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

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

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

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

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

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

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

Facilities and Programs

• Agency Mortgage-Backed Securities (MBS) Purchase Program
• Term Auction Facility (TAF)
• Central Bank Liquidity Swap Lines
• Primary Dealer Credit Facility (PDCF)
• Term Securities Lending Facility (TSLF) and TSLF Options Program (TOP)
• Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)
• Commercial Paper Funding Facility (CPFF)
• Term Asset-Backed Securities Loan Facility (TALF)
• Money Market Investor Funding Facility (MMIFF)
• Bear Stearns, JPMorgan Chase, and Maiden Lane LLC
• American International Group (AIG), Maiden Lane II and III
• Bank of America
• Citigroup

Source: federalreserve.gov

Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on Problems in Mortgage Servicing from Modification to Foreclosure, Part II; Committee on Banking, Housing, and Urban Affairs, U.S. Senate; 538 Dirksen Senate Office Building
December 1, 2010

Chairman Dodd, Ranking Member Shelby and members of the Committee, thank you for requesting the views of the Federal Deposit Insurance Corporation on deficiencies in mortgage servicing and their broader potential impact on the financial system. It is unfortunate that problems in mortgage servicing and foreclosure prevention continue to require the scrutiny of this Committee. While “robo-signing” is the latest issue, this problem is symptomatic of persistent shortcomings in the foreclosure prevention efforts of our nation’s largest mortgage servicers. As such, I believe that major changes are required to stabilize our housing markets and prevent unnecessary foreclosures.

The FDIC continues to review the mortgage servicing operations at banks we supervise and also those institutions that have purchased failed-bank loans under loss-share agreements with the FDIC. To date, our review has revealed no evidence that FDIC-supervised state-chartered banks directly engage in robo-signing, and it also appears that they have limited indirect exposure through third-party relationships with servicers that have engaged in this practice. However, we remain concerned about the ramifications of deficiencies in foreclosure documentation among the largest servicers, most of which we insure. We will continue to work with the primary supervisors of these servicers through our backup examination authority. In addition, we are coordinating our work with the State Attorneys General (AG) and the Financial Fraud Enforcement Task Force – a broad coalition of federal, state, and local law enforcement, regulatory, and investigatory agencies led by the Department of Justice – to support efforts for broad-based and consistent resolution of servicing issues.

The robo-signing and foreclosure documentation issues are the natural result of the misaligned incentives that pervade the entire mortgage process. For instance, the traditional, fixed level of compensation for loan servicing has been wholly inadequate to cover the expenses required to implement high-touch and specialized servicing on the scale needed in recent years. Misaligned incentives have led to significant underinvestment in the systems, processes, training, and staffing necessary to effectively implement foreclosure prevention programs. Similarly, many servicers have failed to update their foreclosure process to reflect the increased demand and need for loan modifications. As a result, some homeowners have received conflicting messages from their servicers and have missed opportunities to avoid foreclosure. The failure to effectively implement loan modification programs can not only harm individual homeowners, but the resulting unnecessary foreclosures put downward pressure on home prices.

As serious as these issues are, a complete foreclosure moratorium is ill-advised, as it would unduly prolong those foreclosures that are necessary and justified, and would slow the recovery of housing markets. The regrettable truth is that many of the properties currently in the foreclosure process are either vacant or occupied by borrowers who simply cannot make even a significantly reduced payment and have been in arrears for an extended time.

My hope is that the newly established Financial Stability Oversight Council (FSOC) will take the lead in addressing the latest issues of foreclosure documentation deficiencies and proposing a sensible and broad-based approach to reforming mortgage servicer processes, promoting sustainable loan modifications and restoring legal certainty to the foreclosure process where it is appropriate and necessary.

In my testimony, I will begin with some background on the robo-signing and related foreclosure documentation problems and connect theses issues to other deficiencies in the mortgage servicing process. Second, I will discuss the FDIC’s efforts to address identified servicing problems within our limited jurisdiction. Finally, I will discuss the central role that I believe the FSOC can play in facilitating broad agreements among major stakeholder groups that can help resolve some of these issues.

I. Robo-Signing and Foreclosure Documentation Problems and Shortfalls in Mortgage Servicing

The FDIC is concerned about two related, but separate, problems relating to foreclosure documentation. The first is referred to as “robo-signing,” or the use of highly-automated processes by some large servicers to generate affidavits in the foreclosure process without the affiant having reviewed facts contained in the affidavit or having the affiant’s signature witnessed in accordance with State laws. Recent depositions of individuals involved in robo-signing have led to allegations of fraud based on contentions that these individuals signed thousands of documents without knowledge or verification of the information contained in the filed affidavits.

The second problem involves demonstrating the chain of title required to foreclose. Some servicers have not been able to establish their legal standing to foreclose because, under current industry practices, they may not be in possession of the necessary documentation required under state law. In many cases, a servicer is acting on behalf of a trustee of a pool of mortgages that have been securitized and sold to investors in a mortgage-backed securities (MBS) transaction. In MBS transactions, the promissory note and mortgage signed by the borrowers are held by a custodian on behalf of the securitization investors.

In many cases today, however, the mortgage held by the custodian indicates that legal title to the mortgage has been assigned from the original lender to the Mortgage Electronic Registration System (MERS), a system encompassing some 31 million active mortgage loans that was designed to facilitate the transfer of mortgage claims in the securitization process. Securitization often led to multiple transfers of the mortgage through MERS. Many of the issues raised about the authority of servicers to foreclose are a product of potential defects in these transfers and the requirements for proof of the servicer’s authority. Where MERS is involved, foreclosures have been initiated either by MERS, as the legal holder of the lien, or by the servicer. In both cases, the foreclosing party must show that it has possession of the note and that its right to foreclose on the mortgage complies with state law.

Robo-signing and chain of title issues may create contingent liabilities for mortgage servicers. Investors who contend that servicers have not fulfilled their servicing responsibilities under the pooling and servicing agreements (PSAs) argue that they have grounds to reassign servicing rights. In addition, concerns have been raised by investors as to whether the transfer of loan documentation in some private MBS securitization trusts fully conform to the requirements established under applicable trust law and the PSAs governing these transactions. While the legal challenges under the representations and warranties trust requirements remain in their early stages, they could, if successful, result in the “putback” of large volumes of defaulted mortgages from securitization trusts to the originating institutions. The FDIC has been working with the FRB and the Comptroller of the Currency (OCC), in our backup capacity, to gather information from the large servicers to evaluate the potential financial impact of these adverse outcomes.

Long-Standing Weaknesses in Third-Party Mortgage Servicing

The weaknesses that have been identified in mortgage servicing practices during the mortgage crisis are a byproduct of both rapid growth in the number of problem loans and a compensation structure that is not well designed to deal with these loans. As recently as 2005, when average U.S. homes prices were still rising rapidly, fewer than 800,000 mortgage loans entered foreclosure on an annual basis.¹ By 2009, the annual total had more than tripled to over 2.8 million, and foreclosures through the first three quarters of 2010 are running at an annualized pace of more than 2.5 million. Moreover, the proportion of foreclosure proceedings actually resulting in the repossession and sale of collateral appears to have increased even more rapidly over this period in some of the hardest-hit markets. Data published by the Federal Housing Finance Agency show that the percent of total homes sales in California resulting from foreclosure-related distressed sales increased more than eight-fold, to over 40 percent of all sales, between 2006 and 2008.²

The share of U.S. mortgage loans held or securitized by the government-sponsored enterprises (GSEs) and private issuers of asset-backed securities has doubled over the past 25 years to represent fully two-thirds of the value of all mortgages currently outstanding.³ One effect of this growth in securitization has been parallel growth in third-party mortgage servicing under PSA agreements. By definition, a large proportion of the mortgages sold or securitized end up serviced under PSAs.

The traditional structure of third-party mortgage servicing fees, put in place well before this crisis, has created perverse incentives to automate critical servicing activities and cut costs at the expense of the accuracy, reliability and currency of loan documents and information. Prior to the 1980s, the typical GSE mortgage pool paid a servicing fee of 37.5 basis points annually, or .375 percent of the outstanding principal balance of the mortgage pool. Since the 1980s, the typical servicing fee for prime loans has been 25 basis points. When Alt-A and subprime mortgages began to be securitized by private issuers in the late 1990s, the standard servicing fees for those loans were set higher, typically at 37.5 basis points for Alt-A loans and 50 basis points for subprime loans.

While this fee structure provided a steady profit stream for servicers when the number of defaulted loans remained low, costs rose dramatically with the rise in mortgage defaults in the latter half of the last decade. As a result, some mortgage servicers began running operating losses on their servicing portfolios. One result of a compensation structure that did not account for the rise in problem loans was a built-in financial incentive to minimize the investment in back office processes necessary to support both foreclosure and modification. The other result was consolidation in the servicing industry. The market share of the top 5 mortgage servicers has nearly doubled since 2000, from 32 percent to almost 60 percent.⁴ The purpose and effect of consolidation is to cut costs and achieve economies of scale, but also to increase automation.

Most PSAs allow for both foreclosure and modification as a remedy to default. But servicers have continuously been behind the curve in pursuing modification as an alternative to foreclosure. A survey of 13 mortgage servicers conducted by the State Foreclosure Prevention Working Group shows that the annual percent of all past due mortgages that are being modified has risen from just over 2 percent in late 2007 to a level just under 10 percent as of late 2009.⁵ At the same time, the percentage of past due loans entering foreclosure each year has also steadily risen over this same time period, from 21 percent to 32 percent.

One example of the lack of focus on loss mitigation strategies is the uncoordinated manner in which many servicers have pursued modification and foreclosure at the same time. Under such a “dual-track” process, borrowers may be attempting to file the documentation needed to establish their qualifications for modification and waiting for a favorable response from the servicer, even while that servicer is at the same time executing the paperwork necessary to foreclose on the property. While in some cases it may be reasonable to begin conducting preliminary filings for seriously past due loans in states with long foreclosure timelines, it is vitally important that the modification process be brought to conclusion before a foreclosure sale is scheduled. Failure to coordinate the foreclosure process with the modification process risks confusing and frustrating homeowners and could result in unnecessary foreclosures. As described in the concluding section, we recommend that servicers establish a single point of contact that can work with every distressed borrower and coordinate all activities taken by the servicer with regard to that particular case.

II. FDIC Efforts to Address Problems in Mortgage Servicing and Foreclosure Prevention

Since the early stages of the mortgage crisis, the FDIC has made a concerted effort to promote the early modification of problem mortgages as a first alternative that can spare investors the high losses associated with foreclosure, assist families experiencing acute financial distress, and help to stabilize housing markets where distressed sales have resulted in a lowering of home prices in a self-reinforcing cycle.

In 2007, when the dimensions of the subprime mortgage problem were just becoming widely known, I advocated in speeches, testimony and opinion articles that servicers not only had the right to carry out modifications that would protect subprime borrowers from unaffordable interest-rate resets, but that doing so would often benefit investors by enabling them to avoid foreclosure costs that could run as high as 40 percent or more of the value of the collateral. In addition, the FDIC, along with other federal regulators jointly hosted a series of roundtables on the issues surrounding subprime mortgage securitizations to facilitate a better understanding of problems and identify workable solutions for rising delinquencies and defaults, including alternatives to foreclosure.

More recently, the FDIC has been actively involved both in investigating and addressing robo-signing and documentation issues at insured depository institutions and their affiliates, ensuring that its own loss-share partners are employing best practices in their servicing operations, and implementing reforms that will better align the financial incentives of servicers in future securitization deals.

Supervisory Actions

The FDIC is exercising both its primary and backup authorities to actively address the issues that have emerged regarding banks’ foreclosure and “robo-signing” practices. The FDIC is the primary federal supervisor for nearly 5,000 state-chartered insured institutions, where we monitor compliance with safety and soundness and consumer protection requirements and pursue enforcement actions to address violations of law. While the FDIC is not the primary federal regulator for the major loan servicers, our examiners are working on-site under our backup authority as part of an interagency horizontal review team at 12 of the 14 major mortgage servicers along with their primary federal regulators. This interagency review is also evaluating the roles played by MERS and Lender Processing Services, a large data processor used by many mortgage servicers.

The FDIC is committed to active participation in horizontal reviews and other interagency efforts so we are able to have a comprehensive picture of the underlying causes of these problems and the lessons to be learned. The onsite reviews are finding that mortgage servicers display varying degrees of performance and quality controls. Program and operational deficiencies may be correctable in the normal course of business for some, while others may need more rigorous system changes. The level and adequacy of documentation also varies widely among servicers. Where chain of title is not sufficiently documented, servicers are being required to make changes to their processes and procedures. In addition, some servicers need to strengthen audit, third-party arrangements, and loss mitigation programs to cure lapses in operations. However, we do not believe that servicers should wait for the conclusion of the interagency effort to begin addressing known weaknesses in internal controls and risk management. Corrective actions on problems identified during a servicer’s own review or the examiners’ review should be addressed as soon as possible. We expect each servicer to properly review loan documents prior to initiating or conducting any foreclosure proceedings, to adhere to applicable laws and regulations, and to maintain appropriate policies, procedures and documentation. If necessary, the FDIC will encourage the use of formal or informal corrective programs to ensure timely action is taken.

Actions Taken as Receiver for Failed Institutions

In addition to our supervisory efforts, the FDIC is looking at the servicing practices of institutions acquiring failed institutions under loss-share agreements. To date there are $159.8 billion in loans and securities involved in FDIC loss share agreements, of which $56.7 billion (36 percent) are single family loans. However, the proportion of mortgage loans held by acquiring institutions that are covered by loss share agreements is in some cases very small. For example, at One West Bank, the successor to Indy Mac, only 8 percent of mortgages serviced fall under the FDIC loss share agreement.

An institution that acquires a single-family loss-share portfolio is required to implement a loan modification program, and also is required to consider borrowers for a loan modification and other loss mitigation alternatives prior to foreclosure. These requirements minimize the FDIC’s loss share costs. The FDIC monitors the loss-share agreements through monthly and quarterly reporting by the acquiring bank and semi-annual reviews of the acquiring bank. The FDIC has the right to deny or recover any loss share claim where the acquiring institution is unable to verify that a qualifying borrower was considered for loan modification and that the least costly loss mitigation alternative was pursued.

In connection with the recent foreclosure robo-signing revelations, the FDIC contacted all of its loss-share partners. All partners certified that they currently comply with all state and federal foreclosure requirements. We are in the process of conducting a Loan Servicing Oversight audit of all loss-share partners with high volumes of single-family residential mortgage loans and foreclosures. The FDIC will deny any loss-share payments or seek reimbursement for any foreclosures not compliant with state laws or not fully remediated, including noncompliance with the loss-share agreements and loan modification requirements.

