 Mass. 540, 565 (1982). We have not done so here. The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.
Conclusion. For the reasons stated, we agree with the judge that the plaintiffs did not demonstrate that they were the holders of the Ibanez and LaRace mortgages at the time that they foreclosed these properties, and therefore failed to demonstrate that they acquired fee simple title to these properties by purchasing them at the foreclosure sale.
CORDY, J. (concurring, with whom Botsford, J., joins). I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets. There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order. Although there was no apparent actual unfairness here to the mortgagors, that is not the point. Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it. As the opinion of the court notes, such strict compliance is necessary because Massachusetts is both a title theory State and allows for extrajudicial foreclosure.
The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments. The court’s opinion clearly states that such assignments do not need to be in recordable form or recorded before the foreclosure, but they do have to have been effectuated.
What is more complicated, and not addressed in this opinion, because the issue was not before us, is the effect of the conduct of banks such as the plaintiffs here, on a bona fide third-party purchaser who may have relied on the foreclosure title of the bank and the confirmative assignment and affidavit of foreclosure recorded by the bank subsequent to that foreclosure but prior to the purchase by the third party, especially where the party whose property was foreclosed was in fact in violation of the mortgage covenants, had notice of the foreclosure, and took no action to contest it.
1 For the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z.
2 Wells Fargo Bank, N.A., trustee, vs. Mark A. LaRace
3 The Appeals Court granted the plaintiffs’ motion to consolidate these cases.
4 Chief Justice Marshall participated in the deliberation on this case prior to her retirement.
5 We acknowledge the amicus briefs filed by the Attorney General; the Real Estate Bar Association for Massachusetts, Inc.; Marie McDonnell; and the National Consumer Law Center, together with Darlene Manson, Germano DePina, Robert Lane, Ann Coiley, Roberto Szumik, and Geraldo Dosanjos.
6 The uncertainty surrounding the first issue was the reason the plaintiffs sought a declaration of clear title in order to obtain title insurance for these properties. The second issue was raised by the judge in the LaRace case at a January 5, 2009, case management conference.
7 The judge also concluded that the Boston Globe was a newspaper of general circulation in Springfield, so the foreclosures were not rendered invalid on that ground because notice was published in that newspaper.
8 In the third case, LaSalle Bank National Association, trustee for the certificate holders of Bear Stearns Asset Backed Securities I, LLC Asset-Backed Certificates, Series 2007-HE2 vs. Freddy Rosario, the judge concluded that the mortgage foreclosure “was not rendered invalid by its failure to record the assignment reflecting its status as holder of the mortgage prior to the foreclosure since it was, in fact, the holder by assignment at the time of the foreclosure, it truthfully claimed that status in the notice, and it could have produced proof of that status (the unrecorded assignment) if asked.”
9 On June 1, 2009, attorneys for the defendant mortgagors filed their appearance in the cases for the first time.
10 The LaRace defendants allege that the documents submitted to the judge following the plaintiffs’ motions to vacate judgment are not properly in the record before us. They also allege that several of these documents are not properly authenticated. Because we affirm the judgment on other grounds, we do not address these concerns, and assume that these documents are properly before us and were adequately authenticated.
11 This signed and notarized document states: “FOR VALUE RECEIVED, the undersigned hereby grants, assigns and transfers to _______ all beneficial interest under that certain Mortgage dated December 1, 2005 executed by Antonio Ibanez . . . .”
12 The Structured Asset Securities Corporation is a wholly owned direct subsidiary of Lehman Commercial Paper Inc., which is in turn a wholly owned, direct subsidiary of Lehman Brothers Holdings Inc.
13 As implemented in Massachusetts, a mortgage holder is required to go to court to obtain a judgment declaring that the mortgagor is not a beneficiary of the Servicemembers Act before proceeding to foreclosure. St. 1943, c. 57, as amended through St. 1998, c. 142.
14 The Land Court judge questioned whether American Home Mortgage Servicing, Inc., was in fact a successor in interest to Option One. Given our affirmance of the judgment on other grounds, we need not address this question.
