This is when those placeholders “A Bad Bene, Bogus Assignee” might come in handy… Maybe AG Harris will put a stop to this madness.

MSNBC–

Not according to Deutsche or other banks. They say they aren’t really the owners, despite the fact that their name appears on the property title. They also say they are not responsible for maintenance.

Representatives of Deutsche, as well as U.S. Bank, BNY Mellon and HSBC — three other major lenders that Los Angeles is investigating with an eye to suing, all said that loan servicers are responsible for property upkeep, as well as tasks such as sending default notices, modifying loans, selling homes, and collecting rent and mortgage payments.

“We’re there in name only,” said Teri Charest, spokeswoman for U.S. Bank. “We’re trustees. We have a very limited role.”

In re: MARIA RENEE BALDERRAMA, Chapter 7, Debtor.
CARLA P. MUSSELMAN, as Chapter 7, Trustee, Plaintiff,
v.
DEUTSCHE BANK TRUST COMPANY AMERICAS, in trust for Residential Accredit Loans, Inc. Mortgage Asset-Backed Pass-Through Certificates, Series 2007-QH5, Defendant.

Case No. 6:10-bk-07828-KSJ, Adv. Pro. No. 6:10-ap-00245-KSJ.

United States Bankruptcy Court, M.D. Florida, Orlando Division.

May 4, 2011.

Seldon J. Childers, ChildersLaw LLC, Gainesville, FL, Plaintiff Attorney.

Carla P. Musselman, Maitland, FL, Plaintiff.

Daniel A. Miller, Broad and Cassel, West Palm Beach, FL, Defendant Attorney.

MEMORANDUM OPINION PARTIALLY GRANTING AND PARTIALLY DENYING TRUSTEE’S AMENDED AND RENEWED MOTION TO COMPEL PRODUCTION OF DEUTSCHE BANK

KAREN S. JENNEMANN, Bankruptcy Judge

In this adversary proceeding the Chapter 7 trustee, Carla Musselman, seeks to quiet title and to value at zero dollars defendant Deutsche Bank’s alleged secured interest in debtor Maria Balderrama’s non-homestead real property. As part of discovery, the trustee served interrogatories and document production requests seeking information about the bank’s purchase of the promissory note and mortgage on the disputed property.^[1] Deutsche Bank resists producing any discovery related to the purchase history of the note and the chain of title of the mortgage arguing that, under Florida law, it has established its secured interest in the property merely by alleging it holds the original promissory note endorsed specially in its favor.^[2] The trustee disputes Deutsche Bank’s characterization of Florida law and notes that neither the Court nor the trustee has seen the original endorsed note. She now requests the Court compel the bank to produce the requested information.^[3]

[…]

Deutsche Bank, however, still has not proven to either the trustee or the Court that it holds a validly endorsed promissory note evidencing its purchase of the debt on the disputed property. Therefore, Deutsche Bank cannot rely on the General Rule to avoid responding to the trustee’s discovery requests pertaining to the authenticity of the note. The trustee has raised in her complaint doubts concerning the authenticity and effectiveness of the endorsements on the allonge to the note. The copies of the note and mortgage attached as an exhibit to its response therefore are insufficient to establish Deutsche Bank’s status as holder of the note.

continue below…

[ipaper docId=55407063 access_key=key-n00win1gmrxcgwmvllb height=600 width=600 /]

Disgusting…

HuffPO-

But Deutsche Bank wasn’t just going after her. The bank was also attempting to sue her son, Mark Cullen, who is currently pursuing a graduate degree in poetry at the New School in New York. Cullen hasn’t lived in Szymoniak’s house for seven years and is not a party to any aspect of her mortgage — he has no interest in either the property or the loan, and never has had any such interest, according to Szymoniak.

[…]

And other Florida foreclosure experts say it’s difficult to interpret Deutsche Bank’s move as anything other than retaliation for Szymoniak’s media presence. If it is not, in fact, retaliation, they argue, then Deutsche Bank’s lawyers have demonstrated rank incompetence.

“I wish I could say we were just about finished, but sadly we are not.”

NYTimes-

Every few days during the trial of Raj Rajaratnam, the Galleon Group’s co-founder, Preet Bharara, the United States attorney for the Southern District of New York, would quietly enter the courtroom and take a seat in the last row of the gallery.

From that unassuming vantage point, Mr. Bharara watched his colleagues try to persuade a jury to convict the former hedge fund titan of securities fraud and conspiracy.

CESAR M. DOBLE,

v.

DEUTSCHE BANK NA T’L TRUST
COMPANY, AS TRUSTEE OF THE
HARBORVIEW MORTGAGE LOAN TRUST
2005-5, MORTGAGE LOAN PASSTHROUGH
CERTIFICATES, SERIES 2005-5
AND ONEWEST BANK, F.S.B.

Excerpts:

Instead, One West forwarded the Complaint to an outside vendor, Lender Processing Services (“LPS”), which is retained by One West to handle routine legal matters, but not litigation. LPS then exacerbated the problem by assigning an incorrect response date and sending the Complaint to the wrong outside counsel.

[…]

The most disconcerting misrepresentation to the Court was Defendants’ submission of multiple “true and correct”  copies of the Note under penalty of perjury without any endorsement from Plaza.  Whether the Note was endorsed is central to the merits ofthis case. When Defendants finally submitted an endorsed copy of the Note on November 8, 2010, they attempted to pass off the first three unendorsed copies of the Note as “illegible.” The first three copies of the Note were fully readable, so the phantom endorsement page was not a problem with legibility. The timing of this tardily produced endorsement, produced after several requests, suggests it was added only in response to the litigation.

To add to the Court’s incredulity, Defendants have never answered the Court’s specific questions as to when and under what circumstances this newly proffered endorsement was executed.

[…]

The first two causes of action seek damages and disallowance of Defendants’ secured and unsecured claims for lack of standing on four separate grounds: (a) MERS’ assignment of the DOT to One West and, in tum, One West’s assignment to Deutsche Bank, were invalid; (b) Defendants have no interest in the Note nor any right to enforce it under California law; (c) the assignment of the DOT to Deutsche Bank was not of public record; and (d) Defendants violated New York Trust law so that Deutsche Bank cannot be the owner of the Loan as a matter oflaw. Where a secured creditor cannot establish a right to enforce a loan, it has no standing to file or defend a claim, or to seek relief from stay. In re Gavin, 319 B.R. 27,32 (B.A.P. 1st Cir. 2004); In re Hayes, 393 B.R. 259,269-70 (Bankr. D. Mass. 2008).

Although the Court rejects Doble’s New York Trust claims and his avoiding power claim, the record here supports Doble’s first three standing claims. MERS had no authority to assign the DOT, under its terms and as a matter oflaw, without the authority to assign the Note. The Note was not assigned until it was endorsed by Plaza. Until that endorsement, the MERS’ assignments were a nullity. Deutsche Bank currently lacks authority to enforce the Loan as the assignee of Plaza, and will continue to lack authority until it records its assignment.

[…]

III. CONCLUSION

The Court denies Defendants’ request to set aside the clerk’s entry of a default, but grants their Motion to Dismiss the portions of the first and second causes of action relating to Doble’s New York Trust claims and avoiding power claims. Defendants’ Motion to Dismiss Doble’s third and fourth causes of action is also granted. As to the remainder of the first and second causes of action, the Court finds MERS’ limited role as beneficiary of the DOT did not provide talismanic protection against the myriad foreclosure deficiencies committed by Defendants [*47] regarding this Loan. MERS’ role did not provide Defendants the authority to enforce the DOT, the ability to assign the Note without an endorsement from Plaza, or an exception to their obligation to record the assignment to Deutsche Bank. The Court will allow Doble to produce additional evidence in support of his claims, but not his wife’s claims. The Court will disallow Defendants’ secured and unsecured claims without prejudice. Defendants may file an amended proof of claim in this case if they fully address the defects identified in this Memorandum Decision.

The Court orders Defendants to appear and show cause why they should not pay Doble’s attorneys fees for their conduct in this action, and schedules a status conference for April 28, 2011 at 3:00 in Department 1 of this Court.

Dated: April 14, 2011

/s/ Margaret M. Mann

[ipaper docId=54824981 access_key=key-1lk1l5qi5u0y0hqswz1u height=600 width=600 /]

In re: CESAR M. DOBLE, Chapter 13, Debtor,
CESAR M. DOBLE, Plaintiff,
v.
DEUTSCHE BANK NAT’L TRUST COMPANY, AS TRUSTEE OF THE HARBORVIEW MORTGAGE LOAN TRUST 2005-5, MORTGAGE LOAN PASS-THROUGH CERTIFICATES, SERIES 2005-5 AND ONEWEST BANK, F.S.B., Defendants.

Bankruptcy No: 10-11296-MM13, AP: 10-90308-MM.

United States Bankruptcy Court, S.D. California.

April 14, 2011.

MEMORANDUM DECISION RE MOTION TO VACATE CLERK’S ENTRY OF DEFAULT AND MOTION TO DISMISS COMPLAINT; ORDER TO SHOW CAUSE FOR CONTEMPT OF COURT

MARGARET M. MANN, Bankruptcy Judge

Defendants OneWest Bank, F.S.B. (“OneWest”) and Deutsche Bank National Trust Company (“Deutsche Bank”), as Trustee of the HarborView Mortgage Loan Trust 2005-5, Mortgage Loan Pass-Through Certificates, Series 2005-5 Under the Pooling and Servicing Agreement Dated June 1, 2005, were defaulted by debtor Cesar Doble (“Doble”) when they failed to timely respond to the complaint in this action (“Complaint”). The Complaint challenges Defendants’ right to assert claims based upon a loan secured by Doble’s residence, and seeks damages for Defendants’ refusal to modify the loan. After the default, Defendants brought a Motion to Vacate Clerk’s Entry of Default and a Motion to Dismiss Plaintiffs Complaint. The Court held several continued hearings on both motions, at which additional evidence and argument were presented.

Due to Defendants’ misconduct in this case and others that threatens the integrity of the judicial process the Court declines to set aside the default. The Court also issues an order to show cause why Defendants should not be held in contempt and ordered to pay Doble’s attorneys fees. Despite this ruling, the Court will not allow Doble relief he is not entitled to receive. The Court also grants much of the Defendants’ Motion to Dismiss. Further proceedings will be scheduled to determine the judgment to be entered in this case.

I. FACTUAL BACKGROUND

A. The Loan

Doble and his wife Martha Doble own a residence located at 1466 Heatherwood Avenue in Chula Vista, California (“Property”). The Property is encumbered by a deed of trust (“DOT”) securing a promissory note (“Note”) payable on its face to Plaza Home Mortgage, Inc. (“Plaza”), executed in connection with a $650,000 loan (“Loan”) made by Plaza. The DOT identifies Plaza as “Lender,” and Mortgage Electronic Registration Systems, Inc. (“MERS”) as beneficiary. The DOT grants Lender the right to repayment of the Loan and performance of Borrower’s covenants, explicitly stating that MERS “holds only legal title to the interests granted by Borrower” and MERS may exercise “any or all… interests, including … the right to foreclose and sell the Property” only “if necessary to comply with law or custom.”^[1]

The Dobles defaulted on the Loan a few years later and sought to take advantage of the federal Home Affordable Mortgage Program (“HAMP”) by modifying the Loan so they could afford the payments. After a trial loan modification was granted, the Dobles made two payments in the modified amount. Despite the last payment under the modified Loan being in default, the Dobles were offered a permanent modification to the Loan, which they attempted to accept. Thereafter, the Dobles made no more payments under the Loan.

B. The Bankruptcies

Martha Doble filed a chapter 13 bankruptcy case in 2009 (Case No. 09-16970-LA13, Bankr. S.D. Cal.), which was dismissed. Doble filed this Chapter 13 bankruptcy case on June 28, 2010. The Complaint filed by Doble the day after he filed bankruptcy seeks damages and equitable relief, alleging that Defendants have no secured or unsecured claims in this case, that they violated the automatic stay by seeking to foreclose on the DOT without owning the Loan, and that they failed to discharge their responsibilities regarding modifying the Loan. Based upon a slew of contradictory documents purporting to transfer interests in the Note and DOT among the Defendants, Plaza and MERS, OneWest and Deutsche Bank have each represented to the Court to be the owner of the Loan in both cases. One West has separately asserted it is the servicer of the Loan.

C. Defendants’ Failure to Respond to the Complaint

The summons to the Complaint established a response date of July 29, 2010. Together with the Complaint, the summons was promptly served and received by Defendants. Pursuant to their servicing agreement, Deutsche Bank forwarded the Complaint to OneWest’s legal headquarters in Pasadena on July 2. Deutsche Bank then apparently did nothing further to respond to the Complaint, and OneWest misplaced the Complaint, failed to calendar a response, and did not otherwise follow-up on the matter.

The Complaint resurfaced after a response was due. When it was found on August 4, OneWest compounded the error. It did not follow internal protocol, which would have required the Complaint be sent to its litigation office in Austin, Texas, for referral to outside counsel. Instead, OneWest forwarded the Complaint to an outside vendor, Lender Processing Services (“LPS”), which is retained by OneWest to handle routine legal matters, but not litigation. LPS then exacerbated the problem by assigning an incorrect response date and sending the Complaint to the wrong outside counsel. In a final mishap, outside counsel neglected to look at the response date on the summons, and then waited another week until August 11 to request an extension. By this point, the default had already been entered.

