Ally Financial/GMAC Bank of America Citibank JP Morgan Chase OneWest Bank Wells Fargo Bank
Action Date: December 20, 2010 Location: Mercer County, NJ
New Jersey State Supreme Court Chief Justice Stuart Rabner entered an order To Show Cause “In The Matter of Residential Mortgage Foreclosure Pleadings and Document Irregularities” in Civil Action No. F-059553-10, Superior Court of New Jersey, Chancery Division, General Equity Part, Mercer County on December 20, 2010. Six mortgage servicing companies and their bank-owners were ordered to show cause why the Court should not suspend their rights to foreclose.
First on the list was Ally Financial, formerly known as GMAC. Ally/GMAC is the employer of Jeffrey Stephan who was exposed as one of many “robo-signers” – a phrase indicating that an employee signed thousands of documents used in foreclosure cases with no idea of the truth of the matters asserted in the documents, and more often than not, without even having read what was signed.
Stephan signed thousands of Affidavits, but he signed tens of thousands of Mortgage Assignments – the documents used by mortgage-backed trusts to show that the trusts acquired the mortgages at issue and have the right to foreclose.
Stephan signed these Mortgage Assignments for many different mortgage-backed trusts. Over 50 RALI (Residential Accredit Loans, Inc.) Trusts relied almost exclusively on Mortgage Assignments signed by Stephan. Over 44 RAMP (Residential Asset Mortgage Products) Trusts also used Assignments churned out by Stephan. At least 20 RASC (Residential Asset Securities Corp.) Trusts used Stephan assignments almost exclusively in foreclosures. At least 40 other mortgage-backed trusts, including certain Aames Mortgage Investment Trusts, certain Bear Stearns Trusts and certain Harborview Trusts all relied on Ally/GMAC’s Stephan for proof of their right to foreclose.
These trusts needed the Stephan-made assignments because the trusts’ depositors, sponsors, trustees and document custodians failed to obtain the critical documents, including notes and assignments, at the inception of the trust – despite promises to investors and regulators that these documents had been obtained and were being safeguarded.
In Florida, Stephan’s name appears on thousands of Mortgage Assignments, most often on documents prepared by the Law Offices of David Stern, who is under investigation by the Florida Attorney General. In almost every case, Stephans signed as a Vice President of Mortgage Electronic Registration Systems.
According to the Stephan documents, the trusts almost always acquired these mortgages AFTER they were already in default, and often AFTER foreclosure proceedings had been initiated.
Many different banks, in their capacity as Trustees for mortgage-backed trusts, used Stephan Assignments, but Stephan documents were most often used by Deutsche Bank Trust Company Americas, Bank of NY Mellon and U.S. Bank.
Assuming that each trust has mortgage loans with a face value of one billion dollars – and that over 200 trusts are involved, the amount in controversy is staggering.
Also disturbing is the number of Assignments on Stephan/Stern documents where the assignee trust is unidentified. The Stephan/Stern team repeatedly prepared and filed Assignments where only the Trustees – and not the trusts themselves – were identified as the new owners of the mortgages. “U.S. Bank as Trustee” and “Deutsche Bank Trust Company Americas as Trustee” are the new owners of thousands of mortgages.
Stephan often wrongly stated his own job title, the date the assignment to the trusts took place, and the identity of the trusts. Stephan’s conduct – and the documents he produced – will not stand up to the most superficial examination. Chief Justice Rabner seems determined to dig much deeper.
The other five companies named by Chief Justice Rabner have the very same problems, having produced hundreds of thousands of flawed loan documents for mortgage-backed trusts, signed by individuals with very limited knowledge or authority. Their role was to sign their names without questioning or understanding what they signed.
According to Chief Justice Rabner, the next step may be the Appointment of a Special Master “to inquire into and report to the court on the extent of irregularities concerning affidavits, certifications, assignments and other documents from time to time filed with the court in residential mortgage foreclosure actions…” Past and present business practices would be examined and the Master could also consider whether sanctions should be imposed…and a suggested formula to determine an appropriate sanction.”
By his Order, Chief Justice Rabner gave hope to hundreds of thousands of victims of fraud by securities companies, banks, mortgage companies and mortgage servicing companies.
The nature of the problem calls for a balancing of the court’s supervisory and adjudicatory roles and responsibilities. The court has therefore established the procedure in this Order to address the pressing needs of the Office of Foreclosure while providing due process to affected parties. The court will direct that the six Foreclosure Plaintiff’s named on this order show cause at a hearing scheduled for January 19, 2011, why the court should not suspend the processing of all foreclosures matters involving the six Foreclosure Plaintiffs and appoint Special Masters to review their past and proposed foreclosure practices.
Q So the original —
5 A — and I’ve been to her office.
6 Q — the original was located in your office?
7 A Yes.
8 Q Where’s your office located?
9 A Simi Valley, California.
10 Q And has the original of this allonge remained in your
11 office until you appeared here today?
12 A We had sent it on to — to our attorneys. They were in
13 possession of it.
14 Q And again, who do you believe is the holder of the note
15 and mortgage here?
16 A Well, Countrywide — Bank of America — whatever we’re
17 calling ourselves these days, we are Bank of America now — we
18 originated this loan. It was originated via a broker and it’s
19 really always been a Countrywide loan. The investor is Bank
20 of New York. We are the servicer of the loan.
21 Q Now, when you say it’s really a Countrywide loan, wasn’t
22 it sold? Wasn’t this loan securitized and ultimately sold —
23 sold to this trust?
24 A Right, it would have been securitized and sold. They are
25 the investors of the loan. But we are the ones that would
<SNIP>
9 A Who is in possession of the note? We have the note in our
10 origination file.
11 Q So — so Bank of New York as trustee does not hold the
12 note, is that correct, or is not in possession of the note?
13 A The original note to my knowledge is in the origination
14 file.