Regulatory Actions to Reform Mortgage Securitization

We also are taking steps to restore market discipline to our mortgage finance system by doing what we can to reform the securitization process. In July of this year, the FDIC sponsored its own securitization of $471 million of single-family mortgages. In our transaction, we addressed many of the deficiencies in existing securitizations. First, we ensured that the servicer will make every effort to work with borrowers in default, or where default is reasonably foreseeable. Second, the servicing arrangements in these structured loan transactions have been designed to address shortcomings in the traditional flat-rate structures for mortgage servicing fees. Our securitization pays a base dollar amount per loan per year, regardless of changes in the outstanding balance of that loan. In addition, the servicing fee is increased in the event the loan becomes more complex to service by falling past due or entering modification or foreclosure. This fee structure is much less likely to create incentives to slash costs and rely excessively on automated or substandard processes to wring a profit out of a troubled servicing portfolio. Third, we provided for independent, third party oversight by a Master Servicer. The Master Servicer monitors the Servicer’s overall performance and evaluates the effectiveness of the Servicer’s modification and loss mitigation strategies. And, fourth, we provided for the ability of the FDIC, as transaction sponsor, the Servicer and the Master Servicer to agree on adapting the servicing guidelines and protocols to unanticipated and significant changes in future market conditions.

The FDIC has also recently taken the initiative to establish standards for risk retention and other securitization practices by updating its rules for safe harbor protection with regard to the sale treatment of securitized assets in failed bank receiverships. Our final rule, approved in September, establishes standards for disclosure, loan quality, loan documentation, and the oversight of servicers. It will create a comprehensive set of incentives to assure that loans are made and managed in a way that achieves sustainable lending and maximizes value for all investors. In addition, the rule is fully consistent with the mandate under the Dodd-Frank Act to apply a 5 percent risk-retention requirement on all but the most conservatively underwritten loans when they are securitized.

We are currently working on an interagency basis to develop the Dodd-Frank Act standards for risk retention across several asset classes, including requirements for low-risk “Qualifying Residential Mortgages,” or QRMs, that will be exempt from risk retention. These rules allow us to establish a gold standard for securitization to encourage high-quality mortgages that are sustainable for the long term. This rulemaking process also provides a unique opportunity to better align the incentives of servicers with those of mortgage pool investors.

We believe that the QRM rules should authorize servicers to use best practices in mitigating losses through modification, require compensation structures that promote modifications, and direct servicers to act for the benefit of all investors. We also believe that the QRM rules should require servicers to disclose any ownership interest in other whole loans secured by the same real property, and to have in place processes to deal with any potential conflicts. Some conflicts arise from so-called “tranche warfare” that reflects the differing financial interests among the holders of various mortgage bond tranches. For example, an investor holding the residual tranche typically stands to benefit from a loan modification that prevents default. Conversely, the higher rated tranches might be better off if a servicer foreclosed on the property forcing losses to be realized at the expense of the residual tranche. A second type of conflict potentially arises when a single company services a first mortgage for an investor pool and the second mortgage for a different party, or for itself. Serious conflicts such as this must be addressed if we are to achieve meaningful long-term reform of the securitization process.

Therefore, the FDIC believes it would be extremely helpful if the definition of a QRM include servicing requirements that, among other things:

• grant servicers the authority and provide servicers compensation incentives to mitigate losses on residential mortgages by taking appropriate action to maximize the net present value of the mortgages for the benefit of all investors rather than the benefit of any particular class of investors;
• establish a pre-defined process to address any subordinate lien owned by the servicer or any affiliate of the servicers; and
• require disclosure by the servicer of any ownership interest of the servicer or any affiliate of the servicer in other whole loans secured by the same real property that secures a loan included in the pool.

Risk retention rules under the Dodd-Frank Act should also create financial incentives that promote effective loan servicing. The best way to accomplish this is to require issuers – particularly those who also are servicers – to retain an interest in the mortgage pool that is directly proportional to the value of the pool as a whole. Frequently referred to as a “vertical slice,” this form of risk retention would take the form of a small, proportional share of every senior and subordinate tranche in the securitization, creating a combined financial interest that is not unduly tilted toward either senior or subordinate bondholders.

III. The FSOC Should Play a Central Role in Developing Solutions

What started a few months ago as technical documentation issues in the foreclosure process has grown into something more serious and potentially damaging to the nation’s housing recovery and to some of our largest institutions. First, a transparent, functioning foreclosure process is unfortunately necessary to the recovery of our housing market and our economy. Second, the mortgage documentation problems cast a cloud of uncertainty over the ownership rights and obligations of mortgage borrowers and investors. Further, there are numerous private parties and government entities that may have significant claims against firms central to the mortgage markets.

While we do not see immediate systemic risk, the clear potential is there. The FSOC was established under the Dodd-Frank Act to deal with just this type of emerging risk. Its mandate includes identifying risks to financial stability and potential gaps in regulation and making recommendations for primary regulators and other policymakers to take action to mitigate those risks. As such, these issues represent just the type of problem the FSOC was designed to address. In addition, the difficulties that have been experienced to date in coordinating a government policy response speak to the need for central role by the FSOC in negotiating workable solutions with the major parties that have a stake in the outcome.

The FSOC is in a unique position to provide needed clarity to the market by coordinating consistent interpretations of what standards should be applied to establishing the chain of title for mortgage loans and recognizing the true sale of mortgage loans in establishing private securitization trusts. The constituent agencies that make up the FSOC also have their own authorities that can be used to provide clarity of this type. Examples include rulings on standards that determine the tax-exempt status of mortgage trusts and standards for the recognition of true sale in a failed bank receivership, which the FDIC recently updated in its safe harbor regulation.

We need broad agreements between representatives of the major stakeholders affected by this issue so that the uncertainties associated with this issue can be resolved as quickly as possible. Outlined below are some of the principles I believe should be part of any broad agreement among the stakeholders to this issue.

1. Establish a single point of contact for struggling homeowners. Servicers should identify a single person to work with homeowners once it becomes evident the homeowner is in distress. This single point of contact must be appropriately authorized to provide current, accurate information about the status of the borrower’s loan or loan modification application, as well as provide a sign-off that all loan modification efforts have failed before a foreclosure sale. This will go a long way towards eliminating the conflicts and miscommunications between loan modifications and foreclosures in today’s dual-track system and will provide borrowers assurance that their application for modification is being considered in good faith.
2. Expand and streamline private loan modification efforts to increase the number of successful modifications. To accomplish this end, servicers should be required to intervene with troubled borrowers from the earliest stages of delinquency to increase the likelihood of success in foreclosure mitigation. Modifications under such programs should significantly reduce the monthly payment through reductions in the interest rate and principal balance, as needed, to make the mortgage affordable over the long term. Analysis of modifications undertaken in the FDIC program at Indy Mac Federal Bank has shown that modifying loans when they are in the early stages of delinquency and significantly reducing the monthly payment are both factors that promote sustainable modifications that perform well over time. In exchange for the creation of highly-simplified modification programs, mortgage servicers should have a “safe harbor” that would give them assurance that their claims will be recognized if foreclosure becomes unavoidable. In addition, streamlined modification programs should be recognized as a best practice in adjudicating disputes with mortgage investors.
3. Invest appropriate resources to maintain adequate numbers of well-trained staff. Broad agreements should require servicers to hire and train sufficient numbers of staff to professionally process applications for loan modifications. Further, servicers should be required to improve information systems to help manage and support the workload associated with loan modifications.
4. Strengthen quality control processes related to foreclosure and loan servicing activities. Some servicers need to make fundamental changes to their practices and programs to fulfill their responsibilities and satisfy their legal obligations. Lax standards of care and failure to follow longstanding legal requirements cannot be tolerated. Regulators must vigorously exercise their supervisory tools to ensure that mortgage servicers operate to high standards. Servicers need to institute strong controls to address defective practices and enhance programs to regain integrity of their operations. Where severe deficiencies are found, the servicers should be required to have independent third-party monitors evaluate their activities to ensure that process changes are fully implemented and effective. Servicers must also fully evaluate and account for their risks relating to their servicing activities, including any costs stemming from weaknesses in their operations.
5. Resolve the challenges created by second liens. Since the early stages of the mortgage crisis, second liens have been an obstacle to effective alternatives to foreclosure, including loan modification and short sales. We must tackle the second lien issue head on. One option is to require servicers to take a meaningful write-down of any second lien if a first mortgage loan is modified or approved for a short sale. All of the stakeholders must be willing to compromise if we are to find solutions to the foreclosure problem and lay the foundation for a recovery in our housing markets.

Conclusion

We must restore integrity to the mortgage servicing system. We need a mandate for dramatically simplified loan modifications so that unnecessary foreclosures can be avoided. Servicers need to establish a single point of contact to coordinate their communication with distressed borrowers. They also need to invest appropriate resources and strengthen quality control processes related to loan modification and foreclosure. We must finally tackle the second liens head on, by requiring servicers to impose meaningful write-downs on second lien holders when a first mortgage is modified or approved for a short sale.

This is the time for all parties to come together and arrive at broad agreements that will reduce uncertainty and lay the foundation for long-term stability in our mortgage and housing markets. The FSOC has a unique role to play in addressing the situation and can provide needed clarity on issues such as standards for recognizing true sale in securitization trusts.

Again, thank you for the opportunity to testify on this important issue. I look forward to your questions.

² “The Impact of Distressed Sales on Repeat-Transactions House Price Indexes,” FHFA, May 27, 2009, http://www.fhfa.gov/webfiles/2916/researchpaper_distress%5B1%5D.pdf

³ Source: Federal Reserve Board, Flow of Funds, Table L.218.

⁴ Source: Inside Mortgage Finance.

⁵ Analysis of Mortgage Servicing Performance,” Data Report No. 4, January 2010, State Foreclosure Prevention Working Group, http://www.ohioattorneygeneral.gov/ForeclosureReportJan2010.

Last Updated 12/1/2010 communications@fdic.gov

By John Lux

Introduction

This article discusses some of the legal aspects of the Mortgage Electronic Registration Systems or “MERS” with regard to its potential legal liabilities and how these liabilities may affect related public companies.

We maintain that the potential legal liabilities faced by these companies are very large and may seriously injure their stock prices. We believe that the affiliates of MERS may be held liable for MERS violations based on various legal theories, including conspiracy, and if the courts pierce the corporate veil of MERS.

A list of some of the companies that may be affected is found at the end of this analysis.

MERS

MERS is a private non-stock Delaware member corporation that operates an electronic registry to track servicing rights and ownership of mortgage loans in the United States. MERS acts as a so-called “straw man.” MERS clouds land records as the purported owner of mortgages transferred by lenders, investors and loan servicers. MERS maintains that it eliminates the need to file assignments in the county land records with the purpose of lowering costs for lenders. This naturally reduces county recording revenues from real estate transfers.

Legal Issues Faced by MERS

Not Qualified to do Business in Most States

MERS is not qualified to business in most of the states in which it operates. The problem here is that MERS has allowed itself to be the plaintiff in many hundreds of thousands of mortgage foreclosures in states where it is not qualified to do business and therefore has no standing to sue. Most, 95% or more of these cases, were uncontested and therefore resulted in the loss of the defendants home after a telephone hearing that lasted a few minutes.

Self-Appointment of Officers

EXCERPTS:

Q So the original —
5 A — and I’ve been to her office.
6 Q — the original was located in your office?
7 A Yes.
8 Q Where’s your office located?
9 A Simi Valley, California.
10 Q And has the original of this allonge remained in your
11 office until you appeared here today?
12 A We had sent it on to — to our attorneys. They were in
13 possession of it.
14 Q And again, who do you believe is the holder of the note
15 and mortgage here?
16 A Well, Countrywide — Bank of America — whatever we’re
17 calling ourselves these days, we are Bank of America now — we
18 originated this loan. It was originated via a broker and it’s
19 really always been a Countrywide loan. The investor is Bank
20 of New York. We are the servicer of the loan.
21 Q Now, when you say it’s really a Countrywide loan, wasn’t
22 it sold? Wasn’t this loan securitized and ultimately sold —
23 sold to this trust?
24 A Right, it would have been securitized and sold. They are
25 the investors of the loan. But we are the ones that would

<SNIP>

9 A Who is in possession of the note? We have the note in our
10 origination file.
11 Q So — so Bank of New York as trustee does not hold the
12 note, is that correct, or is not in possession of the note?
13 A The original note to my knowledge is in the origination
14 file.
15 Q Where is the — do you have it here today?
16 A No, I don’t have it with me here today.
17 Q So you don’t have the note?
18 A It’s in our office.
19 Q So it’s in your office, it’s not with this trust that owns
20 the — that’s supposedly holds the — or is the owner of this
21 note, is that correct?
22 A That’s correct.
23 Q And your testimony is that this allonge was never
24 submitted to — it was never in the possession of Bank of New
25 York as trustee for the certificate holder, is that correct?

<SNIP>

9 Q And this allonge, it’s a stand-alone document, correct?
10 It’s not attached to anything, is that correct?
11 A I’m not sure I’m understanding your question.
12 Q Was there anything — when you brought the original that’s
13 in front of you, did you remove it? Was it stapled to
14 something else?
15 A No, it wouldn’t have necessarily been stapled to something
16 else. There would have probably been other documents showing
17 the — you know, we would have shown her the note. We would
18 have reviewed all of that before.

Continue Below…

WikiLeaks plans to release a U.S. bank’s documents

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

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

YOU MUST CONSULT WITH AN ATTORNEY.

REPEAT:

DO NOT try this without consulting an attorney.

Excerpt:

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

AND ANOTHER

SUPREME COURT – STATE OF NEW YORK
I.A.S. PART XXXVI SUFFOLK COUNTY

Plaintiff, PLAINTIFF’S ATTORNEY:
STEVEN J. BAUM, P.C.
220 Northpointe Parkway, Suite G
Amherst, New York 14228

WELLS FARGO BANK, N.A.,

-against-

SUNNY ENG, SHIRLEY ENG, HTFC
CORPORATION, JANE ENG,

DEFENDANTS’ ATTORNEY:
LAW OFFICES OF CRAIG D. ROBINS
Woodbury, New York 11797
Defendants. 180 Froehlich Farm Blvd.
……………………………………………………….. X

Excerpts:

The Court notes that the same law firm, Steven J. Baum, P.C., represented both HTFC and Wells Fargo as plaintiffs.

Moreover, Mr. Wider avers that “Jeffrey Stephan,” who purportedly executed the assignment as “Limited Signing Officer” of HTFC Corporation, has never been an employee of HTFC and that such person was never authorized to act as a “Limited Signing Officer” on behalf of HTFC for any purpose.