Defendants filed their Motion to Vacate the Default and their Motion to Dismiss the Complaint on August 31, 2010. Defendants initially offered a declaration of outside counsel to explain their failure to timely respond to the Complaint. Counsel averred that he received the assignment of the Complaint on August 4, with a referral form showing a due date of August 20, although Defendants’ Motion to Vacate contrarily states Defendants mistakenly believed the due date was August 11. Counsel apparently relied upon the incorrect due date on the referral form calculated by the outside vendor, and did nothing to confirm the correct response date, which was apparent from the face of the summons. Not until August 11 did counsel contact Doble to request an extension. Defendants were already in default by this time, and the extension was denied.^[2]

Because the Defendants initially provided no reason for their failure to respond to the Complaint until after the response was overdue, the Court asked a series of questions regarding the improper calendaring. In response to the Court’s questions, Defendants submitted the declaration of OneWest employee, Charles Boyle, who was resident in the Austin, Texas office. This employee averred that, after receipt of the Complaint in Pasadena, the Complaint was inadvertently logged into an automated referral system by a non-legal staff employee who has since resigned. Boyle averred this error was discovered the first week of August by a supervisor who re-referred the Complaint to local counsel.

Since Defendants had still not answered many of the Court’s questions, the Court again requested more information. Specifically, the Court requested Defendants provide more information regarding: 1) Boyle’s personal knowledge of the events in Pasadena given his residence in Texas; 2) what happened to the Complaint during the first month after it was served, and 3) why outside counsel waited seven days to contact Doble after receiving the Complaint on August 4. Finally, at the hearing on December 16, 2010, in response to questions asked from the bench, counsel for Defendants provided a more complete story: the Complaint had been lost, there were multiple departures from protocol, and several attorneys had received the Complaint and not bothered to review it. After a final attempt to clarify some of the facts pertaining to ownership of the Loan and why Defendants failed to timely respond to the Complaint, the Court took the matter under submission on February 3, 2011.

II. ANALYSIS

A. Defendants have not Demonstrated Good Cause to Vacate the Clerk’s Default

Rule 55(c) permits the Court to set aside an entry of default only “for good cause.” Defaulting parties have the burden of proving good cause. Franchise Holding II, LLC v. Huntington Restaurants Group, Inc., 375 F.3d 922, 926 (9th Cir. 2004) (quoting TCI Group Life Ins. Plan, Life Ins. Co. of N. Am. v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001)).

To determine whether good cause exists, courts consider (1) whether the default is the result of the defaulting party’s” culpable conduct”; (2) whether the defaulting party has a” meritorious defense”; or (3) whether reopening the default would “prejudice”^[3] the innocent party. United States v. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010).^[4] The test for good cause is disjunctive, and the defaulting party must prove all three factors favor setting the default aside. Franchise Holding, 375 F.3d at 926; Mesle, 615 F.3d at 1091. If any one factor favors upholding the default, the Court need not set it aside. Id. However, all doubt should be resolved in favor of a trial on the merits. Id. While there was no prejudice to Doble for the delayed response, the Court is without doubt that Defendants’ pervasive misconduct alone precludes a finding of good cause to set aside the default.

To determine whether Defendants have a meritorious defense, the Court has evaluated Defendants’ Motion to Dismiss, including admitting evidence and taking judicial notice as requested of the documents of public record in the case. SeeLee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). The Court agrees that Doble cannot state a claim for relief on his third, fourth, and part of his first and second causes of action, and dismisses these claims with prejudice. Upon a proper motion to enter a default judgment under Rule 55(b)(2), the Court will exercise its discretion to permit the submission of evidence from all parties on whether Doble can prove his prima facie case on the other claims. However, Defendants will be prohibited from presenting a case in defense of Doble’s claims because the default will be upheld. Fed. R. Evid. 210; Fed. R. Civ. P. 55(b)(2);

1. Defendants Are Culpable

A defendant’s conduct is culpable if it is consistent with a “devious, deliberate, willful, or bad faith failure to respond.” Mesle, 615 F.3d at 1092. Where a defendant’s actions are negligent, and not intentional, the defendant is not culpable. Id.; TCI, 244 F.3d at 698-99. For “legally sophisticated” defendants, however, intentionality is assumed because legally sophisticated parties are held to understand the consequences of their actions. Mesle, 615 F.3d at 1093. As large financial institutions, OneWest and Deutsche Bank are sophisticated parties.

Where sophisticated defendants are aware of the pendency of a suit, but are indifferent to the consequences of not responding, culpability may be found even when bad faith is absent. Franchise Holding II, 375 F.3d at 926 (defendant was culpable for failing to respond despite plaintiffs warning it would seek a default after side-agreement negotiations broke down); Direct Mail Specialists, Inc. v. Eclat Computerized Technologies, Inc., 840 F.2d 685, 690 (9th Cir. 1988)Oracle USA, Inc. v. Qtrax, Inc., No. C09-3334 SBA, 2010 U.S. Dist. LEXIS 97630, at *12-*13 (N.D. Cal. Sept. 3, 2010) (defendant’s conduct was culpable when defendant did not respond to accommodate the convenience of the CEO, cost considerations, and its hope for a settlement); Markel Ins. Co. v. Dahn Yoga & Health Ctrs., Inc., No. C09-1221RSM, 2010 U.S. Dist. LEXIS 58763, at *11-*15 (W.D. Wash. May 17, 2010) (defendants were culpable where one failed to keep registered service agent updated on its address and another failed to inform itself that the client had waived a service problem). (defendant was culpable in not responding due to a mistaken belief service was improper);

Defendants’ conduct can only be described as an intentional disregard for their obligations to comply with Court procedures and provide candid answers to the Court’s questions. As in Franchise II, Oracle, Direct Mail, and Markel,^[5] properly calendared the response date. Whether due to apathy or profit maximizing considerations, Defendants relied exclusively upon a non-attorney outside vendor, contrary to protocol, and failed to properly implement litigation procedures. See Franchise II, 375 F.3d at 926; Oracle, 2010 U.S. Dist. LEXIS 97630, at * 10-12 (defendants failed to appropriately allocate corporate resources to respond to the litigation). This misplaced reliance on a non-attorney to calculate a response time is similar to the conduct of the defendants in Direct Mail and Markel, who erred in their analysis that service was improper. See Direct Mail, 840 F.2d at 690; Markel, 2010 U.S. Dist. LEXIS 58763, at *16 (“[Defendant] will not be heard to object that service was improper, nor blame its failure to respond … on poor document management policies.”). Defendants’ multiple errors are also thus distinguishable from Park v. U.S. Bank Nat’l Ass’n, No. 10cvf1546-WQH-WMc, 2010 U.S. Dist. LEXIS 123119, at *8-*10 (S.D. Cal. Nov. 19, 2010), where the defendants’ failure to answer was the result of an unintentional administrative error rather than culpable misconduct. While the Court appreciates that mistakes happen and isolated negligence can be excusable neglect, see Pioneer, 507 U.S. at 407-08,^[6] what happened here was not mere negligence. Defendants were aware of the suit and the consequences of the default, but repeatedly failed to follow their own protocols. Defendants have never explained why none of Defendants’ three attorneys

Compounding their culpability problems, the Court finds that Defendants’ initial explanation of the default was neither candid nor credible. A “devious” failure to respond is culpable. Mesle, 615 F.3d at 1092. The full story belies their initial characterization that their errors in handling the Complaint were minor and isolated. No less than six mistakes or breaches of protocol occurred in how the Complaint was handled: (1) both copies of the Complaint were not sent immediately to Boyle in Austin, Texas, where litigation was to be handled; (2) the Complaint was lost for a month; (3) when the Complaint was found on August 4, 2010, it was not sent to Austin as protocol demanded, but mistakenly logged into the non-attorney LPS system; (4) LPS miscalculated the response date for the Complaint; (5) LPS incorrectly assigned the response to a law firm who was not the appropriate counsel to handle litigation for OneWest; and (6) Outside counsel failed to check the correct response date and relied upon the LPS miscalculation. The Court cannot accept Boyle’s claim that new intake protocols have solved OneWest’s systemic problems. Defendants themselves could not fully explain what went wrong in their efforts to respond to the Complaint. Even after three tries, Defendants have left questions unanswered.

Defendants’ disregard for their obligations of candor to the Court and compliance with Court procedures, not only in connection with the entry of default, but also in the presentation of numerous other documents to the Court on the merits, is culpable. The default will not be set aside.

2. Defendants Acted in Bad Faith

Defendants’ conduct in presenting evidence on the merits of this case and others demonstrates a callousness towards their legal obligations that amounts to bad faith; an additional reason not to set aside the default. Defendants filed numerous pleadings in this case and in the Martha Doble case seeking the Court’s assistance in enforcing the Loan.^[7][8][9] tell a convoluted tale as to who owns the Loan and is thus entitled to enforce it. This Court was forced to repeatedly request additional evidence from Defendants to evaluate their own motions. Defendants’ pleadings and transactional documents

The most disconcerting misrepresentation to the Court was Defendants’ submission of multiple “true and correct” copies of the Note under penalty of perjury without any endorsement from Plaza. Whether the Note was endorsed is central to the merits of this case. When Defendants finally submitted an endorsed copy of the Note on November 8, 2010, they attempted to pass off the first three unendorsed copies of the Note as “illegible.” The first three copies of the Note were fully readable, so the phantom endorsement page was not a problem with legibility. The timing of this tardily produced endorsement, produced after several requests, suggests it was added only in response to the litigation. To add to the Court’s incredulity, Defendants have never answered the Court’s specific questions as to when and under what circumstances this newly proffered endorsement was executed. For the purpose of its analysis on the merits, the Court finds that the endorsement was not made until it was presented to the Court on November 8, 2010.^[10]

This lack of candor in the presentation of evidence on the merits supports a finding of bad faith in regard to the default. The court system can only function if parties take their representations and responsibilities seriously. Chambers v. NASSCO, Inc., 501 U.S. 32, 43, 47 (1991); see also In re Snyder, 472 U.S. 634, 641 (1985). Courts have held that a lender’s actions amount to bad faith where the lender is shown to have routinely misrepresented its role in bankruptcy cases, caused unnecessary litigation, or prejudiced another party. See Ameriquest Mortg. Co. v. Nosek (In re Nosek), 609 F.3d 6, 9 (1st Cir. 2010). In two previous cases before this Court, Defendant OneWest has been ordered to show cause for failing to comply with its obligations as a party before the Court. See In re Carter, Ch. 13 Case No. 10-10257-MM13 (Bankr. S.D. Cal.); In re Telebrico, Ch. 13 Case No. 10-07643-LA13 (Bankr. S.D. Cal.). Not only in this action, but in others as well, One West has demonstrated a “confusion and lack of knowledge, or perhaps sloppiness, as to their roles.” Ameriquest, 609 F.3d at 9.^[11]

Because Defendants’ conduct in not responding to the Complaint was intentional and in bad faith, the Court will not set aside the default.

B. Resolution of the Merits of the Case

To uphold the default entered against Defendants, the Court must consider both the merits of Defendants’ defense and the merits of Plaintiff’s case, as challenged in Defendants’ Motion to Dismiss. Mesle, 615 F.3d at 1094 (defaulting party must present a valid defense before court can set aside a default); Fed.R. Civ. P. 55(b); Eitel v. McColl, 782 F.2d 1470, 1471 (9th Cir. 1986); Cashco Fin. Servs. v. McGee (In re McGee), 359 B.R. 764, 771 (B.A.P. 9th Cir. 2006) (default judgment requires assessment of the merits of plaintiff’s claims).^[12] This task is made more difficult since neither Doble’s Complaint, nor Defendants’ Motion to Dismiss, is a model of clarity. Five causes of action are alleged in the Complaint, but more than five are presented.

Defendants’ Motion to Dismiss complicates the analysis further since it questions a few, but not all, of Doble’s claims. Defendants claim MERS had authority to transfer the Loan as a matter of law, but not that the assignment was properly executed or acknowledged. Defendants dispute Doble’s attempt to employ 11 U.S.C. §544(a) to set aside the MERS’ assignment to OneWest. They also argue HAMP does not provide a private cause of action. Defendants do not, however, address the state law claims contained in the fifth cause of action.

Sorting the parties’ claims and defenses, the Court concludes some of Doble’s claims lack merit, and others require further evaluation. Even though the Court will uphold the default entry resulting from Defendants’ culpable conduct, it will nevertheless dismiss with prejudice Doble’s third and fourth causes of action, and part of Doble’s first and second causes of action relating to New York Trust law and 11 U.S.C. § 544(a). See Moore v. United Kingdom, 384 F.3d 1079, 1090 (9th Cir. 2004) (invalid causes of action may be dismissed despite default). The Court will hold further proceedings on the remaining claims to respect the due process rights of Defendants. Danning v. Lavine, 572 F.2d 1386, 1388-89 (9th Cir. 1978) (default judgment proceedings should be consistent with due process).

1. Defendants’ Secured and Unsecured Claims (1st and 2nd Causes of Action)

The first two causes of action seek damages and disallowance of Defendants’ secured and unsecured claims for lack of standing on four separate grounds: (a) MERS’ assignment of the DOT to OneWest and, in turn, OneWest’s assignment to Deutsche Bank, were invalid; (b) Defendants have no interest in the Note nor any right to enforce it under California law; (c) the assignment of the DOT to Deutsche Bank was not of public record; and (d) Defendants violated New York Trust law so that Deutsche Bank cannot be the owner of the Loan as a matter of law. Where a secured creditor cannot establish a right to enforce a loan, it has no standing to file or defend a claim, or to seek relief from stay. In re Gavin, 319 B.R. 27, 32 (B.A.P. 1st Cir. 2004); In re Hayes, 393 B.R. 259, 269-70 (Bankr. D. Mass. 2008).