15 Q Where is the — do you have it here today?
16 A No, I don’t have it with me here today.
17 Q So you don’t have the note?
18 A It’s in our office.
19 Q So it’s in your office, it’s not with this trust that owns
20 the — that’s supposedly holds the — or is the owner of this
21 note, is that correct?
22 A That’s correct. 23 Q And your testimony is that this allonge was never
24 submitted to — it was never in the possession of Bank of New
25 York as trustee for the certificate holder, is that correct?
<SNIP>
9 Q And this allonge, it’s a stand-alone document, correct?
10 It’s not attached to anything, is that correct?
11 A I’m not sure I’m understanding your question.
12 Q Was there anything — when you brought the original that’s
13 in front of you, did you remove it? Was it stapled to
14 something else?
15 A No, it wouldn’t have necessarily been stapled to something
16 else. There would have probably been other documents showing
17 the — you know, we would have shown her the note. We would
18 have reviewed all of that before.
THE COURT: All right. I have the supplemental and
12 second supplemental submissions of Countrywide and the reply.
13 Mr. Kaplan, I look to you first. I am, frankly, appalled at
14 the confusion and lack of credibility of Countrywide’s
15 response to the issue of the note — the possession of the
16 note.
17 We started out with Ms. DeMartini’s testimony that
18 the note never leaves the servicer. She says that she saw a
19 Federal Express receipt whereby the actual note, the physical,
20 original note was transferred to the Foreclosure Department
21 internally in the same building, but that the note had not yet
22 been located. That’s where we stood at that point.
23 Then we had a submission, the supplemental
24 submission saying the original note has been found and can be
25 available for inspection. It doesn’t say where it was found,
1 who had possession or the like, but it was found and is
2 available for inspection.
3 And then without any explanation, there is a lost
4 note affidavit presented dated February of 2007 indicating
5 that the note cannot be found. No explanation provided. What
6 do I do with that, Mr. Kaplan?
<SNIP>
THE COURT: It’s amazing how sloppy this
2 presentation was, and I’m very disappointed about that.
3 Anyway — all right. Well, thank you, Mr. Kaplan. Do you
4 want to present testimony? Does it matter, you know, because
5 there is no testimony regarding possession by Bank of New York
6 as Trustee, correct?
7 MR. KAPLAN: That’s correct, Your Honor. I’m not
8 disputing that. That’s what Ms. DeMartini testified to, that
9 the note — she had no record of this note leaving and going
10 across country, across wherever, to Bank of New York.
11 THE COURT: And you do understand as well that the
12 Pooling and Servicing Agreement requires that transfer, that
13 physical transfer of the note in accordance with — and
14 endorsement — in accordance with UCC requirements?
15 MR. KAPLAN: I understand that, Your Honor. I’ll
16 simply say for the sake of edification, but this is — and I
17 was told it was all e-filed — this is apparently the index to
18 this Master Servicing Agreement showing all the loans and it
19 does reference the Kemp loan. It’s a double-side document,
20 includes all the loans.
21 And I can say that, although Your Honor is right and
22 the UCC and the Master Servicing Agreement apparently requires
23 that, procedure seems to indicate that they don’t physically
24 move documents from place to place because of the fear of loss
25 and the trouble involved and the people handling them. They
basically execute the necessary documents and retain them as
2 long as servicing’s retained. The documents only leave when
3 servicing is released.
4 THE COURT: They take their chances.
5 MR. KAPLAN: I understand, Your Honor.
6 THE COURT: Understood. Thank you.
7 Counsel, the proof of claim was filed — let’s see
8 — it was filed by Countrywide Home Loans, Inc., servicer for
9 Bank of New York — now, that’s wrong. We understand that.
10 Can the — can these problems be corrected post-petition? In
11 other words, we know that claims can be transferred post12
petition.
13 What about if the note, the original note now that
14 has seemingly appeared, is now transferred to the Bank of New
15 York as Trustee and amended, it wouldn’t have to — well, it
16 would be amended to reflect that Countrywide Home Loans, Inc.,
17 is not the right party, but Countrywide Home Loans, Master
18 Servicing or servicing whatever that name is, as servicer for
19 Bank of New York, Trustee, is filing this proof of claim,
20 what’s wrong with that?
Last week the US Bankruptcy Court for the District of New Jersey issued an opinion in a case captioned Kemp v. Countrywide Home Loans, Inc. This case looks like the first piece of evidence in what might turn out to be the Securitization Fail or, in homage to Michael Lewis, The Big Fail.
Briefly, Countrywide as servicer filed a proof of claim for a mortgage in a bankruptcy case on behalf of Bank of New York as trustee for a securitization trust. The bankruptcy court denied the claim because there was no evidence that Bank of New York ever owned the mortgage. The mortgage note had never been negotiated or delivered to Bank of New York, despite the requirement to do so in the Pooling and Servicing Agreement (PSA) that governed the securitization of the loan. That meant that Bank of New York as trustee had no interest in the loan, so the proof of claim filed on its behalf was disallowed.
This opinion could turn out to be incredibly important. It provides a critical evidence for the argument that many securitization transactions simply failed to be effective because non-compliance with the terms of the transaction: failure to properly transfer the mortgage meant that the mortgages were never actually securitized. The rest of this post explains the chain of title issue in mortgage securitizations and how Kemp fits into the issue.
Note and Mortgage Transfers in Securitizations
A residential mortgage securitization is a transaction that involves a series of transfers of two types of documents: mortgage notes (the IOUs made by mortgage borrowers) and mortgages (the security instrument that says the lender may foreclose on the house if the borrower defaults on the note). Ultimately, both the notes and mortgages need to be properly transferred to a trust that will pay for them by issuing securities (backed by the mortgages and notes, hence residential mortgage-backed securities or RMBS). If the notes and mortgages aren’t properly transferred to the trust, then the securities that the trust issues aren’t mortgage-backed and are worthless.
