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BENEFICIAL CONSUMER DISC. CO. v. VUKMAM | PA Superior Court “Act 91, Failed To Meet Face-to-Face with the mortgagee who sent Deficient Notice”

BENEFICIAL CONSUMER DISC. CO. v. VUKMAM | PA Superior Court “Act 91, Failed To Meet Face-to-Face with the mortgagee who sent Deficient Notice”

courtesy of Leagle


No. 259 WDA 2011.
Superior Court of Pennsylvania.
Filed: January 30, 2012.

This is an appeal from an order that sustained Appellee’s “Motion to Set Aside Judgment and Sheriff’s Sale.” We affirm.
The relevant background underlying this matter can be summarized in the following manner. In October of 2006, Appellant filed a complaint in mortgage foreclosure against Appellee. According to the complaint, Appellee owns a home subject to a mortgage for which Appellant is the mortgagee. Appellant averred that Appellee’s mortgage was in default due to Appellee’s failure to pay her monthly mortgage costs. The parties eventually agreed to settle the matter. In short, the parties agreed to enter a judgment in favor of Appellant for $217,508.81 together with interest. They further agreed that, so long as Appellee made regular payments to Appellant, Appellant would not execute on the judgment. The trial court approved the parties’ settlement on May 7, 2009.
On April 5, 2010, Appellant filed an affidavit of default wherein it alleged that Appellee had defaulted on her payment obligations. The following day, Appellant filed a praecipe for writ of execution. On August 2, 2010, the subject property was sold by sheriff’s sale; Appellant was the successful bidder.
On August 31, 2010, Appellee filed a document which she entitled “Motion to Set Aside Judgment and Sheriff’s Sale.” Appellee contended that the trial court lacked subject matter jurisdiction over the matter because Appellant failed to comply with the notice requirements of the Homeowner’s Emergency Mortgage Act, 35 P.S. §§ 1680.401c et seq. (“Act 91”). More specifically, Appellee maintained that the Act 91 notice she received from Appellant failed to inform her that she had thirty days to have a face-to-face meeting with Appellant. After holding a hearing, the trial court agreed with Appellee that the Act 91 notice was deficient. The court issued an order setting aside the sheriff’s sale and the judgment; the order also dismissed Appellant’s complaint without prejudice. Appellant timely filed an appeal.1
In its brief to this Court, Appellant asks us to consider the following questions:
A. Did Section 403c of Act 91 require [Appellant] to notify [Appellee] of an option to have a face to face meeting with [Appellant] where both the plain language of the statute and the history of such Act evidence a legislative intention to vest in the Agency the discretion to select which of these options should have been offered to homeowners in the Uniform Notice adopted by the Agency for use by all Lenders under the Act?
B. Was not the determination of the Pennsylvania Housing Finance Agency to remove any reference in its model Uniform Act 91 notice to homeowners having a face to face meeting with their lenders reasonable and consistent with the stated purpose and goals of such Act?
C. Should not the court below have deferred to the experience and expertise of the Agency in its administration of the Act, and should not the court below have upheld the validity of the Act 91 Notice sent to [Appellee] herein where such notice was entirely consistent with the model Uniform Notice adopted by the Agency for use by all lenders?
D. Even if the Act 91 notice should have offered [Appellee] the option of having a face to face meeting with her lender, should the court below have dismissed this action for lack of subject matter jurisdiction where [Appellee] had fully exercised her rights under Act 91 and was not in any way prejudiced by such omission?
E. Should not [Appellee] have been estopped from raising any objection to the Act 91 notice provided to her, and should not [Appellee’s] objection to such notice have been barred by laches, where [Appellee] admitted to the validity of such notice in discovery and consented to the entry of judgment, and where [Appellee’s] objection to such notice was made for the first time after a sheriff’s sale had been held almost four (4) years after the commencement of the action?
Appellant’s Brief at 3-4.
As an initial matter, we will consider whether the trial court properly entertained the Act 91 notice issue that Appellee presented in her “Motion to Set Aside Judgment and Sheriff’s Sale.” The trial court determined that, when a mortgagee provides to a mortgagor a deficient Act 91 notice and then files a mortgage foreclosure action, the court lacks subject matter jurisdiction to entertain the action. In its argument to this Court, Appellant raises a number of doctrines, including laches and res judicata, in arguing that Appellee untimely presented her Act 91 notice issue. Appellant’s Brief at 31-33.
We begin our analysis of this threshold issue by noting the following principles of law.
The test for whether a court has subject matter jurisdiction inquires into the competency of the court to determine controversies of the general class to which the case presented for consideration belongs.
In re Administrative Order No. 1-MD-2003, 936 A.2d 1, 5 (Pa. 2007) (citation omitted).
It is the law of this Commonwealth that a judgment may be attacked for lack of jurisdiction at any time, as any such judgment or decree rendered by a court that lacks subject matter or personal jurisdiction is null and void.
Bell v. Kater, 943 A.2d 293, 298 (Pa. Super. 2008) (citation omitted).
Appellee has never questioned the competency of the trial court to entertain mortgage foreclosure actions. Indeed, the Rules of Civil Procedure govern such actions, Pa.R.C.P. 1141 et seq., and save for exceptions that are irrelevant to this matter, the courts of common pleas have unlimited original jurisdiction over all actions and proceedings in this Commonwealth. 42 Pa.C.S.A. § 931(a). Appellee’s complaints regarding the deficiencies in the Act 91 notice sound more in the nature of a jurisdictional challenge based upon procedural matters. Procedurally based jurisdictional challenges can be waived. See, e.g., Hauger v. Hauger, 101 A.2d 632, 633 (Pa. 1954) (“It is the rule that consent or waiver will not confer jurisdiction of the cause of action or subject matter where no jurisdiction exists. However, this rule does not apply to . . . jurisdiction based upon procedural matters, as to which defects can always be waived.”) (citation omitted).
However, Appellee correctly highlights that, in the context of discussing subject matter jurisdiction, this Court has concluded, “[T]he notice requirements pertaining to foreclosure proceedings are jurisdictional, and, where applicable, a failure to comply therewith will deprive a court of jurisdiction to act.” Philadelphia Housing Authority v. Barbour, 592 A.2d 47, 48 (Pa. Super. 1991) (citation omitted), affirmed without opinion, 615 A.2d 339 (Pa. 1992); see also, Marra v. Stocker, 615 A.2d 326 (Pa. 1992) (concluding that, despite the fact that a judgment had been entered in the underlying mortgage foreclosure action, the trial court erred by refusing to set aside a sheriff’s sale where the mortgagee failed to provide to the mortgagor the mortgage foreclosure notice required by 41 P.S. § 403). We are bound by these decisions. See, e.g., Commonwealth v. Hull, 705 A.2d 911, 912 (Pa. Super. 1998) (“It is beyond the power of a panel of the Superior Court to overrule a prior decision of the Superior Court.”). For this reason, we conclude that the trial court properly considered whether the pertinent Act 91 notice was deficient.
Moving forward, we note that the parties agree that, at the time relevant to this appeal, Act 91 provided, in pertinent part, as follows:
Before any mortgagee may accelerate the maturity of any mortgage obligation covered under this article, commence any legal action including mortgage foreclosure to recover under such obligation, or take possession of any security of the mortgage debtor for such mortgage obligation, such mortgagee shall give the mortgagor notice as described in section 403-C. [35 P.S. § 1680.403c.] Such notice shall be given in a form and manner prescribed by the [Pennsylvania Housing Finance Agency (“agency”)]. Further, no mortgagee may enter judgment by confession pursuant to a note accompanying a mortgage, and may not proceed to enforce such obligation pursuant to applicable rules of civil procedure without giving the notice provided for in this subsection and following the procedures provided for under this article.
35 P.S. § 1680.402c (amended July 8, 2008, effective September 8, 2008) (emphasis added).
(a) Any mortgagee who desires to foreclose upon a mortgage shall send to such mortgagor at this or her last known address the notice provided in subsection (b): Provided, however, That such mortgagor shall be at least sixty (60) days contractually delinquent in his mortgage payments or be in violation of any other provision of such mortgage.
(b)(1) The agency shall prepare a notice which shall include all the information required by this subsection and by section 403 of the act of January 30, 1974 (P.L. 13, No. 6), referred to as the Loan Interest and Protection Law. This notice shall be in plain language and specifically state that the recipient of the notice may qualify for financial assistance under the homeowner’s emergency mortgage assistance program. This notice shall contain the telephone number and the address of a local consumer credit counseling agency. This notice shall be in lieu of any other notice required by law. This notice shall also advise the mortgagor of his delinquency or other default under the mortgage and that such mortgagor has thirty (30) days to have a face-to-face meeting with the mortgagee who sent the notice or a consumer credit counseling agency to attempt to resolve the delinquency or default by restructuring the loan payment schedule or otherwise.
(2) The notice under paragraph (1) must be sent by a mortgagee at least thirty (30) days before the mortgagee:
(i) asks for full payment of any mortgage obligation; or
(ii) begins any legal action, including foreclosure, for money due under the mortgage obligation or to take possession of the mortgagor’s security.