Although the Court rejects Doble’s New York Trust claims and his avoiding power claim, the record here supports Doble’s first three standing claims. MERS had no authority to assign the DOT, under its terms and as a matter of law, without the authority to assign the Note. The Note was not assigned until it was endorsed by Plaza. Until that endorsement, the MERS’ assignments were a nullity. Deutsche Bank currently lacks authority to enforce the Loan as the assignee of Plaza, and will continue to lack authority until it records its assignment.

a. MERS Cannot Transfer DOT Enforcement Rights to Defendants

Defendants’ Motion to Dismiss relies upon MERS’ status as nominal beneficiary of the DOT^[13] to establish their standing to enforce the Loan. They cite several cases which have so held. Lane v. Vitek Real Estate Indus. Group, 713 F. Supp. 2d 1092, 1099 (E. D. Cal. 2010); Hafiz v. Greenpoint Mortg. Funding, Inc., 652 F. Supp. 2d 1039, 1043 (N.D. Cal. 2009); Pantoja v. Countrywide Home Loans, Inc., 640 F. Supp. 2d 1177, 1190 (N.D. Cal. 2009); see also Perry v. Nat’l Default Servicing Corp., No. 10-CV-03167-LHK, 2010 U.S. Dist. LEXIS 92907, at *11 (N.D. Cal. Aug. 20, 2010).^[14] The Court does not disagree with these cases to the extent they hold MERS need not have physical possession of the note to commence a foreclosure, and securitization of a mortgage note need not impact the enforceability of the mortgage itself. The key issue before the Court is different: whether MERS had statutory authority to assign the DOT under its terms, particularly when MERS held no rights under the Note. To decide this issue, the Court rejects Defendants’ invitation to overlook the statutory foreclosure mandates of California law, and rely upon MERS as an extra-judicial commercial alternative.^[15]

The DOT is a four party instrument among the Dobles as Borrowers, Plaza as Lender, First American Title as trustee, and MERS as beneficiary. The Lender’s rights regarding the Loan are pervasive. The Lender (Plaza) is entitled to receive all payments under the Note, to control enforcement of the DOT under its terms, and only the Lender is entitled to conduct a nonjudicial foreclosure.^[16]

MERS has none of these rights under the DOT and is not even mentioned in the Note. MERS is not given any independent authority to enforce the DOT under its terms, and its status as beneficiary under the DOT is only “nominal.” While the Borrowers acknowledge in the DOT that MERS can exercise the Lender’s rights as “necessary to comply with law or custom,^[17] this acknowledgement is not accompanied by any actual allocation of authority to nonjudicially foreclose on the Property, nor is such authority allocated in any other document in the record. See also, e.g., LaSalle Bank Nat’l Ass’n v. Lamy, No. 030049/2005, 2006 NY Slip Op 51534U, slip op. 2 (N.Y. Sup. Ct. 2006); MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (“MERS’ only right is to record the mortgage. Its designation as the `mortgagee of record’ in the document does not change or expand that right….”). Defendants’ authority to foreclose cannot, therefore, be derived from MERS because MERS never held such authority.^[18] Shannon v. General Petroleum Corp., 47 Cal. App. 2d 651, 661 (1941) (assignment can only carry rights owned by the assignor.)

Even though MERS’ status as the nominal beneficiary of the DOT may have allowed it to assign that limited status, this authority does not convey a right to enforce the Loan. An assignment of a mortgage without assignment of the corresponding debt is a nullity under controlling law. Carpenter v. Longan, 83 U.S. 271, 275 (1872); Kelley v. Howarth, 39 Cal. 2d 179, 192 (1952); Johnson v. Razy, 181 Cal. 342, 344 (1919) (“A mortgage is mere security for the debt, and it cannot pass without transfer of the debt.”); Polhemus v. Trainer, 30 Cal. 686, 688 (1866) (interest in the collateral subject to the mortgage does not pass “unless the debt itself [is] assigned.”). Within California’s comprehensive statutory nonjudicial foreclosure scheme found at Civil Code sections 2920-2955, four separate statutes corroborate that the secured debt must be assigned with the deed of trust.^[19]

Since MERS could not assign any enforcement rights under the Note or DOT because it held none, Defendants could not rely on the invalid MERS assignment to enforce the DOT. Polhemus, 30 Cal. at 688; see also U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 651 (2011). They had to receive an assignment from Plaza as the payee of the Note before the MERS assignment of its nominal interest in the DOT could have any enforceable impact.

b. Defendants’ Right to Enforce the Note

A negotiable promissory note such as the Note can only be enforced in accordance with Article 3 of the Commercial Code (“CCC”), Cal. Com. Code §§ 1101-16104 (Deering 2011). The CCC permits enforcement of a note by a party who: (1) holds a directly endorsed note (section 1205(21)); (2) previously had the ability to enforce the note, but it was lost, destroyed, or stolen (section 3309); (3) has possession of an endorsed-in-blank instrument (section 1205(21)); or (4) can prove both possession of the enforcement rights received from its transferor (section 3301). Id; In re McMullen Oil Co., 251 B.R. 558, 568 (Bankr.C.D. Cal. 2000); In Re Carlyle, 242 B.R. 881, 887 (Bankr. E.D. Va. 1999). These requirements apply to every link in the chain of transfer of the note. Where a note has been assigned several times, each assignment in the chain must be valid or the party claiming the note cannot enforce it. In re Gavin, 319 B.R. 27, 32 (B.A.P. 1st Cir. 2004); In re Wells, 407 B.R. 873 (Bankr. N.D. Ohio 2009). Even if a party is the owner of a promissory note, it is not entitled to enforce the note unless it meets the statutory criteria for enforcement. Cal.Com. Code §3203(b) cmt. 2.

Enforcement option 1 is not applicable. The Note is not payable to Defendants, but to Plaza. Neither Defendant can enforce the Note as a direct payee or endorsee. In re Wilhelm, 407 B.R. 392, 402 (Bankr. D. Idaho 2009); Chicago Title Ins. Co. v. Allfirst Bank, 905 A.2d 366, 374 (Md. 2006). No claim was made that the Note was lost or stolen, which eliminates option 2.

As to option 3, not until November 8, 2010 did Defendants produce the Note endorsed in blank by Plaza. An endorsement is not effective until it is signed. Com.Code §3203(c); Security Pacific Nat. Bank v. Chess, 58 Cal. App. 3d 555, 564 (1976). Until the note is properly endorsed, assignments of the deed of trust do not serve to transfer enforcement rights. Id. The endorsement must be on the note or attached. Lopez v. Puzina, 239 Cal. App. 2d 708, 714 (1st Dist. 1966).

Defendants did not attempt to demonstrate the requirements of option 4; that they had possession of the Note and that Plaza had transferred to them the right to enforce it even without an endorsement. Instead, they erroneously relied upon the MERS assignment. Com.Code § 3203 (1), (2) n. 17; In re McMullen Oil Co., 251 B.R. 558, 567 (Bankr. CD. Cal. 2000); In re Agard, No. 10-77338-reg, 2011 Bankr. LEXIS 488, at *58 (Bankr. E.D.N.Y. Feb. 10, 2011) (“[E]ven if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that MERS did not have authority, as “nominee” or agent to assign the Mortgage absent a showing that it was given specific written directions by its principal.”). Under the circumstances of this case, the Court declines to give the Defendants another chance to “prove the transaction.” Instead, the Court finds that Defendants did not have any right to enforce the Note before November 8, 2010, when they produced an endorsement of the Note from Plaza.

c. Deutsche Bank’s Assignment of the DOT Must Still be Recorded

Although Deutsche Bank met the first of the foreclosure prerequisites to enforce the power of sale in the DOT under Civil Code section 2932.5^[20] when it became the holder of the Note on November 8, 2010, it still failed to meet the second. Civil Code section 2932.5 requires that the assignee of the secured debt record its interest before it can exercise the power of sale under the DOT and nonjudicially foreclose. Deutsche Bank admits it has recorded neither of the two assignments from OneWest to Deutsche Bank. Deutsche Bank, therefore, still lacks authority to enforce the DOT, and any enforcement actions taken thus far are void. Ibanez, 458 Mass, at 651; Polhemus, 30 Cal. at 688.

d. New York Trust Law

As part of the first and second causes of action, Doble alleges that Deutsche Bank cannot own the Loan because the Loan was not properly transferred to it in accordance with New York Trust law and the trust documents. Under the terms of the Purchase and Servicing Agreement (“PSA”), Doble alleges all assets to be part of the trust had to be conveyed before June 1, 2005. Since none of the assignments of the Loan met that deadline, Doble claims Deutsche Bank has no interest in the Loan. Defendants, in turn, claim Doble has no standing to challenge the trust, citing Rogan v. Bank One, N.A. (In re Cook), 457 F.3d 561, 567 (6th Cir. 2006). While the Court agrees that Doble has no standing to interfere with trust administration, he does have standing to challenge Defendants’ assertion they had standing to file a claim and to seek to foreclose the Loan. Wilhelm, 407 B.R. at 400.

The Court nevertheless finds the allegations of this claim to be too flawed to remain a part of this suit. See Eitel, 782 F.2d at 1471. Based on the allegations of the Complaint, the Court cannot determine whether the Loan was validly conveyed to the trust, whether the trust is invalid, or what effect such an invalidation would have on Defendants’ claim.^[21] Doble has provided no legal support for his claims. His citation to New York Estate Powers and Trusts Law section 7-2.4 (Consol. 2010), to support that any “sale, conveyance, or other act” in “contravention” of the trust is void, is incorrect.^[22]

Doble’s New York trust claim within the first and second causes of action therefore will be dismissed with prejudice.

2. The Assignments May Not be Avoided (2nd Cause of Action)

The Court agrees that Doble has no viable avoiding power claim to assert as a result of Defendants’ recordation of assignments after the Martha Doble bankruptcy case was filed. Doble was provided constructive notice of Defendants’ lien from the recordation of the DOT, regardless of whether interests in the Loan were later transferred. In re Cook, 457 F.3d at 568; Kapila v. Atl. Mortg. & Inv. Corp. (In re Halabi), 184 F.3d 1335, 1338 (11th Cir. 1999); see also In re Probasco, 839 F.2d 1352, 1354 (9th Cir. 1988) (applying California law, a bona fide purchaser who records prevails over a prior transferee who failed to record). The Court also notes these claims are property of the Martha Doble bankruptcy estate, not this case. Doble thus lacks standing to assert this claim. See Estate of Spirtos v. One San Bernardino County, 443 F.3d 1172, 1176 (9th Cir. 2006) (husband does not have authority to assert claims on the part of wife without substantial proof of standing). This part of the second cause of action is also dismissed with prejudice.

3. Violation of Stay (3rd Cause of Action)

Doble’s third cause of action alleges^[23] that Assignments 2 and 3 from OneWest to Deutsche Bank were executed post-petition in Martha Doble’s case, and are void and in violation of his co-debtor stay under 11 U.S.C. §1301. In response, Defendants assert that the stay is not violated by assignments of their mortgage interests post-petition, because those interests do not belong to Martha Doble’s bankruptcy estate.

The Court agrees that this is not a valid cause of action. Because the automatic stay only applies to transfers of a debtor’s property interests under 11 U.S.C. § 362(a)(3), Defendants’ transfers of their interests in the Loan do not violate the automatic stay. Halabi, 184 F.3d at 1337; Cook, 457 F.3d at 568. This cause of action will be dismissed with prejudice.

4. Violation of Bankruptcy Code (4th Cause of Action)

Doble specifically seeks damages and sanctions relating to Defendants’ proof of claim and false declaration filed in the relief from stay motion in Martha Doble’s case. Defendants’ only response to this is to reiterate that the unrecorded assignment is not avoidable under § 544(a). Defendants fail to address any other allegations in this cause of action.

Despite Defendants’ failure to cogently respond to this cause of action, the Court finds Doble has no standing to assert damages in his wife’s bankruptcy case. Doble was not a joint debtor in that case, and Martha Doble is not a party in this case. See In re Scott, 437 B.R. 376, 379-80 (B.A.P. 9th Cir. 2010). This cause of action is not viable to the extent it seeks damages for Doble in his wife’s case, and it will be dismissed with prejudice.

5. Loan Modification Claims (5th Cause of Action)

In the fifth cause of action, Doble alleges an array of theories complaining of Defendants’ conduct in the loan modification process, including that they engaged in unlawful business practices, violated California’s Consumer Legal Remedies Act, California Civil Code Section §§ 1750-1759, and breached the covenant of good faith and fair dealing. In response, Defendants only challenge whether HAMP establishes a private cause of action, based on Doble’s allegation he is an intended third party beneficiary under the HAMP contract.

The facts alleged in the Complaint, as well as the additional evidence proffered by the parties in response to the Court’s inquiries, reflect ongoing efforts by Doble to modify the Loan over a period of eighteen months. Doble claims the efforts were successful, and Defendants should be bound by the permanent loan modification they offered him in May 2010. Defendants claim the Loan modification effort failed because Doble failed to make all of the payments due during the trial period. To resolve this basic controversy requires further evidentiary proceedings, since the communications by Defendants were confusing and contradictory, but Doble did fail to make all of the required payments even if there was a binding loan modification with Defendants. To facilitate the evidentiary hearing, the Court will preliminarily address Doble’s theories of recovery.