Wells Fargo does not have standing to maintain and prosecute this action to foreclose defendants’ mortgage. Plaintiffs have failed to come forward with any evidence to substantiate its claims herein or to raise a triable issue of fact. Indeed, the affirmation of plaintiffs attorney, sworn to September 8, 2010, reflects that plaintiff has been unable to locate any documents substantiating plaintiffs “belief’ that “its servicer had the authority to execute any and all documents attendant to the transfer of the loan.”

Continue below to see both the Decision, Assignment in question…

ENG COM

[ipaper docId=44232303 access_key=key-faynnigo46v0go85gbf height=600 width=600 /]

PATRICK L. COGSWELL and PATRICK M. O’FLAHERTY, doing business as THE PATRICK GROUP, Plaintiffs-Appellants,
v.
CITIFINANCIAL MORTGAGE COMPANY, INCORPORATED, successor by merger to Associates Finance, Incorporated, Defendant-Appellee.

No. 08-2153.

United States Court of Appeals, Seventh Circuit.

Argued April 15, 2009. Decided October 5, 2010.

Before FLAUM, RIPPLE, and SYKES, Circuit Judges.

SYKES, Circuit Judge.

CitiFinancial Mortgage assigned its interest in a mortgage to two investors—doing business as “The Patrick Group”—but never delivered the original or a copy of the underlying note. When The Patrick Group tried to foreclose on the mortgage in Illinois state court, its action was dismissed because it could not produce the note. After an unsuccessful appeal, The Patrick Group filed this breach-of-contract lawsuit against CitiFinancial. The suit was removed to federal court, and the district court granted summary judgment in favor of CitiFinancial.

We reverse. The district court based its summary-judgment decision primarily on a determination that CitiFinancial never agreed to deliver the note as part of the parties’ agreement to transfer the mortgage. But whether they agreed on this term is a question of fact, and The Patrick Group presented enough evidence from which a reasonable fact finder could conclude that it was a part of the parties’ agreement. The district court’s alternative basis for summary judgment—that CitiFinancial’s alleged breach did not cause The Patrick Group’s damages—was also erroneous. Under the circumstances of this case, the causation question should have been resolved in The Patrick Group’s favor as a matter of law; the state trial and appellate courts rejected The Patrick Group’s foreclosure action because without a copy of the note, it could not prove it was the holder of the debt the mortgage secured.

<SNIP>

In short, as a matter of law, The Patrick Group’s damages were caused by CitiFinancial’s failure to deliver an original or a copy of the note secured by the mortgage.^[5] The open factual question is whether the parties’ agreement required CitiFinancial to do so, and on this the evidence is disputed. We therefore REVERSE the judgment of the district court and REMAND for further proceedings consistent with this opinion.

Continue reading below…

COGSWELL v. CITIFINACIAL

[ipaper docId=44166834 access_key=key-260e6bvt95alp1yb56zb height=600 width=600 /]

No. 3D09-2921
Lower Tribunal No. 09-12657
________________
Steven Ray Opella,
Appellant,
vs.
Bayview Loan Servicing, LLC.,
Appellee.

An Appeal from the Circuit Court for Miami-Dade County, Thomas S. Wilson, Jr., Judge.

Steven Ray Opella, in proper person.
Popkin & Rosaler, Brian L. Rosaler, Richard P. Cohn and Deborah Posner,
(Deerfield Beach), for appellee.

Before GERSTEN, WELLS, and LAGOA, JJ.WELLS, Judge.

Steven Ray Opella appeals from a final summary judgment of foreclosure
entered in favor of Bayview Loan Servicing, LLC., claiming that he was never
served with process. Because the record unequivocally confirms that Opella was
neither served with process nor waived service, we reverse.

We also direct the clerk to forward a copy of this opinion to the Florida Bar for
consideration of conduct in violation of the Rules Regulating the Florida Bar.

OPELLA v. BAYVIEW

[ipaper docId=44090710 access_key=key-21vih0nl37kze5ce309q height=600 width=600 /]

FLORENCE R. LACY-MCKINNEY, Appellant-Defendant,
v.
TAYLOR, BEAN & WHITAKER MORTGAGE CORP., Appellee-Plaintiff.

No. 71A03-0912-CV-587.

Court of Appeals of Indiana.

November 19, 2010.

JOSEPH F. ZIELINSKI Indiana Legal Services, Inc. South Bend, Indiana, ATTORNEY FOR APPELLANT.

CRAIG D. DOYLE, MARK R. GALLIHER AMANDA J. MAXWELL Doyle Legal Corporation, P.C. Indianapolis, Indiana, ATTORNEYS FOR APPELLEE.

OPINION

KIRSCH, Judge.

Florence R. Lacy-McKinney (“Lacy-McKinney”) appeals the trial court`s entry of summary judgment in favor of Taylor, Bean & Whitaker Mortgage Corp. (“Taylor-Bean”) on Taylor-Bean`s action to foreclose on Lacy-McKinney`s mortgage that was insured by the Federal Housing Administration (“FHA”).^[1] On appeal, Lacy-McKinney raises two issues that we restate as:

I. Whether a mortgagee`s compliance with federal mortgage servicing responsibilities is a condition precedent that may be raised as an affirmative defense to the foreclosure of an FHA-insured mortgage; and

II. Whether the trial court erred when it entered summary judgment in favor of Taylor-Bean on its mortgage foreclosure action against Lacy-McKinney.

We reverse and remand.

At the time Taylor-Bean filed its complaint, the security interest in the subject mortgage was in the name of Mortgage Electronic Registration Systems, Inc. (“MERS”) “(solely as nominee for [Taylor-Bean] . . . and [Taylor-Bean`s] successors and assigns).” Appellant’s App. at 8. After MERS assigned the security interest to Taylor-Bean, Taylor-Bean filed an amended complaint. Lacy-McKinney initially argued that summary judgment in favor of Taylor-Bean must fail because Taylor-Bean had no interest in the Property at the time the original complaint was filed. Id. at 102-03. Lacy-McKinney does not raise this issue on appeal.

continue below…

[ipaper docId=44090700 access_key=key-6ibb3x2gq6zf7vuh0jp height=600 width=600 /]

DEUTSCHE BANK NATIONAL TRUST COMPANY,
v.
JP MORGAN CHASE BANK, N. A.

A10A1509.

Court of Appeals of Georgia.

Decided: November 19, 2010.

BARNES, Presiding Judge.

JP Morgan Chase Bank, N. A. commenced this action against Deutsche Bank National Trust Company f/k/a Banker’s Trust Company after the two banks conducted competing foreclosure sales of certain real property in DeKalb County. JP Morgan’s claim of title to the property was predicated on a 2004 security deed, while Deutsche Bank’s claim of title was predicated on a 2001 security deed. The case turned on the legal effect of a notarized warranty deed recorded in 2003 and on whether JP Morgan was a bona fide purchaser for value based upon the warranty deed. The trial court granted summary judgment to JP Morgan, concluding that JP Morgan’s interest in the property was superior to and not subject to any interest held by Deutsche Bank. We conclude that the uncontroverted evidence shows that the 2003 warranty deed was not a forgery, but was signed by someone fraudulently assuming authority, and that JP Morgan was a bona fide purchaser for value entitled to take the property free of any outstanding security interest held by Deutsche Bank. Thus, we affirm.

To prevail on a motion for summary judgment, the moving party must demonstrate that there is no genuine issue of material fact, and that the undisputed facts, viewed in a light most favorable to the party opposing the motion, warrant judgment as a matter of law. Our review of a grant of summary judgment is de novo, and we view the evidence and all reasonable inferences drawn from it in the light most favorable to the nonmovant.

(Citations and punctuation omitted.) Consumer Solutions Fin. Svc. v. Heritage Bank, 300 Ga. App. 272 (684 SE2d 682) (2009). See OCGA § 9-11-56 (c); Lau’s Corp. v. Haskins, 261 Ga. 491 (405 SE2d 474) (1991). Guided by these principles, we turn to the record in the present case.

This case involves a dispute over the tract of real property located at 275 Haas Avenue, Atlanta, Georgia 30316 in DeKalb County (the “Property”). The Property was conveyed to Rebecca Diaz by warranty deed recorded in September 2001. On the same date, Diaz executed and recorded a security deed encumbering the Property in favor of People’s Choice Home Loan, Inc. (the “2001 Security Deed”). IndyMac Bank, F. S. B. acquired the 2001 Security Deed by assignment.

In July 2003, a notarized warranty deed from “Indy Mac Bank, F. S. B.” to Diaz was recorded which purported to reconvey the Property to Diaz in fee simple (the “Warranty Deed”). The Warranty Deed was executed by an individual named Pamela Whales, who identified herself as an Assistant Vice President of IndyMac. The Warranty Deed was attested by two witnesses, one of whom was a notary public.

The Property subsequently was deeded to various parties but ultimately to an owner who, in April 2004, executed and recorded a security deed encumbering the Property in favor of OneWorld Mortgage Corporation (the “2004 Security Deed”). Washington Mutual Bank F. A. acquired the 2004 Security Deed by assignment.

In June 2004, IndyMac assigned the 2001 Security Deed to Deutsche Bank. That same month, Deutsche Bank foreclosed upon the Property pursuant to the power of sale provision contained in the 2001 Security Deed. Deutsche Bank was the highest bidder at the foreclosure sale.

In December 2005, Washington Mutual also foreclosed upon the Property pursuant to the power of sale provision contained in the 2004 Security Deed. Washington Mutual was the highest bidder at the foreclosure sale. Thereafter, Washington Mutual was closed by the federal Office of Thrift Supervision, and JP Morgan succeeded to Washington Mutual’s interest in the Property under the terms of a purchase and assumption agreement.

Following the competing foreclosure sales, JP Morgan brought this action against Deutsche Bank for declaratory relief and attorney fees, alleging that its interest in the Property was superior to and not subject to any interest held by Deutsche Bank. Deutsche Bank answered and counterclaimed for a declaratory judgment that its interest in the Property was superior to and not subject to any interest held by JP Morgan.

The parties cross-moved for summary judgment on their declaratory judgment claims. JP Morgan argued that the 2001 Security Deed upon which Deutsche Bank predicated its interest in the Property had been canceled by the Warranty Deed as a matter of law. Alternatively, JP Morgan argued that the uncontroverted evidence showed that it qualified as a bona fide purchaser for value such that it was protected against any outstanding security interest in the Property held by Deutsche Bank. Deutsche Bank strongly disputed these arguments, contending that the Warranty Deed was facially irregular, had been forged, and failed to satisfy the statutory requirements for cancellation of a security deed. The trial court granted summary judgment to JP Morgan and denied it to Deutsche Bank. Deutsche Bank now appeals the trial court’s grant of JP Morgan’s motion for summary judgment.^[1]

1. We affirm the trial court’s grant of summary judgment in favor of JP Morgan because the uncontroverted evidence shows that JP Morgan was afforded the protection of a bona fide purchaser for value, not subject to any outstanding security interest in the Property held by Deutsche Bank.

“To qualify as a bona fide purchaser for value without notice, a party must have neither actual nor constructive notice of the matter at issue.” (Citation and punctuation omitted.) Rolan v. Glass, 305 Ga. App. 217, 218 (1) (699 SE2d 428) (2010). “Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found that such inquiry might have led.” (Citation and footnote omitted.) Whiten v. Murray, 267 Ga. App. 417, 421 (2) (599 SE2d 346) (2004). “A purchaser of land is charged with constructive notice of the contents of a recorded instrument within its chain of title.” (Citation and footnote omitted.) VATACS Group v. HomeSide Lending, (2005). Furthermore, the grantee of a security interest in land and subsequent purchasers are entitled to rely upon a warranty deed that is regular on its face and duly recorded in ascertaining the chain of title. See Mabra v. Deutsche Bank & Trust Co. Americas, 277 Ga. App. 764, 767 (2) (627 SE2d 849) (2006), overruled in part on other grounds by Brock v. Yale Mtg. Corp., ___ Ga. ___ (2) (Case No. S10A0950, decided Oct. 4, 2010). 276 Ga. App. 386, 391 (2) (623 SE2d 534)

On motion for summary judgment, JP Morgan argued that it was entitled to protection as a good faith purchaser because the notarized, recorded Warranty Deed purported to transfer the Property back to Diaz, thereby extinguishing the 2001 Security Deed, and there was no reason to suspect a defect in the Warranty Deed calling into question the chain of title. In contrast, Deutsche Bank argued that JP Morgan was not entitled to such protection because the Warranty Deed was facially irregular in that it misidentified the grantor and failed to comply with OCGA § 14-5-7 (b).

We agree with JP Morgan and reject the arguments raised by Deutsche Bank. The Warranty Deed was regular on its face and duly recorded. See OCGA § 44-5-30 (“A deed to lands must be in writing, signed by the maker, and attested by at least two witnesses.”). See also OCGA § 44-2-21 (a) (4), (b) (one of two required attesting witnesses may be a notary public). Also, the Warranty Deed on its face was executed in a manner that conformed with OCGA § 14-5-7 (b), which provides:

Instruments executed by a corporation releasing a security agreement, when signed by one officer of the corporation or by an individual designated by the officers of the corporation by proper resolution, without the necessity of the corporation’s seal being attached, shall be conclusive evidence that said officer signing is duly authorized to execute and deliver the same.

The Warranty Deed appeared to be executed by an assistant vice president of IndyMac, and thus by an “officer of the corporation.” Moreover, the only interest that IndyMac held in the Property prior to execution of the Warranty Deed was its security interest arising from the 2001 Security Deed, and reconveyance of the Property by way of a warranty deed was a proper way to release that security interest. See Clements v. Weaver, 301 Ga. App. 430, 434 (2) (687 SE2d 602) (2009) (grantor of quitclaim deed estopped from asserting any interest in property conveyed); Southeast Timberlands v. Haiseal Timber, 224 Ga. App. 98, 102 (479 SE2d 443) (1996) (physical precedently only). The Warranty Deed, therefore, facially complied with OCGA § 14-5-7 (b) and would appear to anyone searching the county records to serve as “conclusive evidence” that execution of the deed had been authorized by IndyMac.

(a) In opposing summary judgment, Deutsche Bank argued that the Warranty Deed was facially irregular because it improperly identified the grantor as “Indy Mac Bank, F. S. B.” rather than “IndyMac Bank, F. S. B.” But “a mere misnomer of a corporation in a written instrument . . . is not material or vital in its consequences, if the identity of the corporation intended is clear or can be ascertained by proof.” (Citation, punctuation, and emphasis omitted.) Hawkins v. Turner, 166 Ga. App. 50, 51-52 (1) (303 SE2d 164) (1983). It cannot be said that the mere placement of an additional space in the corporate name (i.e., “Indy Mac” versus “IndyMac”) made the identity of the corporation unclear. As such, the misnomer did not render the Warranty Deed irregular on its face.

