Tag Archive | "ucc"

Mortgages and the UCC

Mortgages and the UCC

Think this applies to MERS after you read this case from the 1800’s? Carpenter v. Longan, 83 US 271 – Sup. Court | The note and mtg are inseparable…ASMNT of the note carries the mtg with it, while an ASMNT of the latter alone is a nullity.

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC-

Who is entitled to enforce a mortgage note?

How can the owner of a note effectively transfer ownership?

What is the effect of such a transfer?

May an assignee who has not obtained a recordable assignment of a secured interest in the mortgaged property take steps to become the assignee of record?

While you might expect that these questions would have a different answer in each state, the Permanent Editorial Board (PEB) for the Uniform Commercial Code sought to answer these questions for the nation as a whole in a report it issued on November 14, 2011.

While acknowledging that foreclosure law is largely the province of the states, the board declared nevertheless that the UCC is relevant under state law and, further, that “legal determinations made pursuant to the […] Report will, in many cases, be central to the administration of [state foreclosure] law.” Report, pp. 1 & 14.  The board therefore issued the report with the stated intent to further a more consistent, nationwide application of the UCC principles to state real property law in an era when “not all courts and attorneys are familiar with them.” Report, p. 1.

The UCC is a model code sponsored by the American Law Institute and the Uniform Law Commission that governs commercial transactions and has been enacted, in one form or another, in each of the 50 states.  Generally, Articles 3 and 9 of the UCC are relevant to mortgage loans. If the note is considered a negotiable instrument, Article 3 provides rules governing both the obligations of parties to a note as well as enforcement of those obligations. Article 9 governs the transfer of notes, whether the note is a negotiable instrument or not. The UCC constitutes enforceable law in each state only to the extent that it has been adopted by the state legislature.

Who is entitled to enforce a mortgage note?

Continue reading …[Baker, Donelson, Bearman, Caldwell & Berkowitz, PC]

Copy of the Permanent Editorial Board (PEB) for the Uniform Commercial Code is below but please read the link above first:

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Max Gardner & Nye Lavalle Together in Concert – A Mandelman Matters Podcast

Max Gardner & Nye Lavalle Together in Concert – A Mandelman Matters Podcast

Mandelman Matters

It’s almost been 15 years since Max Gardner and Nye Lavalle met at a conference sponsored by National Consumer Law Center that was held in Colorado, and quickly found themselves viewed as, well… heretics might be the right word.  The two became fast friends based on their shared views related to the mortgage servicing industry… and I think both knew that one plus one was about to equal eleven.

Nye was a successful sports marketer and entrepreneur, credited with correctly predicting that Nascar and figure skating would draw huge crowds back in the 1990s, but after being forced to contend with his own mortgage mess, he focused on learning everything about the mortgage industry.  As Gretchen Morgenson said in her article about Nye that appeared recently in the New York Times“In hindsight, the problems he found look like a blueprint of today’s foreclosure crisis.”

It’s hard to imagine two people more tenacious that Nye and Max.  Nye became a shareholder  in Fannie and stayed on Fannie’s case for two years until finally the GSE hired a DC law firm to investigate his claims.  The 147-page report that resulted from that investigation verified that Nye’s suspicions were correct.

Having Nye Lavalle and Max Gardner together is a rare event.  Together, they would have to be considered the founding fathers of today’s foreclosure defense movement, so this is an opportunity to learn how it all began and where two of the country’s leading experts see things going from here.  Turn up your speakers because it’s time for a very special 2-part Mandelman Matters Podcast… Nye Lavalle & Max Gardner Together in Concert.

Head over to Mandelman Matters to listen to this excellent podcast!

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O. Max Gardner lll: The Rules of the Road for Securitization of Residential Mortgage Loans

O. Max Gardner lll: The Rules of the Road for Securitization of Residential Mortgage Loans

Written by:

The term “Mortgage Note” or “Note” refers to the promise to pay signed by the homeowner or obligor.

The term “Mortgage” refers to the real estate security instrument (mortgage or deed of trust) that must be filed with the local land registry to perfect the rights of the holder of the note and that is subject to the Statute of Frauds.

Note that Standard Fannie and Freddie Uniform Instruments cross-reference the note and the mortgage and provide that a breach of covenants in either document provides right to accelerate balance due and declare a default.

State law determines how mortgages travel—always travel by assignment due to statute of frauds.  An assignment is a conveyance of a security interest in real property.

State law governs the necessity to record assignments.  Some state laws have been amended to accommodate MERS, but not that many.

Failure to record an assignment is a matter of priority and perfection if a bankruptcy is filed


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IN RE: MILLER | 10th Cir. Court of Appeals Reverses 10th Cir. BAP “Under the U.C.C. … Deutsche Bank failed to show that it is the current holder of IndyMac’s Note”

IN RE: MILLER | 10th Cir. Court of Appeals Reverses 10th Cir. BAP “Under the U.C.C. … Deutsche Bank failed to show that it is the current holder of IndyMac’s Note”

 United States Court of Appeals, Tenth Circuit.

In re: MARK STANLEY MILLER, also known as A Moment to Remember Photo & Video, also known as Illusion Studioz; JAMILEH MILLER, Debtors. MARK STANLEY MILLER; JAMILEH MILLER, Appellants,

 No. 11-1232.

 February 1, 2012.


3. The BAP Appeal

The Millers appealed the bankruptcy court’s order granting relief from stay to the BAP. The BAP began its decision by noting that “[t]he details surrounding the assignment to Deutsche Bank are not part of the record on appeal.” Aplee. Supp. App. at 6 n.8. In particular, the record submitted to the BAP did not even contain a copy of the Note, much less the original.

In its decision, the BAP spent little time discussing the adequacy of proof that Deutsche Bank was in possession of the original Note, and the legal consequences thereof. Instead, the BAP relied on the Rooker-Feldman doctrine. See Rooker v. Fid. Trust Co., 263 U.S. 413 (1923); D.C. Court of Appeals v. Feldman, 460 U.S. 462 (1983). Though noting that the bankruptcy court had not expressly mentioned this doctrine, it concluded that the court had relied on the state court’s decision on the standing issue. The BAP further concluded that in light of this doctrine, which generally prohibits federal courts from entertaining suits by parties who have lost in state court and who seek review of state court decisions in federal court, “the bankruptcy court properly declined to revisit the state court’s decision that Deutsche Bank was an `interested person’ entitled to a Rule 120 order of sale.” Aplee. Supp. App. at 16. Armed with the state-court decision finding Deutsche Bank had standing to proceed with the foreclosure, the BAP reached a further conclusion that Deutsche Bank had standing to seek relief from stay.


We conclude that neither the Rooker-Feldman doctrine nor issue preclusion applies to prevent a federal court from determining whether Deutsche Bank is a “party in interest” entitled to seek relief from stay. Because the BAP incorrectly relied on Rooker-Feldman and because neither the bankruptcy court nor the BAP conducted a proper statutory standing analysis under § 362(d), we could simply stop our analysis here and remand for a further consideration of the standing issue. The parties, however, have presented arguments on the merits concerning standing, and the sufficiency of Deutsche Bank’s showing concerning standing in this case is a legal issue that can be resolved on appeal. We will therefore now proceed to discuss why Deutsche Bank has failed to demonstrate its standing as a “party in interest.”

4. Deutsche Bank’s Status as “Party in Interest”

We return to the key question: is Deutsche Bank a “creditor” of the Millers with standing to seek relief from stay? To answer this question, we turn to the Bankruptcy Code. According to the Bankruptcy Code, a “creditor” includes an “entity that has a claim against the debtor.” 11 U.S.C. § 101(10)(a). A “claim” is a “right to payment.” Id. § 101(5)(A).

Does Deutsche Bank have a “right to payment” from the Millers? In examining this question, we begin with the principle that “[w]ithin the context of a bankruptcy proceeding, state law governs the determination of property rights.” In re Mims, 438 B.R. 52, 56 (Bankr. S.D.N.Y. 2010). We must therefore turn to Colorado law, in particular that state’s version of the Uniform Commercial Code (U.C.C. or Code).

We ask first how Colorado law would classify the Note signed by the Millers. Under Colorado law, a promise or order such as the Note is payable “to order” “if it is payable (i) to the order of an identified person or (ii) to an identified person or order.” Colo. Rev. Stat. § 4-3-109(b). The Note at issue here is payable “to the order of Lender. Lender is IndyMac Bank, F.S.B., a federally chartered savings bank[.]” Aplt. App., Vol. I at 14. Thus, the Note is payable to the “order” of IndyMac Bank under § 4-3-109(b).

But “[a]n instrument payable to an identified person [such as IndyMac Bank] may become payable to bearer if it is indorsed in blank pursuant to section 4-3-205(b).” Colo. Rev. Stat. § 4-3-109(c).7 Section 4-3-205(b) provides that “[i]f an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a `blank indorsement.’ When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specifically indorsed.” (emphasis added).

Deutsche Bank presented evidence that IndyMac had indorsed the Note in blank. Is proof of this indorsement sufficient under the U.C.C. requirements to establish Deutsche Bank as the successor holder of the note? As we shall see, it is not, because Deutsche Bank must also prove it has possession of the Note.

The U.C.C. identifies the requirements for “negotiation” of a note, that is, for “transfer of possession . . . to a person who thereby becomes its holder.” Id. § 4-3-201(a). This statute provides that “if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder.” Id. § 4-3-201(b) (emphasis added). The Official Commentary to section 4-3-201 explains that negotiation “always requires a change in possession of the instrument because nobody can be a holder without possessing the instrument, either directly or through an agent.” (emphasis added). See also Colo. Rev. Stat. § 4-1-201(b)(20)(A) (defining “holder” of negotiable instrument as “person in possession” of it).

“Possession is an element designed to prevent two or more claimants from qualifying as holders who could take free of the other party’s claim of ownership.” Georg v. Metro Fixtures Contractors, Inc., 178 P.3d 1209, 1213 (Colo. 2008) (citation omitted).8 “With rare exceptions, those claiming to be holders have physical ownership of the instrument in question.” Id. (citation omitted).9 In the case of bearer paper such as the Note, physical possession is essential because it constitutes proof of ownership and a consequent right to payment.10

While Deutsche Bank has offered proof that IndyMac assigned the Note in blank, it elicited no proof that Deutsche Bank in fact obtained physical possession of the original Note from IndyMac, either voluntarily or otherwise.11 Under the U.C.C. requirements, Deutsche Bank has therefore failed to show that it is the current holder of the Note.

Colorado law does not limit enforcement of an obligation to a holder who received the instrument through negotiation. A note may also be enforced by a transferee. See Colo. Rev. Stat. § 4-3-203. “Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument.” Id. § 4-3-203(b). But transfer requires delivery: “An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.” Id. § 4-3-203(a) (emphasis added). “Delivery” with respect to an instrument “means voluntary transfer of possession” of the instrument. Id. § 4-1-201(14). Because Deutsche Bank has failed to prove transfer of possession of the original Note it has failed to establish its status as a transferee.

Deutsche Bank also argues that it has standing because under Colorado law it can initiate a public trustee foreclosure without producing the original Note. It cites Colo. Rev. Stat. § 38-38-101(1), which provides that the “holder of an evidence of debt” may initiate a foreclosure. An “evidence of debt” includes a promissory note such as the Note at issue here. Colo. Rev. Stat. § 38-38-100.3(8). Under certain circumstances, the “holder of an evidence of debt” can file a public trustee foreclosure without supplying the original note. See id. § 38-38-101(b)(I)-(III).

But this argument depends, first, on Deutsche Bank’s ability to show that it is a “holder of an evidence of debt.” Article 38 defines a “holder of an evidence of debt” as a person “in actual possession of” or “entitled to enforce an evidence of debt.” Colo. Rev. Stat. § 38-38-100.3(10) (emphasis added). Section 38-38-100.3(10) lists a number of presumptive holders of a debt presumed to be the “holder of an evidence of debt.” Each of these requires possession of the evidence of debt, which Deutsche Bank has thus far failed to demonstrate. See id. § 38-38-100.3(10)(a)-(d).

Deutsche Bank appears to argue that notwithstanding its failure to prove it has actual possession of the Note, it qualifies as a “person entitled to enforce an evidence of debt” under § 38-38-100.3(10) and thus is a “holder of an evidence of debt” because (1) it holds a copy of the Note indorsed in blank and (2) it can initiate a foreclosure without presenting the original Note to the public trustee. Deutsche Bank contends that it is a “qualified holder,” see id. § 38-38-100.3(21), that would be permitted under Colorado law to foreclose without presenting the original note, see id. § 38-38-101(B)(II). But foreclosure under this provision requires either the bank or its attorney to execute a statement “citing the paragraph of section 38-38-100.3(20) under which the holder claims to be a qualified holder and certifying or stating that the copy of the evidence of debt is true and correct” and that the bank agrees to “indemnify and defend any person liable for repayment of any portion of the original evidence of debt in the event that the original evidence of debt is presented for payment to the extent of any amount, other than the amount of a deficiency remaining under the evidence of debt after deducting the amount bid at sale, and any person who sustains a loss due to any title defect that results from reliance upon a sale at which the original evidence of debt was not presented.” Id. §§ 38-38-101(b)(II), 38-38-101(2)(a). There is no evidence that Deutsche Bank or its attorneys have executed such a certification or intend to do so. We therefore reject Deutsche Bank’s claim to standing founded on these statutes.

5. Conclusion

For the foregoing reasons, the evidence is insufficient as it currently stands to establish that Deutsche Bank is a “party in interest” entitled to seek relief from stay. The bankruptcy court therefore abused its discretion by granting Deutsche Bank relief from stay.

The Millers raise a number of other objections to the proceedings and orders in the bankruptcy court and the BAP but we need not reach any of them in light of the remand we now order. The judgment of the BAP is REVERSED and the case is REMANDED to the BAP with instructions to remand to the bankruptcy court for further proceedings in accordance with this opinion. The Millers’ motion for leave to file a supplemental appendix is DENIED.

[ipaper docId=80237945 access_key=key-n7zuye8tx987y499mhx height=600 width=600 /]


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Adam Levitin | The Heirs of Karl Lleywellyn: the PEB Report, Green Cheese, and the Hijacking of American Law

Adam Levitin | The Heirs of Karl Lleywellyn: the PEB Report, Green Cheese, and the Hijacking of American Law

Prof. Adam Levitin –

This last week the Permanent Editorial Board of the Uniform Commercial Code came out with a report bering the none-too-thrilling title of “Report on Application of the Uniform Commercial Code to Selected Issues Related to Mortgage Notes“. There’s an awful lot to say about this awful document, and I’m not going to attempt to cover it all in a single blog post. This post is going to cover what the report is, what authority it has, and why it is completely irrelevant (namely that it deals with negotiable notes, when virtually all mortgage notes are non-negotiable). Subsequent posts will deal with the substantive flaws in the report and with the motivation behind the report and with the way the uniform law making process has become completely hijacked by monied interests.

[PART 1]


[PART 2]


[PART 3]


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Via: Max Gardner’s Boot Camp

The report specifically indicates that “It should not be assumed that all mortgage notes are negotiable instruments” and  affirms that the requirements of  section 3-104 must be met in order for a particular mortgage note to be considered a negotiable instrument.

(If you’re not registered for the UCC seminar yet, there is space available:  get more information or register now!)


Recent economic developments have brought to the forefront complex legal issues about the enforcement and collection of mortgage debt. Many of these issues are governed by local real property law and local rules of foreclosure procedure, but others are addressed in a uniform way throughout the United States by provisions of the Uniform Commercial Code (UCC).1 Although the UCC provisions are settled law, it has become apparent that not all courts and attorneys are familiar with them. In addition, the complexity of some of the rules has proved daunting.

The Permanent Editorial Board for the Uniform Commercial Code2 has prepared this Report in order to further the understanding of this statutory background by identifying and explaining several key rules in the UCC that govern the transfer and enforcement of notes secured by a mortgage3 on real property. The UCC, of course, does not resolve all issues in this field. Most particularly, as to both substance and procedure, the enforcement of real estate mortgages by foreclosure is primarily the province of a state’s real property law (although determinations made pursuant to the UCC are typically relevant under that law). Accordingly, this Report should be understood as providing guidance only as to the issues the Report addresses.4

Please click image for paper

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LEYVA v. National Default Servicing Corp. | Nevada Supreme Court Remand and Reverse “Defective ASMT, U.C.C Article 3, No Endorsement, In Re Pasillas, Wells Fargo, MortgageIt”

LEYVA v. National Default Servicing Corp. | Nevada Supreme Court Remand and Reverse “Defective ASMT, U.C.C Article 3, No Endorsement, In Re Pasillas, Wells Fargo, MortgageIt”

Cite as: Leyva v. National Default Servicing Corp.

127 Nev. Adv. Op. No. 40

July 7, 2011


No. 55216






Appeal from a district court order denying a petition for judicial review in a foreclosure mediation action.  Eighth Judicial District Court, Clark County; Donald M. Mosley, Judge.

Reversed and remanded.

Crosby & Associates and David M. Crosby and Troy S. Fox, Las Vegas, for Appellant.