15 An alternative to foreclosure through the right of statutory sale is foreclosure by entry, by which a mortgage holder who peaceably enters a property and remains for three years after recording a certificate or memorandum of entry forecloses the mortgagor’s right of redemption. See G. L. c. 244, §§ 1, 2; Joyner v. Lenox Sav. Bank, 322 Mass. 46, 52-53 (1947). A foreclosure by entry may provide a separate ground for a claim of clear title apart from the foreclosure by execution of the power of sale. See, e.g., Grabiel v. Michelson, 297 Mass. 227, 228-229 (1937). Because the plaintiffs do not claim clear title based on foreclosure by entry, we do not discuss it further.
16 We recognize that a mortgage holder must not only act in strict compliance with its power of sale but must also “act in good faith and . . . use reasonable diligence to protect the interests of the mortgagor,” and this responsibility is “more exacting” where the mortgage holder becomes the buyer at the foreclosure sale, as occurred here. See Williams v. Resolution GGF Oy, 417 Mass. 377, 382-383 (1994), quoting Seppala & Aho Constr. Co. v. Petersen, 373 Mass. 316, 320 (1977). Because the issue was not raised by the defendant mortgagors or the judge, we do not consider whether the plaintiffs breached this obligation.
17 The form of foreclosure notice provided in G. L. c. 244, § 14, calls for the present holder of the mortgage to identify itself and sign the notice. While the statute permits other forms to be used and allows the statutory form to be “altered as circumstances require,” G. L. c. 244, § 14, we do not interpret this flexibility to suggest that the present holder of the mortgage need not identify itself in the notice.
18 The plaintiffs were not authorized to foreclose by virtue of any of the other provisions of G. L. c. 244, § 14: they were not the guardian or conservator, or acting in the name of, a person so authorized; nor were they the attorney duly authorized by a writing under seal.
19 Ibanez challenges the validity of this assignment to Option One. Because of the failure of U.S. Bank to document any preforeclosure sale assignment or chain of assignments by which it obtained the Ibanez mortgage from Option One, it is unnecessary to address the validity of the assignment from Rose Mortgage to Option One.
20 The plaintiffs have not pressed the procedural question whether the judge exceeded his authority in rendering judgment against them on their motions for default judgment, and we do not address it here.
21 Title Standard No. 58 (3) issued by the Real Estate Bar Association for Massachusetts continues: “However, if the Assignment is not dated prior, or stated to be effective prior, to the commencement of a foreclosure, then a foreclosure sale after April 19, 2007 may be subject to challenge in the Bankruptcy Court,” citing In re Schwartz, 366 B.R. 265 (Bankr. D. Mass. 2007).
Massachusetts’s highest court is poised to rule on whether foreclosures in the state should be undone because securitization-industry practices violate real- estate law governing how mortgages may be transferred.
The fight between homeowners and banks before the Supreme Judicial Court in Boston turns on whether a mortgage can be transferred without naming the recipient, a common securitization practice. Also at issue is whether the right to a mortgage follows the promissory note it secures when the note is sold, as the industry argues.
A victory for the homeowners may invalidate some foreclosures and force loan originators to buy back mortgages wrongly transferred into loan pools. Such a ruling may also be cited in other state courts handling litigation related to the foreclosure crisis.
“This is the first time the securitization paradigm is squarely before a high court,” said Marie McDonnell, a mortgage-fraud analyst in Orleans, Massachusetts, who wrote a friend-of-the-court brief in favor of borrowers. The state court, under its practices, is likely to rule by next month.
Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. The probe came after JPMorgan Chase & Co. and Ally Financial Inc. said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze U.S. foreclosures. Massachusetts is one of 27 states where court supervision of foreclosures generally isn’t required.
Because Plaintiff failed to establish by preponderance of the evidence that it possessed the Note at the time it filed it’s complaint, the Court concludes that it lacks subject matter jurisdiction to adjudicate the rights of the parties and orders the matter dismissed without prejudice as to it’s re-filing.
This is without question the most important decision so far in the war against the unlawful and fraudulent conduct of the originators, securitizers, out-source-providers, default servicers, and their so-called lawyers! The Judge articulates the business models we are dealing with better than anyone has done in any opinion, article or brief. I am sure your work contributed greatly to the education of the court and for that you should be highly commended. This Judge really and truly got it! It is the perfect outline of the transactional requirements and debunks every bogus argument that the other side has been advancing for year”.
O. MAX GARNDER III-
I have attached a sampling from my Amicus Brief filed on Friday, October 1, 2010 with the Massachusetts Supreme Judicial Court in the landmark cases that are presently on appeal from the Massachusetts Land Court styled: U.S. Bank v. Ibanez and its companion case, Wells Fargo Bank v. LaRace.