Courts have differed on whether HAMP permits a private right of action. Compare Benito v. Indymac Mortg. Servs.,and Escobedo v. Countrywide, No. 09-cv-1557 BTM (BLM), 2009 U.S. Dist. LEXIS 117017, at * 4-*7 (S.D. Cal. Dec. 15, 2009) (same), with Marques v. Wells Fargo Home Mortgage Inc., No. 09-cv-1985-L (RBB), 2010 U.S. Dist. LEXIS 81879, at *19-*20(S.D. Cal. Aug. 12, 2010) (finding a borrower is a third party beneficiary with regard to certain contract terms that are not discretionary, and HAMP otherwise has no enforcement remedies). In determining whether a party is an intended beneficiary of a government contract, a court must examine “the precise language of the contract for a clear intent to rebut the presumption that the third parties are merely incidental beneficiaries.” County of Santa Clara v. Astra USA, Inc., 588 F.3d 1237, 1244 (9th Cir. 2009), cert. granted sub. nom, Astra USA, Inc. v. Santa Clara County, 131 S.Ct. 61 (2010) (failure to include express language identifying parties as intended beneficiaries is not dispositive). To the extent Doble can prove a specific provision of HAMP was violated, and compliance with the provision was mandatory for Defendants, he may be able to prove a valid cause of action as a third party beneficiary of HAMP. No. 2:09-CV-001218-PMP-PAL, 2010 U.S. Dist. LEXIS 51259, at *20-*21 (D. Nev. May 21, 2010) (holding a borrower is not a third party beneficiary),

Doble’s other claims are not invalid as a matter of law even if he cannot establish a direct cause of action under HAMP. Failure to establish a HAMP third party beneficiary contract cause of action does not preclude state law claims relating to the Lender’s alleged misconduct. Escobedo, 2009 U.S. Dis. LEXIS 117017, at * 10 (allowing claims for violation of unfair business practices under Cal. Bus. & Prof. Code § 17200); Villa v. Wells Fargo Bank, N.A., No. 10CV81 DMS (WVG), 2010 U.S. Dist. LEXIS 23741, at *9 (S.D. Ca. 2010) (allowing an amendment to allege misrepresentation claims); Aceves v. U.S. Bank, N.A., 192 Cal. App. 4th 218, 233 (2d Dist. 2011) (allowing promissory estoppel and fraud claims). Doble’s claims under the California Legal Remedies Act, Cal. Civ. Code §§ 1750-1759, and his claims for breach of the covenant of good faith and fair dealing, therefore, cannot be dismissed as a matter of law at this time.

C. Order To Show Cause

Based on the facts and circumstances described in this Memorandum Decision, the Court orders that Defendants appear and show cause why they should not pay Doble’s attorney’s fees for their conduct in this action. This order to show cause is issued pursuant to this Court’s authority under 28 U.S.C. § 157, 11 U.S. C. § 105, Bankruptcy Rule 9011(c)(1)(b) and the Court’s inherent power to monitor the proceedings before it for the benefit of the Court, the profession and the public. Chambers v. NASCO, Inc., 501 U.S. 32, 43, 47 (1991); In re Sunshine Jr. Stores, Inc., 456 F.3d 1291, 1305 (11th Cir. 2006) (“it is within a court’s discretion to assess attorney’s fees on a party … for actions taken in bad faith”).

III. CONCLUSION

The Court denies Defendants’ request to set aside the clerk’s entry of a default, but grants their Motion to Dismiss the portions of the first and second causes of action relating to Doble’s New York Trust claims and avoiding power claims. Defendants’ Motion to Dismiss Doble’s third and fourth causes of action is also granted. As to the remainder of the first and second causes of action, the Court finds MERS’ limited role as beneficiary of the DOT did not provide talismanic protection against the myriad foreclosure deficiencies committed by Defendants regarding this Loan. MERS’ role did not provide Defendants the authority to enforce the DOT, the ability to assign the Note without an endorsement from Plaza, or an exception to their obligation to record the assignment to Deutsche Bank. The Court will allow Doble to produce additional evidence in support of his claims, but not his wife’s claims. The Court will disallow Defendants’ secured and unsecured claims without prejudice. Defendants may file an amended proof of claim in this case if they fully address the defects identified in this Memorandum Decision.

The Court orders Defendants to appear and show cause why they should not pay Doble’s attorneys fees for their conduct in this action, and schedules a status conference for April 28, 2011 at 3:00 in Department 1 of this Court.

[1] See infra Part II.B.1.a.

[2] Doble’s reason for not agreeing to set aside the default was his frustration with the “false documents” submitted regarding ownership of the Loan.

[3] To be prejudicial, reopening the default must result in greater harm than a mere delay in relief. Mesle, 615 F.3d at 1095; see also Franchise Holding II, 375 F.3d at 926 (plaintiff was prejudiced where there was a possibility that a delay in judgment would allow defendant an opportunity to hide assets). Here, Defendants have asserted that Doble is not prejudiced by their delay and there is no evidence before the Court to the contrary. Ultimately, however, since Rule 55(c)’s good cause factors are disjunctive, and Defendants’ conduct is culpable, a prejudice analysis is unnecessary.

[4] The Rule 55(c) good cause factors are identical to those used to consider whether relief should be granted from a default judgment under Rule 60(b). See Mesle, 615 F.3d at 1091; TCI, 244 F.3d at 696. However, while the factors are the same, the standards for evaluating the factors are distinct. O’Brien v. R.J. O’Brien & Assocs., Inc., 998 F.2d 1394, 1401 (7th Cir. 1993). Rule 55(c)’s relief from default standard is less rigorous than the relief from judgment standard of Rule 60(b). Hawaii Carpenters’ Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir. 1986) (“The different treatment of default entry and judgment by Rule 55(c) frees a court considering a motion to set aside a default entry from the restraint of Rule 60(b) and entrusts determination to the discretion of the court.”); accord Tessill v. Emergency Physician Assocs., 230 F.R.D. 287, 289 (W.D.N.Y. 2005).

[5] These three attorneys are the Deutsche Bank counsel who forwarded the Complaint to OneWest, the OneWest Corporate Legal Department who received both the OneWest Complaint it received on its own behalf and the Complaint sent by Deutsche Bank, and Burnett & Matthews, the first outside counsel who received the Complaint.

[6] This reading of culpability is consistent with the Supreme Court’s interpretation of the analogous “excusable neglect” standard of Rule 60(b)(1). Pioneer Inv. Serv. Co. v. Brunswick Assocs. Ltd., 507 U.S. 380, 393, 395-97 (1993) (a party’s failure to respond is excusable if inadvertent or negligent); Mesle, 615 F.3d at 1092; Franchise Holding II, 375 F.3d at 927.

[7] In the Martha Doble case, in a Declaration filed May 4, 2010, Deutsche Bank, through its purported power of attorney, One West, claimed to be the owner of the Loan based upon a chain of assignments. Deutsche Bank claimed the same in its proof of claim. However, in this case, OneWest filed the proof of claim for the Loan identifying itself as the creditor. In this adversary case, Defendants averred MERS assigned all beneficial interest under the DOT to OneWest on October 22, 2009 and OneWest assigned all beneficial interest to Deutsche Bank in an unrecorded assignment dated May 19, 2010. This assignment to Deutsche Bank on May 19, 2010, however, is dated after Deutsche Bank averred to this Court on May 4, 2010 that it was the owner of the Loan. Separately, Deutsche Bank has also claimed it owned the Loan as of 2008 without evidentiary support.

[8] The Court on October 5, 2010 issued a tentative ruling continuing the hearing on the Motions and seeking additional evidence regarding who had the right to foreclose the Loan, and whether the Loan Modification Agreement, which Doble alleges he executed on June 3, 2010, was also executed by Defendants. The Court issued another tentative ruling on December 15, 2010 seeking an “explanation from Defendants regarding the contradictory statements submitted by Defendants under penalty of perjury in both Debtor’s and Martha Doble’s bankruptcy cases regarding the identity of the owner of the Note,” the role of OneWest, and the circumstances of the endorsement of the Note. The Court inquired twice more regarding the circumstances of the alleged loan modification and the Defendants’ default.

[9] Defendants provided the Court with an “Assignment of Deed of Trust” executed on June 26, 2009 through which MERS, as the original beneficiary, purports to assign to OneWest all beneficial interest under the DOT, “together with the Note” (“Assignment 1”). However, One West did not record its interest until after its foreclosure proceedings were started. On July 14, 2009, a Notice of Default on the loan was recorded by OneWest, even though OneWest lacked any recorded interest in the Loan at the time. Only when OneWest recorded a Notice of Sale on the Loan on October 22, 2009, did it finally record Assignment 1.

On November 24, 2009, OneWest executed, but did not record, an Assignment of Deed of Trust to Deutsche Bank “together with the Note” (“Assignment 2”). Then on May 19, 2010, OneWest executed but did not record another Assignment of Deed of Trust “together with the Note” (“Assignment 3”) to Deutsche Bank. Deutsche Bank curiously produced a copy of a power of attorney it granted to OneWest regarding ownership of the Loan. Whatever significance this power of attorney has, it does not support the assignment from OneWest to Deutsche Bank because Deutsche Bank had no apparent rights to the Loan before it received them from OneWest.

[10] This sanction is similar to the entry of a default judgment against Defendants for their bad faith failure to comply with the orders of this Court. See, e.g., Carter v. Brooms (In re Brooms), No. NC-10-1117-KiSah, 2011 Bankr. LEXIS 648, at *21 (B.A.P. 9th Cir. Jan. 18, 2011) (upholding the court’s default judgment pursuant to 7016(d) for a party’s failure to comply with a pre-trial order).

[11] Specifically, an inability to coherently prove ownership is both endemic to the industry, and a common problem. Ameriquest, 609 F.3d at 9; see also, e.g., U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637 (2011) (holding US Bank did not sufficiently demonstrate it held title to a mortgage under Massachusetts law prior to foreclosure where US Bank alleged it received title pursuant to a trust agreement and did not provide the trust agreement but, instead, provided an unsigned offer of mortgage-backed securities to potential investors that did not specifically identify the mortgage in question).

The Court’s finding here is consistent with the findings of the academics and reporters who note this pattern of behavior is common in the mortgage industry. Studies have shown that mortgage holders and servicers routinely file inaccurate claims, some of which may not be lawful. See Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87 Tex. L. Rev. 121, 123-24 (2008); Andrew J. Kazakes, Developments in the Law: the Home Mortgage Crisis, 43 Loy. L.A. L. Rev. 1383, 1430 (2010) (citing David Streitfeld, Bank of America to Freeze Foreclosure Cases, N.Y. Times, Oct. 2, 2010, at B1) (reporting that after revelation of Porter’s study several Banks froze foreclosures); Eric Dash, A Paperwork Fiasco, N.Y. Times, Oct. 24, 2010, at WK5 (reporting the repeal of the initial freeze and the problems banks faced in clearing up foreclosure paperwork). The Inspector General overseeing the recent financial crisis has studied this issue and concluded:

Anecdotal evidence of [loan servicers’] failures [have] been well chronicled. From the repeated loss of borrower paperwork, to blatant failure to follow program standards, to unnecessary delays that severely harm borrowers while benefiting servicers themselves, stories of servicer negligence and misconduct are legion, and . . . they too often have financial interests that don’t align with those of either borrowers or investors.

Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress 12 (Jan. 26, 2011), available at http://www.sigtarp.gov/ (follow link for “Quarterly Report to Congress”).

[12] After entry of a default, a court may exercise its discretion to enter a default judgment on the merits of the case. Fed. R. Civ. P. 55(b); Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). The Ninth Circuit in Eitel identified the following factors for a court to consider in exercising that discretion:

(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.

Eitel, 782 F.2d at 1471-72.

[13] The DOT states “MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument.” DOT at p. 1.

[14] Under Ninth Circuit law this Court may decline to follow these decisions because it is not bound. State Compensation Ins. Fund v. Zamora (In re Silverman), 616 F.3d 1001, 1005 (9th Cir. 2010). While the Ninth Circuit reserved the issue of whether bankruptcy courts are bound by district court decisions within the district where the bankruptcy court sits, it recognized that such a requirement “could create the same problem of subjecting bankruptcy courts to a non-uniform body of law.” Id.

[15] The Court notes that circumventing the public recordation system is, in fact, the purpose for which the MERS system was created. Merscorp, Inc. v. Romaine, No. 179, 2006 NY Slip Op. 9500, slip op. 6 (Ct. of Appeals 2006). Creation of a private system, however, is not enforceable to the extent that it departs from California law as explained in this Memorandum Decision.

[16] Under the DOT, the Lender is secured the right to: “(i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note.” In addition, under the covenants executed between the Lender and Doble, the Lender is granted exclusive authority to accelerate repayment, “give notice to Borrower prior to acceleration,” “invoke the power of sale” through written notice to the Trustee in the event of default, and appoint successor trustees. DOT at pp. 2, 11, 12.

[17] The DOT provides, “Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee of Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing or cancelling this Security Instrument.” DOT at p. 3 (emphasis added).

[18] Since the briefing on this matter was completed, Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, 1151-58 (4th Dist. 2011) was decided. Gomes held that there is no cause of action under Civil Code section 2924(a)(1) that would permit a borrower to test MERS’ authority to initiate a nonjudicial foreclosure without a specific factual basis for the challenge. Neither Gomes nor Civil Code section 2924(a)(1) however, address Civil Code section 2932.5, applicable when an assignee forecloses. Id. at 1155. Instead, Gomes relied upon the borrower’s acknowledgement of MERS’ authority in the DOT to allow MERS to foreclose as nominal beneficiary. Gomes, 192 Cal. App. 4th at 1157-58. MERS, here, had no such authority under the DOT. The Lender, not MERS, has the right to “invoke the power of sale” under the DOT.

[19] These statutes are: Civil Code sections 2932.5 (assignee of secured debt cannot nonjudicially foreclose without right to payment and a recorded assignment), 2935 (notice of an assignment of a mortgage does not change the borrowers’ obligation to make payments to the holder of the note), 2936 (transfer of a note carries with it an assignment of the debt, not vice versa), and 2937 (borrowers must be notified of transfers of servicing rights).

[20] Civil Code section 2932.5 provides:

Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.

