A pair of very interesting foreclosure rulings were handed down today by the Nevada Supreme Court. They provide further evidence that documentation problems are rife in the mortgage industry, including documents showing chain of title. They also provide another example of a state supreme court demanding proof of valid chain of title before permitting foreclosure.
Both cases arise from Nevada’s foreclosure mediation program. In one case, Pasillas v. HSBC Bank USA, the Nevada Supreme Court ordered sanctions against HSBC for failing to mediate in good faith. What was the failure? HSBC failed to show up at the mediation with the required loan documentation, namely two pages of the mortgage note were missing, the assignment to HSBC was incomplete, a BPO rather than an appraisal was provided. Moreover, HSBC didn’t show up at the mediation with authority to settle because it still required “investor approval.” The foreclosure mediator refused on these ground to authorize the foreclosure. The district court ordered the foreclosure to proceed, but the Nevada Supreme Court reversed the ruling and remanded with instructions for the district court to determine appropriate sanctions.
All of this goes to a simple point: safety-and-soundness regulation is fundamentally incompatible with law enforcement. Prudential regulators aren’t interested in law enforcement. They’re interested in preserving quiet and stability and that sometimes means papering over problems and looking the other way.
Prof. Adam Levitin–
Over the past couple of years, the Massachusetts Attorney General’s office has reached settlements with a number of major banks regarding mortgage securitization. These settlements has received very little notice in the press, but I think they provide a real template for future AG settlements and are worth examining.
Yves Smith has an interesting post up on Naked Capitalism about Florida Governor Rick Scott suggesting that Florida could switch from judicial to nonjudicial foreclosures as a way to solve its foreclosure overload. (At a Congressional hearing last fall, the head of BAC testified that 70% of judicial foreclosures are in Florida, a testament to that state’s high default rate and large population among judicial foreclosure states.)
Putting aside the political questions of whether should engage in such a change and whether the votes are there, I think there’s a really interesting legal question lurking in the suggestion. Can a state change from judicial to nonjudicial foreclosure as applied to existing mortgages? (Let’s assume that it would only apply to future foreclosures, however.)
Which brings us to BONY v. Faulk. In this case, the foreclosure filing included a 3 page note. The note lacked endorsements connecting the originator to BONY as trustee for the foreclosing securitziation trust. This set up a motion to dismiss on the grounds that BONY didn’t have any right to do anything–it had no connection with the note.
But wait! Suddenly BONY’s attorney tells the court that she is in possession of the fourth page of the note, which includes a blank endorsement. Puhlease… What a ridiculous deus ex machina ending. Are we do believe that this attorney filed 3 pages of the note, but not the 4th? If so, I sure hope she’s not billing for that screw up.
But here’s what perplexes me. Suppose that an allonge is produced. How are we going to know when that allonge was created or that it even relates to the note in question? (Just so everyone’s clear–if the endorsement were created later, then BONY as trustee for CWABS 2006-13 trust had no standing at the time the action was filed because the trust didn’t own the note at that time.) How do we know that this attorney isn’t engaged in fraud on the court (and a host of other violations of state and federal law)?
And this isn’t even getting into the question of whether the PSA at issue requires specific endorsements, not endorsements in blank. As it turns out that’s a problem in this particular case. Here’s the PSA for CWABS 2006-13 trust. Section 2.01(g)(1) provides that the Depositor deliver to the trustee:
the original Mortgage Note, endorsed by manual of facsimile signature in blank in the following form: “Pay to the order of _______ without recourse”, with all intervening endorsements that show a complete chain of endorsement from the originator to the Person endorsing the Mortgage Note…
“Now allonges. An allonge isn’t a delicious throat-soothing lozenge from Switzerland. It’s a piece of paper that goes a-long with the note. The allonge is basically an overflow sheet for extra endorsements”
Prof. Adam Levitin:
I have generally been willing to give mortgage servicers, servicer support shops (like LPS), and foreclosure attorneys the benefit of the doubt when it comes to documentation irregularities (to put it mildly) in foreclosures. My working assumption up to this point has been that the documentation problems have been a function of corner cutting with securitization based on the assumptions that (1) the loans would perform better than they did and (2) those that defaulted would result in default judgments in foreclosure, so no one would ever notice the problems. I’ve also assumed that lack of capacity has played a critical role in problems in the default management chain–the system is held together by Scotch tape at this point. In other words, the problems in the system weren’t caused by malice.