(b) Deutsche Bank also argued that the Warranty Deed failed to comply with OCGA § 14-5-7 (b) because the phrase “when signed by one officer of the corporation” should be construed as requiring the signature of the corporate president or vice president. “The cardinal rule of statutory construction requires that we look to the intention of the legislature. And in so doing, the literal meaning of the statute prevails unless such a construction would produce unreasonable or absurd consequences not contemplated by the legislature.” Johnson v. State, 267 Ga. 77, 78 (475 SE2d 595) (1996). The words of OCGA § 14-5-7 (b) are unambiguous and do not lead to an unreasonable or absurd result if taken literally: any officer of the corporation has authority to sign the instrument releasing the security interest. There is no basis from the language of the statute to limit that authority to a subset of corporate officers such as a president or vice president.

It is clear that the legislature knew how to specify such a limitation when it chose to do so. In OCGA § 14-5-7 (a),^[2] the legislature imposed a limitation on the specific types of corporate officers who could execute instruments for real estate conveyances other than those releasing security agreements. Consequently, we must presume that the legislature’s failure to include similar limiting language in OCGA § 14-5-7 (b) “was a matter of considered choice.” Transp. Ins. Co. v. El Chico Restaurants, 271 Ga. 774, 776 (524 SE2d 486) (1999).

Deutsche Bank further argued that the Warranty Deed failed to comply with OCGA § 14-5-7 (b) because the statute should be construed as requiring the instrument to expressly state that it was “releasing a security agreement,” and the Warranty Deed did not contain such express language. But nothing in the plain language of OCGA § 14-5-7 (b) imposes an express language requirement, “and the judicial branch is not empowered to engraft such a [requirement] on to what the legislature has enacted.” (Citation omitted.) Kaminer v. Canas, 282 Ga. 830, 835 (1) (653 SE2d 691) (2007).

(c) Given the facial regularity of the recorded Warranty Deed, there was no reason to suspect that it might be defective in some manner or that there might be a problem in the chain of title resulting from the deed. Nothing in the Warranty Deed would have excited attention or put a party on inquiry that the 2001 Security Deed might remain in full force and effect. Accordingly, the original grantee of the 2004 Security Deed (OneWorld Mortgage Corporation) was entitled to rely upon the facially regular Warranty Deed and was afforded the protection of a bona fide purchaser of the Property, entitled to take the Property free of the 2001 Security Deed. See generally Farris v. Nationsbanc Mtg. Corp., 268 Ga. 769, 771 (2) (493 SE2d 143) (1997) (“A bona fide purchaser for value is protected against outstanding interests in land of which the purchaser has no notice.”). Because OneWorld Mortgage Corporation had the status of a bona fide purchaser, subsequent holders of the 2004 Security Deed were likewise afforded that status, including Washington Mutual (now JP Morgan). See OCGA § 23-1-19 (“If one without notice sells to one with notice, the latter shall be protected[.]”; Murray v. Johnson, 222 Ga. 788, 789 (3) (152 SE2d 739) (1966); Thompson v. Randall, 173 Ga. 696, 701 (161 SE 377) (1931). Consequently, summary judgment was appropriate to JP Morgan on the issue of its status as a bona fide purchaser for value.

2. In opposing summary judgment, Deutsche Bank contended that even if JP Morgan qualified as a bona fide purchaser for value, there was a genuine issue of material fact over whether the Warranty Deed constituted a forgery, and thus over whether JP Morgan acquired good title to the Property. JP Morgan responded that the uncontroverted evidence showed that the Warranty Deed did not constitute a common law forgery, which occurs when someone signs another person’s name, since the Warranty Deed was signed by a person using her own name but who fraudulently assumed authority to act on behalf of IndyMac. JP Morgan further maintained that its status as a bona fide purchaser for value protected it against any fraud (rather than forgery) that might have been involved in the execution of the Warranty Deed.

The dispute between the parties centered on the assertions contained in the affidavit of Yolanda Farrow, which was filed by Deutsche Bank in opposition to summary judgment (the “Farrow Affidavit”). Farrow averred that she was a records keeper formerly employed by IndyMac and currently employed at IndyMac’s successor bank. Farrow further averred that her office maintained the IndyMac personnel records in an electronic database; that she had personal knowledge of the maintenance and upkeep of those records; and that she had personally researched and examined the records database for the person identified in the Warranty Deed as Pamela Whales, Assistant Vice President. Based upon her review of the records database, Farrow opined that to the best of her knowledge and belief, no one by that name was an employee or agent of IndyMac when the Warranty Deed was executed. Deutsche Bank maintained that the Farrow Affidavit served as circumstantial evidence creating a genuine issue of material fact over whether the Warranty Deed was a forgery.

[W]e have . . . long recognized that a forged deed is a nullity and vests no title in a grantee. As such, even a bona fide purchaser for value without notice of a forgery cannot acquire good title from a grantee in a forged deed, or those holding under such a grantee, because the grantee has no title to convey.

(Citations and punctuation omitted.) Brock, ___ Ga. at ___ (2). See also Second Refuge Church of Our Lord Jesus Christ v. Lollar, 282 Ga. 721, 726-727 (3) (653 SE2d 462 (2007). In contrast, a bona fide purchaser is protected against fraud in the execution or cancellation of a security deed of which he or she is without notice. See Murray, 222 Ga. at 789 (4).

We conclude that the Farrow Affidavit filed by Deutsche Bank was insufficient to raise a genuine issue of material fact as to whether the Warranty Deed was a forgery.

A recorded deed shall be admitted in evidence in any court without further proof unless the maker of the deed, one of his heirs, or the opposite party in the action files an affidavit that the deed is a forgery to the best of his knowledge and belief. Upon the filing of the affidavit, the genuineness of the alleged deed shall become an issue to be determined in the action.

OCGA § 44-2-23. While “forgery” is not defined in the statute, we have previously noted that the general principles espoused in the statute were “taken from the common law.” McArthur v. Morrison, 107 Ga. 796, 797 (34 SE 205)Intl. Indem. Co. v. Bakco Acceptance, 172 Ga. App. 28, 32 (2) (322 SE2d 78)Barron v. State, 12 Ga. App. 342, 348 (77 SE 214)Gilbert v. United States, 370 U. S. 650, 655-658 (II) (82 SC 1399, 8 LE2d 750) (1962) (discussing the common law of forgery); People v. Cunningham, 813 NE2d 891, 894-895 (N. Y. 2004) (same). On the other hand, (1899). Furthermore, we favor the construction of a statute in a manner that is in conformity with the common law, rather than in derogation of it. See (1984). Under the common law, a forgery occurs where one person signs the name of another person while holding out that signature to be the actual signature of the other person. See (1913) (“[T]o constitute forgery, the writing must purport to be the writing of another party than the person making it.“) (citation and punctuation omitted). See also

[w]here one executes an instrument purporting on its face to be executed by him as the agent of the principal, he is not guilty of forgery, although he has in fact no authority from such principal to execute the same. This is not the false making of the instrument, but merely a false and fraudulent assumption of authority.

(Citation and punctuation omitted.) Ga. Cas. & Surety Co. v. Seaboard Surety Co., 210 F. Supp. 644, 656-657 (N. D. Ga. 1962), aff’d, Seaboard Surety Co. v. Ga. Cas. & Surety Co., 327 F.2d 666 (5th Cir. 1964) (applying Georgia law). This common law distinction between forgery and a fraudulent assumption of authority has been discussed and applied in several Georgia cases. See Morgan v. State, 77 Ga. App. 164, 165 (48 SE2d 115) (1948); Samples v. Milton County Bank, 34 Ga. App. 248, 250 (1) (129 SE 170) (1925); Barron, 12 Ga. App. at 347-350.

In the present case, the Farrow Affidavit merely asserted that Whales, the individual who signed the Warranty Deed, was not an employee or agent of IndyMac. It is undisputed that the individual signing the Warranty Deed was in fact Whales. Hence, the Farrow Affidavit alleged a fraudulent assumption of authority by Whales, not a forgery, under the common law. See Georgia Cas. & Surety Co., 210 F. Supp. at 656-657; Morgan, 77 Ga. App. at 165; Samples, 34 Ga. App. at 250 (1); Barron, 12 Ga. App. at 347-350.

Arguing for a contrary conclusion, Deutsche Bank maintained that the cases applying the Georgia common law of forgery which have addressed the doctrine of a “fraudulent assumption of authority” have involved an admitted agent with some authority to act on behalf of its principle, but who exceeded that authority. Deutsche Bank asserted that the present case is thus distinguishable, since the Farrow Affidavit reflected that Whales had no authority to act as an agent of IndyMac in any capacity or under any circumstances.

We are unpersuaded. Nothing in the language or reasoning of the cases applying the doctrine of fraudulent assumption of authority suggests that the doctrine should be limited in the manner espoused by Deutsche Bank. See Georgia Cas. & Surety Co., 210 F. Supp. at 656-657;Morgan, 77 Ga. App. at 165; Samples, 34 Ga. App. at 250 (1); Barron, 12 Ga. App. at 347-350. Indeed, in Georgia Cas. & Surety Co., 210 F. Supp. at 652, 656-657, the district court did not hesitate to apply the doctrine, even though the court found that the individuals who had executed the corporate documents were “purely intruders” with “no contract of employment existing nor even in contemplation,” who lacked any authority whatsoever to act on behalf of the corporation as officers or otherwise.

For these reasons, the trial court correctly rejected Deutsche Bank’s contention that there was evidence that the Warranty Deed had been forged. Because the Farrow Affidavit at best showed a fraudulent assumption of authority by Whales as signatory to the Warranty Deed, JP Morgan, as a bona fide purchaser, was protected against the fraudulent actions alleged by Deutsche Bank. See Murray, 222 Ga. at 789 (4).

3. In opposing summary judgment, Deutsche Bank also maintained that the Warranty Deed could not cause the 2001 Security Deed to be canceled because the Warranty Deed failed to comply with the requirements of OCGA § 44-14-67 (b) (2). That statute provides in pertinent part:

(b) In the case of a deed to secure debt which applies to real property, in order to authorize the clerk of superior court to show the original instrument as canceled of record, there shall be presented for recording:

. . .

(2) A conveyance from the record holder of the security deed, which conveyance is in the form of a quitclaim deed or other form of deed suitable for recording and which refers to the original security deed[.]

According to Deutsche Bank, the Warranty Deed did not authorize the clerk of the superior court to cancel the 2001 Security Deed because the Warranty Deed made no express reference to the 2001 Security Deed, as required by this statute. As such, Deutsche Bank argued that, as a matter of law, the Warranty Deed could not effectuate the cancellation of the 2001 Security Deed and thereby extinguish Deutsche Bank’s interest in the Property.

Deutsche Bank’s argument was predicated on the false assumption that OCGA § 44-14-67 (b) provides the exclusive means for the cancellation or extinguishment of a security deed. But as previously noted, a bona fide purchaser for value is entitled to take property free of any outstanding security interest of which the purchaser had no actual or constructive notice. See Farris, 268 Ga. at 771 (2). And it would produce an anomalous result to interpret Georgia’s recording statutes, including OCGA § 44-14-67 (b), in a manner that would defeat the interests of a bona fide purchaser for value. See Lionheart Legend v. Northwest Bank Minn. Nat. Assn., 253 Ga. App. 663, 667 (560 SE2d 120) (2002) (noting that Georgia’s recording acts are intended to protect bona fide purchasers for value). It follows that because JP Morgan was a bona fide purchaser for value, it was entitled to take the Property free of the 2001 Security Deed, separate and apart from the procedures for cancellation by the clerk of the superior court set forth in OCGA § 44-14-67.

For these combined reasons, the trial court correctly concluded that the uncontroverted evidence of record showed that JP Morgan’s interest in the Property was superior to and not subject to any interest held by Deutsche Bank. The trial court, therefore, committed no error in granting summary judgment in favor of JP Morgan on its claim for a declaratory judgment.

Judgment affirmed. Blackwell, and Dillard, JJ., concur.

[1] Deutsche Bank does not appeal the trial court’s denial of its motion for summary judgment.

[2] OCGA § 14-5-7 (a) provides:

Instruments executed by a corporation conveying an interest in real property, when signed by the president or vice-president and attested or countersigned by the secretary or an assistant secretary or the cashier or assistant cashier of the corporation, shall be conclusive evidence that the president or vice-president of the corporation executing the document does in fact occupy the official position indicated; that the signature of such officer subscribed thereto is genuine; and that the execution of the document on behalf of the corporation has been duly authorized. Any corporation may by proper resolution authorize the execution of such instruments by other officers of the corporation.

SFF first posted this back on August 26, 2010.

Linda Green is/was an employee of DocX a subsidiary of Lender Processing Services located in Alpharetta, Georgia. Her signature was forged on key sensitive documents relating to county land records.

Below is a document that Shapiro & Fishman filed as a CORRECTIVE ASSIGNMENT OF MORTGAGE.

What about the Satisfactions? In DOCX’s website they said:

“DOCX has built its solid reputation at not only managing large assignment projects, but satisfactions as well“.

• Exactly how many documents were signed by Green’s name as VP for MERS between these dates?
• Who do we contact to make this a nationwide recall alert like the recent “egg recall” containing salmonella?
  
• Exactly who is being notified if there is any title issues on your homes?
• Has there been a recall notice sent to County Recorders on this issue?
• Are there more VP’s of MERS who had no authority to execute documents?

LPS DOCX LINDA GREEN SHAPIRO

[ipaper docId=44005903 access_key=key-28f23qvartvao40f2b0x height=600 width=600 /]

In response to questions regarding the letter from Essex Co. (Mass.) Register of Deeds John O’Brien to the Hon. Martha Coakley, Attorney General for the Commonwealth of Massachusetts, MERS has not seen the letter nor have we been contacted by the Massachusetts attorney general. We will fully cooperate with any inquiries from appropriate authorities.

It is not the case that recording fees are somehow owed or outstanding. MERS pays recording fees when the mortgage is recorded. Fees are paid for a service performed, and if a document is eliminated because it is no longer necessary, no fee is due because there is nothing to record. In fact, MERS greatly reduces the workload of county recorders, resulting in lower operating expenses for the county recorder’s office. Moreover, it would be the borrower, and not the lender, who ultimately pays the costs of recording assignments, either directly or indirectly.