Snell & Wilmer, LLP, and Gregory A. Brower and Cynthia Lynn Alexander, Las Vegas, for Respondents America’s Servicing Company and Wells Fargo.

Wilde & Associates and Gregory L. Wilde, Las Vegas, for Respondent National Default Servicing Corp.



By the Court, HARDESTY, J.:

In this appeal, we consider issues arising out of Nevada’s Foreclosure Mediation Program.  First, we must determine whether a homeowner who is not the original mortgagor is a proper party to participate in the program.  We conclude that the Foreclosure Mediation statute, NRS 107.086, and the Foreclosure Mediation Rules (FMRs) dictate that a homeowner, even if he or she is not the named mortgagor, is a proper party entitled to request mediation following a notice of default.

Second, we must determine if a party is considered to have complied with the applicable statute and FMRs governing document production in a mediation proceeding by producing what the district court referred to as “essential documents.”  In this, we address whether substantial compliance satisfies the mandates of the statute and FMRs.  Because we conclude that strict compliance is compelled by NRS 107.086(4) and (5), that the assignment offered was defective, and that no endorsement of the mortgage note was provided according to Article 3 of the Uniform Commercial Code, we conclude that Wells Fargo failed to produce the documents required under NRS 107.086(4).  Additionally, we recently concluded in Pasillas v. HSBC Bank USA, 127 Nev. ___, ___ P.3d ___ (Adv. Op. No. 39, July 7, 2011), that a party’s failure to produce the enumerated documents required by NRS 107.086 and the FMRs prohibits the district court from directing the program administrator to certify the mediation so that the foreclosure process can proceed.  Here, we again conclude that, due to the statute’s and the FMRs’ mandatory language regarding document production, a party is considered to have fully complied with the statute and rules only upon production of all documents required.  Failure to do so is a sanctionable offense, and the district court is prohibited from allowing the foreclosure process to proceed.  Therefore, we must reverse and remand this case to the district court for it to determine appropriate sanctions against respondents.[1]


Appellant Moises Leyva received and recorded a quitclaim deed in 2007 in exchange for taking over monthly mortgage payments on a residence in Las Vegas.  Leyva did not expressly assume the mortgage note, however, and it remained in the original mortgagor’s name, Michael Curtis Ramos.  Nonetheless, Leyva made the mortgage payments in Leyva’s name to respondent Wells Fargo’s servicing company for 25 months.  Thereafter, Leyva defaulted on the mortgage and, upon receiving a notice of election to sell, decided to pursue mediation through the Foreclosure Mediation Program.  Both he and Ramos signed the form electing to mediate.  The mediation occurred on September 23, 2009,[2] and Leyva, Ramos, and Wells Fargo were represented by counsel at the mediation.  Leyva was present at the mediation, while Ramos was available by telephone.  At the mediation, Wells Fargo produced a certified copy of the original deed of trust and mortgage note, on both of which MortgageIT, Inc., not Wells Fargo, was named as the lender, as well as a notarized statement from a Wells Fargo employee asserting that Wells Fargo was in possession of the deed of trust and mortgage note, as well as any assignments thereto.  Wells Fargo did not submit copies of any assignments.  The parties failed to resolve the foreclosure at the mediation, and the mediator’s statement indicated that Wells Fargo failed to bring the statutorily required documents to the mediation.  The mediator did not, however, indicate that Wells Fargo participated in the mediation in bad faith.

Leyva then filed a petition for judicial review in district court, claiming that Wells Fargo mediated in bad faith and that it should be sanctioned.  After conducting hearings on the petition, the district court found that

there is a lack of showing of bad faith on the part of [Wells Fargo] in that all essential documents were provided, contrary to the indication of the mediator, and that [Wells Fargo] otherwise negotiated in good faith notwithstanding the fact that an agreement was not reached.

Absent timely appeal, a Letter of Certification shall enter.

(Emphasis added.)  This appeal followed.[3]


In resolving this appeal, as a preliminary matter, we must determine whether Leyva could properly elect to mediate and participate in the mediation even though he was not a named party on the mortgage note and did not assume the note in his purchase of the residence.  Determining that he could participate as the title holder of record, we next consider whether the district court erred in finding that Wells Fargo brought “all essential documents” to the mediation.  In doing so, we address Wells Fargo’s argument that possessing the original mortgage note and deed of trust is sufficient to demonstrate ownership of the same.  We conclude that Wells Fargo failed to produce the documents required under the applicable statute and FMRs and to otherwise show that it had an enforceable interest in the property subject of the mediation.  Accordingly, the district court abused its discretion, and sanctions are warranted pursuant to our holding in Pasillas, 127 Nev. at ___, ___ P.3d at ___.

Leyva was a proper party to the mediation

Wells Fargo first argues that because Leyva was neither the grantor on the deed of trust nor the obligor on the note, he was not a proper party to the mediation.  We disagree.

NRS 107.086(3) allows “[t]he grantor or the person who holds the title of record” to elect to mediate.  (Emphasis added.)  Similarly, FMR 5(1) states that “any grantor or person who holds the title of record and is the owner-occupant of a residence” is eligible to participate in the Foreclosure Mediation Program.  (Emphasis added.)  Leyva recorded his ownership of the subject property in March 2007 and is therefore clearly the title holder of record eligible to participate in the Foreclosure Mediation Program.

Even though the mortgage note remained in Ramos’s name, this bifurcation of title ownership and liability on the note served only to potentially limit the foreclosure solutions available to Leyva at the mediation, not to exclude all possible remedies.  And while Wells Fargo argues that modification was not an option because Leyva lacked authority over the loan, the record reflects that Ramos, the person with such authority, signed the election-of-mediation form, was represented by counsel at the mediation, and was available by telephone during the mediation.  Therefore, Wells Fargo’s argument lacks merit.  Regardless, because both NRS 107.086(3) and FMR 5(1) permit the person holding the title of record to mediate, and Wells Fargo does not dispute that Leyva possessed a valid, recorded quitclaim deed, we conclude that Leyva could properly elect to mediate and was eligible to participate in the Foreclosure Mediation Program.

Wells Fargo failed to meet the mediation program’s documentation requirements, compelling consideration of sanctions

In Pasillas, we held that if a party fails to (1) provide the required documents, or (2) either attend the mediation in person or, if the beneficiary attends through a representative, that person fails to have authority to modify the loan or access to such a person, the district court is required to impose appropriate sanctions.  127 Nev. at ___, ___ P.3d at ___. Here, despite Wells Fargo’s failure to bring the assignments for the mortgage note and deed of trust, the district court refused to impose sanctions.[4]  “[W]e . . . review a district court’s decision regarding the imposition of sanctions for a party’s participation in the Foreclosure Mediation Program under an abuse of discretion standard.”  Id.

Wells Fargo concedes that it did not provide written assignments of the deed of trust and mortgage note as required by NRS 107.086(4) and FMR 5(6).  Nevertheless, it argues that it fulfilled the purpose of the statute and rule, and thus, its failure to bring actual copies of any assignments was harmless.  In essence, Wells Fargo asserts that its failure to strictly comply with the statute’s and FMRs’ requirements should not subject it to sanctions, because it substantially complied with those requirements.

“Substantial compliance may be sufficient ‘to avoid harsh, unfair or absurd consequences.’  Under certain procedural statutes and rules, however, failure to strictly comply . . . can be fatal to a case.”  Leven v. Frey, 123 Nev. 399, 407, 168 P.3d 712, 717 (2007) (quoting 3 Norman J. Singer, Statutes and Statutory Construction § 57:19, at 58 (6th ed. 2001)).  To determine whether a statute and rule require strict compliance or substantial compliance, this court looks at the language used and policy and equity considerations.  Id. at 406-07, 168 P.3d at 717.  In so doing, we examine whether the purpose of the statute or rule can be adequately served in a manner other than by technical compliance with the statutory or rule language.  See id. at 407 n.27, 168 P.3d at 717 n.27 (citing White v. Prince George’s County, 877 A.2d 1129, 1137 (Md. Ct. Spec. App. 2005) (“Where the purpose of the notice requirements is fulfilled, but not necessarily in a manner technically compliant with all of the terms of the statute, this Court has found such substantial compliance to satisfy the statute.” (internal quotation omitted))).

Here, both the statutory language and that of the FMRs provide that the beneficiary “shall” bring the enumerated documents, and we have previously recognized that “‘shall’ is mandatory unless the statute demands a different construction to carry out the clear intent of the legislature.”  S.N.E.A. v. Daines, 108 Nev. 15, 19, 824 P.2d 276, 278 (1992); see also Pasillas, 127 Nev. at ___, ___ P.3d at ___.  The legislative intent behind requiring a party to produce the assignments of the deed of trust and mortgage note is to ensure that whoever is foreclosing “actually owns the note” and has authority to modify the loan.  See Hearing on A.B. 149 Before the Joint Comm. on Commerce and Labor, 75th Leg. (Nev., February 11, 2009) (testimony of Assemblywoman Barbara Buckley).  Thus, we determine that NRS 107.086 and the FMRs necessitate strict compliance.

Because we conclude that strict compliance is necessary, we must discuss what constitutes a valid assignment of deeds of trust and mortgage notes.  Transfers of deeds of trust and mortgage notes are distinctly separate, thus we discuss each one in turn.

The deed of trust, with any assignments, identifies the person who is foreclosing

In this case, Wells Fargo was not the original named beneficiary on the deed of trust, but it contends on appeal that it has the right to foreclose as the assignee of the original beneficiary, MortgageIT.  Although Wells Fargo conceded during oral argument that it did not provide the written assignment, it claims that because it provided a certified copy of the deed of trust and a notarized statement from its employee claiming that it was the rightful owner of the deed of trust, no written assignment was necessary.  We disagree.

A deed of trust is an instrument that “secure[s] the performance of an obligation or the payment of any debt.”  NRS 107.020.  This court has previously held that a deed of trust “constitutes a conveyance of land as defined by NRS 111.010.”[5]  Ray v. Hawkins, 76 Nev. 164, 166, 350 P.2d 998, 999 (1960).  The statute of frauds governs when a conveyance creates or assigns an interest in land:

No estate or interest in lands, . . . nor any trust or power over or concerning lands, or in any manner relating thereto, shall be created, granted, assigned, surrendered or declared . . . , unless . . . by deed or conveyance, in writing, subscribed by the party creating, granting, assigning, surrendering or declaring the same, or by the party’s lawful agent thereunto authorized in writing.

NRS 111.205(1) (emphases added).  Thus, to prove that MortgageIT properly assigned its interest in land via the deed of trust to Wells Fargo, Wells Fargo needed to provide a signed writing from MortgageIT demonstrating that transfer of interest.  No such assignment was provided at the mediation or to the district court, and the statement from Wells Fargo itself is insufficient proof of assignment.  Absent a proper assignment of a deed of trust, Wells Fargo lacks standing to pursue foreclosure proceedings against Leyva.

Mortgage note

The proper method of transferring the right to payment under a mortgage note is governed by Article 3 of the Uniform Commercial Code- Negotiable Instruments, because a mortgage note is a negotiable instrument.[6]  Birkland v. Silver State Financial Services, Inc., No. 2:10-CV-00035-KJD-LRL, 2010 WL 3419372, at *4 (D. Nev. Aug. 25, 2010).  The obligor on the note has the right to know the identity of the entity that is “entitled to enforce” the mortgage note under Article 3, see NRS 104.3301, “[o]therwise, the [homeowner] may pay funds to a stranger in the case.”  In re Veal, No. 09-14808, 2011 WL 2304200, at *16 (B.A.P. 9th Cir. June 10, 2011) (holding, in a bankruptcy case, that AHMSI did not prove that it was the party entitled to enforce, and receive payments from, a mortgage note because it “presented no evidence as to who possessed the original Note.  It also presented no evidence showing [e]ndorsement of the note either in its favor or in favor of Wells Fargo, for whom AHMSI allegedly was servicing the [bankrupt party’s] Loan.”).  If the homeowner pays funds to a “stranger in the case,” then his or her obligation on the note would not be reduced by the payments made. See id. at *7 (“if a[n obligor on a mortgage note] makes a payment to a ‘person entitled to enforce,’ the obligation is satisfied on a dollar for dollar basis, and the [obligor] never has to pay that amount again”).

Wells Fargo argues that, under Nevada law, possession of the original note allowed it to enforce the note.  We disagree and take this opportunity to clarify the applicability of Article 3 to mortgage notes, as we anticipate increasing participation in the Foreclosure Mediation Program, as well as a corresponding increase in the number of foreclosure appeals in this state.  As discussed below, we conclude that Article 3 clearly requires Wells Fargo to demonstrate more than mere possession of the original note to be able to enforce a negotiable instrument under the facts of this case.

Pursuant to NRS 104.3102(1), Article 3 applies to negotiable instruments.  Negotiable instruments are defined as

an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(a) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(b) Is payable on demand or at a definite time; and

(c) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money.

NRS 104.3104(1).  Thus, a mortgage note is a negotiable instrument, and any negotiation of a mortgage note must be done in accordance with Article 3.

A note can be made payable to bearer or payable to order.  NRS 104.3109.  If the note is payable to bearer, that “indicates that the person in possession of the promise or order is entitled to payment.”  NRS 104.3109(1)(a).  However, “[a] promise or order that is not payable to bearer is payable to order if it is payable to the order of an identified person . . . . A promise or order that is payable to order is payable to the identified person.”  NRS 104.3109(2).

For a note in order form to be enforceable by a party other than to whom the note is originally payable, the note must be either negotiated or transferred.[7]  A “‘[n]egotiation’ means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.”  NRS 104.3201(1).  “[I]f an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its endorsement by the holder.”[8]  NRS 104.3201(2) (emphasis added).  An “endorsement” is a signature that is “made on an instrument for the purpose of negotiating the instrument.”  NRS 104.3204(1).  Thus, if the note is payable to the order of an identifiable party, but is then sold or otherwise assigned to a new party, it must be endorsed by the party to whom it was originally payable for the note to be considered properly negotiated to the new party.  Once a proper negotiation occurs, the new party, or “note holder,” with possession is entitled to enforce the note.  NRS 104.1201(2)(u)(1) (“Holder means . . . [t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”).

If a party cannot attain “holder” status by showing a valid negotiation, the party may establish its right to enforce the note by showing that the note has been validly transferred.  NRS 104.3203(2).  The only distinction between a negotiation and a transfer is that, in the case of a transfer, the note need not be endorsed by the party who is relinquishing enforcement rights.  Because a transferred note is not endorsed, however, the party seeking to establish its right to enforce the note “must account for possession of the unendorsed instrument by proving the transaction through which the transferee acquired it.”  U.C.C. § 3-203 cmt. 2 (explaining the effect of § 3-203(b), codified in Nevada as NRS 104.3203(2)).  In other words, because the party seeking to enforce the note cannot “prove” its right to enforce through the use of a valid endorsement, the party must “prove” by some other means that it was given possession of the note for the purpose of enforcing it.[9]

In this case, the adjustable rate mortgage note provides:  “In return for a loan that I have received, I promise to pay U.S. $192,000.00 . . . plus interest, to the order of Lender.  Lender is [MortgageIT, Inc.]” (emphasis added).  Because the mortgage note is payable to the order of a specific party, MortgageIT, to negotiate the note to a new party, in this case Wells Fargo, Wells Fargo must have possession of the note and the note must be properly endorsed by MortgageIT.  See NRS 104.3201(2).  No such endorsement was included in the documents produced at mediation or in the documents filed with the district court, nor was a valid assignment produced as proof of the note’s transfer, and mere possession does not entitle Wells Fargo to enforce the note.  Therefore, because the mortgage note is payable to MortgageIT, unless Wells Fargo can prove that the note was properly endorsed or validly transferred, thereby making it the party entitled to enforce the note, it has not demonstrated authority to mediate the note.

As we concluded in Pasillas, a foreclosing party’s failure to bring the required documents to the mediation is a sanctionable offense under NRS 107.086 and the FMRs.  Therefore, we conclude that the district court abused its discretion when it denied Leyva’s petition for judicial review.  Accordingly, we reverse the district court’s order and remand this matter to the district court with instructions to determine the appropriate sanctions for Wells Fargo’s violation of the statutory and rule-based requirement.  In doing so, the district court should consider the factors discussed in Pasillas.[10]



[1]        Because we reverse on other grounds, we do not reach Leyva’s contention that respondent Wells Fargo also participated in the mediation in bad faith because it refused to offer anything other than a cash-for-keys option to avoiding foreclosure.

[2]        Therefore, this mediation was governed by the Foreclosure Mediation Rules in effect from July 31, 2009, until September 28, 2009, at which time the rules were amended.  See In the Matter of the Adoption of Rules for Foreclosure Mediation, ADKT 435 (Order Adopting Foreclosure Mediation Rules, June 30, 2009, and Order Amending Foreclosure Mediation Rules and Adopting Forms, September 28, 2009).  Although the changes required some renumbering of the rules, the language of the rules important to this case, namely, those specifying who can participate in the mediation and the documents that must be provided, remain essentially the same.