My brief reveals groundbreaking evidence that Antonio Ibanez’s loan was most likely securitized twice – a hidden fact unknown until now.
Moreover, the Assignment of Mortgage allegedly conveying the Ibanez loan to U.S. Bank, executed by “robo-signer” Linda Green, violated the Pooling and Servicing Agreement and other Trust documents.
Finally I expose the fact that U.S. Bank, who bought the Ibanez property at foreclosure for $94,350, sold it on December 15, 2008 for $0.00. That’s right, they foreclosed on Ibanez’s property so that they could give it away!
With respect to Mark and Tammy LaRace, I am happy to report that through the efforts of Attorney Glenn F. Russell, Jr. and myself, the LaRaces moved back into their home in January of this year, two and a half years post-foreclosure!
My Amicus Brief reveals that Wells Fargo Bank’s own documents prove that they did not have the authority to foreclose on the LaRaces. Therefore, the Assignment of Mortgage, Power of Attorney, Affidavit, and Foreclosure Deed executed by “robo-signer” Cindi Ellis were all unauthorized.
Wells Fargo Bank’s recent statement that it does not have the same “document” problem that GMAC, JPMorgan Chase, and Bank of America have admitted to is simply not true. I have audited many, many foreclosure files where Wells Fargo Bank employees and their agents have manufactured false documents to prosecute wrongful foreclosures such as in the LaRaces’ case.
MERS, a tiny data-management company, claimed the right to foreclose, but would not explain how it came to possess the mortgage notes originally issued by banks. Judge Logan summoned a MERS lawyer to the Pinellas County courthouse and insisted that that fundamental question be answered before he permitted the drastic step of seizing someone’s home.
Daniel Rosenbaum for The New York Times R. K. Arnold, MERS president, said the company helped reduce mortgage fraud and imposed order on the industry.
“You don’t think that’s reasonable?” the judge asked.
“I don’t,” the lawyer replied. “And in fact, not only do I think it’s not reasonable, often that’s going to be impossible.”
Judge Logan had entered the murky realm of MERS. Although the average person has never heard of it, MERS — short for Mortgage Electronic Registration Systems — holds 60 million mortgages on American homes, through a legal maneuver that has saved banks more than $1 billion over the last decade but made life maddeningly difficult for some troubled homeowners.
Created by lenders seeking to save millions of dollars on paperwork and public recording fees every time a loan changes hands, MERS is a confidential computer registry for trading mortgage loans. From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.
If MERS began as a convenience, it has, in effect, become a corporate cloak: no matter how many times a mortgage is bundled, sliced up or resold, the public record often begins and ends with MERS. In the last few years, banks have initiated tens of thousands of foreclosures in the name of MERS — about 13,000 in the New York region alone since 2005 — confounding homeowners seeking relief directly from lenders and judges trying to help borrowers untangle loan ownership. What is more, the way MERS obscures loan ownership makes it difficult for communities to identify predatory lenders whose practices led to the high foreclosure rates that have blighted some neighborhoods.
In Brooklyn, an elderly homeowner pursuing fraud claims had to go to court to learn the identity of the bank holding his mortgage note, which was concealed in the MERS system. In distressed neighborhoods of Atlanta, where MERS appeared as the most frequent filer of foreclosures, advocates wanting to engage lenders “face a challenge even finding someone with whom to begin the conversation,” according to a report by NeighborWorks America, a community development group.
To a number of critics, MERS has served to cushion banks from the fallout of their reckless lending practices.
“I’m convinced that part of the scheme here is to exhaust the resources of consumers and their advocates,” said Marie McDonnell, a mortgage analyst in Orleans, Mass., who is a consultant for lawyers suing lenders. “This system removes transparency over what’s happening to these mortgage obligations and sows confusion, which can only benefit the banks.”
A recent visitor to the MERS offices in Reston, Va., found the receptionist answering a telephone call from a befuddled borrower: “I’m sorry, ma’am, we can’t help you with your loan.” MERS officials say they frequently get such calls, and they offer a phone line and Web page where homeowners can look up the actual servicer of their mortgage.
In an interview, the president of MERS, R. K. Arnold, said that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies it brought to the mortgage trade. He said that far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.