(3) The proposed notice under paragraph (1) shall be published by the agency in the Pennsylvania Bulletin within one hundred twenty (120) days of the effective date of this paragraph. The notice actually adopted for use by the agency shall be promulgated as part of the program guidelines required by [35 P.S. § 1680.401c]. . . .
35 P.S. § 1680.403c (amended July 8, 2008, effective September 8, 2008) (emphasis added).
As to the facts of this case, the parties agree that Appellant sent to Appellee an Act 91 notice and that the notice informed Appellee that she had thirty days to have a face-to-face meeting with a consumer credit counseling agency. They further agree that the Act 91 notice did not inform Appellee that she could meet face-to-face with the mortgagee, i.e., Appellant. The trial court interpreted the language highlighted above to mean that the Act 91 notice sent by Appellant to Appellee had to inform Appellee that she had thirty days either to have a face-to-face meeting with Appellant or to have a face-to-face meeting with a consumer credit counseling agency. Because the Act 91 notice Appellant sent to Appellee failed to inform Appellee that she could meet with Appellant, the trial court concluded that the notice was deficient and that the court thus lacked subject matter jurisdiction to entertain the matter, presumably from the time that Appellant filed its complaint. Consequently, the court set aside the sheriff’s sale and the judgment and then dismissed Appellant’s complaint without prejudice.
Appellant begins its argument to this Court by documenting the history of Act 91 and its notice requirements. Appellant next challenges the trial court’s interpretation of the relevant version of the Act 91 notice provision. According to Appellant, the trial court’s interpretation of Section 1680.403c of Act 91 failed to give effect to the word “or.” Appellant maintains that the Legislature intended to vest the agency with the discretion to decide whether the notice sent from a mortgagee to a mortgagor should include the option of the mortgagor meeting face-to-face with the mortgagee or the alternate option of the mortgagor meeting face-to-face with a consumer credit counseling agency. Appellant believes that the agency reasonably chose to include in the notice that it promulgated the option of the mortgagor meeting face-to-face with a consumer credit counseling agency. Appellant argues that the trial court failed to give the agency’s interpretation and prerogative due deference. Jumping forward a bit in Appellant’s brief, Appellant contends that it was entitled to rely on the notice promulgated by the agency. We pause at this point to address these aspects of Appellant’s argument.
While there are multiple layers to Appellant’s argument, a relatively straightforward statutory construction analysis reveals whether the trial court erred in its interpretation of Act 91. All matters requiring statutory interpretation are guided by the provisions of the Statutory Construction Act, 1 Pa.C.S.A. § 1501 et seq.2 Swords v. Harleysville Insurance Companies, 883 A.2d 562, 567 (Pa. 2005) (citations omitted).
Under the Statutory Construction Act, the object of all statutory construction is to ascertain and effectuate the General Assembly’s intention. 1 Pa.C.S.[A.] § 1921(a). When the words of a statute are clear and free from all ambiguity, the letter of the statute is not to be disregarded under the pretext of pursuing its spirit. 1 Pa.C.S.[A.] § 1921(b).
At the time relevant to this matter, Section 1680.402c of Act 91 clearly and unambiguously provided that, before a mortgagee could, inter alia, commence a mortgage foreclosure action against a mortgagor, the mortgagee was required to give the mortgagor a notice as described in Section 1680.403c of Act 91. Pursuant to the plain language employed in Subsection 1680.403c(b)(1), this notice was to, inter alia, advise the mortgagor that the mortgagor has thirty days to have a face-to-face meeting with the mortgagee who sent the notice or a consumer credit counseling agency to attempt to resolve the delinquency or default. In other words, Subsection 1680.403c(b)(1) clearly and unambiguously required a mortgagee to provide to a mortgagor notice that the mortgagor had a choice of whether to meet face-to-face with the mortgagee or a consumer credit counseling agency. While Act 91 undeniably empowered the agency to prepare a uniform notice, the Legislature mandated that the notice include all of the information outlined by Act 91’s notice provision. 35 P.S. § 1680.403c(b)(1) (amended July 8, 2008, effective September 8, 2008) (“The agency shall prepare a notice which shall include all the information required by this subsection . . ..”).
Here, the notice that Appellant provided to Appellee failed to inform Appellee that she could choose to meet face-to-face with Appellant. Consequently, the notice was deficient. Yet, such a conclusion does not end our inquiry.
Relying on Wells Fargo Bank v. Monroe, 966 A.2d 1140 (Pa. Super. 2009), Appellant maintains that Appellee was required to prove that she was prejudiced by the deficiency in the Act 91 notice. According to Appellant, Appellee could not meet her burden of proof in this regard because she, in fact, met with Appellant’s representatives, which led to the parties entering the agreed upon judgment.
In Wells Fargo Bank, the Monroes defaulted on their mortgage. The mortgage servicer sent to the Monroes an Act 91 notice. Wells Fargo later filed a mortgage foreclosure action against the Monroes. The parties filed competing motions for summary judgment. The Monroes argued, inter alia, that the Act 91 notice was deficient. The trial court nonetheless granted summary judgment in favor of Wells Fargo. The Monroes appealed to this Court.
The Monroes’ first issue on appeal was “[w]hether the Trial Court erred by requiring the [Monroes] to show the occurrence of prejudice as the result of their receipt of a defective Act 91 Notice from [Wells Fargo?]” Wells Fargo Bank, 966 A.2d at 1142. This Court described the Monroes’ argument under this issue as follows:
Specifically, the Monroes contend that the Act 91 Notice they received “did not identify the Mortgagee, it only identified the Servicer, Countrywide.” Monroes’ brief at 8. Therefore, they claim that they “did not have the address of the note-holder where they could have sent items pursuant to the Real Estate Settlement Procedures Act or more importantly, a Truth-in-Lending request to rescind their mortgage.” Id. The Monroes further assert that “the Act 91 Notice did not provide a place of cure within Westmoreland County where the property is located, nor did it provide a place of cure within a County contiguous to Westmoreland County” and that it “included additional proscribed costs and fees.” Id. Based upon these identified errors and in addition to them, the Monroes argue that the trial court required them to show that they were prejudiced by the improper notice, a requirement that they claim does not comply with Pennsylvania law. Id. at 9. Essentially, the Monroes assert that if the Act 91 Notice is improper, prejudice should be presumed.
Wells Fargo Bank, 966 A.2d at 1143.
The Court disposed of this argument as follows:
In response to the Monroes’ assertions regarding the Act 91 Notice and the requirement that they show prejudice, we agree with the trial court’s conclusion.FN1 The Monroes received an Act 91 Notice and, even if it was defective, they were given and availed themselves of the opportunity to pursue mortgage assistance through the Pennsylvania Homeowners’ Emergency Mortgage Assistance Program. They met with a credit counseling agency within the thirty days as provided by the Act 91 Notice and applied for the mortgage assistance. Moreover, the Monroes have provided no legal authority for their position, nor do they suggest what rights they were due above and beyond those that were afforded to them. See Pa.R.A.P. 2119; Bombar v. West American Ins. Co., 932 A.2d 78, 93 (Pa. Super. 2007) (stating that failure to cite relevant authority may result in waiver of the issue). Accordingly, we conclude that the Monroes’ first issue is without merit.
FN1. Specifically, the trial court indicated that any issues regarding fees and costs would be addressed at the accounting which takes place after a sheriff’s sale and at the time of distribution of the proceeds. T.C.O. at 3. Moreover, we note as to the assertion that the Act 91 Notice failed to provide a local location at which the mortgagor could cure a default, the Pennsylvania Code indicates that an address to which the cure may be sent by mail is sufficient. See 10 Pa.Code § 7.2(ii) (definition of “performance”). Here, an address for Countrywide in Dallas, Texas, was provided as the location to which any cure could be mailed. The Monroes did not take advantage of this option.
Wells Fargo Bank, 966 A.2d at 1143-44.
We find Wells Fargo Bank to be sufficiently distinguishable from the matter sub judice, such that the decision in Wells Fargo Bank has no impact on our decision in this case. As best we can discern, the deficiencies cited by the Monroes, with regard to the Act 91 notice they received, did not implicate Act 91’s explicit requirement that the mortgagee’s Act 91 notice must inform the mortgagor that the mortgagor can meet face-to-face with the mortgagee or a consumer credit counseling agency. Moreover, unlike in Wells Fargo Bank, there is no failure on the part of the parties to this appeal to provide this Court with pertinent legal authority.
Act 91 contains no language that suggests that an Act 91 notice which fails to advise a mortgagor that the mortgagor can meet with the mortgagee will suffice so long as, during the course of the mortgage foreclosure litigation, the mortgagor cannot prove that he or she was prejudiced by the deficient notice. In fact, Act 91 explicitly states that, before a mortgagee can even commence a mortgage foreclosure action, it must give the mortgagor the notice described in Section 1680.403c; Subsection 1680.403c(b)(1) clearly and unambiguously mandates that the notice must inform a mortgagor, inter alia, that the mortgagor can meet face-to-face with the mortgagee.
We conclude that the trial court did not make an error of law or abuse its discretion by sustaining Appellee’s “Motion to Set Aside Judgment and Sheriff’s Sale.” In conjunction with its ruling, the court properly set aside the sheriff’s sale, vacated the judgment, and dismissed Appellant’s complaint without prejudice. Accordingly, we affirm the court’s order.
Order affirmed.