When servicing rights or promissory notes are sold for loans where MERS is not the mortgagee, the usual practice is for the seller to execute and record an instrument assigning the mortgage lien to the purchaser (commonly referred to as an “assignment”). In general, the primary reason assignments are recorded (in cases where MERS is not the mortgagee), stems from the need of servicers to be in the land records to fully administer the loan on behalf of the mortgage loan owner. In which case, the servicer will be assigned the mortgage lien (thus becoming the mortgagee) in order to receive the service of process related to that mortgage loan. When Mortgage Electronic Registration Systems, Inc. is the mortgagee (i.e., holds the legal title to the mortgage lien), there is no need for an assignment of the mortgage lien between its members because MERS remains the mortgagee holding legal title to the mortgage as the common agent for them. It is not the case that the assignments are now being done electronically through the MERS® System instead of being recorded in the land records. The need for an assignment is eliminated because title to the mortgage lien has been grounded in MERS. Moreover, transfers of mortgage notes and servicing rights are not recordable transactions (and have never been reflected in the land records) because they are not a conveyance of an interest in real property that is entitled to be recorded; only the transfer of the lien is a conveyance. The only reason servicers needed to appear in the county land records before MERS was so they could receive legal notices pertaining to the property. Now, MERS as their common agent receives the legal notices. The chain of title starts and stops with Mortgage Electronic Registration Systems, Inc. as the mortgagee. MERS, as the agent for the note-owner, holds legal title for the note-owner in the land records.

The use of MERS is in compliance with the statutory intent of the state recording acts. When MERS is the mortgagee, the mortgage is recorded at the county land records, thereby putting the public on notice that there is a lien on the property. The MERS® System also complements the county land records by providing additional information that was never intended to be recorded at the county level, namely the information about the mortgage loan servicer, and now, with the addition of MERS® InvestorID, the name of the investor.

Source: MERS

IN THE COURT OF APPEALS OF IOWA
No. 0-407 / 09-1816

FFMLT 04-FF10, BANK OF NEW YORK,
as Successor in Interest to JP MORGAN
CHASE BANK, N.A., as Trustee,
Plaintiff-Appellee,
vs.
BARBRA J. SMITH,
Defendant-Appellant.

Excerpt:

Bank of New York also contends any issue concerning the validity of the foreclosure judgment is moot because it already bought the property at the sheriff’s sale. We find this claim without merit because we have the power to declare a judgment null and void, even if the judgment has previously been executed. See Hell, 238 Iowa at 513-14, 28 N.W.2d at 2-3 (holding the two-year statute of limitations had run, rendering the judgment null and void even though a levy had been made on the property and the debtor’s credits had already been garnished). “A void judgment ordinarily cannot be made valid and operative by . . . a sale on execution held under it.” Halverson v. Hageman, 249 Iowa 1381, 1390, 92 N.W.2d 569, 575 (1958) (citation omitted). The fact that an execution sale has occurred does not moot the issue presented.

V. Conclusion.
We conclude the legislature did not intend a demand to delay sale obtained pursuant to Iowa Code section 654.21 to toll the two-year statute of limitations in section 615.1. Therefore, the July 24, 2009 special execution of the July 5, 2007 foreclosure judgment came nineteen days too late, rendering the judgment null and void.

We reverse the decision of the district court and remand for entry of a decree declaring the sheriff’s sale null and void, returning legal title to Smith, and declaring the July 5, 2007 foreclosure judgment null and void for any purpose other than set off or counterclaim. Costs are assessed to the Bank of New York.

REVERSED AND REMANDED WITH DIRECTIONS.

BANK OF NEW YORK v SMITH

[ipaper docId=43923692 access_key=key-rjo9jgwfo4tmv8rhss height=600 width=600 /]

By: OneMacIndyWest

I want to tell you all a little story. The story begins, as all American dreams do, with unfettered hope and belief, but has, over time, become a nightmare from the darkest recesses of our national psyche. This is not a fairy tale, and I beg you to see yourself in our heroine; for you could find yourself in her shoes very soon. And I promise you that that is not a place you want to be. But read on, and judge the veracity of my words for yourself.

I have been in the mortgage industry for almost a decade, and have seen my share of the ugly side of lending: the foreclosures, the forgotten families, and the greedy, heartless, faceless “holder of the note” gone wild. I have experienced all of this more times than I care to admit, and have been ashamed of my industry more times than I care to count, but the borrower I wish to tell you of was the reason I broke into this business in the first place. People like her, hard-working, honest Americans, are the ones a broker like myself looks for day and night, and strives to take care of in whatever capacity we are capable of.

Why you ask? What makes her so special? There are many answers to these questions, and the easy answer would be that she perfectly fit the mold we in the business look for. She had been employed for 22 years with the same corporation, and had managed to pay every liability on time for her entire adult life. No late payments, no missed payments, and nothing at all to indicate that she would ever change. Her credit score was 780, and she had owned a home for 10 years in Miami Beach (an expensive place to buy). This showed unequivocally that she understood liability, and knew how to get things done in the lending market. In short, she was a lender’s dream come true. A loan you approve and forget about because the payments are always in on time, and so, as a lender, you just count money for 30 years. What could be better from our point of view than that? Every lender in the world will tell you the answer to that question is nothing; absolutely nothing.

This lady decided to move to Chicago to be closer to her corporate office, so she sold her home in Miami and took her dreams and possessions north to Chicago. This took place in 2006 while the housing bubble was still growing larger, and no one outside of the industry had any expectation that it may burst at any time. She did her due diligence while looking for a home in the Chicago area, and eventually settled on a brand new property in an area ripe for gentrification. Basically, she bought in an older neighborhood that was undergoing massive urban renewal projects that were projected to raise property values in her area significantly; as long as there was no unforeseen disaster looming. That is the danger of things unforeseen. They eventually come to pass, and no one is prepared to combat them.

She started with an Interest-Only Loan as at that time it made more sense to use her principal money on personal investments rather than giving it to a lender to make decisions with. Even though interest rates were high at the time, IO rates slightly higher than fixed, she was able to get the property for almost $75K less than it initially appraised for, so she was already ahead of the game. She maintained her perfect history, 0×30 on her mortgage, and everything else for that matter, but that was before the wise and powerful bankers in America decided to play 3-Card Monty with America’s future.

As the signs of the encroaching financial apocalypse began to show themselves, she attempted, through her lender, to pursue refinancing, but was told her case called for the loan modification process. The press was making a fuss about how these modifications were the way for borrowers to get the help they needed to stay afloat in the carnage that followed the bubble bursting, and as an intelligent and savvy borrower with a perfect history she expected the process to go smoothly for her. In that assumption, she would have been right if not for the new credit card laws passed that allowed the companies to raise their interest rates and reduce the line of credit available on any given card. These changes have had an enormous, unintended consequence in the lending world since loans are in large part based on debt-to-income (DTI) ratios.

Imagine this borrower has a credit line of $10K on a card with only a $2K balance, but is then targeted by the credit card company for a reduced credit line of say $2500, so her 20% balance has now become 80% without her actually doing anything irresponsible. Yet, when lenders looked at her DTI they would see that she is nearly maxed out on her card, and in this industry that is a major red flag. She understood DTI, and how it could affect her ability to qualify for extra money (even though she did nothing untoward or rash in terms of spending), but why should that hamper her from getting a reduced rate? It is asinine to ask a person to re-qualify for something they already have, or to tell them they must qualify to save money, but this is what is happening in America today. She signed no agreement stating she could not refinance in the future with the help of her lender, so all she is left with are questions. Questions that for her and the millions like her, unfortunately, have no good answers. The American Dream, for this model American, is quickly becoming the American Nightmare.

There are so many questions our borrower wants to ask, but there are no phone lines to call or government offices to visit with any answer other than, “talk to the lender”. This is just endless runaround from the lender, and more and more frustration for her and her family. How is it possible to be locked into a loan, with bankruptcy laws so much tougher, and have absolutely no way to refinance? More transparency in the industry is great, but how can our borrowers appease the credit companies interest hikes while losing equity in their property due to the housing catastrophe and still meet the necessary financial obligations they agreed to prior to this meltdown? This is a recipe for mass bankruptcy and foreclosure; two things that hurt us all in the long run.

It was March of 2009 when our borrower started the conversation about refinancing with her current mortgage company, Indy Mac, from the 7.625% IO-Loan to a 4.5% fixed rate. They explained to her that she would need to print out a new financial packet, and send it, along with all other pertinent information, in to be reviewed before they could proceed; she did just that. After an entire month had passed, she called in to check the status of her application, and was told that the servicing company, Indy Mac, was changing hands, but she would still be taken care of by the new investor, One West.
Just like that, she and thousands of other customers were being sold to the highest bidder, and after some research she discovered that One West actually only paid up to far less than full value for these notes. It gets better. One West actually had the federal government guarantee them anything lost over a certain percentage. What does this mean you ask? All the numbers are there in black and white on the internet for anyone to see; but no one looks. You do not have to be a rocket scientist to see that it would be more profitable to foreclose quickly and collect the guaranteed funds than to refinance the borrower’s note at a current market rate.

The changing of the servicer of her note, as unsettling as it was, would have been fine if not for the dramatic change in guidelines and customer service she experienced. This often happens after a change of this magnitude in any business field, but these differences were downright ridiculous. She was informed that the financial packet she had sent was no longer valid, so she would have to assemble another one before any process could begin. So, once again she followed procedure in hopes of capturing that elusive lower interest rate.

She waited and waited for a call to inform her of the status of her newest application, and finally tried calling herself to enquire; but to no avail. Her calls were treated as a joke. They repetitiously asked for the same documents, and even claimed after three business days that they had never received her fax, and that it took all that time to verify whether or not they had received her documentation. They have done this over 50 times from March of 2009 to the present day! That is preposterous, shameful, and ought to be criminal! But it gets better; or worse for our heroine.

After calling repeatedly for three months she finally got them to look at her application. They told our borrower that the check stubs submitted were out of date according to Fannie Mae guidelines (must be less than 90 days old), but when she remedied that they told our borrower that her check stubs were fraudulent. Check stubs from one of the three largest airlines in the world which she has worked with for more than 20 years by the way. They focused on some minutiae that they knew to be nothing, but she was forced to get a complete employment record from her employer to along with a Letter of Explanation (LOX) from her Human Resources department. This process has stretched into years with no results. She was even told that the best way to get help is to be late on her mortgage payments! Imagine that. It has become so bad that when she follows up on any fax or correspondence they claim she has never talked to anyone about her issue, and when she asked about recording the conversation she was told it was against their policy. I am not making this up. Every word is true and to the point, and the point is that One West and Indy Mac, Fannie Mae and the federal government are fleecing, and failing we the people.

This is dangerous and uncontrolled corporate behavior, and it cannot be allowed to continue. One West has become the poster child for what is wrong with this industry; what is wrong with America in fact. In my humble opinion (and that of thousands of other Americans…not to mention all the honest lenders in the industry), they have pulled out all the stops when it comes to delaying and deceiving their customers in order to get a government handout and make a dishonest buck. This must not be allowed to stand.

Help her. She has asked again and again, and researched every option. She can’t refinance due to not having value. She can’t modify because it’s not profitable to the lender to do so, and she can’t walk away as her state won’t allow this. Why I ask myself? Is it considered walking away if you have no more options? Why is it easier to profit from bad deals than good ones? There is no hope for this borrower that she can see. The only hope I can think of is a Federal Reserve for primary borrowers in America. By that, I mean the feds open the vaults to primary homeowners at a specific rate, and work directly with the borrowers from a federal standpoint. Cut the banks out. Let them focus on commercial deals and second homes where the rates are higher and people know what they are getting into from day one. I do not think these customers’ closing paperwork said anything about having to stay in one rate for thirty years. Do you know anyone on record in today’s environment that can say they stayed in their home for thirty years at the same rate? I don’t think that is even possible. Please share…

Here are some sites that clearly have people in the same situation, read, educate, follow and post, let’s start the revolt against One West/ Indy Mac and Fannie Mae.

Go to Google, You-tube or any engine for that matter and type class action Indy Mac, Type Complaints Indy Mac/ One West; you will see firsthand what we are all up against.

EXCERPT:

THE COURT: All right. I have the supplemental and
12 second supplemental submissions of Countrywide and the reply.
13 Mr. Kaplan, I look to you first. I am, frankly, appalled at
14 the confusion and lack of credibility of Countrywide’s
15 response to the issue of the note — the possession of the
16 note.
17 We started out with Ms. DeMartini’s testimony that
18 the note never leaves the servicer. She says that she saw a
19 Federal Express receipt whereby the actual note, the physical,
20 original note was transferred to the Foreclosure Department
21 internally in the same building, but that the note had not yet
22 been located. That’s where we stood at that point.
23 Then we had a submission, the supplemental
24 submission saying the original note has been found and can be
25 available for inspection. It doesn’t say where it was found,

1 who had possession or the like, but it was found and is
2 available for inspection.
3 And then without any explanation, there is a lost
4 note affidavit presented dated February of 2007 indicating
5 that the note cannot be found. No explanation provided. What
6 do I do with that, Mr. Kaplan?

<SNIP>

THE COURT: It’s amazing how sloppy this
2 presentation was, and I’m very disappointed about that.
3 Anyway — all right. Well, thank you, Mr. Kaplan. Do you
4 want to present testimony? Does it matter, you know, because
5 there is no testimony regarding possession by Bank of New York
6 as Trustee, correct?
7 MR. KAPLAN: That’s correct, Your Honor. I’m not
8 disputing that. That’s what Ms. DeMartini testified to, that
9 the note — she had no record of this note leaving and going
10 across country, across wherever, to Bank of New York.
11 THE COURT: And you do understand as well that the
12 Pooling and Servicing Agreement requires that transfer, that
13 physical transfer of the note in accordance with — and
14 endorsement — in accordance with UCC requirements?
15 MR. KAPLAN: I understand that, Your Honor. I’ll
16 simply say for the sake of edification, but this is — and I
17 was told it was all e-filed — this is apparently the index to
18 this Master Servicing Agreement showing all the loans and it
19 does reference the Kemp loan. It’s a double-side document,
20 includes all the loans.
21 And I can say that, although Your Honor is right and
22 the UCC and the Master Servicing Agreement apparently requires
23 that, procedure seems to indicate that they don’t physically
24 move documents from place to place because of the fear of loss
25 and the trouble involved and the people handling them. They

basically execute the necessary documents and retain them as
2 long as servicing’s retained. The documents only leave when
3 servicing is released.
4 THE COURT: They take their chances.
5 MR. KAPLAN: I understand, Your Honor.
6 THE COURT: Understood. Thank you.
7 Counsel, the proof of claim was filed — let’s see
8 — it was filed by Countrywide Home Loans, Inc., servicer for
9 Bank of New York — now, that’s wrong. We understand that.
10 Can the — can these problems be corrected post-petition? In
11 other words, we know that claims can be transferred post12
petition.
13 What about if the note, the original note now that
14 has seemingly appeared, is now transferred to the Bank of New
15 York as Trustee and amended, it wouldn’t have to — well, it
16 would be amended to reflect that Countrywide Home Loans, Inc.,
17 is not the right party, but Countrywide Home Loans, Master
18 Servicing or servicing whatever that name is, as servicer for
19 Bank of New York, Trustee, is filing this proof of claim,
20 what’s wrong with that?