This Article argues that a principal-agent problem plays a critical role in the current foreclosure crisis.
A traditional mortgage lender decides whether to foreclose or restructure a defaulted loan based on its evaluation of the comparative net present value of those options. Most residential mortgage loans, however, are securitized.
Securitized mortgage loans are managed by third-party mortgage servicers as agents for mortgage-backed securities (“MBS”) investors.
Servicers‘ compensation structures create a principal-agent conflict between them and MBS investors. Servicers have no stake in the performance of mortgage loans, so they do not share investors‘ interest in maximizing the net present value of the loan. Instead, servicers‘ decision of whether to foreclose or modify a loan is based on their own cost and income structure, which is skewed toward foreclosure. The costs of this principal-agent conflict are thus externalized directly on homeowners and indirectly on communities and the housing market as a whole.
This Article reviews the economics and regulation of servicing and lays out the principal-agent problem. It explains why the Home Affordable Modification Program (“HAMP”) has been unable to adequately address servicer incentive problems and suggests possible solutions, drawing on devices used in other securitization servicing markets. Correcting the principal-agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.
Lets not act surprised in this as we always knew there was something cooking behind the scenes and not everyone agreed and probably disappointed with the approach Tom Miller from Iowa was heading.
WaPO-
As state attorneys general continue their months-long settlement negotiations with the nation’s largest banks over widespread problems in foreclosure practices, they have yet to resolve differences within their own group on key issues.
Even within the 14-member “executive committee” of attorneys general who are leading the 50-state coalition, some have very different visions of what exactly a settlement should look like.
[…]
A handful of crucial states, including California, Illinois and New York, have undertaken their own investigations into mortgage industry practices, subpoenaing information about business practices and seeking meetings with executives about such things as securitization to faulty court affidavits. Other officials, such as in Oklahoma, have threatened to pursue their own settlements with mortgage servicers.
The nation’s largest mortgage companies are operating on the assumption that they will have to pay as much as $20 billion to resolve claims of widespread foreclosure abuse, an amount four times what they had originally proposed, the top federal official overseeing the discussions told state officials Monday, according to people who participated in the conversation.
Associate U.S. Attorney General Tom Perrelli told a bipartisan group of state attorneys general during a conference call that he believes the banks have accepted the realization that a wide-ranging settlement to the months-long probes will cost them much more than the $5 billion offer they floated last month, according to officials with direct knowledge of the call. Perrelli said he’s basing his belief on his recent conversations with representatives of the five targeted firms: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.
You’re either pregnant or you ain’t. Can’t be both!
Credit Slips-
Since last October, shortly after the robosigning scandal broke, I’ve been talking until I turned blue in the face about robosigning being the tip of the iceberg with mortgage problems and that the real issue was chain of title. Robosigning appeared to be an almost unexpected deposition by-product; the real goal in the depositions that uncovered the robosigning was exposing the backdating of mortgage endorsement. And that they did–the notaries’ whose seals were on the documents didn’t have their commissions when the assignments supposedly took place.
But why would anyone bother backdating mortgage assignments? …
Nick Timiraos has a great piece in the WSJ about the state of play on foreclosure defense litigation. It quotes Larry Platt, a bank-industry lawyer at K&L Gates (which lost Ibanez). It’s worth pausing for a second to consider what Platt said. Although Platt
concedes that banks may have been sloppy… [he claims that]… “the real assault on the legal system” are efforts by judges and local officials to strip lenders of their rightful ownership and make foreclosures impossible.
Platt’s view, it seems, is that everyone understood the mortgage deal and that the paperwork doesn’t really matter. That’s a very problematic view for any attorney to take, much less one with a background in real estate, secured lending, and securitization. (A less charitable interpretation of Platt’s comments is that the proper outcomes has nothing to do with law. Instead, it’s paperwork and intent be damned, we’re the banks so we should win by right.)
U.S. banks and state attorneys general, seeking to avoid $17 billion in court claims over faulty foreclosures, are discussing a settlement framework that may let firms choose from a menu of options for helping borrowers, two people briefed on the talks said.
Under the proposal, Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Ally Financial Inc. would pay penalties and pledge billions of dollars in relief to home buyers, one of the people said, asking not to be named because the talks are private. Firms may fulfill obligations to borrowers over time, choosing among options such as reducing loan principal, cutting fees or paying moving costs, the people said.