* Retired Senior Judge assigned to the Superior Court.



1. As to the manner in which we review such orders, our Supreme Court has stated the following:

A petition to set aside a sheriff sale is governed by our rules of civil procedure which provide that [u]pon petition of any party in interest before delivery of the . . . sheriff’s deed to real property, the court, may upon proper cause shown, set aside the sale and order a resale or enter any other order which may be just and proper under the circumstances. In Doherty v. Adal Corp., 437 Pa. 109, 261 A.2d 311 (1970) we held that a petition to set aside a sheriff sale is an equitable proceeding, governed by equitable principles. Appellate review of equitable matters is limited to a determination of whether the lower court committed an error of law or abused its discretion.


Marra v. Stocker, 615 A.2d 326, 328 (Pa. 1992) (citations, quotation marks, and footnote omitted).




2. As with all questions of law, when we interpret a statute, “our standard of review is de novo. Our scope of review, to the extent necessary to resolve the legal question before us, is plenary.” Swords v. Harleysville Insurance Companies, 883 A.2d 562, 567 (Pa. 2005).


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Massachusetts Home Seizures Threatened in Loan Case: Mortgages

Massachusetts Home Seizures Threatened in Loan Case: Mortgages

“If you’re going to take someone’s home away, you’ve got to prove you have the right to do it, and you have to follow the law when you do it,” Atty Glenn Russell said.

Busines Week-

The highest court in Massachusetts is poised to rule as soon as this month on a foreclosure case that could lead to a surge in claims from home owners seeking to overturn seizures.

The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued in front of the nation’s oldest appellate court that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving she was obliged to pay the mortgage.

“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.


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Massachusetts Home Seizures Threatened in EATON vs FANNIE MAE: Mortgages

Massachusetts Home Seizures Threatened in EATON vs FANNIE MAE: Mortgages

The Massachusetts Supreme Judicial Court justices signaled last month they may rule in favor of Eaton when they asked parties in the case to submit briefs arguing whether such a decision should be applied retroactively or only to future lending. If retroactive, it would cloud the titles of the 40,000 Massachusetts properties seized in the last five years and while the ruling only applies to the state, it could serve as a model for homeowners trying to overturn foreclosures in other states.


The highest court in Massachusetts is poised to rule as soon as this month on a foreclosure case that could lead to a surge in claims from home owners seeking to overturn seizures.

The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued in front of the nation’s oldest appellate court that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving she was obliged to pay the mortgage.

“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.


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REQUIRED READING: Marie McDonnell’s Supplemental Brief in EATON vs. FANNIE MAE

REQUIRED READING: Marie McDonnell’s Supplemental Brief in EATON vs. FANNIE MAE

If you want to know where the bodies are buried, look no further. Here are a few snips from Marie’s brief:

In what has become common parlance among those
investigating these securitization failures (including
the Securities and Exchange Commission and the
Department of Justice), we refer to this type of
transfer as an “A to D” assignment because it skips
over parties “B” and “C” and creates a “wild deed
(especially in title theory states such as

The assignment of mortgage is the “breeder
document” from which all other paperwork necessary
to bring the foreclosure action; notice the sale;
obtain judgment; and transfer title depends.

The Eaton Defect” as described in our amicus brief occurs when an entity, such as Green Tree Servicing LLC takes the mortgage by assignment and prosecutes a foreclosure in its own name when it neither owns nor holds the note.

The Ibanez Defect” as described in this amicus brief occurs when an entity, such as Option One Mortgage Corporation, sells the loan for securitization purposes and later, after the loan has been sold multiple times, assigns the Note and Mortgage (or just the Mortgage) directly to the Trustee of the Issuing Entity (securitized trust).

Supreme Judicial Court
NO. SJC-11041






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Guest Post: Eaton – Dividing the Mortgage Loan and Affirming the Consequent

Guest Post: Eaton – Dividing the Mortgage Loan and Affirming the Consequent

Written by Gregory M. Lemelson

In January the Massachusetts supreme judicial court held in US Bank National Association vs. Antonio Ibanez that a note holder may not foreclose on a property in order to redeem a debt, if they are not also the holder of a valid mortgage (that is to say also with a valid assignment). We outlined the details of this case and its implications in our article “Ibanez – Denying the Antecedent, Suppressing the Evidence and one big fat Red Herring” on January 11th, 2011.

The issue before the SJC in Henrietta Eaton v. Federal National Mortgage Association and Green Tree Servicing, LLC is whether the assignee of a mortgage security alone (fraudulent assignments aside), without any direct or indirect interest in or claim to the underlying debt, can seek to recover the debt through foreclosure.

Oral arguments in the case were heard on Oct. 3rd, 2011.

It is important to note that in Ibanez, the SJC was not willing to overturn long standing legal principles simply because of recent “innovation” in the way banks chose to record their security interest in real property (e.g. MERS), or because of the extraordinary liability such a ruling would have on what basically amounted to four years of mostly illegal foreclosure activity in the Commonwealth.

The Ibanez article published last January predated Eaton by some ten months, and since the SJC reviewed Eaton “sua sponte”, there was no way to know at the time, that Eaton would make it all the way to the SJC, so the following comments taken from the article are perhaps prescient:

” It is possible that from the banks perspective an invalid assignment of the note is the more serious concern for the following reasons:

1. Without first having proper ownership of the debt, the bank can not initiate any collection activity, let alone foreclosure.

2. Notes (ownership of the debt asset), may be subject to further contention in bankruptcy proceedings where many creditors have a vested interest in the assets of a defunct mortgage lender, particularly since these notes are often sold in bankruptcy for a fraction of their face value.

3. The trusts that are supposed to contain the validly conveyed notes will in fact, not actually contain them (because they are not bearer paper), thus violating the representations and warranties made to investors who purchase these securities. Therefore, it is unsecured debt, and potentially, no debt at all upon which to collect payments.

6. Even if the notes obtain a valid conveyance, or confirmation of conveyance at a later date, it is still may be impossible to place them into the MBS’s:

a. It will have been longer than 90 days (the typical expiry period to transfer assets into the trust)

b. If it is a foreclosure matter, the loan is in default (the PSA’s do not allow for the addition of defaulted loans)

c. Any effort on the part of the trust to insert old or defaulted loans would jeopardize the trusts favorable REMIC status – thus further harming already impaired returns.”

As pointed out in the Ibanez article, clear title to the property is important. If the assignment of the mortgage is invalid, then there is a “cloud on title”. The banks recognizing this, brought Ibanez before the land court of their own volition in order to clear this “cloud on title”. One of the key mistakes counsel for Eaton made, perhaps in their effort to establish the more serious problem of legitimate possession of the note, was overlooking the validity of the Mortgage assignment, (still incredibly important) which, as with most securitized loans, was so clearly fraudulent (see Amicus brief of Marie McDonnell). Incidentally, this was of particular interest to the court during oral arguments, however, because the issue was never raised by Eaton’s counsel in its complaint, it could not be addressed by the court. Thus the opportunity to cite the authority of Crowley v. Adams 22 Mass. 582 (1917) which concerned the fraudulent conveyance of a mortgage without a note, was lost. Within the context of discussing the assignees knowledge of the fraud, the court held:

“[the assignee] should be held to have known as to each transaction, the possession of the note was essential to an enforceable mortgage, without which neither mortgage could be effectively foreclosed.” Id. at 585.