FULL DEPOSITION TRANSCRIPT OF KEMP v. COUNTRYWIDE

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Note and Mortgage Transfers in Securitizations

A residential mortgage securitization is a transaction that involves a series of transfers of two types of documents:  mortgage notes (the IOUs made by mortgage borrowers) and mortgages (the security instrument that says the lender may foreclose on the house if the borrower defaults on the note).   Ultimately, both the notes and mortgages need to be properly transferred to a trust that will pay for them by issuing securities (backed by the mortgages and notes, hence residential mortgage-backed securities or RMBS). If the notes and mortgages aren’t properly transferred to the trust, then the securities that the trust issues aren’t mortgage-backed and are worthless.

So the critical issue here is whether the notes and mortgages were properly transferred to the securitization trusts.  To determine this, we need to figure out two things.  First, what is the proper method for transferring the notes and mortgages, and second, whether that method was followed. For this post, I’m going to focus solely on the notes. There are issues with the mortgages too, but that gets much, more complicated and doesn’t directly connect with Kemp.

1.  How Do You Transfer a Note?

General Rules and Regulations
promulgated
under the
Securities Exchange Act of 1934

Rule 17f-1 — Requirements for Reporting and Inquiry with Respect to Missing, Lost, Counterfeit or Stolen Securities

(a) Definitions. For purposes of this section:

(1) The term reporting institution shall include every national securities exchange, member thereof, registered securities association, broker, dealer, municipal securities dealer, government securities broker, government securities dealer, registered transfer agent, registered clearing agency, participant therein, member of the Federal Reserve System and bank whose deposits are insured by the Federal Deposit Insurance Corporation;

(2) The term uncertificated security shall mean a security not represented by an instrument and the transfer of which is registered upon books maintained for that purpose by or on behalf of the issuer;

(3) The term global certificate securities issue shall mean a securities issue for which a single master certificate representing the entire issue is registered in the nominee name of a registered clearing agency and for which beneficial owners cannot receive negotiable securities certificates;

(4) The term customer shall mean any person with whom the reporting institution has entered into at least one prior securities-related transaction; and

(5) The term securities-related transaction shall mean a purpose, sale or pledge of investment securities, or a custodial arrangement for investment securities.

(6) The term securities certificate means any physical instrument that represents or purports to represent ownership in a security that was printed by or on behalf of the issuer thereof and shall include any such instrument that is or was:

(i) Printed but not issued;

(ii) Issued and outstanding, including treasury securities;

(iii) Cancelled, which for this purpose means either or both of the procedures set forth in Sec. 240.17Ad-19(a)(1); or

(iv) Counterfeit or reasonably believed to be counterfeit.

(7) The term issuer shall include an issuer’s:

(i) Transfer agent(s), paying agent(s), tender agent(s), and person(s) providing similar services; and

(ii) Corporate predecessor(s) and successor(s).

(8) The term missing shall include any securities certificate that:

(i) Cannot be located or accounted for, but is not believed to be lost or stolen; or

(ii) A transfer agent claims or believes was destroyed in any manner other than by the transfer agent’s own certificate destruction procedures as provided in Sec. 240.17Ad-19.

(b) Every reporting institution shall register with the Commission or its designee in accordance with instructions issued by the Commission except:

(1) A member of a national securities exchange who effects securities transactions through the trading facilities of the exchange and has not received or held customer securities within the last six months;

(2) A reporting institution that, within the last six months, limited its securities activities exclusively to uncertificated securities, global securities issues or any securities issue for which neither record nor beneficial owners can obtain a negotiable securities certificate; or

(3) A reporting institution whose business activities, within the last six months, did not involve the handling of securities certificates.

(c) Reporting requirements–

(1) Stolen securities.

(i) Every reporting institution shall report to the Commission or its designee, and to a registered transfer agent for the issue, the discovery of the theft or loss of any securities certificates where there is substantial basis for believing that criminal activity was involved. Such report shall be made within one business day of the discovery and, if the certificate numbers of the securities cannot be ascertained at that time, they shall be reported as soon thereafter as possible.

(ii) Every reporting institution shall promptly report to the Federal Bureau of Investigation upon the discovery of the theft or loss of any securities certificate where there is substantial basis for believing that criminal activity was involved.

(2) Missing or lost securities. Every reporting institution shall report to the Commission or its designee, and to a registered transfer agent for the issue, the discovery of the loss of any securities certificate where criminal actions are not suspected when the securities certificate has been missing or lost for a period of two business days. Such report shall be made within one business day of the end of such period except that:

(i) Securities certificates lost, missing, or stolen while in transit to customers, transfer agents, banks, brokers or dealers shall be reported by the delivering institution by the later of two business days after notice of non-receipt or as soon after such notice as the certificate numbers of the securities can be ascertained.

(ii) Where a shipment of retired securities certificates is in transit between any transfer agents, banks, brokers, dealers, or other reporting institutions, with no affiliation existing between such entities, and the delivering institution fails to receive notice of receipt or non-receipt of the certificates, the delivering institution shall act to determine the facts. In the event of non-delivery where the certificates are not recovered by the delivering institution, the delivering institution shall report the certificates as lost, stolen, or missing to the Commission or its designee within a reasonable time under the circumstances but in any event within twenty business days from the date of shipment.

(iii) Securities certificates considered lost or missing as a result of securities counts or verifications required by rule, regulation or otherwise (e.g., dividend record date verification made as a result of firm policy or internal audit function report) shall be reported by the later of ten business days after completion of such securities count or verification or as soon after such count or verification as the certificate numbers of the securities can be ascertained.

(iv) Securities certificates not received during the completion of delivery, deposit or withdrawal shall be reported in the following manner:

(A) Where delivery of the securities certificates is through a clearing agency, the delivering institution shall supply to the receiving institution the certificate number of the security within two business days from the date of request from the receiving institution. The receiving institution shall report within one business day of notification of the certificate number;

(B) Where the delivery of securities certificates is in person and where the delivering institution has a receipt, the delivering institution shall supply the receiving institution the certificate numbers of the securities within two business days from the date of request from the receiving institution. The receiving institution shall report within one business day of notification of the certificate number;

(C) Where the delivery of securities certificates is in person and where the delivering institution has no receipt, the delivering institution shall report within two business days of notification of non-receipt by the receiving institution; or

(D) Where delivery of securities certificates is made by mail or via draft, if payment is not received within ten business days, the delivering institution shall confirm with the receiving institution the failure to receive such delivery; if confirmation shows non-receipt, the delivering institution shall report within two business days of such confirmation.

(3) Counterfeit securities. Every reporting institution shall report the discovery of any counterfeit securities certificate to the Commission or its designee, to a registered transfer agent for the issue, and to the Federal Bureau of Investigation within one business day of such discovery.

(4) Transfer agent reporting obligations. Every transfer agent shall make the reports required above only if it receives notification of the loss, theft or counterfeiting from a non-reporting institution or if it receives notification other than on a Form X-17F-1A or if the certificate was in its possession at the time of the loss.

(5) Recovery. Every reporting institution that originally reported a lost, missing or stolen securities certificate pursuant to this Section shall report recovery of that securities certificate to the Commission or its designee and to a registered transfer agent for the issue within one business day of such recovery or finding. Every reporting institution that originally made a report in which criminality was indicated also shall notify the Federal Bureau of Investigation that the securities certificate has been recovered.

(6) Information to be reported. All reports made pursuant to this Section shall include, if applicable or available, the following information with respect to each securities certificate:

(i) Issuer;

(ii) Type of security and series;

(iii) Date of issue;

(iv) Maturity date;

(v) Denomination;

(vi) Interest rate;

(vii) Certificate number, including alphabetical prefix or suffix;

(viii) Name in which registered;

(ix) Distinguishing characteristics, if counterfeit;

(x) Date of discovery of loss or recovery;

(xi) CUSIP number;

(xii) Financial Industry Numbering System (”FINS”) Number; and

(xiii) Type of loss.

(7) Forms. Reporting institutions shall make all reports to the Commission or its designee and to a registered transfer agent for the issue pursuant to this section on Form X-17F-1A. Reporting institutions shall make reports to the Federal Bureau of Investigation pursuant to this Section on Form X-17F-1A, unless the reporting institution is a member of the Federal Reserve System or a bank whose deposits are insured by the Federal Deposit Insurance Corporation, in which case reports may be made on the form required by the institution’s appropriate regulatory agency for reports to the Federal Bureau of Investigation.

(d) Required inquiries.

(1) Every reporting institution (except a reporting institution that, acting in its capacity as transfer agent, paying agent, exchange agent or tender agent for an equity issue, or registrar for a bond or other debt issue, compares all transactions against a shareholder or bondholder list and a current list of stop transfers) shall inquire of the Commission or its designee with respect to every securities certificate which comes into its possession or keeping, whether by pledge, transfer or otherwise, to ascertain whether such securities certificate has been reported as missing, lost, counterfeit or stolen, unless:

(i) The securities certificate is received directly from the issuer or issuing agent at issuance;

(ii) The securities certificate is received from another reporting institution or from a Federal Reserve Bank or Branch;

(iii) The securities certificate is received from a customer of the reporting institution; and

(A) Is registered in the name of such customer or its nominee; or

(B) Was previously sold to such customer, as verified by the internal records of the reporting institution;

(iv) The securities certificate is received as part of a transaction which has an aggregate face value of $10,000 or less in the case of bonds, or market value of $10,000 or less in the case of stocks; or

(v) The securities certificate is received directly from a drop which is affiliated with a reporting institution for the purposes of receiving or delivering certificates on behalf of the reporting institution.

(2) Form of inquiry. Inquiries shall be made in such manner as prescribed by the Commission or its designee.

(3) A reporting institution shall make required inquiries by the end of the fifth business day after a securities certificate comes into its possession or keeping, provided that such inquiries shall be made before the certificate is sold, used as collateral, or sent to another reporting institution.

(e) Permissive reports and inquiries. Every reporting insitution may report to or inquire of the Commission or its designee with respect to any securities certificate not otherwise required by this section to be the subject of a report or inquiry. The Commission on written request or upon its own motion may permit reports to and inquiries of the system by any other person or entity upon such terms and conditions as it deems appropriate and necessary in the public interest and for the protection of investors.

(f) Exemptions. The following types of securities are not subject to paragraphs (c) and (d) of this section:

(1) Security issues not assigned CUSIP numbers;

(2) Bond coupons;

(3) Uncertificated securities;

(4) Global securities issues; and

(5) Any securities issue for which neither record nor beneficial owners can obtain a negotiable securities certificates.

(g) Recordkeeping. Every reporting institution shall maintain and preserve in an easily accessible place for three years copies of all Forms X-17F-1A filed pursuant to this section, all agreements between reporting institutions regarding registration or other aspects of this section, and all confirmations or other information received from the Commission or its designee as a result of inquiry.

FORM X-17F-1A MISSING.LOST.STOLEN.COUNTERFEIT

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Mark my words …this is one you’re going to hear of over and over again. It’s beginning to appear … what we’ve been trying hard to break is cracking before our eyes and ears. This should raise concerns about the MERS System as well since the assignments clause states “together with the note(s) and documents therein described”.

Humpty Dumpty does indeed exist!

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW JERSEY

In the Matter of John T. Kemp

John T. Kemp
v.

Countrywide Home Loans, Inc.

Case No. 08-18700-JHW

APPEARANCES:

Bruce H. Levitt, Esq.
Levitt & Slafkes, PC
76 South Orange Avenue, Suite 305
South Orange, New Jersey 07079
Counsel for the Debtor

Harold Kaplan, Esq.
Dori 1. Scovish, Esq.
Frenkel, Lambert, Weiss, Weisman & Gordon, LLP
80 Main Street, Suite 460
West Orange, New Jersey 07052
Counsel for the Defendant

EXCERPT:

The new allonge was signed by Sharon Mason,
Vice President of Countrywide Home Loans, Inc., in the Bankruptcy Risk
Litigation Management Department. Linda DeMartini, a supervisor and
operational team leader for the Litigation Management Department for BAC
Home Loans Servicing L.P. (“BAC Servicing”V testified that the new allonge
was prepared in anticipation of this litigation, and that it was signed several
weeks before the trial by Sharon Mason.

As to the location of the note, Ms. DeMartini testified that to her
knowledge, the original note never left the possession of Countrywide, and that
the original note appears to have been transferred to Countrywide’s foreclosure
unit, as evidenced by internal FedEx tracking numbers. She also confirmed
that the new allonge had not been attached or otherwise affIXed to the note.
She testified further that it was customary for Countrywide to maintain possession of
the original note and related loan documents.

In a supplemental submission dated September 9,2009, the defendant
asserted that “the Defendant/Secured Creditor located the original Note. The
original Note with allonge and Pooling and Servicing Agreement are available
for inspection.,,7 When the matter returned to the court on September 24,
2009, counsel for the defendant represented to the court that he had the
original note, with the new allonge now attached, in his possession. No
additional information was presented regarding the chain of possession of the
note from its origination until counsel acquired possession.

Continue reading below…

CASE FILE New Jersey Admissions In Testimony Notes Never Sent to Trusts Kemp v Countrywide

[ipaper docId=43537304 access_key=key-282sqkqnzukrmkam934g height=600 width=600 /]

Senator Merkley: How many folks have you designated as certifying officers essentially, temporarily made them members of your company? In order to execute this process?

Mr. Arnold: Well it’s not temporary… its limited… their limited to  7 specific items that they can do for MERS…ahh there are TWENTY THOUSAND (20,000) of those nationwide.

Mr. Merkely: I’m sorry I’m out of time but it’s creating a legal confusion and that’s an issue and I’m sorry. Thank you all very much.

“7 VERY IMPORTANT DOCUMENTS” that may involve trillions of dollars worth of real estate that are executed by any one of these 20,000 robo-signers… But if you read on this image below …it’s well over “7 Specific Documents” more like ANY & ALL!

Actual excerpt from a MERS Agreement of Signing Authority.

DEUTSCHE BANK NATIONAL TRUST COMPANY, TRUSTEE,
v.
PAUL BIALOBRZESKI.
(AC 29884).

Appellate Court of Connecticut.
Argued January 13, 2010.
Officially released September 21, 2010.

Paul Bialobrzeski, pro se, the appellant (defendant).

Andrew P. Barsom, for the appellee (plaintiff).

Flynn, C. J., and Bishop and Robinson, Js.[*]

Opinion

ROBINSON, J.