[3]        This court has jurisdiction over the appeal from the district court’s final order in the judicial review proceeding.  Nev. Const. art. 6, § 4; NRAP 3A(b)(1).

[4]        At the time the district court entered its order, the Pasillas opinion had not been published.

[5]        “‘Conveyance’ shall be construed to embrace every instrument in writing, except a last will and testament, whatever may be its form, and by whatever name it may be known in law, by which any estate or interest in lands is created, aliened, assigned or surrendered.”  NRS 111.010(1).

[6]        Article 3 is codified in NRS 104.3101-.3605.

[7]        Since the documents provided at the mediation did not establish transfer of either the mortgage or the note, we express no opinion on the issue addressed in the Restatement (Third) of Property section 5.4 concerning the effect on the mortgage of the note having been transferred or the reverse.

[8]        Under NRS 104.3301(1)(a), a person entitled to enforce an instrument is “[t]he holder of the instrument.”

[9]        To “prove” a transaction under NRS 104.3203(2), a party must present evidence sufficient to establish that it is more likely than not that the transaction took place.  NRS 104.3103(1)(i) (defining “prove”); NRS 104.1201(h) (defining “burden of establishing”).

[10]      In Pasillas, we concluded that the following nonexhaustive list of factors would aid district courts in determining what sanctions are appropriate: “whether the violations were intentional, the amount of prejudice to the nonviolating party, and the violating party’s willingness to mitigate any harm by continuing meaningful negotiation.”  Pasillas v. HSBC Bank USA, 127 Nev. ___, ___, ___ P.3d ___, ___ (Adv. Op. No. 39, July 7, 2011).


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

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

This Draft was mentioned in the [IN RE VEAL]

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

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


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

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

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

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2010 Amendments to UCC Article 9 Enacted in Seven States

2010 Amendments to UCC Article 9 Enacted in Seven States

Uniform Law Commission
111 N. Wabash Ave., Suite 1010, Chicago, IL  60602
312-450-6600, www.uniformlaws.org

Michael Kerr, ULC Legislative Director, michael.kerr@uniformlaws.org
Katie Robinson, ULC Communications Officer, katie.robinson@uniformlaws.org

For Immediate Release:

Seven states have enacted the 2010 Amendments to Article 9 of the UCC

June 15, 2011 – Seven states – Indiana, Minnesota, Nebraska, Nevada, North Dakota, Texas, and Washington – are the first states to adopt important amendments to the Uniform Commercial Code (UCC) Article 9.  The 2010 Amendments are designed to go into effect simultaneously on July 1, 2013; many more states are expected to enact the amendments next year.

Continue reading [NCCUSL]

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

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

By Lynn Szymoniak, ESQ.

False Statements

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

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

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

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

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

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

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

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

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

To summarize:

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

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

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

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

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

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


In re:



Trustee for Option One Mortgage
Loan Trust 2006-3 Asset-Backed
Certificates, Series 2006-3, and
its successor and/or assignees,

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

Honorable Randolph J. Haines, Bankruptcy Judge, Presiding

Before: MARKELL, KIRSCHER and JURY, Bankruptcy Judges.


The Substantive Law Related to Notes Secured by Real Property

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

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


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

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


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



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

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Putting “trust” back in American housing finance – Christopher Whalen

Putting “trust” back in American housing finance – Christopher Whalen

“If you don’t have the note today, you don’t have no game.”


News reports suggest that New York prosecutors are preparing fraud charges against a number of large investment banks for defrauding insurance companies with respect to mortgage loans. These allegations and many civil claims with precisely similar predicates illustrate one of the most important aspects of the subprime financial crisis, namely the construction and collapse of the non-bank financial sector.


But now we know that this was all nonsense. The creation of the ersatz housing title registry, Mortgage Electronic Registration Systems (MERS), by the banking and mortgage servicing industry was effectively an end-run around the clear legal standard set by Brandeis. In litigation and foreclosures, these make-believe standards for securitizing home loans are turning into dust in the hands of the banks and investors. Lenders who relied upon MERS to document their secured interest in a mortgage are increasingly at risk when the title is contested.

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NY Federal Reserve Release “A FORECLOSURE CRISIS” Paper on Securitization, MERS, Robo-Signing, Bifurcation

NY Federal Reserve Release “A FORECLOSURE CRISIS” Paper on Securitization, MERS, Robo-Signing, Bifurcation

“A Foreclosure Crisis”

written by
Thomas C. Baxter, Federal Reserve Bank of New York;
Stephanie Heller, Federal Reserve Bank of New York;
Frederick Miller, Gray Plant Mooty;
Linda J. Rusch, Gonzaga University School of Law
May 12, 2011

A Foreclosure Crisis

Problems with mortgage foreclosures have been in the headlines during the past several months. The media attention arises from several concerns. One concern relates to whether lending institutions have followed proper foreclosure procedure. Another reflects a popular misconception among many that a mortgage can become separated from the note it secures. Yet another concern arises out of the complexity of some of the structured transactions involving the mortgages.

Click image below to continue…

You might also like to read the following…

Judge Bufford, Judge Ayers, MERS & The UCC Committee

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WaPO: First, the electronic mortgage superhighway. Then, the pileup.

WaPO: First, the electronic mortgage superhighway. Then, the pileup.

Washington Post Staff Writers
Sunday, January 2, 2011

In the early 1990s, the biggest names in the mortgage industry hatched a plan for a new electronic clearinghouse that would transform the home loan business – and unlock billions of dollars of new investments and profits.

At the time, mortgage documents were moved almost exclusively by hand and mail, a throwback to an era in which people kept stock certificates, too. That made it hard for banks to bundle home loans and sell them to investors. By contrast, a central electronic clearinghouse would allow the companies to transfer thousands of mortgages instantaneously, greasing the wheels of a system in which loans could be bought and sold repeatedly and quickly.

“Assignments are creatures of 17th-century real property law; they do not coexist easily with high-volume, late 20th-century secondary mortgage market transactions,” Phyllis K. Slesinger, then senior director of investor relations for the Mortgage Bankers Association, wrote in paper explaining the system.

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The Big Fail by Adam Levitin

The Big Fail by Adam Levitin

posted by Adam Levitin

Last week the US Bankruptcy Court for the District of New Jersey issued an opinion in a case captioned Kemp v. Countrywide Home Loans, Inc. This case looks like the first piece of evidence in what might turn out to be the Securitization Fail or, in homage to Michael Lewis, The Big Fail.

Briefly, Countrywide as servicer filed a proof of claim for a mortgage in a bankruptcy case on behalf of Bank of New York as trustee for a securitization trust.  The bankruptcy court denied the claim because there was no evidence that Bank of New York ever owned the mortgage. The mortgage note had never been negotiated or delivered to Bank of New York, despite the requirement to do so in the Pooling and Servicing Agreement (PSA) that governed the securitization of the loan.  That meant that Bank of New York as trustee had no interest in the loan, so the proof of claim filed on its behalf was disallowed.

This opinion could turn out to be incredibly important.  It provides a critical evidence for the argument that many securitization transactions simply failed to be effective because non-compliance with the terms of the transaction:  failure to properly transfer the mortgage meant that the mortgages were never actually securitized.  The rest of this post explains the chain of title issue in mortgage securitizations and how Kemp fits into the issue.

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?

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Testimony of Diane E. Thompson Before the Senate Banking, Housing Committee

Testimony of Diane E. Thompson Before the Senate Banking, Housing Committee

I was impressed with Mrs. Thompson and her knowledge. Excellent read with Mr. Levitin’s testimony.


What robo-signing reveals is the contempt that servicers have long exhibited for rules, whether
the rules of court procedure flouted in the robo-signing scandal or the contract rules breached in
the common misapplication of payments or the rules for HAMP modifications, honored more
often in the breach than in reality. Servicers do not believe that the rules that apply to everyone
else apply to them. This lawless attitude, supported by financial incentives and too-often
tolerated by regulators, is the root cause of the robo-signing scandal, the failure of HAMP, and
the wrongful foreclosure of countless American families.

The falsification of judicial foreclosure documents is closely and directly tied to widespread
errors and maladministration of HAMP and non-HAMP modification programs, and the forcedplaced
insurance and escrow issues. Homeowners for decades have complained about servicer
abuses that pushed them into foreclosure without cause, stripped equity, and resulted, all too
often, in wrongful foreclosure. In recent months, investors have come to realize that servicers’
abuses strip wealth from investors as well.3 Unless and until servicers are held to account for
their behavior, we will continue to see fundamental flaws in mortgage servicing, with cascading
costs throughout our society. The lack of restraint on servicer abuses has created a moral hazard
juggernaut that at best prolongs and deepens the current foreclosure crisis and at worst threatens
our global economic security.

The current robo-signing scandal is a symptom of the flagrant disregard adopted by servicers as
to the basic legal and business conventions that govern most transactions. This flagrant
disregard has been carried through every aspect of servicer’s business model. Servicers rely on
extracting payments from borrowers as quickly and cheaply as possible; this model is at odds
with notions of due process, judicial integrity, or transparent financial accounting. The current
foreclosure crisis has exposed these inherent contradictions, but the failures and abuses are
neither new nor isolated. Solutions must include but go beyond addressing the affidavit and
ownership issues raised most recently. Those issues are merely symptoms of the core problem:
servicers’ failure to service loans, account for payments, limit fees to reasonable and necessary
ones, and provide loan modifications where appropriate and necessary to restore loans to
performing status.

Continue to the testimony below…

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Diane E. Thompson, Of Counsel

Diane E. Thompson has represented low-income homeowners since 1994.  She currently works of counsel for the National Consumer Law Center.  From 1994 to 2007, Ms. Thompson represented individual low-income homeowners in East St. Louis at Land of Lincoln Legal Assistance Foundation.  While at Land of Lincoln Legal Assistance, Ms. Thompson served as the Homeownership Specialist, providing assistance to casehandlers representing homeowners in 65 counties in downstate Illinois, and the Supervising Attorney of the Housing and Consumer unit of the East St. Louis office.  She has served on the boards of the National Community Reinvestment Coalition and the Metropolitan St. Louis Equal Housing Opportunity Council.  She was a member of the Consumer Advisory Council of the Federal Reserve Board from 2003-2005.  Between 1995 and 2001, Ms. Thompson served as corporate counsel to the largest private nonprofit affordable housing provider in the East St. Louis metropolitan area. She received her B.A. from Cornell University and her J.D. from New York University.

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Highlights From The Testimony of Adam J. Levitin Before the Senate Banking, Housing Committee

Highlights From The Testimony of Adam J. Levitin Before the Senate Banking, Housing Committee

Watched the hearing yesterday and Mr. Levitin was extremely impressive!

Please watch the video for explosive info regarding securitization, “Nothing-Backed Securities”…transfers are void!

Sorry for the quality but was the best I could do.




Written Testimony of

Adam J. Levitin

Associate Professor of Law

Georgetown University Law Center
Before the
Senate Committee on Banking, Housing, and Urban Affairs

“Problems in Mortgage Servicing from Modification to Foreclosure”
November 16, 2010
2:30 pm


A number of events over the past several months have roiled the mortgage world, raising
questions about:

(1) Whether there is widespread fraud in the foreclosure process;

(2) Securitization chain of title, namely whether the transfer of mortgages in the
securitization process was defective, rendering mortgage-backed securities into non-mortgagebacked

(3) Whether the use of the Mortgage Electronic Registration System (MERS) creates
legal defects in either the secured status of a mortgage loan or in mortgage assignments;

(4) Whether mortgage servicers’ have defaulted on their servicing contracts by charging
predatory fees to borrowers that are ultimately paid by investors;

(5) Whether investors will be able to “putback” to banks securitized mortgages on the
basis of breaches of representations and warranties about the quality of the mortgages.
These issues are seemingly disparate and unconnected, other than that they all involve
mortgages. They are, however, connected by two common threads: the necessity of proving
standing in order to maintain a foreclosure action and the severe conflicts of interests between
mortgage servicers and MBS investors.

It is axiomatic that in order to bring a suit, like a foreclosure action, the plaintiff must
have legal standing, meaning it must have a direct interest in the outcome of the legislation. In
the case of a mortgage foreclosure, only the mortgagee has such an interest and thus standing.
Many of the issues relating to foreclosure fraud by mortgage servicers, ranging from more minor
procedural defects up to outright counterfeiting relate to the need to show standing. Thus
problems like false affidavits of indebtedness, false lost note affidavits, and false lost summons
affidavits, as well as backdated mortgage assignments, and wholly counterfeited notes,
mortgages, and assignments all relate to the evidentiary need to show that the entity bringing the
foreclosure action has standing to foreclose.

Concerns about securitization chain of title also go to the standing question; if the
mortgages were not properly transferred in the securitization process (including through the use
of MERS to record the mortgages), then the party bringing the foreclosure does not in fact own
the mortgage and therefore lacks standing to foreclose. If the mortgage was not properly
transferred, there are profound implications too for investors, as the mortgage-backed securities
they believed they had purchased would, in fact be non-mortgage-backed securities, which
would almost assuredly lead investors to demand that their investment contracts be rescinded,
thereby exacerbating the scale of mortgage putback claims.


Pay Close Attention To What He Says

[ipaper docId=42884106 access_key=key-4dwbkeca3hxlgeiw15x height=600 width=600 /]

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

Posted in STOP FORECLOSURE FRAUDComments (4)

Is It Time to File Quiet Title Actions on Foreclosed Homes?

Is It Time to File Quiet Title Actions on Foreclosed Homes?


Is It Time to File Quiet Title Actions on Foreclosed Homes?

THIS IS NOT Intended to Be Construed or Relied upon as COMPETENT LEGAL ADVICE—it is an academic paper discussing various perceptions of evolving potential facts and law, which may differ state by state and within jurisdictions within states. Readers are urged to obtain competent legal representation to review their facts.

In the past, foreclosed homeowners and their attorneys have discussed the utility of filing quiet title actions where homes have been seized and deficiency judgments entered by various foreclosure claimants that purport to unknowingly rely on faulty documentation. There are dangers. A buyer that has acquired a foreclosed home—or the foreclosing entity itself—may bring an action against a dispossessed person seeking redress. A pro se plaintiff or an attorney that represents the wronged homeowner may be subject to sanctions for raising a spurious or improperly supported claim. Today facts appear to put a defense attorney at risk of malpractice if he does not preserve his clients’ interest—even post foreclosure—unless he apprises the client of the opportunity to regain title to the family home. Courts have notice of these defects by reason of withdrawals of support documents—beyond GMAC.

Recent disclosures and admissions by document creation groups, together with widespread newspaper reported facts open avenues to additional discovery and formulation of academic legal opinion. These will open the door for claims to set aside erroneous judgments and/or pursue damages against those servicers, Indenture Trustees and document preparers that either knowingly, negligently, or acted with willful disregard to perpetrate fraud on the courts and the hapless home-owners. Mortgage-backed securities investors may also find an interest in these activities. Failed documentation may disguise outright fraud. Attestations and sworn affidavits serve a fundamental purpose—prevention of fraud. These are not mere technicalities as propounded by some industry apologists.  Certainly, homeowners with continuing duties of enforced silence may have opportunity to re-open their settlements in light of these possible fraudulent impositions and inducements.

There are at least two sets of circumstances raised to date whereby potentially void or voidable documents have been used to push homeowners into the streets and into bankruptcy;

  • Complaints in foreclosure supported by assignments of mortgage from purported representatives of MERS to various entities
  • Motions for Summary Judgment supported by Affidavits of Claimants—most notably GMAC’s Jeffrey Stephan

On September 23, 2010 the Washington Post added to the furor surrounding the (majority) federal government owned [ALLY] GMAC’s revelations from earlier this week. GMAC used affidavits executed by an employee, Jeffrey Stephan, who admitted in deposition testimony in December 2009 and June 2010, that he did not actually verify the mortgage foreclosure information to which he was testifying in connection with the foreclosures of two families.

In addition, he admitted signing these “affidavits,” and passing them for later notarization in bulk, a violation of proper notary procedure. Mr. Stephan signed off on 10,000 mortgage documents per month according to his June deposition and the Post article. GMAC, in this instance, took the honest and safe course of “temporarily suspending” some foreclosure-related activities in 23 states – as reported by several large newspapers, including the New York Times, Bloomberg and The Washington Post. The “temporary suspension” allows for evaluation of the impacts of this admitted breakdown in the system, rather than blatantly defrauding foreclosure courts in judicial foreclosure states.  The New York Times on the 22nd speculated that: [GMAC] “actions suggest concern about potential liability in evicting families and selling houses to which it does not have clear title.” [Emphasis added]  The same article notes that; “The lender said it was also reviewing completed foreclosures where the same unnamed procedure might have been used.” [Emphasis Added]. The step referred to in these articles, preparation and filing of an affidavit in support of a Motion for Summary Judgment—along with the Motion itself –occur well into the foreclosure process.