This was a error on the part of counsel, and eliminated a potential fifth source of authority in Eaton, as we wrote in January:

“1. If there must be a perfected interest in the mortgage (according to MA law) at the time of foreclosure, then how many foreclosures have taken place in Massachusetts with the same profile as Ibanez, and are thus invalid?

2. Clear title is important – In the statement of the case, the banks actually brought the complaint before the land court as independent actions in order to “remove a cloud on the title” – thus the banks recognize that such defects are a problem for future conveyance. All MA homeowners should be worried about the same (discussed further below).

3. To foreclose on a mortgage securing property in the commonwealth, one must be the holder of the mortgage. To be the holder of the mortgage, the bank must:

a. Be the original mortgagee

b. Be an assignee under a valid assignment of the mortgage

c. It is not sufficient to possess the mortgagor’s promissory note (bearer paper). Apparently most if not all securitized mortgages were endorsed in “blank”, in other words to the bearer.

4. The notice requirements set forth in G.L.c. 244, ss 14 unequivocally requires that the foreclosure notice must identify the present holder of the mortgage. This likely was not the case in past foreclosures in MA. For future foreclosure actions the question is can the real mortgage holder be found and will they cooperate in assigning the security interest?

5. Assignees of a mortgage must hold a written statement conveying the mortgage that satisfied the statute of Frauds or even the most basic elements of contractual requirements.

AG Coakley acknowledges that “the securitization regime was required to conform to state law prior to foreclosing, to ensure simply that legal ownership ‘caught up’ in order that the creditor foreclose legally in MA. The lenders, trustees and servicers could have done this, but apparently elected not to, perhaps on a ‘Massive Scale’ ” Saying that they “could have done this” within the context of MA law is one thing, within the context of IRS tax code, or NY trust law, is another.”

Further the article points out that a holder of the mortgage without the note, really only holds the security instrument in trust for the debt holder (thus anticipating Eaton), as pointed out in the following taken from the Ibanez article:

“4. The holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment. If the average MBS has 5,000 notes for example, then we have to assume 5000 separate actions would have to be filed in court to ensure they are truly “Mortgage Backed Securities”, and that is only if the REMIC status isn’t jeopardized by such a revelation or action.”

However, the impasse for banks is the fact, that even if the court recognizes the authority of MERS to assign the mortgage to the foreclosing entity (usually the servicer), the following conditions still must be met:

a) The assignment must still be a valid assignment (most are not)

b) There must also be a valid assignment of the note to establish who exactly owns the debt.

The vast majority of these loans were sold into securitization trusts and are merely endorsed “in blank” (if they can even be found in the trust at all). Most schedules attached to the trust documents include little or no information on the details of the particular loans (as was the case in Ibanez), or sometimes include the address of particular properties, but no information on the barrowers, or curiously the loan amounts. Other failures include post-dated or otherwise invalid notarizations, and fraudulent signatures etc., which are all suggestive of fraud.

Given this, to speak of Eaton merely as a question over the validity of MERS and its assignments is incorrect. Even if Eaton is not affirmed by the SJC, the issue of validly conveyed notes, remains of vital importance.

That having been said, we believe the Appellants chances of prevailing are precisely zero, or maybe less. Taken together with Ibanez, this means serious problems for the bond holders in these securitization trusts and their bank administrators. With all the nuance of every day speak we could muster, we think it is put best by saying just; some of the debt-servants might escape. That isn’t to say that all measures won’t be taken to try to prevent this outcome.

On contemporary Pheronic thinking and the Pyramids that debt-servants build

We believe that this situation lends itself to the possibility of violence, as tragic an outcome as that is and would be. On June 3rd, 2011 we published our follow up to the Ibanez article entitled simply “On the ethics of mortgage loan default“. Four days later, the Essex county registrar of deeds John O’Brian, who we quote in the article, stopped recording fraudulent mortgage assignments (which many if not most are). It seems logical that this would be a “wake-up” call to the average homeowner, particularly since other registrars are prepared to follow suit. With the registrar’s decision, it has become a fact that title may no longer be recordable and ownership is in question.  As it turns out, the homeowner who faithfully sends in monthly mortgage payments for years or decades (in an effort to “do the right thing”), may have no more clear ownership rights in the related property than a perfect stranger.

As the article “On the ethics of mortgage loan default” spread throughout the Internet with countless links and references, we were surprised to find comments that included (not unlike the allegory of the cave) the desire that the author “be shot“. We were equally surprised when the Hacktivist group “Anonymous” (which was not our target audience either) featured the article prominently in several of their sites.

shadows_on_the_wall_3It has been said “the rich rules over the poor, and the borrower is servant to the lender”. Perhaps in our Naiveté, we did not understand the sensitivity around the suggestion that a servant might want to be free one day. Nor did we recognize that the powerful human inclination to denial might elicit more than just a passive reaction.  Like the prisoner who is freed from the cave and comes to understand that the shadows on the wall do not make up reality at all – later puts their life in danger from those who remain in the cave. Yet, the source of the light is truth and intelligence and those who would act prudently must see it.

These implications give rise to powerful questions in the current context. One such question regards the difference between a debt and a moral obligation? Why do we confuse the two so often in our society? Such that those who seek forgiveness of debt, are made to feel as if they are violating a moral code, or a cultural taboo? Perhaps the explanation lies in a more clear definition of the two. A moral obligation is something that can be forgiven with some flexibility, there is hardly exactness involved.

A monetary debt on the other hand can be calculated with the accuracy and immutability of math and the related science of accounting, and grown with the power of compounded interest, and therefore, in proper monetary debt, exist the possibility of subjugation in perpetuity, or at least for the entire natural life of the debtor.

Oddly, our society adds insult to injury in this failing of human civilization, and as if this dreadful revelation were not enough, adds on top of these accurately calculated and compounded financial obligations, the fallacy of a moral obligation, and in so doing the debt-servant is made to feel guilt regarding his moral character as well as his failure to pay.

When this sleight of hand is wedded to exhaustion (a pre-existing condition of many debt-servants), the odds of one actually fighting back against such a system, corrupt though it may be, are only minute. It must have been a genius who figured out that slavery with chains is inefficient. If a human could be conditioned to believe he is a free man, when he is not, and that already disillusioned he might be convinced that he is also a rich man, when he is not, then chains and their related complications are wholly unnecessary. All that is necessary then is to lower his idea of freedom and wealth substantially, and provide him with cut-rate imitations.

Under these circumstances, the average man would in fact work extraordinary hours, even if his paycheck was essentially diminished to less than zero by his existing debts (thus requiring him to take on new ones), and if by chance he was able to save, those funds too would be safely transferred to the hands of strangers (through “innovations” such as 401K’s, which could be convenient deducted from his paycheck electronically and instantly). These strangers are there to help the debt-servant loose what meager savings might be possible through sub-par investments (like internet stocks) which he never understood, but which is broker was always paid for trading.

Notably, this shell game can never be revealed to a debt-servant, because then he would understand that he is not really a free man, even though the real law is “…not on tablets of stone but on tablets of human hearts”, and yet this inclination of the heart is often resisted, even with violence. Nonetheless, In this law of the heart lies “a desire” which is so great that it over powers all other human constructs, including offensive debts.

In this respect, surely a few folks in Europe must have believed that the entire trade in chained slaves made the United States look like an economically and operationally primitive bunch – for the cost of that variety of servant is actually much higher, and had a far smaller pool of candidates, namely those with a particular tint to their skin. Yet, telling someone that they are inferior based merely on the color of their skin is a hard sell year after year. Conversely, telling someone they are free, when they have never tasted real freedom because they were born into debt, is easier to maintain, because it deals with more subtle issues, and the likelihood of confusion with moral obligation, and exploits the power of human denial.

The earliest evidence regarding market places and trade indicate that if you have something to sell that is of far lesser value than you are indicating, than it is wise to have the greatest physical distance possible between yourself and your counterpart – for in such a trade lies the inherent possibility of a violent reaction to the discovery on the part of the unsuspecting buyer, particularly when accurate accounts of credit and debt are kept and ruthlessly enforced. Some of the oldest recorded documents in history are of this variety; they are surprisingly, accounts of credit and debt. Perhaps human history is really a history of subjugation then. Cultural anthropologists are quite familiar with this idea of credit and debt in (even ancient) market places. It’s an old story. However, Americans are bread as consumers, not as economic or cultural anthropologist, because in that knowledge rests power, and power, by definition must belong to a coterie. For the greater the number of those subdued, the greater the power of the few who would subdue, just as with money, power deals only in transfers.