Civ. Code § 2932.5 (Deering 2011) (emphasis added). While the exact language of Civil Code section 2932.5 mentions mortgages and not deeds of trust, the distinction between the two instruments is obsolete. N. Brand Partners v. Colony GFP Partners, L.P. (In re 240 N. Brand Partners), 200 B.R. 653, 658 (B.A.P. 9th Cir. 1996) (“The terminology creates a difference without distinction.”); Yulaeva v. Greenpoint Mortg. Funding, Inc., No. S-09-1504, 2009 U.S. Dist. LEXIS 79094, at *4 (E.D. Cal. Sept. 3, 2009) (citing 4 B.E. Witkin, Summary of California Law, ch. VIII, § 5 (10th ed. 2005)); Bank of Italy Nat. Trust & Sav. Assn. v. Bentley, 217 Cal. 644, 656 (1933) (legal title under a deed of trust, though held by the trustee to the extent necessary for execution of the trust, does not carry any “incidents of ownership of the property”); see also 1 Roger Bernhardt, California Mortgages, Deeds of Trust, and Foreclosure Litigation, § 1.35 (4th ed. 2009); Bank of Italy Nat. Trust & Sav. Assn. v. Bentley, 217 Cal. 644, 656 (1933) (legal title under a deed of trust, though held by the trustee to the extent necessary for execution of the trust, does not carry any “incidents of ownership of the property”); 4 Harry D. Miller & Marvin B. Stan, Miller & Starr California Real Estate, § 10:1 n. 9 (3d 2010) (citing Dowarad v. Fisher & Burke, Inc., 270 Cal. App. 2d 543, 553 (1st Dist. 1969)) (mortgages and deeds of trust have the same effect and economic function and are “subject to the same procedures and limitations on judicial and nonjudicial foreclosure”).

[21] Specifically, the Court is unclear as to (1) whether the PSA intended to transfer the Loan to the trust (Was Doble’s Loan listed on the mortgage schedule?); (2) whether, if the PSA did intend to transfer the Loan to the trust, whether it made the transfer and documentation of the transfer was lost or whether the Loan was never transferred at all (Was the mortgage file conveyed to the trustee? Did the trustee certify the receipt of the mortgage file? Did the trustee attempt to exercise the Repurchase Provisions of the trust?); (3) whether, if the PSA intended to transfer the Loan, the parties failed to properly transfer it or whether the Loan was properly transferred but subsequent documentation was lost; and (4) whether, if the PSA did not intend to transfer the Loan to the trust, a subsequent transfer to the trust is valid under the terms of the PSA (Did the trustee receive an REMIC opinion? Did the trustee make other arrangements prior to the subsequent transfer to protect the trust’s REMIC status? Does a violation of the trust’s REMIC status negate the transfer or simply leave the trust vulnerable to an REMIC adverse event for purposes of the Tax Code?)

[22] New York Estate Powers and Trusts Law is not relevant here. Under section 11-1.1(a), New York Estate Powers and Trusts Law explicitly excludes business trusts. The Trust here is registered with the SEC, and the PSA provides for the issuance of certificates and the election of REMIC status with the IRS. Trusts whose shares are traded on the American Stock Exchange and that qualify as “real estate investment trusts” under the Internal Revenue Code are considered business trusts. Prudent Real Estate Trust v. Johncamp Realty, Inc., 599 F.2d 1140, 1141 (C.A.N.Y. 1979). As a business trust, New York’s Estate Powers and Trusts Law does not govern Deutsche Bank’s ownership of the Loan. Rather, the ownership issue is governed by law applicable to trusts generally. See, e.g., Fogelin v. Nordblom, 521 N.E.2d 1007, 1012 (Mass 1988); In re Great Northern Iron Ore Props., 263 N.W.2d 610 (Minn. 1978).

[23] While Doble does not limit the cause of action to just this allegation, and instead states “the actions of [Defendants] as set forth hereinabove” constitute violations of the stay, these allegations are too diffuse to address without more specificity.

HUFFPO–

WASHINGTON — Two of the nation’s largest mortgage firms illegally foreclosed on the homes of “almost 50” active-duty military service members, according to a Thursday report by the Government Accountability Office.

The report does not identify the two mortgage companies. GAO investigators attributed the finding to federal bank regulators, who recently completed a three-month probe into allegations of improper foreclosures carried out by the nation’s 14 largest home loan servicers.

Here’s a snippet and highly recommend reading this in its entirety!

Excerpt:

The record is void of any evidence the Note was assigned and securitized to a trust.

[ipaper docId=54673705 access_key=key-1dch86ck9zy229rl5p87 height=600 width=600 /]

IN THE MATTER OF THE FORECLOSURE BY DAVID A. SIMPSON, P.C., SUBSTITUTE TRUSTEE, OF A DEED OF TRUST EXECUTED BY REX T. GILBERT, JR. AND DANIELA L. GILBERT, HUSBAND AND WIFE, DATED MAY 5, 2006 AND RECORDED ON MAY 10, 2006, IN BOOK 219 AT PAGE 53 OF THE HYDE COUNTY PUBLIC REGISTRY.

No. COA10-361.

Court of Appeals of North Carolina.

Filed May 3, 2011.

Katherine S. Parker-Lowe, for respondent-appellants.

The Law Office of John T. Benjamin, Jr., P.A., by John T. Benjamin, Jr. and James R. White for petitioner-appellee.

HUNTER, JR., Robert N., Judge.

Respondents Rex T. Gilbert, Jr. and his wife Daniela L. Gilbert, appeal from the trial court’s Order authorizing David A. Simpson, P.C., as Substitute Trustee, to proceed with foreclosure under a power of sale in the Deed of Trust recorded in Book 219 at Page 53 in the Hyde County Register of Deeds. We reverse.

I. Factual and Procedural History

On 5 May 2006, Respondent Rex T. Gilbert, Jr. executed an adjustable rate note (“the Note”) to refinance an existing mortgage on his home. According to the terms of the Note, Mr. Gilbert promised to pay a principal amount of $525,000.00 plus interest to First National Bank of Arizona. The Note was secured by a Deed of Trust, executed by Mr. Gilbert and his wife, Daniela L. Gilbert, on real property located at 134 West End Road, Ocracoke, North Carolina. The Deed of Trust identified First National Bank of Arizona as the lender and Matthew J. Ragaller of Casey, Grimsley & Ragaller, PLLC as the trustee.

The record reveals that, during 2008, Respondents ceased making payments on the Note and made an unsuccessful attempt to negotiate a modification of the loan. On 9 March 2009, a Substitution of Trustee was recorded in the Hyde County Register of Deeds, which purports to remove Matthew Ragaller as the trustee of the Deed of Trust and appoint his successor, David A. Simpson, P.C. (“Substitute Trustee”). The Substitution of Trustee identified Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 (“Petitioner”) as the holder of the Note and the lien created by the Deed of Trust.

On 12 March 2009, the Substitute Trustee commenced this action by filing a Notice of Hearing on Foreclosure of Deed of Trust with the Hyde County Clerk of Superior Court pursuant to section 45-21.16 of our General Statutes. N.C. Gen. Stat. § 45-21.16 (2009). The Notice of Hearing stated, “the current holder of the foregoing Deed of Trust, and of the debt secured thereby, is: Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6.”

In a letter dated 5 April 2009, Mr. Gilbert purported to exercise his right to rescind the loan transaction he entered into with the original lender, First National Bank of Arizona, pursuant to the federal Truth in Lending Act, 15 U.S.C. § 1635. As justification for his purported rescission, Gilbert alleged that the Truth in Lending Disclosure Statement provided by First National Bank of Arizona failed to accurately provide all required material disclosures including, inter alia, the correct annual percentage rate and payment schedule. The Substitute Trustee responded with a letter from GMAC ResCap, in which it denied any material disclosure errors were made and refused to rescind the loan transaction.

The foreclosure hearing was held on 2 June 2009 before the Clerk of Superior Court of Hyde County. The Honorable Sharon G. Sadler entered an Order on 17 June 2009, permitting the Substitute Trustee to proceed with the foreclosure. In the Order, the Clerk specifically found, inter alia, that Petitioner was the holder of the Note and Deed of Trust that it sought to foreclose and the Note evidenced a valid debt owed by Mr. Gilbert. Respondents appealed the Order to superior court.

The matter came on for a de novo hearing on 18 August 2009 before the Honorable Marvin K. Blount, III, in Hyde County Superior Court. During the hearing, the trial court admitted into evidence a certified copy of the Note and the Deed of Trust and two affidavits attesting to the validity of Gilbert’s indebtedness pursuant to the Note, and that Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 is the current owner and holder of the Note. Additionally, Petitioner introduced the original Note and Allonge for the trial court’s inspection.

Reviewing the record before this Court, the Allonge contains a series of indorsements evidencing the alleged assignments of the Note, as follows:

PAY TO THE ORDER OF: First National Bank of Nevada WITHOUT RECOURSE BY: [Signature] ___________________________ AMY HAWKINS, ASSISTANT VICE PRESIDENT FIRST NATIONAL BANK OF ARIZONA Pay to the order of: RESIDENTIAL FUNDING CORPORATION Without Recourse FIRST NATIONAL BANK OF NEVADA By: [Signature] __________________________ Deutsche Bank National Trust Company, F/K/A Bankers Trust Company of California, N.A. as Custodian as Attorney in Fact [Illegible Name and Title] PAY TO THE ORDER OF Deutsche Bank Trust Company Americas as Trustee WITHOUT RECOURSE Residential Funding Corporation BY [Signature] ________________________ Judy Faber, Vice President

Respondents made two arguments at the hearing. First, Respondents argued that the debt evidenced by the Note no longer existed, as Mr. Gilbert had rescinded the transaction for the loan with First National Bank of Arizona. Petitioner objected to Respondents’ rescission argument as being a defense in equity and, as such, inadmissible in a proceeding held pursuant to N.C. Gen. Stat. § 45-21.16. The trial court agreed and refused to let Respondents’ expert witness testify as to alleged material errors in the Truth in Lending Disclosure Statement, which Mr. Gilbert alleged permitted him the right to rescind the loan. Second, Respondents argued that Petitioner had not produced sufficient evidence to establish that Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 was the holder of the Note.

Based on the preceding evidence, the trial court entered an order on 18 August 2009 in which it found, inter alia: Mr. Gilbert executed the Note and, with his wife, executed a Deed of Trust in favor of First National Bank of Arizona, secured by the real property described in the Deed of Trust; a valid debt exists and is owed by Gilbert to Petitioner; Gilbert is in default under the Note and Deed of Trust; proper notice of the foreclosure hearing was given to all parties as required by N.C. Gen. Stat. § 45-21.16; Petitioner was the current holder of the Note and the Deed of Trust. The trial court concluded as a matter of law that the requirements of N.C. Gen. Stat. § 45-21.16 had been satisfied. Based on these findings and conclusion of law, the trial court authorized the Substitute Trustee to proceed with the foreclosure. Respondents timely entered notice of appeal.

II. Analysis

A party seeking permission from the clerk of court to proceed with a foreclosure pursuant to a power of sale contained in a deed of trust must prove the following statutory requirements: (1) the party seeking foreclosure is the holder of a valid debt, (2) default on the debt by the debtor, (3) the deed of trust provides the right to foreclose, (4) proper notice was given to those parties entitled to notice pursuant to section 45-21.16(b). N.C. Gen. Stat. § 45-21.16(d) (2009). The General Assembly added a fifth requirement, which expired 31 October 2010: “that the underlying mortgage debt is not a subprime loan,” or, if it is a subprime loan, “that the pre-foreclosure notice under G.S. 45-102 was provided in all material respects, and that the periods of time established by Article 11 of this Chapter have elapsed[.]” Id. The role of the clerk of court is limited to making a determination on the matters specified by section 45-21.16(d). See Mosler ex rel. Simon v. Druid Hills Land Co., Inc., 199 N.C. App. 293, 295-96, 681 S.E.2d 456, 458 (2009). If the clerk’s order is appealed to superior court, that court’s de novo hearing is limited to making a determination on the same issues as the clerk of court. See id.

The trial court’s order authorizing the foreclosure to proceed was a final judgment of the superior court, therefore, this Court has jurisdiction to hear the instant appeal. N.C. Gen. Stat. § 7A-27(b) (2009). Our standard of review for this appeal, where the trial court sat without a jury, is “`whether competent evidence exists to support the trial court’s findings of fact and whether the conclusions reached were proper in light of the findings.'” In re Adams, __ N.C. App. __, __, 693 S.E.2d 705, 708 (2010) (quoting In re Foreclosure of Azalea Garden Bd. & Care, Inc., 140 N.C. App. 45, 50, 535 S.E.2d 388, 392 (2000)).

We note the trial court classified multiple conclusions of law as “findings of fact.” We have previously recognized “[t]he classification of a determination as either a finding of fact or a conclusion of law is admittedly difficult.” In re Helms, 127 N.C. App. 505, 510, 491 S.E.2d 672, 675 (1997). Generally, “any determination requiring the exercise of judgment or the application of legal principles is more properly classified a conclusion of law.” Id. (citations omitted). Any determination made by “`logical reasoning from the evidentiary facts,'” however, “is more properly classified a finding of fact.” Id. (quoting Quick v. Quick, 305 N.C. 446, 452, 290 S.E.2d 653, 657-58 (1982)). When this Court determines that findings of fact and conclusions of law have been mislabeled by the trial court, we may reclassify them, where necessary, before applying our standard of review. N.C. State Bar v. Key, 189 N.C. App. 80, 88, 658 S.E.2d 493, 499 (2008) (citing In re Helms, 127 N.C. App. at 510, 491 S.E.2d at 675).