So the critical issue here is whether the notes and mortgages were properly transferred to the securitization trusts. To determine this, we need to figure out two things. First, what is the proper method for transferring the notes and mortgages, and second, whether that method was followed. For this post, I’m going to focus solely on the notes. There are issues with the mortgages too, but that gets much, more complicated and doesn’t directly connect with Kemp.
Mark my words …this is one you’re going to hear of over and over again. It’s beginning to appear … what we’ve been trying hard to break is cracking before our eyes and ears. This should raise concerns about the MERS System as well since the assignments clause states “together with the note(s) and documents therein described”.
Humpty Dumpty does indeed exist!
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW JERSEY
In the Matter of John T. Kemp
John T. Kemp
v.
Countrywide Home Loans, Inc.
Case No. 08-18700-JHW
APPEARANCES:
Bruce H. Levitt, Esq.
Levitt & Slafkes, PC
76 South Orange Avenue, Suite 305
South Orange, New Jersey 07079
Counsel for the Debtor
Harold Kaplan, Esq.
Dori 1. Scovish, Esq.
Frenkel, Lambert, Weiss, Weisman & Gordon, LLP
80 Main Street, Suite 460
West Orange, New Jersey 07052
Counsel for the Defendant
EXCERPT:
The new allonge was signed by Sharon Mason,
Vice President of Countrywide Home Loans, Inc., in the Bankruptcy Risk
Litigation Management Department. Linda DeMartini, a supervisor and
operational team leader for the Litigation Management Department for BAC
Home Loans Servicing L.P. (“BAC Servicing”V testified that the new allonge
was prepared in anticipation of this litigation, and that it was signed several
weeks before the trial by Sharon Mason.
As to the location of the note, Ms. DeMartini testified that to her
knowledge, the original note never left the possession of Countrywide, and that
the original note appears to have been transferred to Countrywide’s foreclosure
unit, as evidenced by internal FedEx tracking numbers. She also confirmed
that the new allonge had not been attached or otherwise affIXed to the note.
She testified further that it was customary for Countrywide to maintain possession of
the original note and related loan documents.
In a supplemental submission dated September 9,2009, the defendant
asserted that “the Defendant/Secured Creditor located the original Note. The
original Note with allonge and Pooling and Servicing Agreement are available
for inspection.,,7 When the matter returned to the court on September 24,
2009, counsel for the defendant represented to the court that he had the
original note, with the new allonge now attached, in his possession. No
additional information was presented regarding the chain of possession of the
note from its origination until counsel acquired possession.
Case No. BK-S-07-16226-LBR ) Chapter 7 )
Debtor(s).)
Excerpt:
In Hawkins the motion was brought by MERS “solely as nominee for Fremont Investment
& Loan, its successors and/or assigns.” However, in his affidavit at ¶ 6, Victor Parisi states 45 46
that the beneficial ownership interest in the Hawkins note was sold by Fremont Investment &
Loan and ownership was transferred by endorsement and delivery. While the affidavit goes on to
the say that MERS was a holder at the time the motion was filed, it is obvious that MERS has no
rights to bring the motion as nominee of Fremont given that Fremont no longer had any interest
in the note.
SUPREME COURT – STATE OF NEW YORK I.A.S. PART 21 – SUFFOLK COUNTY
JPMORGAN CHASE as Trustee of Equity One
against
ALBA MUNOZ
EXCERPTS:
the affidavit of its Vice President, Victor Parisi, who alleges that Premium, its
signor. paid valuable consideration for the mortgage. Mr. Parisi points to a copy of the HUD
Settlement Statement from the Premium closing, which indicates that out of the $315,000.00 loan
proceeds~ $222.S62.63 was paid to Washington Mutual to satisfy a prior mortgage, $237.00 was paid to
satisfy an obligation to CBUSASears, and $71,228.07 was disbursed to Munoz. Additionally, Mr. Parisi
asserts that Premium did not know or have reason to know about O’Connor’s claim. He argues that at
the time of the mortgage, O’Connor’s judgment had not yet been docketed and there was nothing in the
property records that disclosed Zambrano’s liability to O’Connor. Thus, alleges Mr. Parisi, having
paid valuable consideration and having taken without knowledge or notice of O’Connor’s claims,
Premium and Chase are bona fide mortgagees ofthe premises and are entitled to protection under Real
Property Law 266 and Debtor and Creditor Law $278(1). In addition, Mr. Parisi alleges that even if
O’Connor was able to show that Premium was on notice of Zambrano’s liability or alleged fraudulent
conveyance. pursuant to Debtor and Creditor Law $278(2), Chase would be entitled to retain and enforce
<SNIP>
Chase has failed to make such a prima facie showing. The affidavit of Victor Parisi is not in
admissible form because it was signed and notarized in the State of New Jersey, and is not accompanied by the required certificate of conformity with the laws of the State of New Jersey. For an out-of-state affidavit to be admissible, it must comply with CPLR 2309 [c] which requires that an out-of-state
affidavit accompanied by a certificate of Conformity (see Real Property Law $ 299-a [l]; PRA ZU,
b , L ( ’ 1 4 CoitialeZ. 54 AD3d 917, 864 NYS2d 140 [2008]). In the absence ofa certificate of conformity,
the affidavit, is, effect, unsworn (see Worldwide Asset Purchasing, LLC v Simpson, 17 MiscSd
’ ISA. 851 YYS2d 75 [ 20071). Consequently, Mr. Parisi’s affidavit cannot be considered by the Court.
HSBC BANK USA, NATIONAL ASSOCIATION AS INDENTURE TRUSTEE FOR PEOPLE’S CHOICE HOME LOAN SECURITIES TRUST SERIES 2006-1, PLAINTIFF,
v.
MARCIE PERBOO ET. AL., DEFENDANTS.