That is why the average American home owner is not allowed to have the true owner of their mortgage debts revealed – they are the counter party to an impolite deal. In these trades great profits were made, and in the pricing of the assets, great misrepresentations regarding intrinsic value. Wealth destruction therefore is a misleading expression in describing what happened; the accurate term is wealth transfer. During the housing “Pyramid” (this term is far more accurate than “bubble”, because it accurately describes an order) one of the greatest logical errors of all time was sold; that the intrinsic value of a home, which had within it the possibility of calculating (accurately) fair price was tied instead to a hyper speculative measure, that which is inherently impossible to price with any degree of accuracy, and which is immaterial; our notion of an ideal. As one might imagine, no price is too high to live an “ideal” – think of it as a seller’s paradise. After, a difficult stock market collapse, and an even more difficult terrorist attack, why would anyone be interested in mere stocks or bonds? After all the very place where these electronic slips are traded was very nearly destroyed. This new investment was allegedly concrete, and also patriotic. Americans were led to believe they had “…discovered a pearl of great value”, the only security whose price could never go down – it was like a “Dream”, like an “American Dream”.

However, when loan documents were to be signed a new broker suddenly appeared.  Without any forewarning, with a name that was not before heard, or with anyone who had actually seen him, or understood how he operated, he made a subtle but powerful arrival on the scene. His name is Mr. MERS, and he instituted even greater secrecy than stock brokers and fund managers. Few have seen his physical appearance, or pulled back the curtain, it’s uninteresting anyways, because Mr. MERS is nothing more than a relational database, which only a very small fraction of the world’s population have access to (even democratically elected bodies, such as county recorders have no such access). He brokers the movements of trillions of dollars in capital. He is a construct of your trading partner, and because of his existence, you can never have a “level playing field”, or hope of a fair trade. In this brave new world, the requisite distance that precedes a bad trade, is no longer a measure of geography, it is a piece of software.

With this surreptitious matrix of relational database fields safely in place, how are all those houses, like so many stone blocks cut by ancient hands, turned into a pyramid? The answer seems self-evident; through a pyramid scheme naturally.

How would a contemporary mass exodus from such bondage look? Just as Fannie Mae and Green Tree divided the essential components of their security, It might look like ordinary debt-servants parting and dividing a sea of concrete, and traversing the depth of high rise buildings in New York, just as “by faith the people passed through the Red Sea as on dry land”.

The people in New York are criticized for their lack of direction, the fact that they appear to be lost in a veritable desert – but they are free, and in their hearts live an almost child-like innocence that we should desire to have. After all, their predecessors spent a good deal more time lost, and through it discovered a greater revelation, one that would lay the foundation to ultimate answers.

The popular accounts promulgated by Adam Smith and the contemporary science of modern economics as we were made to understand them, rely on more than one myth regarding the engineering of debt, and its related instrument – money. These underlying misrepresentations give rise to the possibility of great abuses, for the very nature of trade, and all else which rests upon it is thus misunderstood.

There are many reasons to despair over the future of our fragile state in the US today. However, the Massachusetts Supreme Judicial Court is not one of those reasons. By upholding the rule of law, and observing the incredibly important, and notably democratic foundations of land recording practice in the commonwealth they serve as a beacon for the rest of the country to follow and impart hope. This comes at a time when such hope is in scarce supply. If it is God’s will, than the light of wisdom handed down from prior ages on this point will shine through the darkness that has been created by corrupt forces. We can only hope.

A Road Map for Homeowners: Four Authoritative Guidelines

In Massachusetts law there exists four authoritative guidelines by which property may be foreclosed upon in order to redeem a debt (Five if Crowley v. Adams is included from above). Incidentally division is not a problem for these four authorities, for they stand equally well alone as they do in combination as requirements to validly exercise the power of sale of real property. Both the spirit and the letter of these sources are echoed in laws of other states, and as such can be taken as fundamentally universal. They are as follows:

 The Common Law and the problem of Division

In Summary Eaton dealt with the following three realities of long standing Massachusetts law:

1. The assignee of a mortgage with no claim to the underlying debt cannot foreclose.

2. A mortgage separated from the debt it secures has no value in and of itself; it can only be held in trust for the note holder (naked title)

3. The trust relationship implied for the benefit of the note holder does not empower a mortgage assignee to foreclose as a “fiduciary” at any time.

It should be offensive even to the casual observer that in the case of Eaton, as would be the case for most home owners today, a valid promissory note memorializing the debt was and is missing. Who held it at the time of the foreclosure, how they obtained it, and what relationship they had if any to the appellants was and is still unknown.

Although a photo copy of the note was produced with the typical “endorsement in blank” markings, the appellants provided no document or other information indicating when the note was endorsed or who held it either then or now. The required assignments between intermediaries were never produced. Interestingly neither of the defending entities offered any testimony or other evidence in either court action to resolve these all important questions or otherwise identify the holder of the note. However, they did concede, that it was not the foreclosing entity Green Tree, LLC.

Conceivably this is because they do not know, and they do not want to know, and maybe they would even like to forget. Perhaps the note it is evidence.

Not surprisingly counsel for the appellants, despite this revelation, argued that the whereabouts and history of the promissory note was “irrelevant” and that they were entitled to foreclose nonetheless.

After a careful review of the full history of the mortgage foreclosure law in Massachusetts, as well as the related statutes and appellate decisions, The Superior court didn’t exactly see it that way – determining that no decision had ever overturned the established common law rule that a mortgage assignee must hold the note in order to enforce it through foreclosure.

Needless to say, this is of great concern to the banks, as predicted in the Ibanez article (cited above). Given the audacity of their claims, we believe it is reasonable to assume these folks would, if given the opportunity “send an orphan into slavery or sell a friend”. It has been difficult and time consuming to discover that notes were sold multiple times into multiple trust, thus creating a out-and-out pyramid of securities, upon which even more derivatives could be sold. However, something even more simple and obvious has been taking place in broad daylight, something peculiar that has been overlooked – the awkward problem of entire houses being stolen, by folks who have categorically no financial interest or otherwise is the properties.

Since this is the direct opposite of “The American Dream”, possibly the moniker “the American Nightmare” is appropriate.

Taking a step back, it is awful to consider that GreenTree, LLC had no interest in the debt, no interest in holding the property pre or post foreclosure, and had no material interest in the entire affair whatsoever, and yet they were the entity which sought to foreclose (or steal). Does it not appear as Les Trois Perdants with GreenTree, LLC acting as a shill?

For centuries promissory notes and the mortgages securing their repayment were held or assigned together. The separation of these two instruments, until recently was an anomaly and exception. Albeit no longer an anomaly, but rather the general business practice of approximately the last ten years, the SJC reaffirmed in Ibanez, that a trust implied by operation of law gave the note holder the right to sue to obtain an equitable assignment of the mortgage (U.S. Bank v. Ibanez, 458 Mass. 637 (2011) – which implies surprising possibilities (e.g. every note allegedly held in every securitized pool, would have an individual and related suit to perfect it’s claim). Implications aside, the court’s ruling established nonetheless a method by which the note holder (the person to whom the debt is owed) could be empowered to collect payment.

Incidentally, long before the bifurcation of the notes and mortgages was ubiquitous, this operation of law was periodically challenged by mortgage assignees who believed that they, as “mortgagees” could simply foreclose in their own names. However, since the 19th century, and as pointed out above, the SJC has ruled otherwise. In a series of decisions it articulated the rule that a mortgagee who has no interest in the debt underlying the note cannot conduct a foreclosure, insisting instead that that right is reserved for a holder of a valid note along with a valid mortgage.

Green Tree, LLC and their Government handlers suggest that the parts of the whole, when taken independently have the properties of the whole. That is to say in this case, that since the mortgage contains the power to foreclose, the mortgage must have with it all the powers of the note – this proposition is patently wrong, and is the fallacy of Division. The instruments may function properly together, but have incomplete authority independently – and that is exactly what long standing statute (as outlined below) has upheld.

In Summary, Ibanez brought to light that banks holding only notes have only an unsecured debt – that is to say one that could be negotiated like any other. Eaton, on the other hand brings to our attention something of far greater importance; namely that a holder of a mortgage alone (even if validly assigned), without proper ownership of the underlying debt, has in fact nothing.

Call us speculators, but if SJC affirms the lower court’s decision we have a funny feeling more than one banks share price might be adversely affected.