Looking to the trial court’s Order, we conclude that the following “findings of fact” are determinations that required the application of legal principles and are more appropriately classified as conclusions of law: a valid debt exists and is owed to Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6; proper notice was given to and received by all parties as required by N.C. Gen. Stat. § 45-21.16 and the Rules of Civil Procedure; Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 is the current owner and holder of the Note and Deed of Trust. See In re Watts, 38 N.C. App. 90, 92, 247 S.E.2d 427, 428 (1978) (noting upon the appeal of a N.C. Gen. Stat. § 45-21.16 special proceeding the trial court’s conclusions of lawsee also Connolly v. Potts, 63 N.C. App. 547, 549, 306 S.E.2d 123, 124 (1983) (same). In light of this reclassification of the trial court’s findings of fact and conclusions of law, we turn to the issues raised on appeal. included the existence of a valid debt, the right to foreclose under the deed of trust, and proper notice to the mortgagors);

1. Rescission of the Loan Transaction

Respondents raise several arguments alleging the trial court erred by refusing to consider their defense to the foreclosure action, that the debt Petitioner sought to foreclose was not a valid debt——a required element under the statute for foreclosure by power of sale. See N.C. Gen. Stat. § 45-21.16(d)(i) (requiring, inter alia, that the clerk of court must determine that a valid debt exists). Respondents contend the debt is not valid because Mr. Gilbert rescinded the transaction by which he obtained the loan from First National Bank of Arizona pursuant to the federal Truth in Lending Act (“TILA”), 15 U.S.C. §§ 1601-1667f, and the Federal Reserve Board’s Regulation Z, 12 C.F.R. § 226.1-.58. We conclude the trial court did not err.

The admissibility of evidence in the trial court is based upon that court’s sound discretion and may be disturbed on appeal only upon a finding that the decision was based on an abuse of discretion. Gibbs v. Mayo, 162 N.C. App. 549, 561, 591 S.E.2d 905, 913 (2004). Here, we conclude the trial court properly refused to consider Respondents’ evidence of rescission. Rescission under the TILA is an equitable remedy. See Am. Mortg. Network, Inc. v. Shelton, 486 F.3d 815, 819 (4th Cir. 2007) (“`[A]lthough the right to rescind [under the TILA] is [statutory], it remains an equitable doctrine subject to equitable considerations.'” (quoting Brown v. Nat’l Permanent Fed. Sav. & Loan Ass’n, 683 F.2d 444, 447 (D.C. Cir. 1982)). While legal defenses to a foreclosure under a power of sale are properly raised in a hearing held pursuant to section 45-21.16, equitable defenses are not. Watts, 38 N.C. App. at 94, 247 S.E.2d at 429. As we have previously stated, a hearing under section 45-21.16 is “not intended to settle all matters in controversy between mortgagor and mortgagee, nor was it designed to provide a second procedure for invoking equitable relief.” Id. A party seeking to raise an equitable defense may do so in a separate civil action brought in superior court under section 45-21.34. Id.; N.C. Gen. Stat. § 45-21.34 (2009) (stating that a party with a legal or equitable interest in the subject property may apply to a superior court judge to enjoin a sale of the property upon legal or equitable grounds). Accordingly, the trial court properly concluded Respondents’ argument that Mr. Gilbert had rescinded the loan transaction, invaliding the debt Petitioner sought to foreclose, was an equitable defense and not properly before the trial court. Respondents’ argument is without merit.^[1]

2. Evidence that Petitioner was the Owner and Holder of Mr. Gilbert’s Promissory Note

Respondents also argue the trial court erred in ordering the foreclosure to proceed, as Petitioner did not prove that it was the holder of the Note with the right to foreclose under the instrument as required by section 45-21.16(d)(i) and (iii). We agree.

A “foreclosure under a power of sale is not favored in the law and its exercise will be watched with jealousy.” In re Foreclosure of Goforth Props., Inc., 334 N.C. 369, 375, 432 S.E.2d 855, 859 (1993) (citations and internal quotation marks omitted). That the party seeking to foreclose on a promissory note is the holder of said note is an essential element of the action and the debtor is “entitled to demand strict proof of this element.” Liles v. Myers, 38 N.C. App. 525, 528, 248 S.E.2d 385, 388 (1978).

For the trial court to find sufficient evidence that Petitioner is the holder of a valid debt in accordance with section 45-21.16(d), “this Court has determined that the following two questions must be answered in the affirmative: (1) `is there sufficient competent evidence of a valid debt?’; and (2) `is there sufficient competent evidence that [the party seeking to foreclose is] the holder[ ] of the notes [that evidence that debt]?'” Adams, __ N.C. App. at __, 693 S.E.2d at 709 (quoting In re Cooke, 37 N.C. App. 575, 579, 246 S.E.2d 801, 804—05 (1978)); see N.C. Gen. Stat. § 45-21.16(d) (2009) (in order for the foreclosure to proceed, the clerk of court must find, inter alia, the existence of a “valid debt of which the party seeking to foreclose is the holder,” and a “right to foreclose under the instrument” securing the debt) (emphasis added).

Establishing that a party is the holder of the note is essential to protect the debtor from the threat of multiple judgments on the same note.

If such proof were not required, the plaintiff could negotiate the instrument to a third party who would become a holder in due course, bring a suit upon the note in her own name and obtain a judgment in her favor. . . . Requiring proof that the plaintiff is the holder of the note at the time of her suit reduces the possibility of such an inequitable occurrence.

Liles, 38 N.C. App. at 527, 248 S.E.2d at 387.

We have previously determined that the definition of “holder” under the Uniform Commercial Code (“UCC”), as adopted by North Carolina, controls the meaning of the term as it used in section 45-21.16 of our General Statutes for foreclosure actions under a power of sale. See Connolly, 63 N.C. App. at 550, 306 S.E.2d at 125; Adams, __ N.C. App. at __, 693 S.E.2d at 709. Our General Statutes define the “holder” of an instrument as “[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.” N.C. Gen. Stat. § 25-1-201(b)(21) (2009); Econo-Travel Motor Hotel Corp. v. Taylor, 301 N.C. 200, 203, 271 S.E.2d 54, 57 (1980). Furthermore, a “`[p]erson’ means an individual, corporation, business trust, estate, trust . . . or any other legal or commercial entity.” N.C. Gen. Stat. § 25-1-201(b)(27) (2009).

As addressed above, we conclude the trial court properly found that a valid debt existed. The remaining issue before this Court is whether there was competent evidence that Petitioner was the holder of the Note that evidences Mr. Gilbert’s debt.

In support of its argument that it provided competent evidence to support the trial court’s findings, Petitioner first points to its production of the original Note with the Allonge at the de novo hearing, as well as its introduction into evidence true and accurate copies of the Note and Allonge. Petitioner asserts this evidence “plainly evidences the transfers” of the Note to Petitioner. We cannot agree.

Under the UCC, as adopted by North Carolina, “[a]n 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.” N.C. Gen. Stat. § 25-3-203(a) (2009). Production of an original note at trial does not, in itself, establish that the note was transferred to the party presenting the note with the purpose of giving that party the right to enforce the instrument, as demonstrated in Connolly, 63 N.C. App. at 551, 306 S.E.2d at 125, and Smathers v. Smathers, 34 N.C. App. 724, 726, 239 S.E.2d 637, 638 (1977) (holding that despite evidence of voluntary transfer of promissory notes and the plaintiff’s possession thereof, the plaintiff was not the holder of the note under the UCC as the notes were not drawn, issued, or indorsed to her, to bearer, or in blank. “[T]he plaintiff testified to some of the circumstances under which she obtained possession of the notes, but the trial court made no findings of fact with respect thereto.”)

In Connolly, determining who had possession of the note became the critical question for the foreclosure proceeding. 63 N.C. App. at 551, 306 S.E.2d at 125. Several years prior to the foreclosure proceedings at issue in Connolly, the petitioners obtained a loan from a bank and pledged as collateral a promissory note that was payable to the petitioners by assigning and delivering the note to the bank. Id. at 549, 306 S.E.2d at 124. After obtaining their loan, the petitioners sought to foreclose on the promissory note and deed of trust, which was in the bank’s possession, but were denied at the special proceeding before the clerk of court. Id. at 548, 306 S.E.2d at 124. The petitioners appealed the decision to superior court. Id. During the de novo hearing, the petitioners testified their loan to the bank had been paid, but “they had left the [] note at the bank, for security purposes.” Id. at 551, 306 S.E.2d at 125. The petitioners, however, “introduced the originals of the note and deed of trust” during the hearing. Id. The trial court found the bank was in possession of the note and concluded, as a matter of law, the petitioners were not the holders of the note at the institution of the foreclosure proceedings; the foreclosure was again denied. Connolly, 63 N.C. App. at 550, 306 S.E.2d at 124-25. On appeal, this Court concluded that despite the fact that the party seeking foreclosure introduced the original note at the time of the de novo hearing, the trial court’s findings of fact did not address whether the petitioners were in possession of the note at the time of the trial; the trial court’s judgment was vacated and remanded. Id. at 551, 306 S.E.2d at 125-26.

Similarly, here, the trial court’s findings of fact do not address who had possession of Mr. Gilbert’s note at the time of the de novo hearing. Without a determination of who has physical possession of the Note, the trial court cannot determine, under the UCC, the entity that is the holder of the Note. See N.C. Gen. Stat. § 25-1-201(b)(21) (defining “holder” as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession“) (emphasis added); Connolly, 63 N.C. App. at 550, 306 S.E.2d at 125 (“It is the fact of possession which is significant in determining whether a person is a holder, and the absence of possession defeats that status.“) (emphasis added). Accordingly, the trial court’s findings of fact do not support the conclusion of law that Petitioner is the holder of Mr. Gilbert’s note.

Assuming arguendo that production of the Note was evidence of a transfer of the Note pursuant to the UCC and that Petitioner was in possession of the Note, this is not sufficient evidence that Petitioner is the “holder” of the Note. As discussed in detail below, the Note was not indorsed to Petitioner or to bearer, a prerequisite to confer upon Petitioner the status of holder under the UCC. See N.C. Gen. Stat. § 25-1-201(b)(21) (requiring that, to be a holder, a person must be in possession of the note payable to bearer or to the person in possession of the note). “`[M]ere possession’ of a note by a party to whom the note has neither been indorsed nor made payable `does not suffice to prove ownership or holder status.'” Adams, __ N.C. App. at __, 693 S.E.2d at 710 (quoting Econo-Travel Motor Hotel Corp., 301 N.C. at 203, 271 S.E.2d at 57).

Petitioner acknowledges that following the signing of the Note by Mr. Gilbert, the Note was sequentially assigned to several entities, as indicated by the series of indorsements on the Allonge, reprinted above. Respondents argue these indorsements present two problems. First, Respondents state that Petitioner did not provide any evidence to establish that Deutsche Bank National Trust Company had the authority, as the attorney-in-fact for First National Bank of Nevada, to assign the Note to Residential Funding Corporation in the second assignment. Respondents make no argument——and cite no authority to establish——that such evidence is needed. Therefore, we do not address the merits of this alleged error and deem it abandoned. See N.C. R. App. P. 28(6) (2011) (“Issues not presented in a party’s brief, or in support of which no reason or argument is stated, will be taken as abandoned.”)

Second, Respondents argue Petitioner has not offered sufficient evidence that Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 was the holder of the Note and, thus, the party entitled to proceed with the foreclosure action. We agree.

Respondents note the third and final assignment on the Allonge was made to “Deutsche Bank Trust Company Americas as Trustee,” which is not the party asserting a security interest in Respondents’ property; this action was brought by Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6, the entity the trial court found to be the owner and holder of the Note. Section 3-110 of the UCC, as codified in our General Statutes, states in pertinent part:

For the purpose of determining the holder of an instrument, the following rules apply:

. . . .

(2) If an instrument is payable to (i) a trust, an estate, or a person described as trustee or representative of a trust or estate, the instrument is payable to the trustee, the representative, or a successor of either, whether or not the beneficiary or estate is also named . . . .

N.C. Gen. Stat. § 25-3-110(c) (2009) (emphasis added). Additionally, the official comments to this section of the UCC state, in part, “This provision merely determines who can deal with an instrument as a holder. It does not determine ownership of the instrument or its proceeds.” Id. § 25-3-110, Official Comment 3.

In the present case, the Note is clearly indorsed “PAY TO THE ORDER OF Deutsche Bank Trust Company Americas as Trustee.” Thus, pursuant to section 25-3-110(c)(2), the Note is payable to Deutsche Bank Trust Company Americas as Trustee. See Id. Because the indorsement does not identify Petitioner and is not indorsed in blank or to bearer, it cannot be competent evidence that Petitioner is the holder of the Note. See N.C. Gen. Stat. § 25-1-201(b)(21) (defining “holder” as “[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“); Econo-Travel Motor Hotel Corp., 301 N.C. at 204, 271 S.E.2d at 57 (concluding that where the defendants produced a copy of the note indorsed to an entity other than the plaintiff, the “defendants established that plaintiff was not the owner or holder of the note”).

In addition to the Note and Allonge, Petitioner points to two affidavits provided by two GMAC Mortgage employees as further evidence that the trial court’s findings are based on sufficient competent evidence. Again, we disagree.