However, there is another critical document created and filed by a claimant with the foreclosure court at the beginning of foreclosure. This document, the Assignment of Mortgage, is supposed to support the claimant’s right or legal “standing” to press the Complaint in Foreclosure. The Complaint is the basis for the foreclosure and creation of a “deficiency judgment” – the amount left owing by the homeowner after the claimant sells the house for less than the amount owed and includes added fees and charges. The claimant uses the deficiency judgment to seize the homeowner assets and future paychecks. In most instances the assignment is the only document before the court that associates the claimant with the borrower. The complaint and supporting assignment frequently surprise and confuse the homeowner by naming an entity or sham “trust” that the homeowner has never heard of before.

The Assignment of Mortgage is significantly more important than the affidavit in support of the Motion for Summary Judgment, if for no other reason sheer numbers.  Typically most homeowners have undergone a psychological bruising and beating from the loan servicer by the time the actual Complaint in Foreclosure is filed. Often the family has lost the pay of one, if not both, wage earners and seeks some relief from one of the high cost, predatory loans created 2003-2007. Unfortunately the servicer typically refuses to discuss modification or any relief unless the homeowner has fallen behind in payments. The servicers may rely on terms limiting its authority within the securitization documents in respect of this hard-nose approach.

The hard-nose response gives the servicer cover for actions or abuses that often characterize its subsequent conduct. At that point, the servicer transfers the loan to the default department or outsources to a “default management” operation. This is an aggrandized term for collection agency. The “department” or collection agency often calls the family up to six or more times a day demanding money—rarely the same caller twice. Typically, this will throw the family into confusion and despair. Pleas for relief fall on deaf ears unless the family meets demands to “make up late payments and added fees.”  It’s just the beginning of a process that has the effect, if not the purpose, of destroying the family’s morale. The servicer may follow up with notices tacked on the homeowner’s door, a barrage of ominous if not outright threatening letters and other actions aimed at driving the homeowner to abandon the home and neglect a legal defense.

If the homeowner is either naïve enough to believe that the touted voluntary [for servicers] relief programs actually operate, or desperate to keep a roof over the family’s head, the loan modification dance begins. Under the guise of compliance with HAMP, the collection agency demands an array of homeowner financial and employment information. Irrespective of the use that the homeowner desires for that information, it will be of great help to the collection agency to locate assets and paychecks down the road to collect the looming deficiency. But today the information rarely satisfies the servicer in respect of moving towards a modification. The demanded documents are often purportedly “lost” by the servicer, or deemed inadequate—anything to drag out the nightmare and break the family’s spirits. After submitting and resubmitting documents, explanations, and hours on the telephone day after day, week after week, any false hopes that are raised are destroyed by a denial. Homeowners often will be told to try again-with the same results.

After about 3-4 months, perhaps even while the family thinks that a modification is soon to be forthcoming, the ax falls instead. An assignment is “created” and the Complaint is filed. Usually the family gives up without opposition at this point. The servicer may go so far as to place a note on the door offering to further discuss modification leaving a phone number. When the number is called by the confounded homeowner, the servicer representative may explain: “we didn’t really mean that; we just wanted to see if you have left yet!”

In some cases born of desperation, the struggling family may contact an attorney who demands $1000-$5000 just to open the case. The family has 30 days to raise the money to cause someone to simply look at the demands in the Complaint and the Assignment. In the vast majority of cases still remaining, the family gives up now, abandons the property, and no response is ever filed to the Complaint—a default judgment is entered in favor of the claimant. Most often, the family is not even aware that the demands seek more than just the home. That realization may take years to occur—when another collector knocks on the door demanding the long-forgotten deficiency. The process is aimed at breaking the family’s will, at winnowing out the homeowners. The servicer wants the home!

The articles printed prior to Sep 23, 2010 in connection with GMAC’s “unnamed procedure” did not focus upon the issue of potential forgery or related systemic fraud on the courts in connection with preparation of Assignments of Mortgage. By way of background, by reference to numerous anecdotes, it appears that often a claimant in possession of a list of homeowner loans in default provides superficial information to a default services company in respect of the borrower and property. One of the largest default service providers, by its own admission, is two-year old publicly traded Lender Processing Services (“LPS”), a spin-off from FINS. “Approximately 50 percent of all U.S. mortgages by dollar volume are serviced using LPS’ Mortgage Servicing Package (MSP)” The lender, a servicer or Indenture Trustee contracts with LPS for creation and delivery of an Assignment of Mortgage to the requesting entity. (see exhibit at end) This document is often sent directly by LPS through the mail to County Recorders to be file-stamped and recorded in the county property records.  These steps lend false authenticity to the piece of paper. By the time the targeted family sees the Complaint and attached Assignment, the assignment has been file-stamped by their local County Recorder, the Clerk of Courts and probably was attached to a subpoena “served” upon them by their County Sherriff. The family is thoroughly intimidated by the Assignment of Mortgage, which has been used to convert the family’s local authorities into apparent agents and enforcers of the distant claimant. The assignment is a powerful weapon in the war of intimidation.

The Washington Post, September 23, 2010, correlated the GMAC admitted breakdown in verification of loan files and notarization process with the assignment creation process operated by LPS. LPS’ document creation division in Alpharetta, Georgia operating under LPS’ DOCX trademark, churned out thousands of assignments. The Post identified one prolific signatory, Linda Green. The article set out in its body several examples of Ms. Green’s signature—which differ dramatically one to another. The Post stated the likely observation that the signatures were made by other LPS employees in addition to Ms Green.  She is but one example at one LPS office: there are others with similar handiwork including Tywanna Thomas and Korrel Harp at that office. Mr. Harp has the added dubious distinction of having been jailed for and plead guilty to “Knowingly Possessing False Identification” relating to an arrest in Oklahoma in 2008.   At the age of 24, Mr. Harp was signing as Vice-President of Mortgage Electronic Services Inc., aka MERS. MERS has been nominal owner of 65 million home mortgages—and receives mortgage title to 60% of all new mortgages.

As a VP of MERS the 24 year-old Harp, like Ms. Green and Thomas, purportedly possessed the power to transfer mortgages with questionable oversight to LPS’ clients—perhaps others?  Based on the signatures of Harp, Green, Thomas— and other varied, yet purportedly notarized signatures, Courts across the country have foreclosed on homes and granted deficiency judgments.  One of the in house LPS notaries was only 18 years old at the time she notarized signature for Harp, Thomas and others at DOCX. Michelle Kersch, a senior vice president for Lender Processing Services, made limited explanations by email in the Post article but did not elaborate “due to the pending criminal investigation”.

Like GMACs Stephan, LPS’ stamp and sign department was a high volume operation. Powers of attorney were not consistently attached to the crucial assignments—if at all.

In the case of Linda Green, there was no power of attorney to represent MERS on an original “assignment of mortgage dated October 17, 2008 and filed on October 13, 2009”. This technicality was disclosed in a corrective filing of assignment by Florida foreclosure firm Shapiro and Fishman dated August 11, 2010 in Lee County, Florida in support of a foreclosure by servicer AHMSI. The POA status of other prolific signers such as Harp seems equally uncertain—but as Harp has emphatically stated “I’m sure everything is legal.” There seems to be little observable difference between the conduct of GMAC’s Stephan and the LPS’ high volume signers—but for the possible failure of the LPS signers to have representative capacity to sign at all.

LPS has also made admissions that GMAC seems to echo in terms of problematic “processes”. In the company’s 2009 Annual Report on file with the Securities and Exchange Commission, published in March 2010, under “regulatory matters”Recently, during an internal review of the business processes used by our document solutions subsidiary, we identified a business process that caused an error in the notarization of certain documents, some of which were used in foreclosure proceedings in various jurisdictions around the country.”

Subsequently, April 3, 2010, the Wall St. Journal published an article regarding the issues with LPS and notary deficiencies; “US Probes Foreclosure-Data Provider”.  Foreclosure activists in Florida did not let the admission pass. These persons identified and brought to light signed and notarized Assignments that actually conveyed mortgages to named entities, “Bogus Assignee” and “Bad Bene”. These clearly established undeniable proof that LPS’ internal controls were compromised and virtually any name could be inserted as a claimant in a foreclosure action.

LPS’ CEO Jeffrey Carbiener authored a Letter to the Editor of the Florida Times-Union responding to an article published May 14, 2010 referring to “bad bene” and “bogus assignee”. In his open letter admissions in the press Carbiener asserted that the bogus names were “placeholders” put in the signed and notarized assignment documents “…until the missing information [claimant name] was provided…” Carbiener noted that the forms, as well as the data inserted, were based on instructions from clients with the “placeholders” used until more data is provided.  This amounts to a Nuremberg Defense.

The Carbiener comments attempt to place the onus of error in naming mortgage claimants on his clients—but for the obvious so-called placeholders. However, Carbiener’s comments have great significance beyond LPS role. This explanation is an admission that assignments were prepared in blank based on client information. According to Carbiener, it would appear that the named claimant was subsequently determined by the client and inserted. This process allows substantial opportunity for abuse, suggesting that a servicer determined that a loan was in default, and then someone engaged in a separate process to identify a claimant to whom the proceeds of foreclosure would be awarded.

The difficulties, or opportunities, for a servicer and his client Indenture Trustees to shift the benefits among potential investor beneficiaries are more apparent when one reviews the SEC filings of now bankrupt mortgage note originators such as American Home Mortgage group (“AHM”) and Option One.

Both originated loans that were supposedly stuffed into trusts. On paper the trusts supposedly issued mortgage-backed securities to trusting investors. However, purported trust-sponsors AHM and Option One and the Indenture Trustees were at best haphazard in meeting basic commitments and representations that were plainly stated in the securitization documents they themselves filed. The trust documents clearly state that the lists of loans included in the trusts were filed with the SEC and the appropriate Secretary of State (UCC). The securitization documents provided detailed descriptions of the information to be included in the filed list. This information was sufficient that a homeowner could determine if the trust owned his/her loan and was the proper party to receive his payments. Investors in the trust MBS could look to the list to determine the principal amount of the loans that “backed” the investment, as well as loan to value ratios and other relevant information that would indicate the value of the loans—and provide information adequate to determine if the same loan was placed in multiple trusts. However, for AHM, 7 of the 12 investment trusts filed with SEC lacked the lists.  The schedule stated, “manually filed”, but the manual filing was not made in many instances. The actual manual filings made are identified on the SEC dockets for the trusts as “SE” for “scanned exhibit.” Under the “SE” docket entry, the list would be found in specificity.  One such example of a trust with a proper loan list was American Home Mortgage Investment Trust 2005-2.

In motion practice in connection with a homeowner’s motion to dismiss a naked claim by one of Korrel Harp’s or Linda Green’s appointed mortgage assignment beneficiary trusts, one could note that the trust lacked a loan list and ownership of the loan could not be independently verified by reference to government records as intended. In so doing, it was possible to refer the court to the properly filed loan lists to note the clear distinction and value of the list. It was possible to prove that the lists were not intentionally missing due to some overriding concern for homeowner privacy—a common speculation. It was also useful to prove that missing loan lists were not customary “industry practice”. The filed list was a government record freely accessible to the public online. That changed between July 21, 2010 and September 02, 2010. Loan lists that had been on file and available for investors and homeowners to view online on the SE site were unceremoniously deleted. The lists are no longer freely accessible. A demand is now necessary under Freedom of Information Act—the proper loan lists can no longer be referenced in motions to dismiss. The effect was equivalent to, if not the same as, intentional destruction of evidence by the SEC. It is of interest that on the same day as the Washington Post detailed the LPS similarity to GMAC in terms of uncertain document authenticity, the WSJ also ran a front-page article detailing questionable actions taken in recent months by SEC. Washington Post, September 22, 2010, SEC Blasted on Goldman.

In summary, SEC failed to require actual filing of loan lists by the trust sponsors and the Indenture Trustees. This failing has lead to LPS and GMAC transfers of claims to unverifiable beneficiaries. This the Times suggests, creates a cloud on the title of the new home buyers of foreclosed properties. Then to complete the injury and remove opportunity for homeowners to defend unsupported claims, SEC destroys evidence that could be useful to homeowners being foreclosed and investors seeking to prove fraud. The mortgage fiasco has roots in SEC failure to regulate and its continuation and concealment of potential fraud is an abuse of discretion by SEC, which is supposed to support disclosure of information—not hide it.

Excerpted from: DOCX eAssignTM brochure (no longer found online)

eAssign utilizes the industry’s most robust property records database and data capture capabilities to significantly reduce timelines and costs for lienholders when creating (emphasis added) and recording lien assignment documents.

This article was contributed by an anonymous supporter of StopForeclosureFraud.com

© 2010 FORECLOSURE FRAUD | by DinSFLA. All rights reserved. www.StopForeclosureFraud.com

Creative Commons License

Related links:

LPS 101

MERS 101


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

Posted in bogus, conflict of interest, CONTROL FRAUD, corruption, deed of trust, DOCX, foreclosure, foreclosure fraud, foreclosure mills, foreclosures, forgery, GMAC, investigation, jeff carbiener, jeffrey stephan, Korrel Harp, Lender Processing Services Inc., linda green, MERS, MERSCORP, michelle kersch, mortgage, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., notary fraud, note, quiet title, robo signers, S.E.C., securitization, servicers, STOP FORECLOSURE FRAUD, stopforeclosurefraud.com, trade secrets, Tywanna ThomasComments (8)





Mortgage Electronic Registration Systems, Inc (MERS) has a very long history. The beginning stages have remained a mystery until now.

In 1989, Brian Hershkowitz developed the “Whole Loan Book Entry” concept while serving as a director for the Mortgage Bankers Association (MBA). In 1990, he first introduced this concept to seven different industry groups; Document Custodian, Originators, Servicers, Title Insurers, County Recorders, Government Sponsored Enterprises (GSE’s) and Warehouse/Interim Lenders. The reception was very positive and it was viewed as a very useful recording system to be used for how equity and debt securities could be identified and managed.

In 1991, Mr. Hershkowtiz published Farming It Out in Mortgage Banking Magazine. His main discussion in this article is primarily about getting the opinion of the experts in the technology outsourcing service industry. In 1992, Mr. Hershkowitz published another article called Cutting Edge Solutions in Mortgage Banking Magazine. In this particular article he mentions the actual meeting that took place at the Mortgage Bankers Association of America (MBA) headquarters with many key players that are known today as some of MERSCORP’s shareholders, such as, Fannie Mae and Freddie Mac. In this meeting they discussed a “System” that will bring changes in mortgage records.

Mr. Hershkowitz went on to become President and COO of LandSafe Credit, a leading settlement service provider that was a subsidiary of Countrywide. Mr. Hershkowitz also spent several years serving Countrywide in the areas of strategic planning and executive management.

In 2001, Mr. Hershkowitz became Executive Vice President at Fidelity National Information Services (FNIS) and President of its mortgage and information services division. His responsibilities included management of the Company’s data offerings, including public records information, credit reporting information, flood hazard compliance data, real estate tax information and collateral valuation services. He left FNIS in November of 2006 to become Chief Executive Officer of Maximum Value Group, a consulting firm focused on providing advice to private equity and other market participants in the area of banking and mortgages.


MERS has evolved into a totally different purpose today.

Mortgage Electronic Registration Systems, Inc. is a wholly owned subsidiary of MERSCORP Inc., located at 1595 Spring Hill Rd Ste 310 Vienna, VA 22182.

MERS was founded by the mortgage industry. MERS tracks “changes” in the ownership of the beneficial and servicing interests of mortgage loans as they are bought and sold among MERS members or others. Simultaneously, MERS acts as the “mortgagee” of record in a “nominee” capacity (a form of agency) for the beneficial owners of these loans.

To ensure widespread acceptance within the industry, MERS sought to have security instruments modified to contain MERS as the original mortgagee (MOM) language. MERS began to change decades of business practices after the two biggest mortgage funders in the U.S. the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Ferderal National Mortgage Association (Fannie Mae) modified their Uniform Security Instruments to include MOM language. Their approval opened the doors to incorporate MERS into loans at origination.

Soon after, U.S. government agencies like the Veterans Administration, Federal Housing administration and Government National Mortgage Association (Ginne Mae), and several state housing agencies followed both Fannie/Freddie to approve MERS.

More than 60 percent of all newly-originated mortgages are registered in MERS. Its mission is to register every mortgage loan in the United States on the MERS System. Since 1997, more than 65 million home mortgages have been assigned a Mortgage Identification Number (MIN) and have been registered on the MERS System.

The mortgage-backed security (MBS) sector tested the viability of MERS because a substantial number of mortgages are securitized in the secondary market. In February 1999, Lehman Brothers was the first company to include MERS registered loans in a MBS.

Moody’s Investor Service issued an independent Structured Finance special report  on MERS and it’s impact of MBS transactions and found that where the securitzer used MERS, new assignments of mortgages to the trustee of MBS transactions were not necessary.

Since MERS is a privately owned data system and not public, all mortgages and assignments must be recorded in order to perfect a lien. Since they failed to record assignments when these loans often traded ownership several times before any assignment was created, the legal issue is apparent. MERS may have destroyed the public land records by breaking the chain of title to millions of homes.


In or around the summer of 1997, MERSCORP President and CEO R.K. Arnold wrote, “Yes, There is life on MERS” Mr. Arnold stated, “Some county recorders have expressed concerns that MERS will eliminate their offices nationwide or destroy the public land records by breaking the chain of title. As implemented, MERS will not create a break in the chain of title, and, because MERS is premised on an assignment recorded in the public land records, MERS cannot work without county recorders.”