In the end, suggesting independent authority of the mortgage, regardless of any concern for the note or the debt is just a bad argument – it’s not only “Division” it is also a great candidate for the “Non Sequitur” argument of the year award.

 GreenTree, LLC – Affirming the Consequent

A thorough discussion of Massachusetts foreclosure law can be found in Howe v. Wilder, 77 Mass. 267 (1858). which resolved a foreclosure dispute by holding that a mortgagee, without the note, could not foreclose on the mortgage.

The court goes on to elaborate that because the party who would otherwise seek to foreclose was owed no debt, he cannot recover possession:

“For in pursuing such a suit [the party] has only the rights of a mortgagee, and is limited by the restriction imposed upon him…if nothing is found due to the plaintiff, it follows by necessary implication, from the provisions of the statute, that he can recover no judgment at all; none to have possession at common law, because that is expressly prohibited; and none under the statute, because where there is no condition to be performed, there can be no failure of performance, and no consequences can follow a contingency which in nature of things can never occur.”

Suggesting that by being an assignee of the mortgage, encompasses the right to foreclose is simply “Affirming the Consequent” and is just another logical fallacy.

 MGL 244 § 14 and the Straw Man

Bifurcating the note and the mortgage was an extraordinary circumstance when the legislature decided the subject laws. At the time these laws were ameliorated there was no reason to explicitly delineate between the debt and the mortgage instrument securing it. To argue, as Green Tree has, that the term “Mortgagee” as used in MGL 244 § 14 means also “naked mortgagee”, (a mortgage holder not having any interest in the underlying debt) is a “Straw Man“. This suggestion overlooks the historical context in which the law was authored, the rise of the mortgage securitization industry, its related practices and the compulsory changes to recording which has taken place over the last decade. It is to overlook the privatization of land records that (as far as we know), no elected official or law maker had blessed beforehand.

If Green Tree’s argument were accurate, they would not assign the mortgages to third party servicers at all, and rather continue to foreclose in MERS name (more efficient) as had been the practice until several states supreme courts ruled against it, citing the fact that MERS had no economic interest in the mortgage, which is “but an incident to the note” or “a mere technical interest” (Wolcott v. Winchester) – this of course reaffirms the spirit of the law which Henrietta Eaton asserts in her complaint.

In particular the court stated that the assignee of a “naked Mortgage”:

“…must have known that the possession of the debt was essential to an effective mortgage, and that without it he could not maintain an action to foreclose the mortgage.” Wolcott v. Winchester, 81 Mass. 462 (1860)

Despite all of this, the bright idea of the securitization industry was to simply transfer the mortgage instrument to the servicer – a related party, sort of.

If Eaton is not affirmed by the SJC, we might as well make Three Card Monte our national pastime and get rid of baseball altogether. In such a scenario handicapping the future of the US economy and the ability to affectively and profitably speculate in the CDS market will be “duck soup”.

 The authority of the UCC codified at G.L.c. 106

Because the common law involves a great deal of common sense, it just so happens to be mirrored in the Uniform Commercial Code. In particular G.L.c. 106. Article 3 of the UCC governs the negotiation and enforcement of negotiable instruments, including promissory notes secured by mortgages. Section 3-301, like the common law, provides that one must hold a (valid) note in order to validly enforce it. This rule serves the purpose of protecting consumers and barrowers against the very real possibility of double liability created when a debt is enforced. As in the current matter, Green Tree, LLC or any other mere mortgagee (even if they could get a valid assignment), would have no power or authority to discharge the actual debt. Thus if the operation of law were in any other capacity than it currently is, the mortgagee could foreclose on a property, while the debtor would still be left with a valid debt outstanding to an entirely unrelated party.

This lends itself to the requirement for transparency. During the oral arguments before the SJC, one justice asked why it mattered if the homeowner knew to whom they owed their debt. The answer is that homeowners have an important role to play in the outcome of the final settlement and discharge of their debt, and are above all the most interested party in ensuring that their payments are in fact reducing the outstanding principle balance as they are made. Otherwise, they may as well be directed to make their payments to any random stranger. It is absurd to suggest that a debtor be required to simply make payments to anybody who asks for it. That is to suggest that he is not only a debtor-servant, but also a mindless sheep – then again, perhaps that is the desired outcome.

In fact the entire matter may only be possible in a non-judicial foreclosure state, for if it were a civil complaint for the collection of an amount due, than would the debt instrument itself not be scrutinized as a first priority in the proceedings? Perhaps small unimportant questions like who actually owns the debt and is bringing the action would be relevant under such circumstances.

 The authority of loan contracts

In the end, the entire action by Fannie Mae and Green Tree, violates the very contract which is being disputed. Even if no other statues or laws had operated or ever existed, Eaton’s argument would survive on this one point alone – and Eaton is not unaccompanied – she stands with some 60 million other homeowners in the US with virtually identical contracts.

In the case of Eaton standard mortgage loan documents were used, and they essentially all look alike. The terms of Eaton’s mortgage contract, as with virtually all others, authorizes only the note holder to exercise the power of sale. The one concession Green Tree, LLC made was that they are not the note holder and have neither argued, nor provided evidentiary support for the claim, that a foreclosure by anyone other than the note holder was necessary (not that it would be possible).

 A bitter Fruit: Double Liability

It has been said, “By their fruit you will recognize them. Do people pick grapes from thorn bushes, or figs from thistles?”. No, because “every good tree bears good fruit, but a bad tree bears bad fruit” . Is Green Tree’s lawyer actually advocating that homeowners should just rely on the banks and servicers to be “nice guys” and not go after the debtors twice? It is already known that certain elements in the industry were willing to sell the same note multiple times into multiple pools which given Burnett v. Pratt, 39 Mass. 556 (1839), presents interesting problems for RMBS investors, who were essentially their business partners. If the architects of these systems can sell the same note twice, to their own business partners and customers, why would they not try to also collect twice from their debt-servants, who rank many orders below business partners and real customers?

If the severity of compound interest is not enough, the result may be plan “B” – “doubling up” where needed.

If the fact that being named on a valid mortgage is not sufficient to authorize a foreclosure, than automatically the question becomes who holds the note? The answer to the latter question is a bit more serious, for in the answer lies a good deal more than the banks would like to reveal.

Does greed have rational limits? It does not and it cannot because greed is not rational to begin with. Since nobody knows how the foreclosing mortgagee would actually go about paying the note holder, are homeowners to rely on a system of document management (which usually involves an Iron Mountain truck, and a whole lot of paper shredding) to ensure that debt-servants are set free if they ever pay off their “debts”?

Did barrowers really sign up for that when they signed their mortgage and note? If not, when and where are the limits?

 It’s only a matter of time

Homeowners must examine the assignments on their mortgages and notes. If a foreclosure is imminent, a preliminary injunction should be sought in order to have an opportunity to examine the documents thoroughly and also to give time to the SJC to issue its ruling – Jurisprudence matters. When the final Eaton ruling is taken together with Ibanez, there will be a sea change – it’s only a matter of time.

It seems reasonable that in a world where bandwidth intensive videos can be encoded and uploaded over a high speed 4G network from the New York Stock Exchange and on the Internet in 30 sec. using a smartphone with 64 gigs of memory (that can fit on a SanDisk card the size of your fingernail), and join billions of other files that have highly accurate GPS data embedded in their metadata, that finding a note for multiple six or seven figures debt and bringing it to court with you would really be no big deal – but apparently it is.

Foreclosures that took place before Ibanez, likely involve an assignment of the mortgage which is invalid because it would have been assigned post foreclosure (as was the common practice at the time), thus invalidating a huge number of existing foreclosures.

For foreclosures or those facing foreclosure in the post Ibanez era, than it is highly likely that the assignment of the mortgage is both invalid and fraudulent, as Mrs. McDonnell so accurately points out is endemic in most registry of deeds.  If it’s the note than that servicers intend to rely on, they may need to dream  up a new strategy, because those are all “missing” as we see in Eaton.  New strategies it seems are now in short supply.

A few more questions and thoughts

The “pump and dump” is as old as “market places” are. Whether it’s a street vendor in morocco extolling the virtues of his wares he wants to sell, or a the salesmen of shares in Netflix and Linkedin at impossiblele valuations – this “pump and dump” technique often is done with considerable misrepresentations, which result in artificially high prices for a time, and makes true price discovery impossible for buyers.

If you’re on the wrong side of the transfer, as a buyer of such stocks or bonds, you would have claims against the salesman – it’s called securities fraud. Now this ‘old time’ operation has been executed in the real estate market as well, and real estate, although most people don’t think of it this way, is also a security just like any other (it’s really not the American Dream, as has been sold – because as pointed out above, when something goes beyond the parameters of a mere security, to that of a “dream”, no price is too high). Just like stocks, these securities were pumped, and then dumped (but only after the related CDS’s were purchased by the architects).