NOTE: We’ll take the $17 Billion over the AG’s “settlement”!
If settlement happens, they SHOULD prohibit any of them from coming at you with a deficiency!
WSJ-
State attorneys general told the nation’s five largest banks on Tuesday they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn’t reached to address improper foreclosure practices, according to people familiar with the matter.
The figure doesn’t cover additional billions of dollars in potential claims from federal agencies such as the Department of Housing and Urban Development and the Justice Department. State and federal officials haven’t proposed a specific comprehensive settlement figure, but Tuesday’s …
The Office of the Comptroller of the Currency met with the 14 mortgage servicers Friday over details in the recently signed consent orders, sources familiar with the matter confirmed.
The orders are meant to settle recent foreclosure investigations. According to the orders, servicers must retain an independent firm to review foreclosure actions pending between Jan. 1, 2009 and Dec. 31, 2010. The review will be conducted to determine any financial injury to borrowers caused by the errors, misrepresentations or other deficiencies.
ATTORNEY GENERAL GEORGE JEPSEN
STATEMENT BY ATTORNEY GENERAL GEORGE JEPSEN
CONCERNING MORTGAGE FORECLOSURE INVESTIGATION
For immediate release ……………………………………..TUESDAY MAY 17, 2011
“The multistate investigation of the nation’s largest mortgage servicing companies confirms what my office has been told by thousands of Connecticut consumers, that these banks have done an incredibly poor job in dealing with the mortgage foreclosure mess they were instrumental in creating. As a result, millions of families have needlessly suffered, homeowners have lost billions of dollars in equity, and the real estate market continues to stagnate. Time is of the essence to fix this problem.
“Thus far, the national servicers have been unwilling to step up to the plate with the money necessary to address the full scope of the problems they themselves created. I believe they face substantial legal liability for their clearly illegal behavior should states be forced to sue. After being bailed out by American taxpayers, the banks owe those same taxpayers a real effort to partner with state and federal officials to clean up this mess.”
Attorney General Jepsen is a member of the National Association of Attorneys General multi-state task force seeking resolution of the mortgage foreclosure crisis
Mistakes happen, of course. And loan servicers like to contend that if errors occur, they are rare and honestly made. But after sifting through the data produced by this investigation, Mr. White disagreed that problems are rare. “In Senate testimony, an executive from Countrywide said its error rate was 1 percent,” Mr. White recalled. “The mortgage servicer industry error rate might be 10 times higher, based on the number of cases we are looking at.”
“There are continued flaws in the process, and they are not merely technical,” Mr. White continued. “Those flaws undermine the integrity of the bankruptcy system. Many homeowners have been harmed, including where the lender has come in and said ‘we want to lift the stay and go back into foreclosure proceedings,’ even though they lacked a sufficient basis to do it.”
The investigation conducted by the OCC and the Fed included a review of just 100 foreclosure files.
Housing Wire-
When mortgage servicers signed consent orders with the Office of the Comptroller of the Currency and the Federal Reserve, these companies were required to hire outside firms to conduct “look back” evaluations of questionable foreclosure practices.
But these reviews will not be made public, according to an OCC spokesman.
Warning: This is a long blog post. But if you follow mortgage servicing, I think you’ll find it worth reading. Despite lots and lots of media coverage of the servicing fraud settlement, nobody seems to understand the real story that’s going on. I think that this post will explain a lot.
Let’s start by recapping what we know. Back in March we started hearing media reports of a proposed penalty for servicers in the $20-$30B range. Then the American Banker published a 27-page term sheet from the AGs for servicing standards. Next, Huffington Post published a 7-page CFPB powerpoint presentation. Then came the draft C&D orders and then in April, the final C&D orders (which eliminated the ridiculous “single point of contact which need not be a single person” and replaced it with “single point of contact as hereinafter defined” and then failed—quite deliberately—to define it anywhere in the document).