“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”
About 3,000 financial services firms pay annual fees for access to MERS, which has 44 employees and is owned by two dozen of the nation’s largest lenders, including Citigroup, JPMorgan Chase and Wells Fargo. It was the brainchild of the Mortgage Bankers Association, along with Fannie Mae, Freddie Mac and Ginnie Mae, the mortgage finance giants, who produced a white paper in 1993 on the need to modernize the trading of mortgages.
At the time, the secondary market was gaining momentum, and Wall Street banks and institutional investors were making millions of dollars from the creative bundling and reselling of loans. But unlike common stocks, whose ownership has traditionally been hidden, mortgage-backed securities are based on loans whose details were long available in public land records kept by county clerks, who collect fees for each filing. The “tyranny of these forms,” the white paper said, was costing the industry $164 million a year.
“Before MERS,” said John A. Courson, president of the Mortgage Bankers Association, “the problem was that every time those documents or a file changed hands, you had to file a paper assignment, and that becomes terribly debilitating.”
Although several courts have raised questions over the years about the secrecy afforded mortgage owners by MERS, the legality has ultimately been upheld. The issue has surfaced again because so many homeowners facing foreclosure are dealing with MERS.
Advocates for borrowers complain that the system’s secrecy makes it impossible to seek help from the unidentified investors who own their loans. Avi Shenkar, whose company, the GMA Modification Corporation in North Miami Beach, Fla., helps homeowners renegotiate mortgages, said loan servicers frequently argued that “investor guidelines” prevented them from modifying loan terms.
“But when you ask what those guidelines are, or who the investor is so you can talk to them directly, you can’t find out,” he said.
MERS has considered making information about secondary ownership of mortgages available to borrowers, Mr. Arnold said, but he expressed doubts that it would be useful. Banks appoint a servicer to manage individual mortgages so “investors are not in the business of dealing with borrowers,” he said. “It seems like anything that bypasses the servicer is counterproductive,” he added.
When foreclosures do occur, MERS becomes responsible for initiating them as the mortgage holder of record. But because MERS occupies that role in name only, the bank actually servicing the loan deputizes its employees to act for MERS and has its lawyers file foreclosures in the name of MERS.
The potential for confusion is multiplied when the high-tech MERS system collides with the paper-driven foreclosure process. Banks using MERS to consummate mortgage trades with “electronic handshakes” must later prove their legal standing to foreclose. But without the chain of title that MERS removed from the public record, banks sometimes recreate paper assignments long after the fact or try to replace mortgage notes lost in the securitization process.
This maneuvering has been attacked by judges, who say it reflects a cavalier attitude toward legal safeguards for property owners, and exploited by borrowers hoping to delay foreclosure. Judge Logan in Florida, among the first to raise questions about the role of MERS, stopped accepting MERS foreclosures in 2005 after his colloquy with the company lawyer. MERS appealed and won two years later, although it has asked banks not to foreclose in its name in Florida because of lingering concerns.
Last February, a State Supreme Court justice in Brooklyn, Arthur M. Schack, rejected a foreclosure based on a document in which a Bank of New York executive identified herself as a vice president of MERS. Calling her “a milliner’s delight by virtue of the number of hats she wears,” Judge Schack wondered if the banker was “engaged in a subterfuge.”
In Seattle, Ms. McDonnell has raised similar questions about bankers with dual identities and sloppily prepared documents, helping to delay foreclosure on the home of Darlene and Robert Blendheim, whose subprime lender went out of business and left a confusing paper trail.
“I had never heard of MERS until this happened,” Mrs. Blendheim said. “It became an issue with us, because the bank didn’t have the paperwork to prove they owned the mortgage and basically recreated what they needed.”
The avalanche of foreclosures — three million last year, up 81 percent from 2007 — has also caused unforeseen problems for the people who run MERS, who take obvious pride in their unheralded role as a fulcrum of the American mortgage industry.
In Delaware, MERS is facing a class-action lawsuit by homeowners who contend it should be held accountable for fraudulent fees charged by banks that foreclose in MERS’s name.
Sometimes, banks have held title to foreclosed homes in the name of MERS, rather than their own. When local officials call and complain about vacant properties falling into disrepair, MERS tries to track down the lender for them, and has also created a registry to locate property managers responsible for foreclosed homes.
“But at the end of the day,” said Mr. Arnold, president of MERS, “if that lawn is not getting mowed and we cannot find the party who’s responsible for that, I have to get out there and mow that lawn.”