What’s being described is an activity based on fraudulent misrepresentations, like most other such schemes. The “Pump” part involved a lot of paper shuffling, so that when the “dump” took place, the profiteers could not be easily identified. The same is true today. That is why debt-servants are not allowed to know their lender-masters – because it is the beginning of the paper trail, and as any certified fraud examiner will indicate, it all starts with the paper trail.

By focusing the attention of the court and the people on the intricacies of the letter of the law – even though they are wrong at that as well, the banks are taking attention away from the more obvious question, which is why? Why fight to interpret the law that way? That is the real question: Why. Why not produce the note. Why not reunite the note with the Mortgage?

Why would notes go missing? These are not credit card bills, they are documents outlining typically multi-six figure sums, or seven figure sums in some cases. Isn’t it logical that these documents would be kept in a safe place? And tracked? How could so many notes just disappear?

Why would the SJC and the American people at large not be alarmed by entities who foreclose on a property and yet have no idea who actually holds the debt?

The securitization process, in which so many notes were resold is subtle, but complex and riddled with a taxonomy that makes it as understandable as a foreign language to the casual observer. Yet, more careful scrutiny reveals that there is nothing even vaguely sophisticated about it’s operation.

The business of taking homes without any debt being owed is so obvious and simple so as to lend itself to denial. For example, one member of the SJC panel actually asked the attorney for Eaton why the barrower needed to know who owned the debt that they were paying? We thought maybe it was a joke – sadly it may not have been.

Yet, we know that notes have been sold multiple times into multiple pools and trusts, thus creating multiple creditors.

Any consumer should want to know if there debt is actually going to be discharged, and in order to know this, they would have to know who the actual debt holder is.

These debts are not secured. They are negotiable. This week alone, there was talk of bankruptcy proceedings for Eastman Kodak and American Airlines, Friendly’s, after more than 80 years in business, including operating during the last depression, actually did file. As commercial entities, they will be allowed before, during and after bankruptcy to work with their creditors in a completely transparent way.

Why is the average American expressly forbidden this simple aspect of business dealing? Though they entered into such obligations at far greater disadvantage than their corporate cousins?

It is clear that by introducing multiple parties that there are conflicting incentives and interests. It was surprising that the SJC brought up inadvertently during the oral arguments that the lender may have contractually sold their rights to have any say whatsoever in negotiations with the debt holder.

It is now well established that the servicers have the greatest financial incentives to foreclose, and apparently answer to no one, perhaps not even the lender, who nobody appears to be able to find.

The following question regarding Green Tree, MERS and the Eaton case are worth asking:

– Why would they go to such great lengths to keep the “lender” or holder of the debt in “secret”? What is there to gain? Would it not be much more expeditious to just reunite the note with the mortgage and then foreclose?

– Foreclosing with just a mortgage used to be an anomaly? But now it is the rule – what changed? Why would lenders take such an extraordinary risk with trillions of dollars?

– Does the claim that the notes are “lost”, or “missing” seem credible in light of the extraordinary technological world we live in?

– Is the imbalance in power between the home buyer (as signer) and the lawyer (as author) of the contract important? 99% of home buyers had no clue what they were signing – their attorney’s didn’t understand the assignee aspect of MERS or how it functioned either.

– Why would the servicer hide the debt holder? Why go through all of this trouble? Is it because it is really the US government by proxy of Fannie and Freddie?

– Were the notes used in a pyramid scheme? Were they sold multiple times intentionally in order to accommodate increasing degrees of leverage that the derivatives market required to sustain itself?

– What is the size of the global derivatives market which rest (at least in part) upon RMBS securities?

– Are RMBS pools really “Dark Liquidity” or simply “Dark Pools” and is that why MERS is necessary?

 A final note on reverse transfers

In the Commonwealth of Massachusetts servicers in possession of mortgages only (which is basically all of those who represent securitized notes) are barred by common law rule, by statute, by the Uniform Commercial Code, and by the terms of the mortgages themselves from conducting foreclosures. If they have already done so, those foreclosures are void. We believe these principles do and will extend beyond the commonwealth eventually to all of the US.

The reason the banks are fighting this is because there exists a very real fear that homeowners stuck with inflated debts, which are the equivalent to indentured servents, might actually gain some negotiating power to settle these debts, at prices which not only reflect the prudent risk management which should have taken place in prior years, but also the related and more realistic asset prices which should have prevailed at the time of the original transactions.

From a purely business point of view, the asset prices were inflated, and the average home buyer with a home loan vintage 2002-2007 had little or no choice in the setting of those prices. However, there is another group who did, and they were writing “loans” and selling them as fast as the CPU and the RAMM on MERS’ servers would allow them (thankfully cloud computing, with its superior ability to process data, and elastic memory and bandwidth wasn’t yet widely used).

Yet the securitization industry and their very elite and very wealthy captains are not having any of that – because it is a reverse transfer. To be a debt-servant is to be the servant of another man by force. Humans are not designed or built for that – that is a construct of an unfortunate human condition, which we should want to change.

How a mortgage payment can be made with fidelity every month into a authentic black hole, and the attendant psychology which enables this behavior is beyond the scope of this article. The Common Law, the MGL and UCC and even the contracts themselves make it clear though, if a mortgagor expects a discharge of the debt, they need to know who exactly they are paying.

Taking a step forward requires some courage, but less than those who have taken to the streets in NY, Boston or other cities – they are doing really hard and courageous work. Not paying a mortgage in light of the a priori evidence cannot even qualify as an act of civil disobedience. The average homeowner and mortgagor is not called to such a high calling in this instance – they are merely called to follow the mundane laws of the land which have been set down for over 150 years. It is just simple prudence. It is the lack of denial, and a willingness to recognize the truth, no matter how unpleasant. Participation in the system as it is, while concurrently declining to examine the issues intelligently is not defensible.

Paradoxically the hand of the strong which moved to Divide (the notes) and Affirm (title interest) – when taken in God’s hands, has destroyed (the notes) and preserved (the legitimate ownership).

About Gregory M. Lemelson

Author – blog. Entrepreneur. Find joy in teaching and writing. Founded companies in retail, real estate and Internet technology.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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You may access all briefs and hear oral arguments by following the links below.

You will hear the cutting edge offense and defense regarding MERS authority (or lack thereof) to foreclose.

Please listen to Judge Gants hammer the Fannie Mae attorney about the Assignment!



Docket # SJC-11041
Date October 3, 2011
Video View oral argument with Windows Media Player
(prepared by Suffolk University Law School)
Mortgage Foreclosure– This case deals with the validity of a foreclosure sale conducted by a mortgagee who did not hold the underlying promissory note.
Appealed From Appeals Court, Single Justice, Justice Judd J. Carhart
Briefs See selection available in PDF format at Supreme Judicial Court website
Counsel for Appellant
Federal National Mortgage Association:  Joseph P. Calandrelli, Richard E. Briansky
Counsel for Appellee
Eaton:  David A. Grossman
Amici Curiae Adam J. Levitin



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Supreme Judicial Court
NO. SJC-11041






“It is incumbent upon consumers, their attorneys,
registry staff, clerks of court, and judges to learn
how to recognize these sham assignments because they
are corrupting the chain of title in our land records;
and because, once recorded, courts afford them
deference rather than seeing them for what they are:
counterfeits, forgeries and utterings.

The MERS System is no replacement for the timehonored
public land recording system that is the
foundation of our freedom, our prosperity, and our
American way of life. By privatizing property transfer
records MERS has been allowed to set up a “control
fraud” of epic proportions that has facilitated the
largest transfer of wealth in human history, and it
should be abolished.”

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S.J.C. NO. 11041





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EATON v. FANNIE MAE, GREEN TREE SVCING | MASS SUPERIOR COURT “Mortgagee NOT in Possession of the Note, MERS, IBANEZ, Prelim. Injunction”

EATON v. FANNIE MAE, GREEN TREE SVCING | MASS SUPERIOR COURT “Mortgagee NOT in Possession of the Note, MERS, IBANEZ, Prelim. Injunction”

mortgagee without mortgage note holds “naked legal title” in trust


N0.-11 1381 E


vs .



The Defendants have produced a photocopy of the Note. It is endorsed in blank and does not bear an allonge indicating when it was endorsed or who held it at the time of the foreclosure. For the purposes of this motion only, Defendants stipulate that Green Tree did not hold the Note when the foreclosure occurred.