Now there’s another round of activity and conflicting reporting. The American Banker reported that there was a new AG term sheet proposed and that principal reductions were off the table. That turns out to be incorrect, as Shahien Nasiripour reported in the Huffington Post. The new AG term sheet that the American Banker referenced deals only with servicing standards. The American Banker assumed that this mean that principal reductions were off the table because they weren’t referenced in the term sheet. In fact they are still very much in play. They’re just in a second, separate term sheet. So now there are two separate term sheets–one covering servicing standard and another covering monetary issues/principal reductions. (Recall that the original AG term sheet did not cover the monetary issues—that was clearly for a separate document.) We are also hearing news reports that the banks are offering to settle for $5B and won’t go above $10B.
This Special Foreclosure Edition describes lessons learned from an interagency review of foreclosure practices at the 14 largest residential mortgage servicers and includes examples of effective mortgage servicing practices derived from these lessons.
Top Massachusetts judges grilled attorneys on both sides of a widely watched foreclosure case that could impact thousands of property owners across the state, and beyond.
The Supreme Judicial Court of Massachusetts on Monday wrestled over whether faulty mortgages and land records should be left in place as the basis for further property sales.
Summary
(prepared by Suffolk University Law School)
Real Property– Whether the plaintiff, who acquired title by a deed after an invalid mortgage foreclosure, has standing to bring a claim in the Land Court to “try title” to the real estate.
The American Land Title Association; Wilmerhale Legal Services Center; Mortgage Bankers Association; Attorney General; Adam J. Levitin; Christopher L. Peterson; Katherine Porter; John A.E. Pottow; The Massachusetts Association of Bank Counsel, Inc.
First of all, the problems we found were extensive. Our reviews found significant weaknesses in foreclosure governance and document preparation: improper affidavits were submitted and documents were notarized improperly. Servicers devoted insufficient financial, staffing and managerial resources to foreclosure processing. Third party providers of foreclosure-related services, including outside law firms, were not adequately supervised, and, in a limited number of cases, servicers failed to ensure proper endorsement of promissory notes or mortgage documents.
SUPREME JUDICIAL COURT
for the Commonwealth
Case Docket
FRANCIS J. BEVILACQUA, III vs. PABLO RODRIGUEZ
SJC-10880
BRIEF OF THE ATTORNEY GENERAL ON BEHALF OF THE
COMMONWEALTH OF MASSACHUSETTS, AMICUS CURIAE
.
EXCERPT:
Statement of the Relevant Facts
The relevant facts are set Forth in the Land Court’s Memorandum and Order dismissing plaintiff’s petition [A24-28] and in the plaintiff’s Petition to Compel Adverse Claimant to Try Title [A3-51.
On March 18, 2005, respondent Pablo Rodriguez granted a mortgage securing 126-128 Summer Street, Haverhill, Massachusetts (the “Property”) to Mortgage Electronic Registration Systems, Inc. (”MERS”) , as nominee for Finance America, LLC. [A41 In or around April 2006, U.S. Bank, N.A. (“U.S. Bank”) initiated foreclosure proceedings without first obtaining a valid, written assignment of the mortgage from Finance America, LLC or its nominee, MERS. [A41 Indeed it was not until after the foreclosure sale, on July 21, 2006 that MERS assigned the mortgage to U . S . Bank. -Id. On October 17, 2006, Mr. Bevilacqua acquired a quitclaim deed from U.S. Bank. [A3-A41]
Argument
This case exemplifies the continuing harms caused by the securitization of mortgage loans and a secondary mortgage market that ignored state law in an effort to sell and resell mortgages and securities backed by mortgages. As this Court so recently observed in U.S. Bank, N.A. v. Ibanez, 458 Mass. 637 (2011), some participants in the secondary mortgage market ignored Long standing requirements of Massachusetts law concerning when and how a mortgage holder may exercise its right to foreclose, resulting in numerous invalid foreclosures. In this case, because U.S. Bank did not hold a valid assignment of the mortgage at the time it initiated foreclosure proceedings, it failed to acquire title through the foreclosure deed. Thus, U.S. Bank’s subsequent conveyance of the Property by quitclaim deed in favor of Mr. Bevilacqua failed to transfer title to the Property to Mr. Bevilacqua. Accordingly, Mr. Bevilacqua has no claim to title to the Property.
![[VIDEO] Oral Arguments of BEVILACQUA v. RODRIGUEZ](https://stopforeclosurefraud.com/wp-content/themes/gazette/thumb.php?src=wp-content/uploads/2011/05/postibanezLaRace3.jpg&w=100&h=57&zc=1&q=90)
Recent Comments