In this foreclosure action, the pro se defendant, Paul Bialobrzeski, claims that the plaintiff[1] lacked standing to bring the action because it was not in possession of the subject note and mortgage at the time the action was commenced. The resolution of that claim is predicated on a finding of fact that is not part of the record. Our rules of practice require the appellant to provide an adequate record for review. See Practice Book §§ 60-5 and 61-10. Because the record is devoid of a factual finding as to when the plaintiff came into possession of the note, we are unable to review the claim as to the court’s subject matter jurisdiction. We therefore reverse the judgment of the trial court and remand the case for further proceedings.

The following procedural history is relevant to the defendant’s appeal. On October 22, 2007, the plaintiff caused a writ of summons and complaint to be served on the defendant to foreclose the mortgage on real property located at 254 Slater Road in New Britain. The defendant filed a pro se appearance on November 19, 2007. On December 4, 2007, the plaintiff filed a motion for default for failure to plead, which was granted by the clerk. On December 13, 2007, the defendant filed an answer[2] and a motion for a continuance to retain counsel. On December 17, 2007, the court, Domnarski, J., opened the default in view of the answer filed by the defendant. On January 22, 2008, the plaintiff filed a motion for summary judgment, claiming that “there are no genuine issues as to any material facts, and therefore moves for [s]ummary [j]udgment as to liability only.”[3] The defendant did not file an objection thereto. Summary judgment as to the defendant’s liability was granted summarily by the court, Dunnell, J., on February 11, 2008.[4]

On March 17, 2008, the defendant filed a motion for a continuance in which he represented that he had retained counsel, who was out of the state on business, and that counsel was necessary to articulate the defendant’s defenses and to “press forward” his motion for permission to amend his answer and to file special defenses.[5] The plaintiff objected to the motion to amend.[6] On March 27, 2008, the defendant filed a motion to dismiss the action. In a memorandum of law in support of the motion, he stated: “The plaintiff . . . commenced this foreclosure action on October 19, 2007. The plaintiff claims ownership of the mortgage through an assignment dated November 8, 2007 and recorded November 28, 2007. The note submitted as an exhibit contains no endorsement and no date.” Judge Domnarski denied the motion to dismiss and sustained the plaintiff’s objection thereto. On April 21, 2008, Judge Domnarski rendered judgment of foreclosure by sale, setting a sale date of August 2, 2008. The defendant filed this appeal on May 6, 2008,[7] and thereafter a motion for articulation.

In response to the defendant’s motion for articulation seeking the basis of the court’s denial of his motion to dismiss, Judge Domnarski articulated: “(1) Summary judgment as to liability had previously been entered against the defendant on February 11, 2008, Dunnell, J. [and] (2) The plaintiff alleged in paragraph 4 of the complaint that it is the holder of the note and mortgage. See Villager Pond, Inc. v. [Darien], 54 Conn. App. 178 [734 A.2d 1031 (1999)].” The defendant did not seek further articulation or file a motion for review in this court. See Practice Book § 66-7.

On appeal, the defendant claims that Judge Domnarski erred “in denying the defendant’s [m]otion to [d]ismiss a mortgage foreclosure action in which the [writ of] summons, and complaint had been initiated by a plaintiff which did not own either the note or the mortgage at the time the action was initiated, lacked standing to pursue the foreclosure action, and the trial court lacked subject matter jurisdiction to grant the [m]otion for [f]oreclosure.”

We begin by setting forth the appropriate standard of review. “A motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court. . . . [O]ur review of the trial court’s ultimate legal conclusion and resulting [denial] of the motion to dismiss will be de novo. . . . Factual findings underlying the court’s decision, however, will not be disturbed unless they are clearly erroneous. . . . The applicable standard of review for the denial of a motion to dismiss, therefore, generally turns on whether the appellant seeks to challenge the legal conclusions of the trial court or its factual determinations.” (Citations omitted; emphasis added; internal quotation marks omitted.) State v. Bonner, 290 Conn. 468, 477-78, 964 A.2d 73 (2009).

We first look to the relevant allegations of the plaintiff’s complaint. At paragraph 4, the plaintiff alleged, in part, “The Plaintiff, Deutsche Bank National Trust Company, as Trustee for Long Beach Mortgage Loan Trust 2006-3, is the holder of said Note and Mortgage.” In answering the complaint, the defendant left the plaintiff to its proof as to that allegation. When the plaintiff filed its motion for summary judgment on January 22, 2008, it attached copies of the subject note and mortgage and an assignment of the mortgage. The defendant failed to object to the motion for summary judgment or to submit any evidence that would create a genuine issue of material fact as to when the plaintiff acquired the note. See Practice Book § 17-45. Judge Dunnell granted the motion for summary judgment as to the defendant’s liability on February 11, 2008. The defendant did not file a motion to reargue but instead, on March 17, 2008, filed a motion for permission to amend his answer and to file special defenses, including a special defense that the plaintiff did not own the mortgage at the time the action was commenced. On March 27, 2008, the defendant also filed a motion to dismiss the action and in the memorandum of law in support thereof stated that the note submitted in support of the motion for summary judgment contained no endorsement and no date.

Although our review of the file demonstrates that the copy of the note submitted with the motion for summary judgment does not contain an endorsement and is not dated, the defendant has not claimed on appeal that Judge Dunnell improperly granted the plaintiff’s motion for summary judgment.[8] Rather, the defendant attacks Judge Domnarski’s reliance on Judge Dunnell’s ruling on the motion for summary judgment. The substance of the defendant’s appellate claim is that the mortgage was not assigned to the plaintiff until sometime after the action was commenced, and the plaintiff did not own the note at the time it commenced the action.[9] The defendant, however, cannot rely on the date the mortgage was assigned to the plaintiff as proof that the plaintiff did not own the note on the date the action was commenced.

“General Statutes § 49-17 permits the holder of a negotiable instrument that is secured by a mortgage to foreclose on the mortgage even when the mortgage has not yet been assigned to him. . . . The statute codifies the common-law principle of long standing that the mortgage follows the note, pursuant to which only the rightful owner of the note has the right to enforce the mortgage. . . . Our legislature, by adopting § 49-17, has provide[d] an avenue for the holder of the note to foreclose on the property when the mortgage has not been assigned to him.” (Citations omitted; internal quotation marks omitted.) Chase Home Finance, LLC v. Fequiere, 119 Conn. App. 570, 576-77, 989 A.2d 606, cert. denied, 295 Conn. 922, 991 A.2d 564 (2010).

The key to resolving the defendant’s claim is a determination of when the note came into the plaintiff’s possession. We cannot review the claim because Judge Domnarski made no factual finding as to when the plaintiff acquired the note. Without that factual determination, we are unable to say whether Judge Domnarski improperly denied the defendant’s motion to dismiss.[10] Although it is the appellant’s responsibility to provide an adequate record for review; see Practice Book §§ 60-5 and 61-10; that cannot be the end of the matter because it concerns the trial court’s subject matter jurisdiction.

“[S]ubject matter jurisdiction involves the authority of the court to adjudicate the type of controversy presented by the action before it . . . and a judgment rendered without subject matter jurisdiction is void. . . . Further, it is well established that a reviewing court properly may address jurisdictional claims that neither were raised nor ruled on in the trial court. . . . Indeed, [o]nce the question of lack of jurisdiction of a court is raised, [it] must be disposed of no matter in what form it is presented. . . . The court must fully resolve it before proceeding further with the case.” (Internal quotation marks omitted.) In re DeLeon J., 290 Conn. 371, 376, 963 A.2d 53 (2009). The burden of demonstrating that a party has standing to bring an action is on the plaintiff. Seymour v. Region One Board of Education, 274 Conn. 92, 104, 874 A.2d 742, cert. denied, 546 U.S. 1016, 126 S. Ct. 659, 163 L. Ed. 2d 526 (2005).

“Trial courts addressing motions to dismiss for lack of subject matter jurisdiction pursuant to [Practice Book] § 10-31 (a) (1) may encounter different situations, depending on the status of the record in the case. As summarized by a federal court discussing motions brought pursuant to the analogous federal rule [i.e., Fed. R. Civ. P. (12) (b) (1)], [l]ack of subject matter jurisdiction may be found in any one of three instances: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court’s resolution of disputed facts. . . . Different rules and procedures will apply, depending on the state of the record at the time the motion is filed.” (Internal quotation marks omitted.) Conboy v. State, 292 Conn. 642, 650-51, 974 A.2d 669 (2009).

“[I]f the complaint is supplemented by undisputed facts established by affidavits submitted in support of the motions to dismiss . . . the trial court, in determining the jurisdictional issue, may consider these supplementary undisputed facts and need not conclusively presume the validity of the allegations of the complaint.. . . [W]here a jurisdictional determination is dependent on the resolution of a critical factual dispute, it cannot be decided on a motion to dismiss in the absence of an evidentiary hearing to establish jurisdictional facts.” (Citations omitted; emphasis in original; internal quotation marks omitted.) Id., 651-52.

In this case, the defendant questioned the plaintiff’s standing to bring the foreclosure action at the time the action was commenced. The defendant’s motion to dismiss was inspired by the exhibits attached to the plaintiff’s motion for summary judgment. The affidavit of Peter Read, an assistant vice president of Washington Mutual Bank, attests to the plaintiff being the holder of the note, but it does not resolve the factual issue as to when the plaintiff acquired the note.[11] See footnote 3 of this opinion. When the question regarding the plaintiff’s standing was raised, the court should have held a hearing to determine whether the plaintiff was the owner or holder of the note at the time the action was commenced. See Conboy v. State, supra, 292 Conn. 651-52. It is fundamental that appellate courts do not make findings of fact. Stevenson v. Commissioner of Correction, 112 Conn. App. 675, 683 n.1, 963 A.2d 1077 (when record on appeal devoid of factual findings, improper for appellate court to make its own findings), cert. denied, 291 Conn. 904, 967 A.2d 1221 (2009). The case, therefore, must be remanded to the trial court for a hearing to determine whether the plaintiff was the owner or holder of the subject note at the time the action was commenced. See Cross v. Hudon, 27 Conn. App. 729, 734, 609 A.2d 1021 (1992) (court improperly failed to conduct evidentiary hearing because jurisdiction hinged on factual determination).

The judgment is reversed and the case is remanded for a hearing on the motion to dismiss.

In this opinion the other judges concurred.

[*] The listing of judges reflects their seniority status on this court as of the date of oral argument.

[1] The plaintiff is Deutsche Bank National Trust Company as trustee for Long Beach Mortgage Loan Trust 2006-3.

[2] In his answer, the pro se defendant admitted that he owned the property at 254 Slater Road in New Britain and that on February 28, 2006, he executed and delivered to Long Beach Mortgage Company a note for a loan in the principal amount of $220,000. He also admitted that he is the owner of the equity of redemption in the property and is in possession of the property. The defendant left the plaintiff to its proof as to the remaining allegations of the complaint.

[3] Our review of the file demonstrates that the plaintiff attached copies of the following documents as exhibits to its motion for summary judgment: the defendant’s answer, an affidavit signed by Peter Read, an assistant vice president of Washington Mutual Bank, the subject fixed-adjustable rate note—payable to Long Beach Mortgage Company without an endorsement, the subject mortgage, the assignment of the mortgage and the notice of intent to accelerate.

In his affidavit, Read attested, among other things, as to the plaintiff’s ownership of the mortgage and note as follows: “Said mortgage was thereafter assigned to Deutsche Bank National Trust Company, as Trustee for Long Beach Mortgage Loan Trust 2006-3 by virtue of an assignment of mortgage recorded in Volume 1725 at Page 1024 of the New Britain Land Records. A true and accurate copy of said assignment is attached hereto as Exhibit C. Plaintiff in this action, Deutsche Bank National Trust Company, as Trustee for Long Beach Mortgage Loan Trust 2006-3, is the owner and holder of said note and mortgage.” Significantly, Read does not attest in the affidavit to the date the plaintiff acquired the note.

[4] The defendant did not file a motion asking Judge Dunnell to articulate the basis on which she made the factual determination that there were no genuine issues of material fact and that the plaintiff was entitled to judgment as a matter of law; see Practice Book § 17-49; including the issue of the ownership of the note and mortgage and to whom the defendant was liable.

[5] The defendant proposed two special defenses. His first special defense is that the plaintiff did not own the mortgage at the time the action was commenced and his second special defense is that Washington Mutual Bank mailed the notice of intent to accelerate to the defendant but had no authority to do so as Long Beach Mortgage Company owned the mortgage at the time.

[6] According to the record, the court never ruled on the motion for permission to amend and the objection thereto.

[7] In its brief, the plaintiff argues that the defendant failed to preserve the issue presented or timely file his appeal because the appeal was not filed within twenty days of the date the trial court denied the motion to dismiss. Generally, the denial of a motion to dismiss is an interlocutory ruling. Conboy v. State, 292 Conn. 642, 645 n.5, 974 A.2d 669 (2009); but see Ware v. State, 118 Conn. App. 65, 79, 983 A.2d 853 (2009) (denial of motion to dismiss based on colorable claim of sovereign immunity immediately appealable). The defendant timely filed his appeal within twenty days of the court rendering the judgment of foreclosure by sale. See Glenfed Mortgage Corp. v. Crowley, 61 Conn. App. 84, 88, 763 A.2d 19 (2000) (foreclosure by sale appealable final judgment).

[8] Even if the defendant had claimed that Judge Dunnell improperly granted the motion for summary judgment, there is no record that Judge Dunnell found that there is no genuine issue of material fact that the plaintiff became the owner of the note prior to the commencement of the action.

[9] The defendant also notes correctly that the copy of the note attached to the motion for summary judgment lacked an endorsement. We have no way of knowing if Judge Dunnell inquired about that before ruling on the motion for summary judgment. In its brief to this court, the plaintiff states that the “original Note bearing endorsement was produced to the trial court at the hearing on April 21, 2008.” On April 21, 2008, judgment was rendered. It was not the date on which the plaintiff’s motion for summary judgment was decided. Moreover, the endorsement is not proof of the date on which the plaintiff acquired the note.

[10] The defendant did not file any exhibits or transcripts of proceedings in the trial court, if any. We do not know whether any evidence other than the attachments to the plaintiff’s motion for summary judgment were presented to either court at the time the motion for summary judgment and the motion to dismiss were decided. The defendant has not claimed that the plaintiff submitted insufficient evidence to determine its ownership of the note.

[11] On appeal, the plaintiff has argued, supported by citations to authority, that the holder of a note rightly may foreclose the mortgage. That argument, however, is beside the point. The relevant question is when the plaintiff became the holder.

___________________________________________________________

LASALLE BANK, NATIONAL ASSOCIAT-ION (TRUSTEE),
v.
PAUL S. BIALOBRZESKI ET AL.
(AC 30911).