In this same article Mr. Arnold also states “The sheer volume of transfers between servicing companies and the resulting need to record assignments caused a heavy drag on the secondary market. Loan servicing can trade several times before even the first assignment in a chain is recorded, leaving the public land records clogged with unnecessary assignments. Sometimes these assignments are recorded in the wrong sequence, clouding title to the property”. Mr. Arnold never mentions the fact that the mortgage notes have been securitized, thereby becoming “negotiable securities” under the Uniform Commercial Code.

In an interview for The New York Times, Mr. Arnold said, “that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies MERS brought to the mortgage trade.”

Mr. Arnold went on to say that, ” far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.”

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”

Unfortunately, even a simple search in the Florida Land Records proves the opposite to be the case. Researchers have  easily found affidavits of lost assignments actually stating, “the said mortgage was assigned to Mortgage Electronic Registration Systems, Inc., from “XXXXXXX”, the original of the said assignment to Mortgage Electronic Registration Systems, Inc., was lost, misplaced or destroyed before same could be placed of record with the Florida Land Records County Clerk’s office; That, “XXXXXXX”, it’s successors and/or assignee is no longer in business/or do not respond to our request for a duplicate assignment, and therefore, a duplicate original of said assignment cannot be obtained.”

According to affidavits such as these, not only have the borrowers lost contact with the lenders, but the same is true that MERS did as well.

On September 25, 2009, Mr. R.K. Arnold was deposed in Alabama. Mr. Arnold admitted MERS does not have a beneficial interest in any loan, does not loan money and does not suffer a default if monies are not paid. On November 11, 2009, William C. Hultman was deposed in Alabama and made the same admissions.

Yet again, researchers have easily located affidavits recorded in the Florida Land Records stating “That said Deed of Trust has not been assigned to any other party and that MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, Inc. is the current holder and owner of the Note and Deed of Trust in question.”


Aside from not recording assignments, Mr. Arnold failed to mention that the certifying officers given authority to execute sensitive loan documents would not be paid employees of MERS. This raises the critical legal question as to how one can act as a certified officer and execute any equitable interest on behalf of any security instruments without being an employee of MERS.

On April 7, 2010, in the Superior Court of New Jersey, MERS Treasurer and Secretary William C. Hultman gave an oral sworn video/telephone deposition in the case of Bank Of New York v. Ukpe.:

Q Do the assistant secretaries — first off, are
you a salaried employee of MERS?
A No.

Q Are you a salaried employee of MERS Corp,
A Yes.

Q Are any of the employees of MERS, Inc.
salaried employees?
A I don’t understand your question.

Q Does anyone get a paycheck, if they are an
employee of MERS, Inc., do they get a paycheck from
Mercer, Inc.?
A There is no MERS, Inc.

Q I thought, sir, there’s a company that was
formed January 1, 1999, Mortgage Electronic Registration
Systems, Inc. Does it have paid employees?
A No, it does not.

Q Does it have employees?
A No.

Q Does MERS have any employees?
A Did they ever have any? I couldn’t hear you.

Q Does MERS have any employees currently?
A No.

Q In the last five years has MERS had any
A No.


Q How many assistant secretaries have you
appointed pursuant to the April 9, 1998 resolution; how
many assistant secretaries of MERS have you appointed?
A I don’t know that number.

Q Approximately?
A I wouldn’t even begin to be able to tell you
right now.

Q Is it in the thousands?
A Yes.

Q Have you been doing this all around the
country in every state in the country?
A Yes.

Q And all these officers I understand are unpaid
officers of MERS?
A Yes.

Q And there’s no live person who is an employee
of MERS that they report to, is that correct, who is an employee?
A There are no employees of MERS.

If so, how does anyone have any authority to sign security instruments encumbered by any loan documents, if these certifying officers are not paid employees and never attend corporate meetings in the capacity as Vice President, Assistant Secretary, etc. with Mortgage Electronic Registration System, Inc..


Federal and state judges across America are realizing that the mortgage industry’s nominee is backfiring.

In Mr. Arnold’s own words, “For these servicing companies to perform their duties satisfactorily, the note and mortgage were bifurcated. The investor or its designee held the note and named the servicing company as mortgagee, a structure that became standard.” What has become a satisfactory standard structure for the mortgage industry has not been found by many courts to be legally sufficient to foreclose upon the property.

Again, MERS only acts as nominee for the mortgagee of record for any mortgage loan registered on the computer system MERS maintains, called the MERS System. MERS cannot negotiate a security instrument. Therefore, MERS certifying officers cannot have legal standing to assign what MERS does not own or hold.

The Supreme Court of New York Nassau County:
Bank of New York Mellon V. Juan Mojica Index No: 26203/09

Justice Thomas A. Adams stated, “Not only has plaintiff failed to establish MERS’ right as a nominee for purposes of recording to assign the mortgage, more importantly, no effort has been made to establish the authority of MERS, a non-party to the note, to transfer its ownership.”

The Supreme Court of Maine:
Mortgage Electronic Registration Systems, Inc. v. Saunders, No. 09-640, 2010 WL 3168374,
(Me. August 12, 2010) The Court explains that the only rights conveyed to MERS in either the Saunders’ mortgage or the corresponding promissory note are bare legal title to the property for the sole purpose of recording the mortgage and the corresponding right to record the mortgage with the Registry of Deeds. This comports with the limited role of a nominee. A nominee is a “person designated to act in place of another, usu[ally] in a very limited way,” or a “party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Black’s Law Dictionary 1149 (9th ed. 2009).

In Hawkins, No. BK-S-07-13593-LBR, 2009 WL 901766
The Court found that the deed of trust “attempts to name MERS as both beneficiary and a nominee” but held that MERS was not the beneficiary, as it had “no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans.”

In Re: Walker, Case No. 10-21656-E-11 Eastern District of CA Bankruptcy court rules MERS has NO actionable interest in title. “Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.” “MERS could not, as a matter of law, have transferred the note to Citibank from the original lender, Bayrock Mortgage Corp.” The Court’s ruled that MERS and Citibank are not the real parties in interest.

In re Vargas, 396 B.R. at 517-19. Judge Bufford found that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. “The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.”


In US Bank v. Harpster the Law Offices Of David J. Stern committed fraud on the court by the evidence based on the Assignment of Mortgage that was created and notarized on December 5, 2007. However, that purported creation/notarization date was facially impossible: the stamp on the notary was dated May 19, 2012. Since Notary commissions only last four years in Florida (see F .S. Section 117.01 (l)), the notary stamp used on this instrument did not even exist until approximately five months after the purported date on the Assignment.

The Court specifically finds that the purported Assignment did not exist at the time of filing of this action; that the purported Assignment was subsequently created and the execution date and notarial date were fraudulently backdated, in a purposeful, intentional effort to mislead the Defendant and this Court. The Court rejects the Assignment and finds that is not entitled to introduction in evidence for any purpose. The Court finds that the Plaintiff does not have standing to bring its action.

The Court dismissed this case with prejudice.

In Duval County, Florida another foreclosure case was dismissed with prejudice for fraud on the court. In JPMorgan V. Pocopanni, the Court found that Fishman & Shapiro representing JPMorgan had actual knowledge at all times that the Complaint, the Assignment, and the Motion for Substitution were all false. The Court found that by clear and convincing evidence WAMU, Chase and Shapiro & Fishman committed fraud on this court.

Both these cases involved Mortgage Electronic Registration Systems Inc. assignments.


Two RICO Class Action lawsuits have commenced against Foreclosure Law Firms and MERSCORP for fabricating and forging documents that are entered into courts as evidence in order to have standing to foreclose. Unknown to judges and the borrowers, they accept these documents because they are executed under perjury of the law. These “tromp l’oeil” actions have finally surfaced and the courts has taking notice.

The lack of supervision and managing of MERS “Robo-Signers” has led to a national frenzy of fabrication, forgery and certifying officers wearing multiple corporate hats. Anyone who compares signatures of these certifying officers will see a major problem with forgery in hundreds of thousands affidavits and assignments which creates an enormous dark cloud of title defects to millions of homes across the US.

On August 10, 2010 Florida attorney general Bill McCollum announced that he is investigating three foreclosure law firms for allegedly providing fraudulent assignments and affidavits relating in foreclosure cases.

In a deposition taken in December 2009, GMAC employee Jeffrey Stephan said he signed 10,000 affidavits or similar documents a month without personally verifying who the mortgage holder was. That means many foreclosures could have taken place based on false documentation and many homes may have been unlawfully foreclosed on.

On September 20, 2010, GMAC halted foreclosures in 23 different states. Two of the three firms being investigated by the Florida attorney general, the Law Office of Marshall C. Watson and the Law Offices of David J. Stern PA, have represented GMAC in foreclosure proceedings.

This is not limited to only GMAC Mortgage. There are many hundreds of thousands of these same documents that are being created by many foreclosure law firms across the nation.

University of Utah law professor Christopher L. Peterson has raised the issue that MERS should be regarded as a debt collector. He argues that some of MERS’ methods are just the sort of deceptive practices that ought to be regulated under The Fair Debt Collection Practices Act (FDCPA), 15 U. S. C. §1692(a),(j).


Finally in May, 2009, Mr. Arnold said in Mortgage Technology Magazine, “Every system in the mortgage industry can switch MERS registry on or off at will,” referencing that both the Obama administration and Congressional leaders are aware of this.

President Obama and Congressional leaders it is time to permanently switch MERS lifeless device off!

Not until MERS became the primary focus for challenges to legal standing in foreclosure courts as reported by the alternative media, have the main stream media and the mortgage industry have begun to realize that property records cross the United States have become totally unreliable.

It has taken more than a decade for the courts to recognize that MERS has become a mortgage backfire system leaving clouded titles in over 65 million loans since 1997.

Courts across the nation must comply with the law.  Any documents submitted to the courts regarding property ownership should be assumed to be nothing but smoke in a mirror.

No, Mr. Arnold, there’s no life at MERS.

DinSFLA, “nominee” of stopforeclosurefraud.com, a blog on Foreclosure Fraud.

© 2010 FORECLOSURE FRAUD | by DinSFLA. All rights reserved. www.StopForeclosureFraud.com

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

Posted in featured, STOP FORECLOSURE FRAUDComments (33)

Judge Bufford, Judge Ayers, MERS & The UCC Committee

Judge Bufford, Judge Ayers, MERS & The UCC Committee





APRIL 3, 2009



In an era where a very large portion of mortgage obligations have been securitized, by assignment to a trust indenture trustee, with the resulting pool of assets being then sold as mortgage backed securities, foreclosure becomes an interesting exercise, particularly where judicial process is involved.  We are all familiar with the securitization process.  The steps, if not the process, is simple.  A borrower goes to a mortgage lender.  The lender finances the purchase of real estate.  The borrower signs a note and mortgage or deed of trust.  The original lender sells the note and assigns the mortgage to an entity that securitizes the note by combining the note with hundreds or thousands of similar obligation to create a package of mortgage backed securities, which are then sold to investors.

Unfortunately, unless you represent borrowers, the vast flow of notes into the maw of the securitization industry meant that a lot of mistakes were made.  When the borrower defaults, the party seeking to enforce the obligation and foreclose on the underlying collateral sometimes cannot find the note.  A lawyer sophisticated in this area has speculated to one of the authors that perhaps a third of the notes “securitized” have been lost or destroyed.  The cases we are going to look at reflect the stark fact that the unnamed source’s speculation may be well-founded.


If the issue were as simple as a missing note, UCC §3-309 would provide a simple solution.  A person entitled to enforce an instrument which has been lost, destroyed or stolen may enforce the instrument. If the court is concerned that some third party may show up and attempt to enforce the instrument against the payee, it may order adequate protection.  But, and however, a person seeking to enforce a missing instrument must be a person entitled to enforce the instrument, and that person must prove the instrument’s terms and that person’s right to enforce the instrument.  §3-309 (a)(1) & (b).


Enforcement of a note always requires that the person seeking to collect show that it is the holder.  A holder is an entity that has acquired the note either as the original payor or transfer by endorsement of order paper or physical possession of bearer paper.  These requirements are set out in Article 3 of the Uniform Commercial Code, which has been adopted in every state, including Louisiana, and in the District of Columbia.  Even in bankruptcy proceedings, State substantive law controls the rights of note and lien holders, as the Supreme Court pointed out almost forty (40) years ago in United States v. Butner, 440 U.S. 48, 54-55 (1979).

However, as Judge Bufford has recently illustrated, in one of the cases discussed below, in the bankruptcy and other federal courts, procedure is governed by the Federal Rules of Bankruptcy and Civil Procedure.  And, procedure may just have an impact on the issue of “who,” because, if the holder is unknown, pleading and standing issues arise.


Article 3 governs negotiable instruments – it defines what a negotiable instrument is and defines how ownership of those pieces of paper is transferred.  For the precise definition, see § 3-104(a) (“an unconditional promise or order to pay a fixed amount of money, with or without interest . . . .”)  The instrument may be either payable to order or bearer and payable on demand or at a definite time, with or without interest.

Ordinary negotiable instruments include notes and drafts (a check is a draft drawn on a bank).  See § 3-104(e).

Negotiable paper is transferred from the original payor by negotiation.  §3-301.  “Order paper” must be endorsed; bearer paper need only be delivered.  §3-305.  However, in either case, for the note to be enforced, the person who asserts the status of the holder must be in possession of the instrument.  See UCC § 1-201 (20) and comments.

The original and subsequent transferees are referred to as holders.  Holders who take with no notice of defect or default are called “holders in due course,” and take free of many defenses.  See §§ 3-305(b).

The UCC says that a payment to a party “entitled to enforce the instrument” is sufficient to extinguish the obligation of the person obligated on the instrument.  Clearly, then, only a holder – a person in possession of a note endorsed to it or a holder of bearer paper – may seek satisfaction or enforce rights in collateral such as real estate.

NOTE:  Those of us who went through the bank and savings and loan collapse of the 1980’s are familiar with these problems.  The FDIC/FSLIC/RTC sold millions of notes secured and unsecured, in bulk transactions.  Some notes could not be found and enforcement sometimes became a problem.  Of course, sometimes we are forced to repeat history.  For a recent FDIC case, see Liberty Savings Bank v. Redus, 2009 WL 41857 (Ohio App. 8 Dist.), January 8, 2009.


Judge Bufford addressed the rules issue this past year.  See In re Hwang, 396 B.R. 757  (Bankr. C. D. Cal. 2008).  First, there are the pleading problems that arise when the holder of the note is unknown.  Typically, the issue will arise in a motion for relief from stay in a bankruptcy proceeding.

According F.R.Civ. Pro. 17, “[a]n action must be prosecuted in the name of the real party in interest.”  This rule is incorporated into the rules governing bankruptcy procedure in several ways.  As Judge Bufford has pointed out, for example, in a motion for relief from stay, filed under F.R.Bankr.Pro. 4001 is a contested matter, governed by F. R. Bankr. P. 9014, which makes F.R. Bankr. Pro. 7017 applicable to such motions.  F.R. Bankr. P. 7017 is, of course, a restatement of F.R. Civ. P. 17.  In re Hwang, 396 B.R. at 766.  The real party in interest in a federal action to enforce a note, whether in bankruptcy court or federal district court, is the owner of a note.  (In securitization transactions, this would be the trustee for the “certificate holders.”) When the actual holder of the note is unknown, it is impossible – not difficult but impossible – to plead a cause of action in a federal court (unless the movant simply lies about the ownership of the note).  Unless the name of the actual note holder can be stated, the very pleadings are defective.


Often, the servicing agent for the loan will appear to enforce the note.   Assume that the servicing agent states that it is the authorized agent of the note holder, which is “Trust Number 99.”   The servicing agent is certainly a party in interest, since a party in interest in a bankruptcy court is a very broad term or concept.  See, e.g., Greer v. O’Dell, 305 F.3d 1297, 1302-03 (11th Cir. 2002).  However, the servicing agent may not have standing: “Federal Courts have only the power authorized by Article III of the Constitutions and the statutes enacted by Congress pursuant thereto. … [A] plaintiff must have Constitutional standing in order for a federal court to have jurisdiction.”  In re Foreclosure Cases, 521 F.Supp. 3d 650, 653 (S.D. Ohio, 2007) (citations omitted).

But, the servicing agent does not have standing, for only a person who is the holder of the note has standing to enforce the note.  See, e.g., In re Hwang, 2008 WL 4899273 at 8.

The servicing agent may have standing if acting as an agent for the holder, assuming that the agent can both show agency status and that the principle is the holder.  See, e.g., In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008) at 520.


For those of you who are not familiar with the entity known as MERS, a frequent participant in these foreclosure proceedings:

MERS is the “Mortgage Electronic Registration System, Inc.  “MERS is a mortgage banking ‘utility’ that registers mortgage loans in a book entry system so that … real estate loans can be bought, sold and securitized, just like Wall Street’s book entry utility for stocks and bonds is the Depository Trust and Clearinghouse.” Bastian, “Foreclosure Forms”, State. Bar of Texas 17th Annual Advanced Real Estate Drafting Course, March 9-10, 2007, Dallas, Texas. MERS is enormous.  It originates thousands of loans daily and is the mortgagee of record for at least 40 million mortgages and other security documents. Id.