Excerpt:
Plaintiff’s moving papers for an order of reference fails to present an “affidavit made by the party,” pursuant to CPLR § 3215 (f). The application contains an “affidavit of merit and amount due,” by Victor F. Parisi, who states that he is “the Vice-President of, EQUITY ONE, INC. [EQUITY ONE] AS AUTHORIZED SERVICER FOR HSBC BANK USA, NATIONAL ASSOCIATION AS INDENTURE TRUSTEE FOR PEOPLE’S CHOICE HOME LOAN SECURITIES TRUST SERIES 2006-1, Plaintiff.” For reasons unknown to the Court, plaintiff HSBC has failed to provide any power of attorney authorizing EQUITY ONE to proceed on HSBC’s behalf with the instant foreclosure action. Therefore, the proposed order of reference must be denied without prejudice. Leave is granted to plaintiff HSBC to comply with CPLR § 3215 (f) by providing an “affidavit made by the party,” whether by an officer of HSBC or someone with a valid power of attorney from HSBC.
Further, plaintiff must address a second matter if it renews its application for an order of reference upon compliance with CPLR § 3215 (f). In the instant action, as noted above, Victor F. Parisi, in his affidavit, dated December 14, 2007, states he is Vice President of EQUITY ONE. Yet, the September 28, 2007 assignment from MERS as nominee for PEOPLE’S CHOICE to HSBC is signed by the same Victor F. Parisi, as Vice President of MERS. In my November 20, 2007 decision and order in HSBC BANK USA, NATIONAL ASSOCIATION AS TRUSTEE FOR NOMURA HOME EQUITY LOAN, INC. ASSET-BACKED CERTIFICATES SERIES 2006-FM2 v SANDOVAL, Index Number 8758/07, the same Victor F. Parisi assigned the underlying mortgage and note as Vice President of MERS to HSBC on March 13, 2007, and then signed the affidavit of merit as Vice President of EQUITY ONE, authorized servicer for HSBC, the next day, March 14, 2007. Did Mr. Parisi change his employment from March 13, 2007 to March 14, 2007, and again from September 28, 2007 to December 14, 2007? The Court is concerned that Mr. Parisi might be engaged in a subterfuge, wearing various corporate hats. Before granting an application for an order of reference, the Court requires an affidavit from Mr. Parisi describing his employment history for the past three years.
Also, while MERS served as nominee for PEOPLE’S CHOICE, the mortgage servicer for the PERBOO mortgage was POPULAR MORTGAGE SERVICING, INC. [POPULAR], [exhibit B of application – July 24 default letter to PERBOO], whose address is 121 Woodcrest Road, Cherry Hill, New Jersey 08003. The MERS as nominee for PEOPLE’S CHOICE to HSBC assignment lists HSBC’s address as 121 Woodcrest Road, Cherry Hill, New Jersey 08003. The instant verified complaint [part of exhibit B of application] states that EQUITY ONE’S address is 121 Woodcrest Road, Cherry Hill, New Jersey 08003. How convenient to have the assignor’s servicer, the assignee’s servicer and the assignee all at the same address. This makes for one-stop shopping! The Court needs to know what corporate chicanery is being played at 121 Woodcrest Road, Cherry Hill, New Jersey 08003. Is the building large enough to house POPULAR, EQUITY ONE, MERS and HSBC under the same roof? Is there enough closet space to store Mr. Parisi’s various corporate hats?
Last, the verified complaint notes, in ¶ 6, that defendant PERBOO defaulted with her February 1, 2007 principal and interest payment. The first sentence in the July 24, 2007-POPULAR default letter to defendant PERBOO states “[p]lease be advised that your account is presently in default.” On September 28, 2007, 240 days after the instant mortgage loan ceased to perform, and 72 days subsequent to the POPULAR default letter to PERBOO, plaintiff HSBC accepted the assignment of the instant non-performing loan from MERS as nominee for PEOPLE’S CHOICE. The Court needs a satisfactory explanation of why HSBC, whose directors have a fiduciary responsibility to HSBC’s shareholders, purchased a non-performing loan from MERS as nominee for PEOPLE’S CHOICE, in an affidavit by an officer of HSBC.
<SNIP>
Plaintiff has failed to submit “proof of the facts” in “an affidavit made by the party.” The “affidavit of facts” is submitted by Victor F. Parisi, “Vice-President of, EQUITY ONE, INC. AS AUTHORIZED SERVICER FOR HSBC.” Mr. Parisi, must have, as plaintiff’s agent, a valid power of attorney from HSBC to EQUITY ONE for that express purpose. Additionally, if a power of attorney is presented to this Court and it refers to pooling and servicing agreements, the Court needs a properly offered copy of the pooling and servicing agreements, to determine if the servicing agent may proceed on behalf of plaintiff. (EMC Mortg. Corp. v Batista, 15 Misc 3d 1143 (A) [Sup Ct, Kings County 2007]; Deutsche Bank Nat. Trust Co. v Lewis, 14 Misc 3d 1201 (A) [Sup Ct, Suffolk County 2006]).
At an I AS Term, Part 2 1 of the Supreme
Court of the State of New York, held in and
for the County of Kings, at the Courthouse,
at the Oivic Center, Brooklyn, New York on
the 4th (Lay of December, 2006
1 —-X Index No.: 16705/2006
PRESENT:
HON. LAURA L. JACOBSON
Justice
—————-L————————————- EQUITY ONE AS SERVICER FOR NOMURA
HOME EQUITY LOAN INC. HOME EQUIl’Y
LOAN TRUST SERIES 2006-FM1, ASSET
BACKED PASS-THROUGH CERTIFICATE S,
SERIES 2006-FM1,
,
-against-
JANICE JAMES, MERS, INC. AS NOMINEE FOR
FREMONT INVESTMENT & LOAN ; PEOPLE OF
THE STATE OF NEW YORK; NEW YORK CITY
PARKING VIOLATIONS BUREAU; NEW YORK
CITY ENVIRONMENTAL CONTROL BOARD;
TRANSIT ADJUDICATION BUREAU, “JOHN DOE 1
to JOHN DOE 25”, said names being fictitiouh, the
persons or parties, corporations or entities, if any,
having or claiming an interest in or lien upon the
mortgaged premises described in the complaint,
excerpt:
The Affidavit of Merit submitted by the plaintiff appears to have been prepared by one Victor F. Parisi. The signor or the assignment of the mortgage, on behalf of MERS, Inc. as nominee for Fremont Investment & Loan, is also named Victor F. Parisi. Are these two signators the same people? If so, movant must submit an affidavit/affirmation advising the Court as to whether the assignment is a valid transfer or simply a paper one.