The first affidavit is an Affidavit of Indebtedness by Jeffrey Stephan (“Stephan”).^[2] In his affidavit, Stephan averred, inter alia, he was a limited signing officer for GMAC Mortgage, the sub-servicer of Mr. Gilbert’s loan, and as such, was “familiar with the books and records of [GMAC Mortgage], specifically payments made pursuant to the Note and Deed of Trust.” Accordingly, Stephan testified as to the principal amount of Mr. Gilbert’s loan and to his history of loan payments. Stephan further testified that after the Note and Deed of Trust were executed they were “delivered” to the original lender, First National Bank of Arizona; the original lender then “assigned and transferred all of its right, title and interest” to First National Bank of Nevada, which, in turn, assigned all its rights, title, and interest in the instruments to Residential Funding Corporation. The final assignment to which Stephan averred is an assignment and securitization of the Note and Deed of Trust from Residential Funding Corporation to “Deutsche Bank Trust Company Americas as Trustee.” Stephan then makes the conclusory statement, “Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 is the current owner and holder of the Note and Deed of Trust described herein.”

Whether Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 is the owner and holder of the Note and Deed of Trust is a legal conclusion that is to be determined by a court of law on the basis of factual allegations. As such, we disregard Stephan’s conclusion as to the identity of the “owner and holder” of the instruments. See Lemon v. Combs, 164 N.C. App. 615, 622, 596 S.E.2d 344, 349 (2004) (“`Statements in affidavits as to opinion, belief, or conclusions of law are of no effect.'” (quoting 3 Am. Jur. 2d, Affidavits § 13 (2002))); see also Speedway Motorsports Int’l Ltd. v. Bronwen Energy Trading, Ltd., __ N.C. App. __, __ n.2, __ S.E.2d __, __ n.2, slip op. at 12 n.2, No. 09-1451 (Feb. 15, 2011) (rejecting a party’s contention that this Court must accept as true all statements found in the affidavits in the record, stating, “our standard of review does not require that we accept a witness’ characterization of what `the facts’ mean”). While Stephan referred to a Pooling and Servicing Agreement (“PSA”) that allegedly governs the securitization of the Note to Deutsche Bank Trust Company Americas as Trustee, the PSA was not included in the record and will not be considered by this Court. See N.C. R. App. P. 9(a) (2011) (“In appeals from the trial division of the General Court of Justice, review is solely upon the record on appeal, the verbatim transcript of proceedings, if one is designated, and any other items filed pursuant to this Rule 9.”) The record is void of any evidence the Note was assigned and securitized to a trust.

We also note that Stephan alleged no facts as to who possesses Mr. Gilbert’s note, other than his averment that the Note was “delivered” to the original lender, First National Bank of Arizona. Stephan referred to a statement made by counsel for GMAC Mortgage that the original Note “would be brought to the foreclosure hearing,” but he did not provide any facts from which the trial court could determine who has possession of the Note. As demonstrated by Connolly,63 N.C. App. at 551, 306 S.E.2d at 125. Thus, we conclude Stephan’s affidavit is not competent evidence to support the trial court’s conclusion that Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 is the owner and holder of Mr. Gilbert’s note. discussed above, production of a note at trial is not conclusive evidence of possession.

Petitioner also provided the affidavit of Scott Zeitz (“Zeitz”), who alleged in his affidavit to be a litigation analyst for GMAC Mortgage. Zeitz’s basis for his affidavit testimony is that he works with “the documents that relate to account histories and account balances of particular loans” and that he is familiar with Mr. Gilbert’s account. Accordingly, Zeitz testified to the details of Mr. Gilbert’s loan and the terms of the Note. Zeitz’s affidavit, substantially similar to the affidavit of Jeffrey Stephan, also averred to the transfer of the Note and Deed of Trust through the series of entities indicated on the Allonge, stating in part:

Residential Funding Corporation sold, assigned and transferred all of its right, title and interest in and to the Note and Deed of Trust to Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6. This is reflected on the Allonge to the Note, a true and accurate copy of which is attached and incorporated hereto as EXHIBIT 5. (Emphasis added.)

This statement is factually incorrect; the Allonge in the record contains no indorsement to Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6. Zeitz further stated that “Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 is the current owner and holder of the Note and Deed of Trust.” This statement is a legal conclusion postured as an allegation of fact and as such will not be considered by this Court. See Lemon, 164 N.C. App. at 622, 596 S.E.2d at 349.

Unlike Jeffrey Stephan, Zeitz stated that Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 “has possession of the original Note and Deed of Trust.” We note, however, that “[w]hen an affiant makes a conclusion of fact, it must appear that the affiant had an opportunity to observe and did observe matters about which he or she testifies.” Lemon, 164 N.C. App. at 622, 596 S.E.2d at 348-49 (quoting 3 Am. Jur. 2d Affidavits § 13) (internal quotation marks omitted). Moreover,

[t]he personal knowledge of facts asserted in an affidavit is not presumed from a mere positive averment of facts but rather the court should be shown how the affiant knew or could have known such facts and if there is no evidence from which an inference of personal knowledge can be drawn, then it is presumed that such does not exist.

Id. at 622-23, 596 S.E.2d at 349 (quoting 3 Am. Jur. 2d Affidavits § 14, cited with approval in Currituck Associates Residential P’ship v. Hollowell, 170 N.C. App. 399, 403-04, 612 S.E.2d 386, 389 (2005)). Thus, while Zeitz concluded as fact that Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 has possession of the Note, his affidavit provides no basis upon which we can conclude he had personal knowledge of this alleged fact. Because of these deficiencies, we conclude that neither the affidavit of Jeffrey Stephan nor the affidavit of Scott Zeitz is competent evidence to support the trial court’s finding that Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 is the owner and holder of Mr. Gilbert’s note.

III. Conclusion

We conclude the record is lacking of competent evidence sufficient to support that Petitioner is the owner and holder of Mr. Gilbert’s note and deed of trust. The trial court erred in permitting the Substitute Trustee to proceed with foreclosure proceedings and its order is

Reversed.

Judges MCGEE and BEASLEY concur.

[1] During the pendency of this action, the Gilberts filed a separate action against Deutsche Bank Trust Company Americas, Residential Funding, LLC, GMAC Mortgage, LLC, and David A. Simpson, P.C. to litigate, inter alia, their TILA claim in Hyde County Superior Court. The defendants removed the action to federal court. See Gilbert v. Deutsche Bank Trust Co. Americas, slip op. at 1, 4:09-CV-181-D, 2010 WL 2696763 (E.D.N.C. July 7, 2010), reconsideration denied, 2010 WL 4320460 (E.D.N.C. Oct. 19, 2010). Because the Gilberts’ claim was filed more than three years after the loan transaction was completed, the federal trial court dismissed the action for failure to state a claim upon which relief could be granted. Id. at __, slip op. at 5.

[2] This Court finds troubling that GMAC Mortgage, LLC was recently found to have submitted a false affidavit by Signing Officer Jeffrey Stephan in a motion for summary judgment against a mortgagor in the United States District Court of Maine. Judge John H. Rich, III concluded that GMAC Mortgage submitted Stephan’s false affidavit in bad faith and levied sanctions against GMAC Mortgage, stating:

[T]he attestation to the Stephan affidavit was not, in fact, true; that is, Stephan did not know personally that all of the facts stated in the affidavit were true. . . . GMAC [Mortgage] was on notice that the conduct at issue here was unacceptable to the courts, which rely on sworn affidavits as admissible evidence in connection with motions for summary judgment. In 2006, an identical jurat signed under identical circumstances resulted in the imposition of sanctions against GMAC [Mortgage] in Florida. James v. U.S. Bank Nat. Ass’n, 272 F.R.D. 47, 48 (D. Me. 2011).

courtesy of DealBook

U.S. v. Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 11-02976.

[ipaper docId=54521806 access_key=key-nhneasxcfg5b5mmh1qf height=600 width=600 /]

UNITED STATES BANKRUPTCY COURT
DISTRICT OF CONNECTICUT
BRIDGEPORT DIVISION

In re
TIFFANY M. KRITHARAKIS,
Debtor.

UNITED STATES TRUSTEE’S MOTION FOR RULE 2004 EXAMINATION OF
REPRESENTATIVE(S) OF DEUTSCHE BANK NATIONAL TRUST COMPANY, AS
TRUSTEE FOR SOUNDVIEW HOME LOAN TRUST 2005-OPTI,
ASSET BACKED CERTIFICATES, SERIES 2005-OPTI

EXCERPT:

21. Also annexed to the Amended Proof of Claim is a copy of the Sand Canyon AOM whereby Sand Canyon Corporation f/k/a Option One Mortgage Corporation assigned its rights to the Mortgage to Deutsche. See Amended POC at Part 8. The Sand Canyon AOM is dated June 11, 2010 but has an effective date of assignment of May 1, 2005. Id. The Sand Canyon AOM is signed by Rhonda Werdel (“Werdel”) as Assistant Secretary of Sand Canyon Corporation FKA Option One Mortgage Corporation. Id. The May 1, 2005 effective date contained in the Sand Canyon AOM conflicts with the January 19, 2005 dated contained in the Option One Allonge. See Amended POC at Part 5 and Part 8.

22. On information and belief, American Home Mortgage Servicing, Inc. purchased the mortgage servicing rights of Sand Canyon in April 2008. See Declaration of Dale M. Sugimoto, As President of Sand Canyon Corporation, dated March 18, 2009, doc id # 141 in In re Ron Wilson, Sr. and LaRhonda Wilson, 07-11862 (EWM), United States Bankruptcy Court for the Eastern District of Louisiana attached here to as Exhibit 3 (“March 2009 Sugimoto Declaration”). According to the March 2009 Sugimoto Declaration, Sand Canyon does not own any mortgage servicing rights or any residential real estate mortgages. See Exhibit 3 at ¶ ¶ 5, 6. As such, it appears that the Sand Canyon AOM executed in June 2010 may be deficient because Sand Canyon did not own any mortgages in 2010.

Continue below …

[ipaper docId=54318319 access_key=key-z151xlx5vl7092b3eem height=600 width=600 /]

This part shall apply to  nonjudicial foreclosures conducted under part II by power of sale, of residential real property that is occupied by one or more mortgagors as a primary residence; provided that this part shall not apply to actions by an association to foreclose on a lien for amounts owed to the association that arise under a declaration filed pursuant to chapter 514A or 514B, or to a mortgagor who has previously participated in dispute resolution under this part for the same property on the same mortgage loan.

[ipaper docId=54109578 access_key=key-2fs3s6lpsn9kt27gps8m height=600 width=600 /]

Honolulu Weekly-

A recent 60 Minutes segment investigated Mortgage Electronic Registration Systems (MERS), a private company that acts as an agent for institutions seeking to speed up the processing of their loan modifications. MERS, which claims to handle about 60 million loans (nearly half of all home loan modifications in the country) with fewer than 50 staff. In an April 2010 lawsuit, the founder of MERS admitted that the untrained and non-certified “notaries” were allowed to illegally notarize hundreds of documents daily, as well as “robo-sign” up to 4,000 foreclosure documents daily.

<SNIP>

“There are increasing reports around the country of wrongful foreclosures,” said Recktenwald. “It is especially important to protect our citizens from fraudulent practices.” Recktenwald referred to states that have passed comprehensive legislation and seen dramatic reductions in foreclosures. “I want to express that this is personal for me. Our home is a sacred meeting place for friends, family and community–not a game piece on a Monopoly board. Why I’ve chosen to make Hawaii my home is that I am joined with fellow stewards of the land. Our love of this land is greater than the greed of Wall Street.”

MFI-MIAMI-

Several months ago, the major banks sounded the all clear signal regarding robo-signing in non-judicial foreclosure states, namely Michigan and Massachusetts.  It appears those claims of non-exist robo-signing were either greatly exaggerated or were overly optimistic.

MFI-Miami has uncovered evidence of forged documents drafted and signed by attorneys and employees at Orlans Associates at their corporate offices in Troy, Michigan.   These  fraudulent documents will impact tens of thousands of foreclosures done by Ally Financial, Bank of America, Deutsche Bank, JPMorgan-Chase, Fannie Mae and others in Michigan and Massachusetts over the past five years and makes the investigation being done by Ingham County Register of Deeds, Curtis Hertel, Jr. and Oakland County Clerk Bill Bullard into the robo-signing of Linda Green at the now defunct DocX look like a kindergarten production of the movie, The Firm.

April 16, 2011

Sheila C. Bair, Chairwoman, FDIC
550 17th Street, NW, Room 6028
Washington, D.C. 20429

Re: Fixed-Rate, Low-Rate Mortgages As An Element of Compensation for Foreclosure Fraud

Dear Chairwoman Bair:

I write to you regarding fraud by banks in foreclosures. I previously wrote to you in January, 2010, regarding massive foreclosure fraud.

I am the woman who was featured on the 60 Minutes segment on April 3, 2011 on foreclosure fraud. That segment brought the wrath of Deutsche Bank and American Home Mortgage Servicing down upon me, but I have no regrets. You were also interviewed by Scott Pelley in this segment.

One proposal you recommend for holding the banks accountable for frauds and abuses in foreclosures is to create a fund to make reparations to victims. I support such a fund. An inquiry into whether the victims have been compensated is a traditional part of white collar criminal law. Such compensation is not made, of course, in place of criminal sanctions, but as an important part of such sanctions.

The fraud is so pervasive that twenty or thirty billion dollars will not begin to compensate the victims, and the banks certainly know this, even as they are setting aside as little as one to two billion for such relief.

I am writing to suggest to you that real compensation will include the opportunity for victims to have another mortgage.

Many victims of foreclosure fraud have been left with ruined finances, no credit and deficiency judgments. A one-time cash payout will not repair this damage.

The banks need to be required to offer victims of foreclosure fraud fixed rate, low-rate (3% – 4%) traditional 30-year mortgages, with a 5% down payment.

Such relief should be offered in every case where the lenders have filed forged and fabricated documents in official county records and court cases.

This relief should also be offered wherever a mortgage payment was incorrectly “adjusted” by mortgage servicers, including the tens of thousands of cases where the servicers attempted to justify their actions as a permitted increase in the escrow fund for taxes or insurance.