MERS acts as agent for the owner of the note.  Its authority to act should be shown by an agency agreement.  Of course, if the owner is unknown, MERS cannot show that it is an authorized agent of  the owner.


This structure also possesses practical evidentiary problems where the party asserting a right to foreclose must be able to show a default.  Once again, Judge Bufford has addressed this issue.   At In re Vargas, 396 B.R. at 517-19.  Judge Bufford made a finding that the witness called to testify as to debt and default was incompetent.  All the witness could testify was that he had looked at the MERS computerized records.  The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit.  See id. at 517-20.  The low level employee could really only testify that the MERS screen shot he reviewed reflected a default.  That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.


In a foreclosure proceeding in a judicial foreclosure state, or a request for injunctive relief in a non-judicial foreclosure state, or in a motion for relief proceeding in a bankruptcy court, the courts are dealing with and writing about the problems very frequently.

In many if not almost all cases, the party seeking to exercise the rights of the creditor will be a servicing company.  Servicing companies will be asserting the rights of their alleged principal, the note holder, which is, again, often going to be a trustee for a securitization package.  The mortgage holder or beneficiary under the deed of trust will, again, very often be MERS.

Even before reaching the practical problem of debt and default, mentioned above, the moving party must show that it holds the note or (1) that it is an agent of the holder and that (2) the holder remains the holder.  In addition, the owner of the note, if different from the holder, must join in the motion.

Some states, like Texas, have passed statutes that allow servicing companies to act in foreclosure proceedings as a statutorily recognized agent of the noteholder.  See, e.g., Tex. Prop. Code §51.0001.  However, that statute refers to the servicer as the last entity to whom the debtor has been instructed to make payments.  This status is certainly open to challenge.  The statute certainly provides nothing more than prima facie evidence of the ability of the servicer to act.   If challenged, the servicing agent must show that the last entity to communicate instructions to the debtor is still the holder of the note.  See, e.g., HSBC Bank, N.A. v. Valentin, 2l N.Y.  Misc. 3d 1123(A), 2008 WL 4764816 (Table) (N.Y. Sup.), Nov. 3, 2008.  In addition, such a statute does not control in federal court where Fed. R. Civ. P. 17 and 19 (and Fed. R. Bankr. P. 7017 and 7019) apply.


These cases are arranged by state, for no particular reason.


In re Schwartz, 366 B.R.265 (Bankr. D. Mass. 2007)

Schwartz concerns a Motion for Relief to pursue an eviction. Movant asserted that the property had been foreclosed upon prior to the date of the bankruptcy petition.  The pro se debtor asserted that the Movant was required to show that it had authority to conduct the sale.  Movant, and “the party which appears to be the current mortgagee…” provided documents for the court to review, but did not ask for an evidentiary hearing.  Judge Rosenthal sifted through the documents and found that the Movant and the current mortgagee had failed to prove that the foreclosure was properly conducted.

Specifically, Judge Rosenthal found that there was no evidence of a proper assignment of the mortgage prior to foreclosure.  However, at footnote 5, Id. at 268, the Court also finds that there is no evidence that the note itself was assigned and no evidence as to who the current holder might be.

Nosek v. Ameriquest Mortgage Company (In re Nosek), 286 Br. 374 (Bankr D Mass. 2008).

Almost a year to the day after Schwartz was signed, Judge Rosenthal issued a second opinion.  This is an opinion on an order to show cause.  Judge Rosenthal specifically found that, although the note and mortgage involved in the case had been transferred from the originator to another party within five days of closing, during the five years in which the chapter 13 proceeding was pending, the note and mortgage and associated claims had been prosecuted by Ameriquest which has represented itself to be the holder of the note and the mortgage.  Not until September of 2007 did Ameriquest notify the Court that it was merely the servicer.  In fact, only after the chapter 13 bankruptcy had been pending for about three years was there even an assignment of the servicing rights.  Id. at 378.

Because these misrepresentations were not simple mistakes:  as the Court has noted on more than one occasion, those parties who do not hold the note of mortgage do not service the mortgage do not have standing to pursue motions for leave or other actions arising form the mortgage obligation.  Id at 380.

As a result, the Court sanctioned the local law firm that had been prosecuting the claim $25,000.  It sanctioned a partner at that firm an additional $25,000.  Then the Court sanctioned the national law firm involved $100,000 and ultimately sanctioned Wells Fargo $250,000.  Id. at 382-386.

In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008).

Like Judge Rosenthal, Judge Feeney has attacked the problem of standing and authority head on.  She has also held that standing must be established before either a claim can be allowed or a motion for relief be granted.


In re Foreclosure Cases, 521 F.Supp. 2d (S.D. Ohio 2007).

Perhaps the District Court’s orders in the foreclosure cases in Ohio have received the most press of any of these opinions.  Relying almost exclusively on standing, the Judge Rose has determined that a foreclosing party must show standing.  “[I]n a foreclosure action, the plaintiff must show that it is the holder of the note and the mortgage at the time that the complaint was filed.”  Id. at 653.

Judge Rose instructed the parties involved that the willful failure of the movants to comply with the general orders of the Court would in the future result in immediate dismissal of foreclosure actions.

Deutsche Bank Nat’l Trust Co. v. Steele, 2008 WL 111227 (S.D. Ohio) January 8, 2008.

In Steele, Judge Abel followed the lead of Judge Rose and found that Deutsche Bank had filed evidence in support of its motion for default judgment indicating that MERS was the mortgage holder.  There was not sufficient evidence to support the claim that Deutsche Bank was the owner and holder of the note as of that date.  Following In re Foreclosure Cases, 2007 WL 456586, the Court held that summary judgment would be denied “until such time as Deutsche Bank was able to offer evidence showing, by a preponderance of evidence, that it owned the note and mortgage when the complaint was filed.”  2008 WL 111227 at 2.  Deutsche Bank was given twenty-one days to comply.  Id.


U.S. Bank, N.A. v. Cook, 2009 WL 35286 (N.D. Ill. January 6, 2009).

Not all federal district judges are as concerned with the issues surrounding the transfer of notes and mortgages.  CookId. at 3.  In fact, a review of the evidence submitted by U.S. Bank showed only that it was the alleged trustee of the securitization pool.  U.S. Bank relied exclusively on the “pooling and serving agreement” to show that it was the holder of the note.  Id. is a very pro lender case and, in an order granting a motion for summary judgment, the Court found that Cook had shown no “countervailing evidence to create a genuine issue of facts.”

Under UCC Article 3, the evidence presented in Cook was clearly insufficient.

New York

HSBC Bank USA, N.A. v. Valentin, 21 Misc. 3D 1124(A), 2008 WL 4764816 (Table) (N.Y. Sup.) November 3, 2008.  In Valentin, the New York court found that, even though given an opportunity to, HSBC did not show the ownership of debt and mortgage.  The complaint was dismissed with prejudice and the “notice of pendency” against the property was cancelled.

Note that the Valentin case does not involve some sort of ambush. The Court gave every HSBC every opportunity to cure the defects the Court perceived in the pleadings.


In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008)


In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008)

These two opinions by Judge Bufford have been discussed above.  Judge Bufford carefully explores the related issues of standing and ownership under both federal and California law.


In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008)


In re Gilbreath, 395 B.R. 356 (Bankr. S.D. Tex. 2008)

These two recent opinions by Judge Jeff Bohm are not really on point, but illustrate another thread of cases running through the issues of motions for relief from stay in bankruptcy court and the sloppiness of loan servicing agencies.  Both of these cases involve motions for relief that were not based upon fact but upon mistakes by servicing agencies.  Both opinions deal with the issue of sanctions and, put simply, both cases illustrate that Judge Bohm (and perhaps other members of the bankruptcy bench in the Southern District of Texas) are going to be very strict about motions for relief in consumer cases.


The cases cited illustrate enormous problems in the loan servicing industry.  These problems arise in the context of securitization and illustrate the difficulty of determining the name of the holder, the assignee of the mortgage, and the parties with both the legal right under Article 3 and the standing under the Constitution to enforce notes, whether in state court or federal court.

Interestingly, with the exception of Judge Bufford and a few other judges, there has been less than adequate focus upon the UCC title issues.  The next round of cases may and should focus upon the title to debt instrument.  The person seeking to enforce the note must show that:

(1)               It is the holder of this note original by transfer, with all necessary rounds;

(2)               It had possession of the note before it was lost;

(3)               If it can show that title to the note runs to it, but the original is lost or destroyed, the holder must be          prepared to post a bond;

(4)               If the person seeking to enforce is an agent, it must show its agency status and that its principal is the holder of the note (and meets the above requirements).

Then, and only then, do the issues of evidence of debt and default and assignment of mortgage rights become relevant.



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

Posted in conflict of interest, conspiracy, CONTROL FRAUD, corruption, deed of trust, foreclosure, foreclosure fraud, foreclosures, Judge R. Glen Ayers, judge samuel bufford, mbs, MERS, MERSCORP, mortgage, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., note, rmbs, securitization, servicers, trustee, Trusts, ucc, uniform commercial code committeeComments (1)

HSBC’s Irregularities: Mortgage Documentation and Corporate Relationships with Ocwen, MERS, and Delta

HSBC’s Irregularities: Mortgage Documentation and Corporate Relationships with Ocwen, MERS, and Delta


2010 Ohio 4158

HSBC Bank USA, N.A., as Indenture Trustee for the Registered Noteholders of Renaissance Home Equity Loan Trust 2007-1, Plaintiff-Appellant,
Jamie W. Thompson, et al., Defendants-Appellees.

Appellate No. 23761.

Court of Appeals of Ohio, Second District, Montgomery County.

Rendered on September 3, 2010.

Benjamin D. Carnahan, Atty. Reg. #0079737, Shapiro, Van Ess, Phillips & Barragate, LLP, 4805 Montgomery Road, Norwood, OH 45212 and Brian P. Brooks, (pro hac vice), O’Melveny & Myers LLP, 1625 Eye Street, N.W., Washington, DC 20006-4001, Attorneys for Plaintiff-Appellant, HSBC Bank.

Amy Kaufman, Atty. Reg. #0073837, 150 East Gay Street, 21st Floor, Columbus, Ohio 43215, Attorney for Appellee, Department of Taxation.

Andrew D. Neuhauser, Atty. Reg. #0082799, and Stanley A. Hirtle, Atty. Reg. #0025205, 525 Jefferson Avenue, Suite 300, Toledo, OH 43604, Attorneys for Amici Curiae, Advocates for Basic Legal Equality, et al.

Richard Cordray, Atty. Reg. #0038034, by Susan A. Choe, Atty. Reg. #0067032, Mark N. Wiseman, Atty. Reg. #0059637, and Jeffrey R. Loeser, Atty. Reg. #0082144, Attorney General’s Office, 30 E. Broad Street, 14th Floor, Columbus, OH 43215, Attorneys for Amicus Curiae, Ohio Attorney General Richard Cordray.

Andrew M. Engel, Atty. Reg. #0047371, 3077 Kettering Boulevard, Suite 108, Moraine, Ohio 45439, Attorney for Defendant-Appellee Jamie W. Thompson.

Colette Carr, Atty. Reg. #00705097, 301 W. Third Street, Fifth Floor, Dayton, OH 45422, Attorney for Appellee, Montgomery County Treasurer.



{¶ 1} Plaintiff-appellant HSBC Bank USA, N.A., as Indenture Trustee for the Registered Noteholders of Renaissance Home Equity Loan Trust 2007-1 (HSBC), appeals from a judgment of the trial court, which rendered summary judgment and dismissed HSBC’s complaint for foreclosure, without prejudice. HSBC contends that the trial court improperly treated the date the assignment of mortgage was executed as dispositive of the claims before it. HSBC further contends that the trial court’s decision is erroneous, because it is premised on the court’s having improperly struck the affidavit of Chomie Neil, and having failed to consider Neil’s restated affidavit.

{¶ 2} Two briefs of amicus curiae have been filed in support of the position of defendants-appellees Jamie W. Thompson, Administratrix of the Estate of the Estate of Howard W. Turner, and Jamie W. Thompson (collectively Thompson). One brief was filed by the Ohio Attorney General Richard Cordray (Cordray). The other brief was filed by the following groups: Advocates for Basic Legal Equality; Equal Justice Foundation; Legal Aid Society of Southwest Ohio; Northeast Ohio Legal Aid Services; Ohio Poverty Law Center; and Pro Seniors, Inc. (collectively Legal Advocates). We have considered those briefs, all of which have been helpful, in deciding this appeal.

{¶ 3} We conclude that the trial court did not abuse its discretion in striking Neil’s affidavit, because of defects in the affidavit. We further conclude that the trial court did not abuse its discretion in failing to consider Neil’s restated affidavit, in the course of deciding objections to the magistrate’s decision, because HSBC failed to indicate why it could not have properly submitted the evidence, with reasonable diligence, before the magistrate had rendered a decision in the matter. Finally, we conclude that the trial court did not err in rendering summary judgment against HSBC, and dismissing the foreclosure action for lack of standing. HSBC failed to establish that it was the holder of a promissory note secured by a mortgage. Accordingly, the judgment of the trial court is Affirmed.


{¶ 4} On January 27, 2007, Howard Turner borrowed $85,000 from Fidelity Mortgage, a division of Delta Funding Corporation (respectively, Fidelity and Delta). Turner signed a note promising to repay Fidelity in monthly payments of $786.44 for a period of thirty years. The loan number on the note is 0103303640, and the property listed on the note is 417 Cushing Avenue, Dayton, Ohio, 45429.

{¶ 5} In order to secure the loan, Turner signed a mortgage agreement, which names Fidelity as the “Lender,” and Mortgage Electronic Registration Systems, Inc. (MERS) as a nominee for Fidelity and Fidelity’s successors and assigns. The mortgage states that Turner, as borrower, “does hereby mortgage, grant and convey to MERS (solely as nominee for Lender and Lender’s successors and assigns) and to the successors and assigns of MERS, the following described property in the County of Montgomery, * * * which currently has the address of 417 Cushing Avenue, Dayton, Ohio 45429.” The mortgage was recorded with the Montgomery County Recorder on February 20, 2007, as MORT-07-014366.

{¶ 6} The entire amount of the loan proceeds was not disbursed. Fidelity placed $5,000 in escrow after closing, until certain repairs (roofing and heating) were made to the house. The required deposit agreement indicated that Turner had three months to make the repairs, and that if the items were not satisfactorily cleared, Fidelity had the option of satisfying the items from the funds held, of extending the time to cure, or of taking any other steps Fidelity felt necessary to protect the mortgage property, including but not limited to, paying down the principal of the loan with the deposit.

{¶ 7} Turner made timely payments through June 2007. However, he died in late July 2007, and no further payments were made. HSBC filed a foreclosure action on November 8, 2007, alleging that it was the owner and holder of Turner’s promissory note and mortgage deed and that default had occurred. HBSC sued Thompson, as administratrix of her father’s estate, and individually, based on her interest in the estate.

{¶ 8} HSBC attached purported copies of the note and mortgage agreement to the complaint. The note attached to the complaint is also accompanied by two documents that are each entitled “Allonge.” The first allonge states “Pay to the Order of _________ without recourse,” and is signed on behalf of Delta Funding Corporation by Carol Hollman, Vice-President. The second allonge states “Pay to the Order of Delta Funding Corporation” and is signed by Darryl King, as “authorized signatory” for Fidelity Mortgage.

{¶ 9} In January 2008, Thompson filed an answer, raising, among other defenses, the fact that the action was not being prosecuted in the name of the real party in interest. HSBC subsequently filed a motion for summary judgment in February 2007, supported by the affidavit of an officer of Ocwen Loan Servicing, LLC (Ocwen), which was a servicing agent for HSBC.

{¶ 10} Thompson filed a response to the summary judgment motion, pointing out various deficiencies in the affidavit and documents. Thompson further contended that HSBC was not the holder of the mortgage and note, and was not the real party in interest. In addition, Thompson filed an amended answer and counterclaim, contending that HSBC was not the real party in interest, and that HSBC had made false, deceptive, and misleading representations in connection with collecting a debt, in violation of Section 1692, Title 15, U.S. Code (the Fair Debt Collection Practices Act, or FDCPA).

{¶ 11} HSBC withdrew its motion for summary judgment in March 2008. In November 2008, the trial court vacated the trial date and referred the matter to a magistrate. HSBC then filed another motion for summary judgment in January 2009. This motion was supported by the affidavit of Chomie Neil, who was employed by Ocwen as a manager of trial preparation and discovery. Neil averred in the affidavit that he had executed it in Palm Beach, Florida. However, the notation at the top of the first page of the affidavit and the jurat both state that the affidavit was sworn to and subscribed to in New Jersey, before a notary public.