Be sure to catch the Full Depo of Renee Hertzler below after AP Alan Zibel’s article
Bank of America delays foreclosures in 23 states
By ALAN ZIBEL, AP Real Estate Writer Alan Zibel, – Fri Oct 1, 7:46 pm ET
WASHINGTON – Bank of America is delaying foreclosures in 23 states as it examines whether it rushed the foreclosure process for thousands of homeowners without reading the documents.
The move adds the nation’s largest bank to a growing list of mortgage companies whose employees signed documents in foreclosure cases without verifying the information in them.
Bank of America isn’t able to estimate how many homeowners’ cases will be affected, Dan Frahm, a spokesman for the Charlotte, N.C.-based bank, said Friday. He said the bank plans to resubmit corrected documents within several weeks.
Two other companies, Ally Financial Inc.’s GMAC Mortgage unit and JPMorgan Chase, have halted tens of thousands of foreclosure cases after similar problems became public.
The document problems could cause thousands of homeowners to contest foreclosures that are in the works or have been completed. If the problems turn up at other lenders, a foreclosure crisis that’s already likely to drag on for several more years could persist even longer. Analysts caution that most homeowners facing foreclosure are still likely to lose their homes.
State attorneys general, who enforce foreclosure laws, are stepping up pressure on the industry.
On Friday, Connecticut Attorney General Richard Blumenthal asked a state court to freeze all home foreclosures for 60 days. Doing so “should stop a foreclosure steamroller based on defective documents,” he said.
And California Attorney General Jerry Brown called on JPMorgan to suspend foreclosures unless it could show it complied with a state consumer protection law. The law requires lenders to contact borrowers at risk of foreclosure to determine whether they qualify for mortgage assistance.
In Florida, the state attorney general is investigating four law firms, two with ties to GMAC, for allegedly providing fraudulent documents in foreclosure cases .The Ohio attorney general this week asked judges to review GMAC foreclosure cases.
Mark Paustenbach, a Treasury Department spokesman, said the Treasury has asked federal regulators “to look into these troubling developments.”
A document obtained Friday by the Associated Press showed a Bank of America official acknowledging in a legal proceeding that she signed up to 8,000 foreclosure documents a month and typically didn’t read them.
The official, Renee Hertzler, said in a February deposition that she signed 7,000 to 8,000 foreclosure documents a month.
“I typically don’t read them because of the volume that we sign,” Hertzler said.
She also acknowledged identifying herself as a representative of a different bank, Bank of New York Mellon, that she didn’t work for. Bank of New York Mellon served as a trustee for the investors holding the homeowner’s loan.
While US Bank cannot foreclose on the home, it can sue her to collect the debt she still owes.
Hough’s attorney, Henry Loeb of Somerville, said, “It’s a split decision. She is very happy about having the mortgage voided. But we thought there were decent arguments to have the entire loan voided.”
US BANK, N.A., Plaintiff-Respondent,
v.
NIKIA HOUGH, Defendant-Appellant, and
MR. HOUGH, HUSBAND OF NIKIA HOUGH; NEW JERSEY DEPARTMENT OF COMMUNITY AFFAIRS; COUNCIL ON AFFORDABLE HOUSING; TOWNSHIP OF PISCATAWAY; NEW JERSEY HOUSING AND MORTGAGE FINANCE AGENCY; STATE OF NEW JERSEY; and THE COMMONS AT PISCATAWAY, INC., Defendants.
No. A-5623-08T3.
Superior Court of New Jersey, Appellate Division.
Argued January 12, 2010.
Reargued April 13, 2010.
Decided September 14, 2010.
Henry A. Loeb argued the cause for appellant (Blumberg & Rosenberg, P.A., attorneys; Mr. Loeb, on the brief).
Vladimir Palma argued the cause for respondent (Phelan Hallinan & Schmieg, PC, attorneys; Mr. Palma, on the brief).
Geraldine Callahan, Deputy Attorney General, argued the cause for amicus curiae Office of the Attorney General (Paula T. Dow, Attorney General, attorney; Nancy Kaplen, Assistant Attorney General, of counsel; Ms. Callahan, on the statement in lieu of brief).
Before Judges Fuentes, Gilroy and Simonelli.
GILROY, J.A.D.
This is a real property foreclosure action. Plaintiff US Bank, N.A. seeks to foreclose upon defendant Nikia Hough’s residential condominium unit located in the Township of Piscataway (the Township). The condominium unit forms part of the Township’s affordable housing obligation and, as such, is subject to the Uniform Housing Affordability Controls (UHAC) adopted by defendant New Jersey Housing and Mortgage Finance Agency (HMFA), N.J.A.C. 5:80-26.1 to -26.26. Hough appeals from the June 12, 2009 order that denied her motion seeking to “void judgment of foreclosure and to dismiss plaintiff’s complaint with prejudice.”
The primary question presented is whether a commercial lender, which makes a loan secured by a mortgage on an affordable housing unit in excess of the amount permitted by N.J.A.C. 5:80-26.8(b), is prohibited from seeking to foreclose the mortgage. We answer the question in the affirmative, holding that the mortgage is void pursuant to N.J.A.C. 5:80-26.18(e). Accordingly, we reverse.