There is no inconsistency between this analysis and the recent decision in U.S.Bank National Association v. Ibanez, 458 Mass. 637 (2011). Ibanez restated common law of the Commonwealth to the effect that the assignment of a mortgage must be effective before foreclosure in order to be valid. In Ibanez, it was undisputed that the foreclosing entities were the note holders. The plaintiffs argued that, as note holders, they had a sufficient financial interest to foreclose. Not so, said the Court; as note holders separated from the mortgage due to a lack of effective assignment, they had only a beneficial interest in the mortgage note. The Court held that the power of sale statute, by its terms, granted that authority to the mortgagee, not to the owner of the beneficial interest.2 The SJC did not address the authority of the assignee of the mortgage not in possession of the note to foreclose.


In finding that Eaton is likely to succeed on her claim, the court is cognizant of sound reason that would have historically supported the common law rule requiring the unification of the promissory note and the mortgage note in the foreclosing entity prior to foreclosure. Allowing foreclosure by a mortgagee not in possession of the mortgage note is potentially unfair to the mortgagor. A holder in due course of the promissory note could seek to recover against the mortgagor, thus exposing her to double liability. See 5- Star Mgmt., Inc. v. Rogers, 940 F. Supp. 512, 520 (D. E.D.N.Y. 1996); Cf. Cooperstein v. Bogas, 317 Mass. 341, 344 (1944) (noting that allowing a creditor ofthe mortgagee to reach and apply the interest of the debtor in the mortgage itself would “leav[ e] the note outstanding as a valid obligation of the mortgagor to the holder of the note who might possibly be a person other than the mortgagee.”).


For the reasons set forth above, Eaton’s motion for preliminary injunction is ALLOWED. Fannie Mae is hereby enjoined until further order of this court from proceeding with its previously commenced summary process action Housing Court Docket 2010-2010-SP-0379 with respect to Eaton’s residence at 141 Deforest Street, Roslindale, Massachusetts, or from interfering with the Eaton’s possession and enjoyment thereof. 9


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NEW JERSEY Superior Court Dismissal “Hole in the chain of title, Big enough to drive a truck through” U.S. BANK v. SPENCER

NEW JERSEY Superior Court Dismissal “Hole in the chain of title, Big enough to drive a truck through” U.S. BANK v. SPENCER




Argued: March 18, 2011
Decided: March 22, 2011
Amended: March 28, 2011
Honorable Peter E. Doyne, A.J.S.C.

John Habermann, Esq. appearing on behalf of the plaintiff, U.S. Bank National
Association, as trustee for J.P. Morgan Acquisition Corp. 2006-FRE2, asset backed passthrough
certificates, series 2006-FRE2 (Phelan Hallinan & Schmieg, PC).

Gary E. Stern, Esq. appearing on behalf of the defendant, Arthur Spencer (Gary E. Stern, Esq.).



A. Standing

Defendant’s counsel argued plaintiff did not have standing to sue as there was a break in the chain of title by the U.S. Bank assignment. Counsel specified the Fremont Investment assignment was by Fremont to Fremont Investment; the U.S. Bank assignment was by Fremont to U.S. Bank. The break was said to occur when Fremont, and not Fremont Investment, assigned the note and mortgage to U.S. Bank. Defendant’s counsel contended no explanation or turnover of documentation justified plaintiff’s right to prosecute the current foreclosure proceeding.19 However, the U.S. Bank assignment was from MERS as nominee for FGC d/b/a Fremont and its successors and/or assigns. As Fremont Investment was an assignee of Fremont pursuant to the Fremont Investment assignment, there appears to be no break in title when the mortgage and note were transferred pursuant to the U.S. Bank assignment. Nevertheless, plaintiff has provided no documentation or support for its position it is the trustee for J.P. Morgan, and therefore has not established its right to sue on behalf of JP Morgan.

Of greater import was defendant’s counsel’s argument plaintiff did not have standing as there was no proof the named plaintiff ever took physical possession of the note. Plaintiff’s counsel countered the original note was forwarded to him upon request for the location of the note but was inadvertently returned by counsel to plaintiff. It is though surprising the reply did not set forth, competently, plaintiff possessed the note on filing of the complaint.20

Without establishing physical possession of the note, plaintiff may not be an entity which may foreclose pursuant to the first and second categories in section 301, namely, as a (1) holder of the instrument or (2) a nonholder in possession of the instrument who has the rights of the holder.21 N.J.S.A. 12A:3-301. As plaintiff has not alleged, let alone established, the loss of possession of the instrument or the instrument was paid or accepted by mistake and the payor or acceptor recovered payment or revoked acceptance, plaintiff may not be a party who may foreclose pursuant to the third category in section 301, namely, a person not in possession of the instrument who is entitled to enforce the instrument. N.J.S.A. 12A:3-301; 12A:3-309(a); 12A:3-418(d). Therefore, plaintiff failed to establish standing as it is not a person entitled to enforce the note.N.J.S.A. 12A:3-301.

Plaintiff has failed to establish standing as its relationship as trustee to JP Morgan was not set forth; more importantly, though, plaintiff has failed to establish it had or has physical possession of the note and/or failed to demonstrate the note was indorsed. As such, summary judgment for plaintiff is denied and the cross-motion for summary judgment is granted. Although both motions may have been decided on the basis of lack of standing alone, for purposes of completeness, the court also shall analyze whether the evidence presented in support of plaintiff’s motion was competent and thereafter whether plaintiff has set forth a prima facie case in foreclosure.

B. Admissibility of evidence

Defendant’s counsel correctly asserted no competent witness has brought forth admissible evidence. Yoder does not claim to be a person with personal knowledge. R. 1:6-6. Furthermore, the exhibits attached to the Yoder Cert. do not fall within the business records exception as Yoder does not claim be a person with actual knowledge or to have produced the exhibits by obtaining information from such a person.22 N.J.R.E. 803(c)(6). Therefore, the exhibits submitted on plaintiff’s behalf were inadmissible hearsay and the court may not consider them. This is particularly perplexing as this issue was squarely put forth in defendant’s opposition and cross-motion, was not addressed in plaintiff’s reply, and follows shortly after the publication of Ford, supra.

As plaintiff has failed to justify the relief sought by competent, admissible evidence, plaintiff’s motion for summary judgment is denied. Lastly, the court shall analyze whether plaintiff has set forth a prima facie case in foreclosure.

C. Material issues in foreclosure proceeding

While plaintiff’s counsel conceded the circumstances surrounding the alleged default were “unfortunate,” he asserted it “did not create the fire to the premises nor . . . change the zoning of the subject property.” Plaintiff’s counsel set forth defendant failed to make payments pursuant to the executed note, and the mortgage was executed and recorded. However, as issues of fact remain concerning the fact-sensitive allegations of (1) unclean hands (2) breach of the duty of good faith and fair dealing,23 and, (3) as restoration was not “feasible,” why the proceeds were not applied to the sums secured, plaintiff’s motion for summary judgment is further denied.24 Had defendant’s crossmotion for summary judgment been brought solely upon the allegations of unclean hands and breach of the duty of good-faith and fair dealing, the court would have denied the cross-motion and the matter would have proceeded in the normal course to further explore the facts underlying the defenses; however, summary judgment for defendant is appropriate on the basis of lack of standing.


Some are more empathetic than others to mortgagors who are no longer paying their contractual committed amount in a manner consistent with their obligations. Motions for summary judgment or oppositions to motions for summary judgment based on technical deficiencies or defenses are coming before the chancery courts at an ever increasing rate. This case, though, is distinct from the “run of the mill” motion where defendant’s attorney raises “technical objections” in an effort to delay the seemingly inevitable in an attempt to garner for clients as much time in the home as the law will
permit without paying outstanding obligations.

Here, not only has plaintiff failed to establish standing to bring the instant foreclosure action or present admissible evidence by a competent witness, defendant’s competent assertions have also given rise to fact-sensitive defenses.

Defendant’s crossmotion is granted as plaintiff has failed to establish standing and has failed to comply with the court’s January 25, 2011 order.25 Plaintiff’s motion for summary judgment is denied on three grounds: (1) lack of standing, (2) failure to present a prima facie case by presenting admissible evidence by a competent witness, (3) and defenses raised would be in need of further exploration.

The action is dismissed without prejudice.26 The court’s order shall be sent under separate cover.

19At oral argument defendant’s counsel argued there is a hole in the chain of title “big enough to drive a truck through.” Counsel alleged there was no documentation or support indicating the note was assigned by Fremont Investment. This was the same argument counsel made on the papers.

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