{¶ 12} Thompson moved to strike the affidavit, contending that it was filled with inadmissible hearsay, contained legal conclusions, and purported to authenticate documents, when no proper documentation had been offered. Thompson also questioned when the affidavit was executed, and whether it had been properly acknowledged, due to the irregularities in execution and acknowledgment. In addition, Thompson responded to the summary judgment motion, contending that HSBC was not the real party in interest and was not the holder of the note, because HSBC’s name was not on the note, and HSBC had failed to provide evidence that it was in possession of the note. In responding to the motion to strike, HSBC contended that the defects in the affidavit were the result of a scrivener’s error. HSBC did not attempt to correct the affidavit.

{¶ 13} In late March 2009, Thompson filed a motion for partial summary judgment against HSBC. The motion was based on the fact that under the allonges, Delta Funding Corporation was the payee of the note. Thompson also noted that MERS failed to assign the mortgage note to HSBC before the action was commenced. Thompson contended that HSBC was not the real party in interest when it filed the lawsuit, and lacked standing to invoke the court’s jurisdiction.

{¶ 14} In May 2009, the magistrate granted Thompson’s motion to strike the affidavit, because the affidavit stated that it had been sworn to in New Jersey, and the affiant declared that the affidavit was executed in Florida. The magistrate also overruled HSBC’s motion for summary judgment, and granted Thompson’s partial motion for summary judgment. The magistrate concluded that HSBC lacked standing because it was not a mortgagee when the suit was filed and could not cure its lack of standing by subsequently obtaining an interest in the mortgage. The magistrate further concluded that there was no evidence properly before the court that would indicate that HSBC was the holder of the promissory note originally executed by Turner. Accordingly, the magistrate held that HSBC’s foreclosure claim should be dismissed without prejudice. Due to factual issues regarding Thompson’s FDCPA counterclaim, HSBC’s motion for summary judgment on the counterclaim was denied.

{¶ 15} HSBC filed objections to the magistrate’s decision, and attached the “restated” affidavit of Neil. The affidavit was identical to what was previously submitted, except that the first page indicated that the affidavit was being signed in Palm Beach County, Florida. The jurat is signed by a notary who appears to be from Florida, although the notary seals on the original and copy that were submitted are not very clear. HSBC did not offer any explanation for the mistake in the original affidavit.

{¶ 16} In November 2009, the trial court overruled HSBC’s objections to the magistrate’s report. The court concluded that the errors in the affidavit were more than format errors. The court further noted that the document became an unsworn statement and could not be used for summary judgment purposes, because the statements were sworn to a notary in a state outside the notary’s jurisdiction. The court also held that, absent Neil’s affidavit, HSBC had failed to provide support for its summary judgment motion. Finally, the court concluded that HSBC failed to provide evidence that it was in possession of the note prior to the filing of the lawsuit, because the Neil affidavit had been struck, and a prior affidavit only verified the mortgage and note as true copies; it did not verify the undated allonges. Accordingly, the trial court dismissed HSBC’s action with prejudice, and entered a Civ. R. 54(B) determination of no just cause for delay.

{¶ 17} HSBC appeals from the judgment dismissing its action without prejudice.


{¶ 18} We will address HSBC’s assignments of error in reverse order. HSBC’s Second Assignment of Error is as follows:


{¶ 20} Under this assignment of error, HSBC contends that the errors in Neil’s affidavit were scrivener’s errors that have no bearing on the content of the affidavit. HSBC contends, therefore, that the trial court erred in refusing to consider the affidavit.

{¶ 21} The error, as noted, is that Neil averred that he signed the affidavit in Florida, while the first page and the jurat indicate that the affidavit was executed before a notary public in New Jersey.

{¶ 22} Thompson, Cordray, and Legal Advocates argue that the defect is not merely one of form, because the errors transform the affidavit into an unsworn statement that cannot be used to support summary judgment. The trial court agreed with this argument.

{¶ 23} Legal Advocates also stresses that HSBC was notified of problems with Neil’s affidavit, but made no attempt to cure the defect until after the magistrate had issued an unfavorable ruling. In addition, Cordray notes that the integrity of evidence in foreclosure cases is critical, due to the imbalance between access to legal representation of banks and homeowners. Thompson, Cordray, and Legal Advocates further contend that even if Neil’s affidavit could be considered, it is replete with inadmissible hearsay and legal conclusions, and is devoid of evidentiary value.

{¶ 24} Concerning the form of affidavits, Civ. R. 56(E) provides that:

{¶ 25} “Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated in the affidavit. Sworn or certified copies of all papers or parts of papers referred to in an affidavit shall be attached to or served with the affidavit. The court may permit affidavits to be supplemented or opposed by depositions or by further affidavits. * * *”

{¶ 26} The Supreme Court of Ohio has held that “An affidavit must appear, on its face, to have been taken before the proper officer and in compliance with all legal requisites. A paper purporting to be an affidavit, but not to have been sworn to before an officer, is not an affidavit.” In re Disqualification of Pokorny (1992), 74 Ohio St.3d 1238 (citation omitted). Accord, Pollock v. Brigano (1998), 130 Ohio App.3d 505, 509.

{¶ 27} The affidavit submitted to the magistrate contains irreconcilable conflicts, because the affiant, Neil, states that he executed the affidavit in Florida. In contrast, the jurat, as well as the first page of the affidavit, indicate that the affidavit was signed in New Jersey.

{¶ 28} In Stern v. Board of Elections of Cuyahoga Cty. (1968), 14 Ohio St.2d 175, the Supreme Court of Ohio noted that in common use, a jurat “is employed to designate the certificate of a competent administering officer that a writing was sworn to by the person who signed it. It is no part of the oath, but is merely evidence of the fact that the oath was properly taken before the duly authorized officer.” Id. at 181 (citations omitted).

{¶ 29} In light of the inconsistencies, Neil’s oath could not have been properly taken before a duly authorized officer. Under New Jersey law, a notary public commissioned in New Jersey may perform duties only throughout the state of New Jersey. See N.J. Stat. Ann. 52:7-15. Therefore, a New Jersey notary public could not properly have administered the oath in Florida. A New Jersey notary public also could not properly have certified that the writing was sworn to, when the person signed it in another jurisdiction.

{¶ 30} As support for admission of Neil’s affidavit, HSBC cites various cases that have overlooked technical defects in affidavits. See, e.g., State v. Johnson (Oct. 24, 1997), Darke App. No. 96CA1427 (holding that a “scrivener’s error” was inconsequential and did not invalidate an affidavit), and Chase Manhattan Mtg. Corp. v. Locker, Montgomery App. No. 19904, 2003-Ohio-6665, ¶ 26 (holding that omission of specific date of month on which affidavit was signed was “scrivener’s error” and did not invalidate affidavit, because notary public did include the month and year).

{¶ 31} In Johnson, the error involved a discrepancy between the preamble and the jurat.

{¶ 32} The preamble said the site of the oath was in a particular county, but the notary swore in the jurat that the affidavit had been signed in a different county. The trial court concluded that this was a typographical error, and we agreed. This is consistent with the fact that in Ohio, a notary public may administer oaths throughout the state. See R.C. 147.07. Therefore, even if a discrepancy exists between the location listed in the preamble and the notary’s location, the official status of the affidavit is not affected. In contrast, the affiant in the case before us stated that he signed the affidavit in a different state, where the notary did not have the power to administer oaths. The difference is not simply one of form.

{¶ 33} HSBC contends that the trial court should have accepted the “restated” affidavit that it attached to HSBC’s objections to the magistrate’s decision. The trial court did not specifically discuss the restated affidavit when it overruled HSBC’s objections. We assume, therefore, that the court rejected the affidavit. See, e.g., Maguire v. Natl. City Bank, Montgomery App. No. 23140, 2009-Ohio-4405, ¶ 16, and Takacs v. Baldwin (1995), 106 Ohio App.3d 196, 209 (holding that where a trial court fails to rule on a motion, an appellate court assumes that the matter was overruled or rejected).

{¶ 34} The trial court was not required to consider the restated affidavit, because HSBC failed to explain why the affidavit could not have been properly produced for the magistrate. In this regard, Civ. R. Rule 53(D)(4)(d) provides that:

{¶ 35} “If one or more objections to a magistrate’s decision are timely filed, the court shall rule on those objections. In ruling on objections, the court shall undertake an independent review as to the objected matters to ascertain that the magistrate has properly determined the factual issues and appropriately applied the law. Before so ruling, the court may hear additional evidence but may refuse to do so unless the objecting party demonstrates that the party could not, with reasonable diligence, have produced that evidence for consideration by the magistrate.”

{¶ 36} Well before the magistrate ruled, HSBC was aware that objections had been raised to the affidavit. HSBC made no attempt to submit a corrected document to the magistrate, nor did it provide the trial court with an explanation for the cause of the problem. Accordingly, the trial court did not abuse its discretion in refusing to consider the original or restated affidavit. See Hillstreet Fund III, L.P. v. Bloom, Montgomery App. No. 23394, 2010-Ohio-2267, ¶ 49 [noting that trial courts have discretion to accept or refuse additional evidence under Civ. R. 53(D)(4)(d).]

{¶ 37} Because the trial court did not abuse its discretion in rejecting the Neil affidavits, we need not consider whether the contents of the affidavits are inadmissible.

{¶ 38} HSBC’s Second Assignment of Error is overruled.


{¶ 39} HSBC’s First Assignment of Error is as follows:


{¶ 41} Under this assignment of error, HSBC contends that the trial court committed reversible error by disregarding the ruling in State ex rel. Jones v. Suster, 84 Ohio St.3d 70, 1998-Ohio-275, that defects in standing may be cured at any time before judgment is entered. According to HSBC, an assignment of mortgage recorded with the Montgomery County Recorder establishes that HSBC is the current holder of the mortgage interest, because the interest was transferred about one week after the action against Thomson was filed. HSBC further contends that the trial court improperly disregarded evidence that HSBC legally owned the note before its complaint was filed. Before addressing the standing issue, we note that the case before us was resolved by way of summary judgment. “A trial court may grant a moving party summary judgment pursuant to Civ. R. 56 if there are no genuine issues of material fact remaining to be litigated, the moving party is entitled to judgment as a matter of law, and reasonable minds can come to only one conclusion, and that conclusion is adverse to the nonmoving party, who is entitled to have the evidence construed most strongly in his favor.” Smith v. Five Rivers MetroParks (1999), 134 Ohio App.3d 754, 760. “We review summary judgment decisions de novo, which means that we apply the same standards as the trial court.” GNFH, Inc. v. W. Am. Ins. Co., 172 Ohio App.3d 127, 2007-Ohio-2722, ¶ 16.

{¶ 42} To decide the real-party-in-interest issue, we first turn to Civ. R. Rule 17(A), which states that:

{¶ 43} “Every action shall be prosecuted in the name of the real party in interest. * * * * No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest. Such ratification, joinder, or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.”

{¶ 44} “Standing is a threshold question for the court to decide in order for it to proceed to adjudicate the action.” Suster, 84 Ohio St.3d at 77. The issue of lack of standing “challenges the capacity of a party to bring an action, not the subject matter jurisdiction of the court.” Id. To decide whether the requirement has been satisfied that an action be brought by the real party in interest, “courts must look to the substantive law creating the right being sued upon to see if the action has been instituted by the party possessing the substantive right to relief.” Shealy v. Campbell (1985), 20 Ohio St.3d 23, 25.

{¶ 45}In foreclosure actions, the real party in interest is the current holder of the note and mortgage.” Wells Fargo Bank, N.A. v. Sessley, Franklin App. No. 09AP-178, 2010-Ohio-2902, ¶ 11 (citation omitted). Promissory notes are negotiable, and may be transferred to someone other than the issuer. That person then becomes the holder of the instrument. R.C. 1303.21(A). R.C. 1303.21(B) provides, however, that:

{¶ 46} “Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.”

{¶ 47} R.C, 1301.01(T)(1) also states that a holder with regard to a negotiable instrument means either of the following:

{¶ 48} “(a) If the instrument is payable to bearer, a person who is in possession of the instrument;

{¶ 49} “(b) If the instrument is payable to an identified person, the identified person when in possession of the instrument.”

{¶ 50} In the case before us, the promissory note identifies Fidelity as the holder. The note, therefore, could have been negotiated only by Fidelity, through transfer of possession, and by either endorsing the note to a specific person, or endorsing the note to “bearer.”

{¶ 51} HSBC contends that it is the legal holder of the promissory note, and is entitled to enforce it, because it obtained the note as a bearer. A “bearer” is “the person in possession of an instrument, document of title, or certificated security payable to bearer or endorsed in blank.” R.C. 1301.01(E). HSBC’s claim that it is the bearer of the note is based on the “allonges” that were included as part of the exhibits to the complaint.

{¶ 52} The rejected affidavits of Neil do not refer to the allonges, nor were any allonges included with the promissory note that was attached to Neil’s affidavit. During oral argument, HSBC referred frequently to the Jiminez-Reyes affidavit, which was attached to a February 2008 summary judgment motion filed by HSBC. Jiminez-Reyes identified the exhibits attached to the complaint, but did not refer to the allonges. HSBC withdrew the summary judgment motion in March 2008, after Thompson had identified various deficiencies in the affidavit, including the fact that Jiminez-Reyes had incorrectly identified Thompson as the account holder. Since the motion was withdrawn, it is questionable whether the attached affidavit of Jiminez-Reyes was properly before the trial court. Byers v. Robinson, Franklin App. No. 08AP-204, 2008-Ohio-4833, ¶ 16 (effect of withdrawing motion is to leave the record as it stood before the motion was filed).

{¶ 53} Nonetheless, shortly after the complaint was filed, and prior to its first summary judgment motion, HSBC filed an affidavit of Jessica Dybas, who is identified in the affidavit as an “agent” of HSBC. The exact status of Dybas’s agency or connection to HSBC is not explained in the affidavit.

{¶ 54} Dybas states in the affidavit that she has personal knowledge of the history of the loan, that she is the custodian of records pertaining to the loan and mortgage, and that the records have been maintained in the ordinary course of business. See “Exhibit A attached to Plaintiff’s Notice of Filing of Loan Status, Military, Minor and Incompetent Affidavit and Loan History,” which was filed with the trial court in February 2008. Dybas’s affidavit also identifies Exhibits A and B of the complaint as true and accurate copies of the originals. Exhibit A to the complaint includes a copy of the promissory note of the decedent, Howard Turner, made payable to Fidelity, and a copy of two documents entitled “Allonge,” that are placed at the end of the promissory note. Exhibit B is a copy of the mortgage agreement, which names Fidelity as the “Lender” and MERS as “nominee” for Fidelity and its assigns. Dybas’s affidavit does not specifically mention the allonges. Like the affidavit of Jiminez-Reyes, Dybas’s affidavit incorrectly identifies Thompson as the borrower on the note. Thompson was not the borrower; she is the administratrix of the estate of the borrower, Howard Turner.

{¶ 55} Assuming for the sake of argument that Dybas’s affidavit is sufficient, or that the affidavit of Jiminez-Reyes was properly before the court, we note that Ohio requires endorsements to be “on” an instrument, or in papers affixed to the instrument. See R.C. 1303.24(A)(1) and (2), which state that “For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.”

{¶ 56} “The use of an allonge to add indorsements to an instrument when there is no room for them on the instrument itself dates from early common law.” Southwestern Resolution Corp. v. Watson (Tex. 1997), 964 S.W.2d 262, 263. “An allonge is defined as `[a] slip of paper sometimes attached to a negotiable instrument for the purpose of receiving further indorsements when the original paper is filled with indorsements.'” Chase Home Finance, LLC v. Fequiere (2010), 119 Conn.App. 570, 577, 989 A.2d 606, quoting from Black’s Law Dictionary (9th Ed. 2009).

{¶ 57} In Watson, a note and allonge produced at trial were taped together and had several staple holes. The president of the noteholder testified that when his company received the note, “the allonge was stapled to it and may also have been clipped and taped, but that the note and allonge had been separated and reattached five or six times for photocopying.” 964 S.W.2d at 263. The lower courts agreed with a jury that the allonge was not so firmly affixed as to be part of the note. But the Supreme Court of Texas disagreed.

{¶ 58} The Supreme Court of Texas recounted the history of allonges throughout various versions of the Uniform Commercial Code (UCC). The court noted that an early provision had provided that an endorsement must be written on the note or on a paper attached thereto. Id., citing Section 31 of the Uniform Negotiable Instruments Law. Under this law, an allonge could be attached by a staple. Id (citation omitted). The Supreme Court of Texas also noted that:

{¶ 59} “When the UCC changed the requirement from `attached thereto’ to `so firmly affixed thereto as to become a part thereof’, * * * the drafters of the new provision specifically contemplated that an allonge could be attached to a note by staples. American Law Institute, Comments & Notes to Tentative Draft No. 1-Article III 114 (1946), reprinted in 2 Elizabeth Slusser Kelly, Uniform Commercial Code Drafts 311, 424 (1984) (`The indorsement must be written on the instrument itself or on an allonge, which, as defined in Section ___, is a strip of paper so firmly pasted, stapled or otherwise affixed to the instrument as to become part of it.’).” Id. at 263-64 (citation omitted).