I.
We briefly state the procedural history and facts leading to this appeal. On January 14, 2004, Hough purchased the condominium unit for $68,142.86. To fund part of the purchase price, Hough borrowed $61,329 from Wells Fargo Home Mortgage, Inc., and secured the loan by executing a mortgage in favor of Wells Fargo. Because the condominium formed a part of the Township’s affordable housing obligation, the deed contained the following restriction:
The owner’s right title and interest in this unit and the use, sale and resale of this property are subject to the terms, conditions, restrictions, limitations and provisions as set forth in Ordinance number 88-34, as amended, which Ordinance is entitled “An Ordinance Establishing and Creating Regulations Governing the Conduct of the Purchase and/or Rental of Affordable Housing in the Township of Piscataway[,”]. . . as well as those terms, conditions, restrictions, limitations, and provisions as set forth in the “Affordable Housing Plan of the Commons at Piscataway” dated April 3, 1991 which plan was filed in the Office of the Clerk of Middlesex County . . . on June 20, 1991. Both are on file with the Piscataway Township Department of Planning and Community Development.
The deed was recorded in the Middlesex County Clerk’s Office on March 15, 2004.
On March 25, 2005, Hough refinanced the condominium unit by borrowing $108,000 from Mortgage Lenders Network, USA, Inc. At the time of the mortgage transaction, the maximum allowable resale price of the condominium unit, pursuant to N.J.A.C. 5:80-26.6, was approximately $68,735.41.[ 1 ] Hough executed a promissory note in favor of Mortgage Lenders, secured by a mortgage on the condominium unit. The mortgage was recorded in the Middlesex County Clerk’s Office on April 14, 2005. Hough used the mortgage proceeds to satisfy the Wells Fargo purchase money mortgage then in the amount of $62,795.10, and for other personal unsecured debts, and real property tax liens. Hough netted $20,080.45 from the mortgage refinance. The new mortgage included the same affordable housing restriction contained in the January 14, 2004 deed. On February 1, 2007, Hough defaulted on the mortgage.
On June 12, 2007, Mortgage Lenders filed a complaint in foreclosure against Hough.[ 2 ] On July 20, 2007, Mortgage Lenders assigned the mortgage to plaintiff. On July 8, 2008, plaintiff filed an amended complaint adding as defendants: the New Jersey Department of Community Affairs (DCA), the Council on Affordable Housing (COAH), the Township, HMFA, and Hough’s condominium, The Commons at Piscataway, Inc. Plaintiff served Hough with the amended complaint and summons on August 13, 2008. Plaintiff entered default against defendants on September 18, 2008.
The Township filed an answer alleging priority over plaintiff’s mortgage based on the deed restriction. On December 15, 2008, plaintiff and the Township filed a consent order under which the Township withdrew its answer; and plaintiff agreed to prosecute the action subject to the affordable housing restriction referenced in the January 14, 2004 deed, to provide the Township with notice of any sheriff’s sale, and to request the court return the matter to the Office of Foreclosure as an uncontested action.
On January 26, 2009, plaintiff filed and served a notice for entry of final judgment. On March 9, 2009, plaintiff filed proofs in support of its request for entry of judgment. In the interim, Hough filed a motion seeking to void the judgment of foreclosure and to dismiss the complaint with prejudice, contending that the mortgage violated the UHAC regulations, as it secured a loan in excess of the amount permitted pursuant to N.J.A.C. 5:80-26.8(b).
On April 3, 2009, mistakenly believing that final judgment had already been entered, the trial court denied the motion, concluding that vacating the judgment would improperly bestow a benefit upon Hough because she had been aware of the affordable housing restrictions when she borrowed the money, paid off the Wells Fargo mortgage, and otherwise used or retained the balance of the mortgage proceeds. It is from this order that Hough appeals.
The order appealed from is not a final judgment. A “final judgment in an action to foreclose a real estate mortgage fixes the amount due under the mortgage and directs the sale of the real estate to raise funds to satisfy the amount due.” Eisen v. Kostakos, 116 N.J. Super. 358, 365 (App. Div. 1971). Accordingly, the order appealed from is interlocutory, as it is not final as to all parties and all issues. Janicky v. Pt. Bay Fuel, Inc., 396 N.J. Super. 545, 549-50 (App. Div. 2007). Nonetheless, because of the importance of the issue presented, we grant leave to appeal nunc pro tunc. Gill v. N.J. Dep’t of Banking & Ins., 404 N.J. Super. 1, 8 (App. Div. 2008).
Hough initially argued that we should reverse and declare only the mortgage void, pursuant to N.J.A.C. 5:80-26.18(e). In countering plaintiff’s assertion that she would receive a windfall if the court were to void the entire indebtedness, Hough contended that plaintiff’s assertion “ignore[d] that it is only [plaintiff’s] mortgage that is void under the COAH regulation at issue and not the [n]ote or therefore the underlying debt. Rather, the regulation unequivocally establishes a reasoned and non-confiscatory penalty for a violation of its requirement; a loss of the obligation’s secured status.”
Questioning whether N.J.A.C. 5:80-26.18(e) requires voiding only the mortgage or whether it also requires voiding the indebtedness, we invited the Attorney General to address the issue on behalf of the HMFA. Consistent with Hough’s initial assertion, the Attorney General argued it is only “the mortgage secured by the affordable property that offends the regulation and is void as against public policy.” Nonetheless, contrary to her initial position, Hough contended at re-argument that we should not only void the mortgage, but also declare the underlying indebtedness void as against public policy.
II.