Such relief should also be offered wherever banks foreclosed while telling homeowners they were considering their eligibility for HAMP.

Such relief should also be offered wherever banks “lost” the homeowners’ HAMP applications and supporting documents three or more times.

Many victims of foreclosure fraud sold their homes, often at a loss, to avoid foreclosure. These victims also need to be compensated. These homeowners were very regularly told that mortgage-backed trusts owned their mortgages and would foreclose, even as the bank trustees knew that the documents demonstrating such ownership, the properly endorsed notes and assigned mortgages, were never held by the trusts.

Not every victim would choose another mortgage because many individuals will never trust another bank. There will, however, be tens of thousands of victims who are willing to become homeowners again.

Communities with a 40% rate of abandoned, vacant homes would benefit from such relief. County and state budgets would also benefit.

Please consider mortgage availability as an integral part of any plan to compensate victims of foreclosure fraud.

Please call upon me if I can be of assistance.

Yours truly,
Lynn E. Szymoniak, Esq. (szymoniak@mac.com)

[ipaper docId=53228852 access_key=key-1bu5jkqn32r49aidjzvc height=600 width=600 /]

Ibanez, 458 Mass. at 651 (emphasis added). None of the evidence thus far presented at trial indicated that the plaintiff’s mortgage was part of the Trust Fund, or how the Depositor acquired the Trust Fund.

In re: SIMA SCHWARTZ, Debtor.

SIMA SCHWARTZ, Plaintiff,

v.

HOMEQ SERVICING, AGENT FOR DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE and DEUTSCHE BANK NATIONAL COMPANY, AS TRUSTEE, Defendants.

Case No. 06-42476-MSH, Adv. Pro. No. 07-04098.

United States Bankruptcy Court, D. Massachusetts, Central Division.

April 7, 2011.

MEMORANDUM AND ORDER ON PLAINTIFF?S MOTION FOR A NEW TRIAL

Excerpt:

A central question at trial was whether defendant Deutsche was the owner of the mortgage on the plaintiff’s home during the foreclosure process which resulted in the foreclosure sale of the home on May 24, 2006.2 The plaintiff introduced into evidence a document entitled “Assignment of Mortgage” dated May 23, 2006, which reflected the assignment of the plaintiff’s mortgage from the original mortgagee, Mortgage Electronic Registration Systems, Inc., as nominee for First NCL Financial Services, LLC, to defendant Deutsche. During the plaintiff’s case, all parties agreed that this assignment was dated prior to the date of the foreclosure sale. No party disputed its authenticity or validity. Because the assignment was executed prior to the foreclosure sale and its validity was not questioned, I ruled at trial that the plaintiff had failed to carry her burden of proving that Deutsche was not the owner of the mortgage when it foreclosed.

In her motion for a new trial, the plaintiff argues that I misconstrued Massachusetts law, pointing out that the Massachusetts Supreme Judicial Court in U.S. Bank. Nat’l Ass’n v. Ibanez, 458 Mass. 673, 941 N.E.2d 40 (2011) recently held that in order for a foreclosure sale to be valid the mortgage must have been assigned to the foreclosing entity not merely before the sale, but prior to the first publication of notice of that sale required by Mass. Gen. Laws. ch. 244, § 14. Ibanez, 458 Mass. at 647-48. I agree with the plaintiff’s interpretation of Ibanez and since the May 23, 2006 assignment was executed after the foreclosure notices had been published, I could not rely on the assignment exclusively in granting the defendants judgment on partial findings. In light of the foregoing I must determine whether and to what extent to open the March 6, 2011 judgment for the defendants.

In Count I of the complaint, the plaintiff seeks a ruling that the foreclosure sale was invalid. Not only does the March 23, 2006 assignment fail to establish the validity of the foreclosure sale, it constitutes the only evidence presented that at the time Deutsche began publishing notice of the sale, Deutsche was not the holder of the mortgage. The defendants argue that the pooling and servicing agreement dated November 1, 2005 which is listed in the joint pretrial  memorandum as a trial exhibit provides evidence that the mortgage on the plaintiff’s property was assigned to Deutsche well before the foreclosure process had begun. The excerpt of the pooling and servicing agreement that was admitted during the plaintiff’s case in chief, however, provides no such evidence. The excerpt indicates that an entity defined as the “Depositor” assigned the “Trust Fund”, which I presume included mortgages listed on a mortgage loan schedule not provided, to Deutsche, as Trustee for the benefit of the certificateholders of the Morgan Stanley Home Equity Loan Trust 2005-4. In Ibanez, the Supreme Judicial Court held that where, as here, a recordable assignment was not executed prior to the first publication of a notice of a foreclosure sale, the foreclosing entity may nevertheless prove that it was the mortgagee at the relevant time. The Court observed:

[w]here a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder. However, there must be proof that the assignment was made by a party that itself held the mortgage.

Ibanez, 458 Mass. at 651 (emphasis added). None of the evidence thus far presented at trial indicated that the plaintiff’s mortgage was part of the Trust Fund, or how the Depositor acquired the Trust Fund.

I find that the plaintiff has presented sufficient evidence of the chain of title of the mortgage on her property to carry her burden of persuasion that the mortgage was not owned by Deutsche before the first publication of the notice of foreclosure sale. I must, therefore, vacate and open the judgment for the defendants on Count I of the complaint.

Continue below:

[ipaper docId=52595859 access_key=key-5mht8u39skdbwlrxkg5 height=600 width=600 /]

Special Thanks to Lynn’s attorney Mark Cullen!

Via Palm Beach Post

At a brief hearing Tuesday, Circuit Judge Jack Cook dismissed the case after finding that the note for the loan was not attached to the original foreclosure complaint. Deutsche Bank filed the foreclosure case in 2008, shortly after a dispute with her lender, Option One Mortgage, over her adjustable rate mortgage.

An attorney for Deutche Bank declined to comment on whether the bank would refile the foreclosure case. However, if the bank does so, it will have to comply with new, court-ordered guidelines that require lenders to verify the truthfulness of the documents. Those rules were not in effect in 2008 when Deutsche Bank filed to foreclose on Szymoniak’s home.

Click link below in case you missed 60 Minutes…

EXPLOSIVE VIDEO | CBS 60 MINUTES: Lynn Szymoniak ESQ, LPS, DOCx, FDIC Sheila Bair, Robo-Signing, Linda Green, Tywanna Thomas, Chris Pendley

Akerman Senterfitt & Eidson, P.A.
American Home Mortgage Servicing
Docx, LLC
Florida Default Law Group
Law Offices of David Stern
Law Offices of Marshall Watson
Lender Processing Services, Inc.
Shapiro & Fishman Law Firm

Action Date: April 4, 2011
Location: West Palm Beach, FL

On April 3, 2011, CBS’ 60 MINUTES aired a segment showing massive fraud by banks and mortgage-backed trusts in foreclosures. The segment focused on one particular document mill, Docx, LLC, owned by Lender Processing Services, Inc., a company that works for over 51 banks. One former employee confessed to forging 4,000 documents each day.

What mortgage servicing companies used the Docx forged documents in hundreds of thousands of cases? The major mortgage servicer involved was American Home Mortgage Servicing, Inc. in Coppell, TX. Other mortgage servicers that used forged documents from LPS include Saxon Mortgage Services in Fort Worth, TX and Select Portfolio Servicing in Salt Lake city, Utah.

What bank/trustees most often used the Docx forged documents in foreclosures? Deutsche Bank National Trust Company, U.S. Bank, Wells Fargo, Citibank and Bank of America were the top five users of these forged documents, but other banks were also involved.

American Home Mortgage Servicing, Inc. knew about the forgeries, but never disclosed to courts or homeowners their widespread use of forged documents.

In thousands of cases across the country, Deutsche Bank National Trust Company continues to push these documents upon the courts as proof that they own mortgages and have the right to foreclose, despite overwhelming evidence and even admissions of forgeries.

These servicing companies and bank need to begin the process of admissions, disclosures and reparations.

What law firms pushed and continue to push these fraudulent documents upon Courts and homeowners? In Florida, the firms that used these documents and continue to use these documents are: Law Offices of David Stern; Florida Default Law Group; Law Offices of Marshall Watson; Shapiro & Fishman Law Firm and Akerman, Senterfitt & Eidson, P.A. Lawyers who used and continue to use these Docx forgeries in court should, at a minimum, lose the right to practice law.

The government focus must be on protecting the rights of homeowners and shareholders and the court system and holding the banks and securities companies accountable.

Via Brian Davies:

CALIFORNIA OPPOSITION TO MERS DEMURRER WITH FILINGS OF REQUEST FOR JUDICIAL NOTICES.

[ipaper docId=51728402 access_key=key-26y5bos82bpula1dkdzi height=600 width=600 /]

Deutsche Bank National Trust Company as Trustee under the Pooling and Servicing Agreement Dated as of February 1, 2007, GSAMP TRUST 2007-FM2, Plaintiff,

against

Walter Francis a/k/a Walter J. Francis, et. al., Defendants

Decided on March 25, 2011

KRISTEN BAIN, Plaintiff,
v.
ONEWEST BANK, F.S.B; DEUTSCHE BANK NATIONAL TRUST COMPANY; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC; REGIONAL TRUSTEE SERVICES CORPORATION; Defendants.

Case No. C09-0149-JCC.

United States District Court, W.D. Washington, Seattle.

March 15, 2011.

Excerpt:

F. Consumer Protection Act

Finally, Plaintiff alleges that Defendants violated the Consumer Protection Act (“CPA”). To state a claim under the CPA, Plaintiff must show (1) an unfair or deceptive act or practice, (2) in trade or commerce, (3) that impacts the public interest, (4) which causes injury to the plaintiff in his or her business or property, and (5) which injury is causally linked to the unfair or deceptive act. Griffith v. Centex Real Estate Corp., 969 P.2d 486, 492 (Wash. Ct. App. 1998).

MERS asserts that Plaintiff has not shown an unfair or deceptive practice on its part, has not shown how any act of MERS impacts the public interest, and presents nothing showing injuries caused by an unfair or deceptive practice by MERS. The Court disagrees. Like her other claims arising under the Deed of Trust Act, Plaintiff’s CPA claims depend on whether MERS may be the beneficiary (or nominee of the beneficiary) under Washington state law. MERS’s attempt to serve as the beneficiary may have been improper under state law and it may have led to widespread confusion regarding home ownership, payment delivery, and negotiable positions. If MERS violated state law, its conduct may very well be classified as “unfair” under the CPA. There is no doubt that MERS’s conduct impacts the public interest. See Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 537-38 (Wash. 1986) (listing factors for determining public interest); Peterson, supra, at 1362 (“Although MERS is a young company, 60 million mortgage loans are registered on its system.”); R. K. Arnold, Yes, There Is Life on MERS, 11 Prob. & Prop. 32, 33 (1997) (“Some have called MERS the most significant event for the mortgage industry since the formation of Fannie Mae and Freddie Mac. Others have compared it to the creation of uniform mortgage instruments, which have become standard throughout the residential mortgage industry. This suggests that the journey to MERS will have a tremendous effect on the mortgage industry.”). And the harm Plaintiff may have suffered because of MERS’s conduct may include expending resources to avert an unlawful foreclosure and preventing Plaintiff from identifying the real beneficiary and negotiating a new arrangement to avoid foreclosure.

The same reasoning applies to Regional, who also argued that Plaintiff cannot show an unfair or deceptive practice or show an impact on the public interest. Regional asserts that it acted appropriately because it was candid and forthcoming about its identity and its authority to conduct the foreclosure. That Regional was candid about its role is not dispositive. See Carlile v. Harbour Homes, Inc., 194 P.3d 280, 289 (Wash. Ct. App. 2008) (“An unfair or deceptive act or practice need not be intended to deceive, it need only have the capacity to deceive a substantial portion of the public.”). Moreover, just as MERS has its hands in countless home loans affecting the general public, so too does Regional play a key role in numerous foreclosure actions affecting the general public. MERS and Regional ultimately may bear no liability under the CPA, but this Court will await the state-court analysis before ruling on the parties’ motions for summary judgment.^[5]

III. CONCLUSION

Plaintiff admits that she has been delinquent in her mortgage payments. A ruling favorable to Plaintiff in this case and others like it cannot and should not create a windfall for all homeowners to avoid upholding their end of the mortgage bargain—paying for their homes. But a homeowner’s failure to make payments cannot grant lenders, trustees, and so-called beneficiaries like MERS license to ignore state law and foreclose using any means necessary. Whether these and similar defendants complied with Washington state law remains unclear.

[ipaper docId=51273820 access_key=key-1pq85htk7uwo9kifkkge height=600 width=600 /]

[ipaper docId=51088762 access_key=key-rqwj7nmkjb6bfxqtkdr height=600 width=600 /]

[ipaper docId=50922184 access_key=key-jdmx5sfm6b0t0vf01xd height=600 width=600 /]

Excerpt:

In this case, DBNTC clearly had no standing to bring the motion. Debtors never consented to MERS to act as Nominee under the terms of the DOT. Even if one assumes that MERS had authority to assign IndyMac Bank’s beneficial interest to DBNTC, IndyMac Bank ceased to exist at the time MERS purportedly made an assignment to DBTNC. DBNTC received nothing by virtue of the assignment; the assignment constitutes a fraudulent conveyance.

For the foregoing reasons, Debtors respectfully request the Court to make findings of fact and to deny DBNTC’s second Motion for Relief from the Automatic Stay with prejudice. Debtors further request this Court to award attorney fees incurred by Debtors against DBNTC and its attorney for bringing this frivolous motion.

Continue below…

[ipaper docId=50763434 access_key=key-1qy9eovy38hvv93rreh4 height=600 width=600 /]