{¶ 60} The Supreme Court of Texas further observed that:

{¶ 61} “The attachment requirement has been said to serve two purposes: preventing fraud and preserving the chain of title to an instrument. * * * * Still, the requirement has been relaxed in the current code from `firmly affixed’ to simply `affixed’. Tex. Bus. & Com.Code § 3.204(a). As the Commercial Code Committee of the Section of Business Law of the State Bar of Texas concluded in recommending adoption of the provision, `the efficiencies and benefits achieved by permitting indorsements by allonge outweigh[] the possible problems raised by easily detachable allonges.'” Id. at 264 (citations omitted).

{¶ 62} The Supreme Court of Texas, therefore, concluded that a stapled allonge is “firmly affixed” to an instrument, and that the allonge in the case before it was properly affixed. In this regard, the court relied on the following evidence:

{¶ 63} “In the present case, Southwestern’s president testified that the allonge was stapled, taped, and clipped to the note when Southwestern received it. There was no evidence to the contrary. The fact that the documents had been detached for photocopying does not raise a fact issue for the jury about whether the documents were firmly affixed. If it did, the validity of an allonge would always be a question of the finder of fact, since no allonge can be affixed so firmly that it cannot be detached. One simply cannot infer that two documents were never attached from the fact that they can be, and have been, detached. Nor could the jury infer from the staple holes in the two papers, as the court of appeals suggested, that the two documents had not been attached. This would be pure conjecture.” Id. at 264.

{¶ 64} Like Texas, Ohio has adopted the pertinent revisions to the UCC. In All American Finance Co. v. Pugh Shows, Inc. (1987), 30 Ohio St.3d 130, the Supreme Court of Ohio noted that under UCC 3-302, “a purported indorsement on a mortgage or other separate paper pinned or clipped to an instrument is not sufficient for negotiation.” Id. at 132, n. 3. At that time, R.C. 1303.23 was the analogous Ohio statute to UCC 3-202, which required endorsements to be firmly affixed.

{¶ 65} Ohio subsequently adopted the revisions to the UCC. R.C. 1303.24(A)(2) now requires that a paper be affixed to an instrument in order for a signature to be considered part of the instrument. R.C. 1303.24 is the analogous Ohio statute to UCC. 3-204. The 1990 official comments for UCC 3-204 state that this requirement is “based on subsection (2) of former Section 3-202. An indorsement on an allonge is valid even though there is sufficient space on the instrument for an indorsement.” This latter comment addresses the fact that prior to the 1990 changes to the UCC, the majority view was that allonges could be used only if the note itself contained insufficient space for further endorsements. See, e.g., Pribus v. Bush (1981), 118 Cal.App.3d 1003, 1008, 173 Cal.Rptr. 747. See, also, All American Finance, 30 Ohio St.3d at 132, n.3 (indicating that while the court did not need to reach the issue for purposes of deciding the case, several jurisdictions “hold that indorsement by allonge is permitted only where there is no longer room on the instrument itself due to previous indorsements.”)

{¶ 66} The current version of the UCC, codified as R.C. 1303.24(A)(2), allows allonges even where room exists on the note for further endorsements. However, the paper must be affixed to the instrument in order for the signature to be considered part of the instrument. As the Supreme Court of Texas noted in Watson, the requirement has changed from being “firmly affixed” to “affixed.” However, even the earlier version, which specified that the allonge be “attached thereto,” was interpreted as requiring that the allonge be stapled. Watson, 964 S.W.2d at 263.

{¶ 67} In contrast to Watson, no evidence was presented in the case before us to indicate that the allonges were ever attached or affixed to the promissory note. Instead, the allonges have been presented as separate, loose sheets of paper, with no explanation as to how they may have been attached. Compare In re Weisband, (Bkrtcy. D. Ariz., 2010), 427 B.R. 13, 19 (concluding that GMAC was not a “holder” and did not have ability to enforce a note, where GMAC failed to demonstrate that an allonge endorsement to GMAC was affixed to a note. The bankruptcy court noted that the endorsement in question “is on a separate sheet of paper; there was no evidence that it was stapled or otherwise attached to the rest of the Note.”)

{¶ 68} It is possible that the allonges in the case before us were stapled to the note at one time and were separated for photocopying. But unlike the alleged creditor in Watson, HSBC offered no evidence to that effect. Furthermore, assuming for the sake of argument that the allonges were properly “affixed,” the order of the allonges does not permit HSBC to claim that it is the possessor of a note made payable to bearer or endorsed in blank.

{¶ 69} The first allonge is endorsed from Delta to “blank,” and the second allonge is endorsed from Fidelity to Delta. If the endorsement in blank were intended to be effective, the endorsement from Fidelity to Delta should have preceded the endorsement from Delta to “blank,” because the original promissory note is made payable to Fidelity, not to Delta. Delta would have had no power to endorse the note before receiving the note and an endorsement from Fidelity.

{¶ 70} HSBC contends that the order of the allonges is immaterial, while Thompson claims that the order is critical. At the oral argument of this appeal, HSBC appeared to be arguing that the order of allonges would never be material. This is easily refuted by the example of two allonges, one containing an assignment from the original holder of the note to A, and the other containing an assignment from the original holder of the note to B. Whichever allonge was first would determine whether the note had been effectively assigned to A, or to B.

{¶ 71} Thompson contends that because the last-named endorsement is made to Delta, Delta was the proper holder of the note when this action was filed, since the prior, first-named endorsement was from an entity other than the current holder of the note. In Adams v. Madison Realty & Development, Inc. (C.A.3, 1988), 853 F.2d 163, the Third Circuit Court of Appeals stressed that from the maker’s standpoint:

{¶ 72} “it becomes essential to establish that the person who demands payment of a negotiable note, or to whom payment is made, is the duly qualified holder. Otherwise, the obligor is exposed to the risk of double payment, or at least to the expense of litigation incurred to prevent duplicative satisfaction of the instrument. These risks provide makers with a recognizable interest in demanding proof of the chain of title.” Id. At 168.

{¶ 73} The Third Circuit Court of Appeals further observed that:

{¶ 74} “Financial institutions, noted for insisting on their customers’ compliance with numerous ritualistic formalities, are not sympathetic petitioners in urging relaxation of an elementary business practice. It is a tenet of commercial law that `[h]oldership and the potential for becoming holders in due course should only be accorded to transferees that observe the historic protocol.'” 853 F.2d at 169 (citation omitted).

{¶ 75} Consistent with this observation, recent decisions in the State of New York have noted numerous irregularities in HSBC’s mortgage documentation and corporate relationships with Ocwen, MERS, and Delta. See, e.g., HSBC Bank USA, N.A. v. Cherry (2007), 18 Misc.3d 1102(A), 856 N.Y.S.2d 24 (Table), 2007 WL 4374284, and HSBC Bank USA, N.A. v. Yeasmin (2010), 27 Misc.3d 1227(A), 2010 N.Y. Slip Op. 50927(U)(Table), 2010 WL 2080273 (dismissing HSBC’s requests for orders of reference in mortgage foreclosure actions, due to HSBC’s failure to provide proper affidavits). See, also, e.g., HSBC Bank USA, N.A. v. Charlevagne (2008), 20 Misc.3d 1128(A), 872 N.Y.S.2d 691 (Table), 2008 WL 2954767, and HSBC Bank USA, Nat. Assn. v. Antrobus (2008), 20 Misc.3d 1127(A), 872 N.Y.S.2d 691,(Table), 2008 WL 2928553 (describing “possible incestuous relationship” between HSBC Bank, Ocwen Loan Servicing, Delta Funding Corporation, and Mortgage Electronic Registration Systems, Inc., due to the fact that the entities all share the same office space at 1661 Worthington Road, Suite 100, West Palm Beach, Florida. HSBC also supplied affidavits in support of foreclosure from individuals who claimed simultaneously to be officers of more than one of these corporations.).

{¶ 76} Because the last allonge endorses the note to Delta, and no further endorsement to HSBC was provided, the trial court did not err in concluding that HSBC was not the holder of the note when the litigation was commenced against Thompson.

{¶ 77} As an alternative position, HSBC contended at oral argument that it had standing to prosecute the action, because assignment of the mortgage alone is sufficient. In this regard, HSBC notes that the mortgage was transferred to HSBC by MERS on November 14, 2007. This was about one week after HSBC commenced the mortgage foreclosure action.

{¶ 78} HSBC did not argue this position in its briefs, and did not provide supporting authority for its position at oral argument. In fact, HSBC relied in its brief on the contrary position that HSBC “was the legal holder of the note and, accordingly, entitled to enforce the mortgage loan regardless of the date the Mortgage was assigned, and under Marcino, even if the Mortgage had never been separately assigned to HSBC.” Brief of Appellant HSBC Bank USA, N.A., pp. 15-16 (bolding in original).

{¶ 79} The Marcino case referred to by HSBC states as follows:

{¶ 80} “For nearly a century, Ohio courts have held that whenever a promissory note is secured by a mortgage, the note constitutes the evidence of the debt and the mortgage is a mere incident to the obligation. Edgar v. Haines (1923), 109 Ohio St. 159, 164, 141 N.E. 837. Therefore, the negotiation of a note operates as an equitable assignment of the mortgage, even though the mortgage is not assigned or delivered.” U.S. Bank Natl. Assn. v. Marcino, 181 Ohio App.3d 328, 2009-Ohio-1178, ¶ 52.

{¶ 81} Even if HSBC had provided support for the proposition that ownership of the note is not required, the evidence about the assignment is not properly before us. The alleged mortgage assignment is attached to the rejected affidavits of Neil. Furthermore, even if we were to consider this “evidence,” the mortgage assignment from MERS to HSBC indicates that the assignment was prepared by Ocwen for MERS, and that Ocwen is located at the same Palm Beach, Florida address mentioned in Charlevagne and Antrobus. See Exhibit 3 attached to the affidavit of Chomie Neil. In addition, Scott Anderson, who signed the assignment, as Vice-President of MERS, appears to be the same individual who claimed to be both Vice-President of MERS and Vice-President of Ocwen. See Antrobus, 2008 WL 2928553, * 4, and Charlevagne, 2008 WL 2954767, * 1.

{¶ 82} In support of its argument that a subsequent mortgage assignment can confer standing on a noteholder, HSBC cites some Ohio cases in which “courts have rejected claims that the execution of an assignment subsequent to the filing of a complaint necessarily precludes a party from prosecuting a foreclosure action as the real party in interest.” Deutsche Bank Natl. Trust Co. v. Cassens, Franklin App. No. 09-AP-865, 2010-Ohio-2851, ¶ 17. Accordingly, at least in the view of some districts in Ohio, if the note had been properly negotiated to HSBC, HSBC may have been able to claim standing, based on equitable assignment of the mortgage, supplemented by the actual transfer of the mortgage after the complaint was filed.

{¶ 83} In contrast to the Seventh District, other districts take a more rigid view. See Wells Fargo Bank v. Jordan, Cuyahoga App. No. 91675, 2009-Ohio-1092 (holding that Civ. R. 17(A) does not apply unless a plaintiff has standing in the first place to invoke the jurisdiction of the court. Accordingly, a bank that is not a mortgagee when suit is filed is not the real party in interest on the date the complaint is filed, and cannot cure its lack of standing by subsequently obtaining an interest in the mortgage). Accord Bank of New York v. Gindele, Hamilton App. No. C-090251, 2010-Ohio-542.

{¶ 84} In Gindele, the First District Court of Appeals commented as follows:

{¶ 85} “We likewise reject Bank of New York’s argument that the real party in interest when the lawsuit was filed was later joined by the Gindeles. We are convinced that the later joinder of the real party in interest could not have cured the Bank of New York’s lack of standing when it filed its foreclosure complaint. This narrow reading of Civ.R. 17 comports with the intent of the rule. As other state and federal courts have noted, Civ.R. 17 generally allows ratification, joinder, and substitution of parties `to avoid forfeiture and injustice when an understandable mistake has been made in selecting the parties in whose name the action should be brought.’ * * * * `While a literal interpretation of * * * Rule 17(a) would make it applicable to every case in which an inappropriate plaintiff was named, the Advisory Committee’s Notes make it clear that this provision is intended to prevent forfeiture when determination of the proper party to sue is difficult or when an understandable mistake has been made. When determination of the correct party to bring the action was not difficult and when no excusable mistake was made, the last sentence of Rule 17(a) is inapplicable and the action should be dismissed.'” Id. at ¶ 4 (footnotes omitted).

{¶ 86} We need not decide which approach is correct, because the alleged assignment of mortgage is attached to Neil’s rejected affidavits. Since the trial court’s disregard of the affidavits was not an abuse of discretion, there is currently no evidence of a mortgage “assignment” to consider. Moreover, we would reject HSBC’s position even if we considered the alleged assignment, because HSBC failed to establish that it was the holder of the note. Therefore, no “equitable assignment” of the mortgage would have arisen. All that HSBC might have established is that the mortgage was assigned to it after the action was filed. However, as we noted, the matters pertaining to that fact were submitted with an affidavit that the trial court rejected, within its discretion.

{¶ 87} Accordingly, the trial court did not err in dismissing the action without prejudice, based on HSBC’s failure to prove that it had standing to sue.

{¶ 88} HSBC’s First Assignment of Error is overruled.


{¶ 89} The final matter to be addressed is Thompson’s motion to dismiss the part of HSBC’s appeal which assigns error in the trial court’s denial of HSBC’s motion for summary judgment. HSBC filed a motion for summary judgment on Thompson’s counterclaim, which alleged violations of the Fair Debt Practices Collection Act. The trial court denied the motion for summary judgment, and filed a Civ. R. 54(B) certification regarding the summary judgment that had been rendered in Thompson’s favor.

{¶ 90} Thompson contends that denial of summary judgment is not a final appealable order, and that HSBC’s argument regarding the FDCPA should not be considered on appeal. In response, HSBC maintains that it is not appealing the denial of its motion for summary judgment. HSBC argues instead, that if we reverse the trial court order granting Thompson’s motion to strike the affidavit of Neil, or if we reverse the order dismissing HSBC’s foreclosure complaint, we would then be entitled under App. R. 12(B) to enter a judgment dismissing the FDCPA claims.

{¶ 91} App. R. 12(B) provides that:

{¶ 92} “When the court of appeals determines that the trial court committed no error prejudicial to the appellant in any of the particulars assigned and argued in appellant’s brief and that the appellee is entitled to have the judgment or final order of the trial court affirmed as a matter of law, the court of appeals shall enter judgment accordingly. When the court of appeals determines that the trial court committed error prejudicial to the appellant and that the appellant is entitled to have judgment or final order rendered in his favor as a matter of law, the court of appeals shall reverse the judgment or final order of the trial court and render the judgment or final order that the trial court should have rendered, or remand the cause to the court with instructions to render such judgment or final order. In all other cases where the court of appeals determines that the judgment or final order of the trial court should be modified as a matter of law it shall enter its judgment accordingly.”

{¶ 93} App. R. 12(B) does not apply, because the trial court did not commit error prejudicial to HSBC. Furthermore, HSBC admits that it is not appealing the denial of its summary judgment motion. Accordingly, Thompson’s motion to dismiss is without merit and is overruled.


{¶ 94} All of HSBC’s assignments of error having been overruled, the judgment of the trial court is Affirmed. Thompson’s motion to dismiss part of HSBC’s appeal is overruled.

Brogan and Froelich, JJ., concur.

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Promissory Notes | How Negotiability Has Fouled Up the Secondary Mortgage Market, and What to Do About It

Promissory Notes | How Negotiability Has Fouled Up the Secondary Mortgage Market, and What to Do About It


via: 83jjmack

Copyright (c) 2010 Pepperdine University School of Law
Pepperdine Law Review

Author: Dale A. Whitman*

The premise of this paper is that the concept of negotiability of promissory notes, which derives in modern law from Article 3 of the Uniform Commercial Code, is not only useless but positively detrimental to the operation of the modern secondary mortgage market. Therefore, the concept ought to be eliminated from the law of mortgage notes.

This is not a new idea. More than a decade ago, Professor Ronald Mann made the point that negotiability is largely irrelevant in every field of consumer and commercial payment systems, including mortgages. 1 But Mann’s article made no specific recommendations for change, and no change has occurred.

I propose here to examine the ways in which negotiability and the holder in due course doctrine of Article 3 actually impair the trading of mortgages. Doing so, I conclude that these legal principles have no practical value to the parties in the mortgage system, but that they impose significant and unnecessary costs on those parties. I conclude with a recommendation for a simple change in Article 3 that would do away with the negotiability of mortgage notes.

I. The Secondary Mortgage Market

In this era, it is a relatively rare mortgage that is held in portfolio for its full term by the originating lender. Instead, the vast majority of mortgages are either traded on the secondary market to an investor who will hold them, 2 or to an issuer (commonly an investment banker) who will securitize them. Securitization …

[ipaper docId=32796250 access_key=key-n62ohszj7y8skrfnvs2 height=600 width=600 /]

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Posted in foreclosure, foreclosure fraud, note, originator, securitization, servicersComments (1)

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