The January 14, 2004 deed restriction placed lenders on constructive notice that the condominium unit was part of the Township’s Mount Laurel[ 3 ] affordable housing obligation subject to the UHAC regulations.[ 4 ] The amount of indebtedness that can legally be secured by a mortgage on an affordable housing unit is governed by N.J.A.C. 5:80-26.8, which provides:
(a) Prior to incurring any indebtedness to be secured by an ownership unit, the owner shall submit to the administrative agent a notice of intent to incur such indebtedness, in such form and with such documentary support as determined by the administrative agent, and the owner shall not incur any such indebtedness unless and until the administrative agent has determined in writing that the proposed indebtedness complies with the provisions of this section.
(b) With the exception of original purchase money mortgages, during a control period, neither an owner nor a lender shall at any time cause or permit the total indebtedness secured by an ownership unit to exceed 95 percent of the maximum allowable resale price of that unit, as such price is determined by the administrative agent in accordance with N.J.A.C. 5:80-26.6(c).
“Administrative agent” is defined in the regulations as meaning “the entity responsible for administering the affordability controls of this subchapter with respect to specific restricted units, as designated pursuant to N.J.A.C. 5:80-26.14.” N.J.A.C. 5:80-26.2.
The “maximum allowable resale price” of an affordable housing unit is determined in accordance with N.J.A.C. 5:80-26.6:
(c) The initial purchase price of a restricted ownership unit financed under [Urban Home Ownership Recovery Program] or [Market Oriented Neighborhood Investment Program] unit shall be calculated so that the monthly carrying costs of the unit, including principal and interest (based on a mortgage loan equal to 95 percent of the purchase price and the Federal Reserve HR15 rate of interest), taxes, homeowner and private mortgage insurance and condominium or homeowner association fees do not exceed 28 percent of the eligible monthly income of a household whose income does not exceed 45 percent of median income, in the case of a low-income unit, or 72 percent of median income, in the case of a moderate-income unit, and that is of an appropriate household size as determined under N.J.A.C. 5:80-26.4.
(d) The maximum resale price for a restricted ownership unit, if the resale occurs prior to the one-year anniversary of the date on which title to the unit was first transferred to a certified household, is the initial purchase price. If the resale occurs on or after such anniversary date, the maximum resale price shall be consistent with the regional income limits most recently published by COAH and calculated pursuant to [N.J.A.C.] 5:94-7.2(b). The administrative agent shall prove all resale prices, in writing and in advance of the resale, to assure compliance with the foregoing standards.
[N.J.A.C. 5:80-26.6.]
Lastly, the prohibition against securing loans in excess of the amount permitted by N.J.A.C. 5:80-26.8(b) with a mortgage against an affordable housing unit is enforced in part by N.J.A.C. 5:80-26.18(e), which provides:
Banks and other lending institutions are prohibited from issuing any loan secured by owner-occupied real property subject to the affordability controls set forth in this subchapter, if such loan would be in excess of the amounts permitted by the restriction documents recorded in the deed or mortgage book in the county in which the property is located. Any loan issued in violation of this subsection shall be void as against public policy.
[(Emphasis added).]
Hough contends that because N.J.A.C. 5:80-26.8(e) provides that “[a]ny loan issued in violation of [the regulation] shall be void as against public policy,” that the regulation prohibits plaintiff from seeking not only to foreclose upon the mortgage, but also from seeking to collect upon the underlying debt instrument. Plaintiff counters that because it has agreed with the Township that it will foreclose upon the condominium unit subject to the affordable housing restrictions, stipulating that any sheriff’s sale will not produce a sale price higher than the maximum resale price as determined by the UHAC regulations, and the property would be sold only to a qualified buyer as determined under those regulations, that we should affirm the trial court’s order denying defendant’s motion to dismiss the complaint. Plaintiff also contends that if we prohibit it from proceeding with its foreclosure action, Hough “would clearly have been unjustly enriched,” when, in fact, her own acts or omissions materially contributed to the mortgage refinance in violation of N.J.A.C. 5:80-26.8(b). In support of that contention, plaintiff cites N.J.A.C. 5:80-26.8(a), which requires an owner to give notice of intent to the administrative agent that the owner intends to incur an indebtedness secured by a mortgage on the affordable housing unit, other than a first purchase money mortgage loan. Plaintiff asserts the record is devoid of any evidence that Hough gave the required notice before she refinanced the property with Mortgage Lenders.
The HMFA, through the Attorney General, contends that N.J.A.C. 5:80-26.18(e) only requires the voiding of the mortgage as against public policy, contending that “[t]he regulation does not affect the underlying debt as that does not undermine the regulation’s purpose.” We agree with the HMFA’s interpretation of the regulation.
“[W]e `give great deference to an agency’s interpretation and implementation of its rules enforcing the statutes for which it is responsible.'” ZRB, LLC v. NJ Dep’t of Envtl. Prot., 403 N.J. Super. 531, 549 (App. Div. 2008) (quoting In re Freshwater Wetlands Prot. Act Rules, 180 N.J. 478, 488 (2004)); see also DiMaria v. Bd. of Trustees of Pub. Employees’ Ret. Sys., 225 N.J. Super. 341, 351 (App. Div.), certif. denied, 113 N.J. 638 (1988). “That deference stems from the recognition that agencies have specialized expertise and superior knowledge in the areas of law delegated by the Legislature.” Lourdes Med. Ctr. v. Bd. of Rev., 394 N.J. Super. 446, 458 (App. Div. 2007), rev’d. on other grounds, 197 N.J. 339 (2009).
The agency’s interpretation need not be the only permissible one or even the one that the court would have chosen had the question been first presented to it. Matturri v. Bd. of Trs. of Judicial Ret. Sys., 173 N.J. 368, 382 (2002). So long as the agency’s interpretation is not “plainly unreasonable,” it will prevail. Ibid. Nonetheless, “we are not `bound by the agency’s interpretation of the statute or its determination of a strictly legal issue.'” ZRB, supra, 403 N.J. Super. at 550 (quoting In re Taylor, 158 N.J. 644, 658 (1999)).