Appellate Court of Connecticut.
Argued January 13, 2010.
Officially released September 21, 2010.

Paul S. Bialobrzeski, pro se, the appellant (defendant).

Andrew P. Barsom, for the appellee (plaintiff).

Flynn, C. J., and Bishop and Robinson, Js.[*]

Opinion

ROBINSON, J.

The pro se defendant Paul S. Bialobrzeski[1] appeals from the judgment of strict foreclosure rendered in favor of the plaintiff, LaSalle Bank, National Association, as trustee for WMABS Series 2006-HE[2] Trust.2 On appeal, the defendant claims that it was improper for the trial court to deny his motion to dismiss the action because the plaintiff lacked standing. Because the record is devoid of a factual finding as to when the plaintiff acquired the note, we are unable to review the claim as to the court’s subject matter jurisdiction. See Practice Book §§ 60-5 and 61-10. We, therefore, reverse the judgment of the trial court and remand the case for further proceedings.

The following procedural history is relevant to the defendant’s appeal. On October 29, 2007, the plaintiff caused a writ of summons and complaint to be served on the defendant to foreclose the mortgage on real property at 121 Colonial Avenue in Middlebury. The defendant filed a pro se appearance on November 16, 2007. On December 14, 2007, the defendant filed an answer to the complaint in which he admitted that (1) he owned the real property at 121 Colonial Avenue in Middlebury, (2) on March 16, 2006, he executed and delivered to Long Beach Mortgage Corporation a note in the original principal amount of $350,000, and (3) he was the owner of the equity of redemption in the property and was in possession of the property. As to the remaining counts of the complaint, the defendant left the plaintiff to its proof. On that same date, the defendant filed a motion for a continuance in order to retain counsel to defend against the motion for a judgment of strict foreclosure that had been filed by the plaintiff.

On January 24, 2008, the plaintiff filed a motion for summary judgment as to the defendant’s liability and attached his answer; an affidavit of Peter Read, an assistant vice president of Washington Mutual Bank, attesting that the plaintiff was the owner of the note and mortgage,[3] and that the debt was in default and the balance due; and copies of the note,[4] mortgage, assignment of the mortgage[5] and notice of intent to accelerate. The court granted the motion for summary judgment as to liability on February 11, 2008, noting that the motion had been unopposed.[6] Thereafter the defendant retained counsel, who filed a motion for permission to amend the defendant’s answer and to allege special defenses. The first proposed special defense alleged that the assignment of the mortgage from Long Beach Mortgage Company to LaSalle Bank was executed subsequent to the commencement of the action. The second proposed special defense alleged that Washington Mutual Bank allegedly mailed a notice of intent to accelerate to the defendant on May 6, 2007, and on that date the owner of the note and mortgage was Long Beach Mortgage Company and that Washington Mutual Bank lacked authority to act on behalf of Long Beach Mortgage Company. Moreover, the defendant alleged that the notice of intent to accelerate was void and the plaintiff is not entitled to a judgment of foreclosure.[7] The plaintiff objected to the defendant’s motion for permission to amend his answer and to file special defenses.[8]

On March 20, 2008, the defendant filed a motion to dismiss the action. In his memorandum of law in support of his motion to dismiss, the defendant stated that the action was filed on November 1, 2007, but the subject mortgage was assigned to the plaintiff on November 27, 2007, and therefore the plaintiff was not the owner of the mortgage on the date the action was commenced and lacked standing to bring it. The plaintiff objected to the motion to dismiss and argued that it was in possession of the subject note and mortgage at the time the action was commenced and that the court could take notice of the endorsement of the note by Long Beach Mortgage Company.[9] The plaintiff also cited General Statutes § 49-17 for the proposition that the statute provides an avenue for the holder of a note to obtain a judgment of foreclosure on the accompanying mortgage deed even if it had not been or never was formally assigned. On March 31, 2008, the defendant filed a supplemental memorandum of law in support of his motion to dismiss in which he contended that the burden was on the plaintiff to demonstrate that it possessed the note on the date the action was commenced and that the operation of § 49-17 does not provide proof of when the plaintiff came into possession of the note.[10]

On January 5, 2009, the court sustained the plaintiff’s objection to the motion to dismiss stating that “[t]he issue is moot, as the court has already ruled on the summary judgment motion.”[11] On March 2, 2009, the court rendered judgment of strict foreclosure and set the law day as July 28, 2009. The defendant appealed, claiming that it was improper for the court to deny his motion to dismiss because the plaintiff did not own either the note or the mortgage at the time it commenced the action and, thus, lacked standing, thereby depriving the court of subject matter jurisdiction.[12]

The standard of review applicable to a motion to dismiss is well established. “A motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court. . . . [O]ur review of the trial court’s ultimate legal conclusion and resulting [denial] of the motion to dismiss will be de novo. . . . Factual findings underlying the court’s decision, however, will not be disturbed unless they are clearly erroneous. . . . The applicable standard of review for the denial of a motion to dismiss, therefore, generally turns on whether the appellant seeks to challenge the legal conclusions of the trial court or its factual determinations.” (Citations omitted; internal quotation marks omitted.) State v. Bonner, 290 Conn. 468, 477-78, 964 A.2d 73 (2009).

We first look to the relevant allegations of the plaintiff’s complaint. At paragraph 4, the plaintiff alleged, in part: “The [p]laintiff, LaSalle Bank, National Association as trustee for WMABS Series 2006-HE2 Trust, is the holder of said Note and Mortgage.” In answering the complaint, the defendant left the plaintiff to its proof as to that allegation. When the plaintiff filed its motion for summary judgment on January 24, 2008, it attached copies of the subject note and mortgage and an assignment of the mortgage. At the time the court granted the motion for summary judgment as to liability, it noted that the motion had been unopposed. The defendant did not file a motion for reargument but sought to amend his answer to include a special defense that the plaintiff did not own the mortgage at the time the action was commenced. The defendant also filed a motion to dismiss the action.

Although our review of the file demonstrates that the copy of the note submitted with the motion for summary judgment does not contain a dated endorsement, the defendant has not claimed on appeal that the court improperly granted the plaintiff’s motion for summary judgment.[13] Rather, the defendant challenges the court’s denial of his motion to dismiss. The substance of the defendant’s appellate claim is that the plaintiff did not own the note at the time it commenced the action, and the mortgage was not assigned to the plaintiff until sometime after the action was commenced. The defendant, however, cannot rely on the date the mortgage was assigned to the plaintiff as proof that the plaintiff did not own the note on the date the action was commenced.

“[Section] § 49-17 permits the holder of a negotiable instrument that is secured by a mortgage to foreclose on the mortgage even when the mortgage has not yet been assigned to him. . . . The statute codifies the common-law principle of long standing that the mortgage follows the note, pursuant to which only the rightful owner of the note has the right to enforce the mortgage. . . . Our legislature, by adopting § 49-17, has provide[d] an avenue for the holder of the note to foreclose on the property when the mortgage has not been assigned to him.” (Citations omitted; internal quotation marks omitted.) Chase Home Finance, LLC v. Fequiere, 119 Conn. App. 570, 576-77, 989 A.2d 606, cert. denied, 295 Conn. 922, 991 A.2d 564 (2010).

The key to resolving the defendant’s claim is a determination of when the note came into the plaintiff’s possession. We cannot review this claim because the court made no factual finding as to when the plaintiff acquired the note. Without that factual determination, we are unable to say whether the court improperly denied the defendant’s motion to dismiss.[14] Although the defendant did not file a motion asking the court to articulate its reason for denying the motion to dismiss, that cannot be the end of the matter because it concerns the trial court’s subject matter jurisdiction.

“[S]ubject matter jurisdiction involves the authority of the court to adjudicate the type of controversy presented by the action before it . . . and a judgment rendered without subject matter jurisdiction is void. . . . Further, it is well established that a reviewing court properly may address jurisdictional claims that neither were raised nor ruled on in the trial court. . . . Indeed, [o]nce the question of lack of jurisdiction of a court is raised, [it] must be disposed of no matter in what form it is presented. . . . The court must fully resolve it before proceeding further with the case.” (Internal quotation marks omitted.) In re DeLeon J., 290 Conn. 371, 376, 963 A.2d 53 (2009). The burden of demonstrating that a party has standing to bring an action is on the plaintiff. Seymour v. Region One Board of Education, 274 Conn. 92, 104, 874 A.2d 742, cert. denied, 546 U.S. 1016, 126 S. Ct. 659, 163 L. Ed. 2d 526 (2005).

“Trial courts addressing motions to dismiss for lack of subject matter jurisdiction pursuant to [Practice Book] § 10-31 (a) (1) may encounter different situations, depending on the status of the record in the case. As summarized by a federal court discussing motions brought pursuant to the analogous federal rule [i.e., Fed. R. Civ. P. (12) (b) (1)], [l]ack of subject matter jurisdiction may be found in any one of three instances: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court’s resolution of disputed facts. . . . Different rules and procedures will apply, depending on the state of the record at the time the motion is filed.” (Internal quotation marks omitted.) Conboy v. State, 292 Conn. 642, 650-51, 974 A.2d 669 (2009).

“[I]f the complaint is supplemented by undisputed facts established by affidavits submitted in support of the motions to dismiss . . . the trial court, in determining the jurisdictional issue, may consider these supplementary undisputed facts and need not conclusively presume the validity of the allegations of the complaint.. . . [W]here a jurisdictional determination is dependent on the resolution of a critical factual dispute, it cannot be decided on a motion to dismiss in the absence of an evidentiary hearing to establish jurisdictional facts.” (Citations omitted; emphasis in original; internal quotation marks omitted.) Id., 651-52.

In this case, the defendant questioned the plaintiff’s standing to bring the foreclosure action when it was commenced. The defendant’s motion to dismiss was inspired by the exhibits the plaintiff attached to its motion for summary judgment. Read’s affidavit attests to the plaintiff being the holder of the note, but it does not resolve the factual issue as to when the plaintiff acquired the note.[15] When the question regarding the plaintiff’s standing was raised, the court should have held a hearing to determine whether the plaintiff was the owner or holder of the note at the time the action was commenced. It is fundamental that appellate courts do not make findings of fact. Stevenson v. Commissioner of Correction, 112 Conn. App. 675, 683 n.1, 963 A.2d 1077 (when record on appeal devoid of factual findings, improper for appellate court to make its own findings), cert. denied, 291 Conn. 904, 967 A.2d 1221 (2009). The case, therefore, must be remanded to the trial court for a hearing to determine whether the plaintiff was the owner or holder of the subject note at the time the action was commenced. See Cross v. Hudon, 27 Conn. App. 729, 734, 609 A.2d 1021 (1992) (court improperly failed to conduct evidentiary hearing because jurisdiction hinged on factual determination).

The judgment is reversed and the case is remanded for a hearing on the motion to dismiss.

In this opinion the other judges concurred.

[*] The listing of judges reflects their seniority status on this court as of the date of oral argument.

[1] At trial, Robert Fishman, trustee for C & F Associates #2, also was a defendant, but he is not a party to this appeal. In this opinion, we refer to Bialobrzeski as the defendant.

[2] On March 2, 2009, the court granted the plaintiff’s motion to substitute LaSalle Bank NA as trustee for Washington Mutual Asset-Backed Certificates WMABS Series 2006-HE2 Trust as the plaintiff. We will refer to the plaintiff and the substitute plaintiff as the plaintiff for purposes of this opinion.

[3] Significantly, Read did not attest as to the date the plaintiff acquired the note.

[4] The copy of the note attached to the motion for summary judgment indicates that the debt is payable to Long Beach Mortgage Company and contains no endorsement. We note that in his answer to the complaint the defendant indicated that the note was held by Long Beach Mortgage Corporation.

[5] The assignment of mortgage attached to the motion for summary judgment states that Long Beach Mortgage Company assigned the mortgage to LaSalle Bank, National Association as Trustee for WMABS Series 2006-HE2 Trust on November 27, 2007.

[6] The defendant filed an objection to the motion for summary judgment on March 20, 2008. In his objection, the defendant stated that the assignment of the mortgage was dated twenty-seven days after the foreclosure action was commenced and therefore the plaintiff did not own the mortgage when the action was served. He attached a copy of the assignment of the mortgage to the objection to the motion for summary judgment.

[7] Copies of the assignment of the mortgage and the notice of intent to accelerate were attached to the proposed amended answer and special defenses.

[8] It appears that no action was taken on the defendant’s motion for permission to amend his answer and the objection thereto.

[9] No note or endorsement was attached to the plaintiff’s objection.

[10] The defendant attempted to file a request for production that complied with the rules of practice to obtain evidence that the plaintiff possessed the subject note on the date the action was commenced. The court agreed with the plaintiff that there was “no valid discovery request for the court to determine if it has been complied with by the plaintiff.”

[11] It is not clear to us how the motion to dismiss could have been moot, as subject matter jurisdiction may be raised at any time and the court must address the issue before it may proceed with the case. See, e.g., O’Donnell v. Waterbury, 111 Conn. App. 1, 5, 959 A.2d 163, cert. denied, 289 Conn. 959, 961 A.2d 422 (2008).

[12] In its brief, the plaintiff argues that the defendant failed to preserve the issue presented or timely file his appeal because the appeal was not filed within twenty days of the date the court denied the motion to dismiss. Generally, the denial of a motion to dismiss is an interlocutory ruling, which is not an appealable final judgment. Conboy v. State, 292 Conn. 642, 645 n.5, 974 A.2d 669 (2009); but see Ware v. State, 118 Conn. App. 65, 79, 983 A.2d 853 (2009) (denial of motion to dismiss based on colorable claim of sovereign immunity immediately appealable). The defendant timely filed his appeal within twenty days of the court’s rendering the judgment of strict foreclosure. See Glenfed Mortgage Corp. v. Crowley, 61 Conn. App. 84, 88, 763 A.2d 19 (2000) (foreclosure appealable final judgment).

[13] Even if the defendant had claimed that the court improperly granted the motion for summary judgment, there is no record as to the basis of the court’s finding that there were no genuine issues of material fact, including the date the subject note was endorsed to the plaintiff and that the plaintiff owned the note prior to the commencement of the foreclosure action. The defendant did not file a motion for articulation. See Practice Book § 66-5.

[14] The defendant did not file any exhibits or transcripts of the proceedings in the trial court, if any. We do not know whether there was evidence in addition to the exhibits attached to the motion for summary judgment presented to the court at the time it considered the motion for summary judgment and the motion to dismiss. The defendant has not claimed that the plaintiff submitted insufficient evidence to determine its ownership of the note.

[15] On appeal, the plaintiff has argued, supported by citations to authority, that the holder of a note rightly may foreclose the mortgage. That argument, however, is beside the point. The relevant question is when the plaintiff became the holder of the subject note.