Applying these principles, we conclude that HMFA’s interpretation of N.J.A.C. 5:80-26.18(e) is not “plainly unreasonable” because it supports the primary purpose of the UFAC regulations. Thus, plaintiff is only barred from seeking to foreclose upon the mortgage; it is not barred from seeking to collect upon the underlying obligation.
The Legislature enacted the New Jersey Fair Housing Act (FHA), N.J.S.A. 52:27D-301 to 329, to further the goals of the Supreme Court’s Mount Laurel decisions. The Court in Mt. Laurel I declared that the New Jersey Constitution “requires every developing municipality, through its land use ordinance, to provide a realistic opportunity for the construction of its fair share of the region’s low and moderate income housing needs.” In re Adoption of Unif. Hous. Affordability Controls by the N.J. Hous. and Mortgage Fin. Agency, 390 N.J. Super. 89, 92 (App. Div.), certif. denied, 192 N.J. 65 (2007); see alsoN.J.S.A. 52:27D-302a. In Mt. Laurel II, the Court mandated that “municipalities were required to address not only the housing needs of their own citizens, but also the housing needs `of those residing outside of the municipality but within the region that contributes to the housing demand within the municipality.'” In re Adoption of Unif. Hous. Affordability Controls, supra, 390 N.J. Super. at 93 (quoting Mt. Laurel II, supra, 92 N.J. at 208-09).
To implement the legislative process of the FHA, the Legislature established COAH, N.J.S.A. 52:27D-305a, and appointed the HMFA as the agency to “establish affordable housing programs to assist municipalities in meeting the obligation of developing communities to provide low and moderate income housing.” N.J.S.A. 52:27D-321. COAH and the HMFA are authorized to adopt and promulgate rules and regulations necessary to carry out their statutory charges. N.J.S.A. 52:27D-307.5 and N.J.S.A. 52:27D-321e, f, and g, respectively.
Pursuant to the FHA, the HMFA developed and now administers housing affordability controls. 36 N.J.R. 3655(a). The purpose of those controls is to “ensure the continuing affordability of housing receiving credit from [COAH] or receiving funding under the Neighborhood Preservation Balanced Housing . . . program.” Ibid. (citation omitted).
In adopting N.J.A.C. 5:80-26.18(e), the HMFA pronounced that it is against public policy for a commercial lender to issue a loan secured by an affordable housing unit for an amount in excess of 95% of the units’ maximum allowable resale price. The focus of the regulation is the use of an affordable housing unit as security for an excessive loan. Stated differently, if a lending institution is permitted to make a loan secured by a mortgage against an affordable housing unit in excess of 95% of the maximum resale price of the unit, default on the loan could result in foreclosure, thus leading to the loss of the affordable housing unit. This would countermand the public policy of ensuring that affordable housing units remain affordable and occupied by lower income households. Ibid. It is with this goal in mind that HMFA asserts that “it is the mortgage secured by the affordable property that offends the regulation and is void as against public policy. The regulation does not affect the underlying debt as that does not undermine the regulation’s purpose.”
We reject defendant’s contention that N.J.A.C. 5:80-26.18(e) requires voidance of both the mortgage and the underlying indebtedness. Such an interpretation would unduly enrich Hough, with Hough having contributed to the mortgage refinance. Regulations, like statutes, must be construed “to avoid . . . interpretations that lead to absurd or unreasonable results.” State v. Lewis, 185 N.J. 363, 369 (2005); see alsoCosmair, Inc. v. Dir., N.J. Div. of Tax., 109 N.J. 562, 570 (1988) (“[i]f a literal construction of the words of a statute be absurd, the act must be so construed as to avoid the absurdity. The court must restrain the words.”) (quoting State v. Clark, 29 N.J.L. 96, 99 (1860)).
We reverse the June 12, 2009 order that denied defendant’s motion seeking to dismiss plaintiff’s foreclosure complaint with prejudice. Plaintiff may file a separate action seeking to collect upon the unsecured underlying indebtedness.
1. The record contains a November 13, 2007 letter from the Township, advising that the maximum allowable resale price of the condominium unit on that date was $68,735.41. Although the record does not contain any evidence of the maximum allowable resale price as of the date of the mortgage transaction, Hough certified that it was lower than on November 13, 2007.
2. At time Hough executed the mortgage in favor of Mortgage Lenders, she executed the mortgage as a single person. The complaint also named “Mr. Hough” as a defendant as Mortgage Lenders did not know at the time of filing the complaint whether Hough had married subsequent to execution of the mortgage.
3. S. Burlington County NAACP v. Twp. of Mount Laurel, 92 N.J. 158 (1983) (Mt. Laurel II); S. Burlington County NAACP v. Twp. of Mount Laurel, 67 N.J. 151, appeal dismissed and cert. denied, 423 U.S. 808, 96 S. Ct. 18, 46 L. Ed. 2d 28 (1975) (Mt. Laurel I).
4. We note that the January 14, 2004 deed restriction does not conform to the mandatory deed form contained in the Appendixes to N.J.A.C. 5:80-26 that were later adopted on November 23, 2004, effective December 20, 2004. 36 N.J.R. 5713(a). The mandatory deed restrictions contained in the Appendixes prohibit a property owner from incurring an indebtedness secured by a mortgage upon the affordable housing unit as contained in N.J.A.C. 5:80-26.18(d)4iii and in N.J.A.C. 5:80-26.8(b). N.J.A.C. 5:80-26, Appendix A, Mandatory Deed Form for Ownership Units, Art. 4C. Plaintiff does not contest that it was on constructive notice that the property was an affordable housing unit, subject to the UHAC regulations.
edit: From a reader who makes an excellent point…this case is very important because it turns not on the assignment of mortgage which the court disregards but rather on the failure of the originator to file the mortgage loan lists with SEC-the defendant did not even raise the point that there was also a failure to file with delaware so that the trust was never given assets———most importantly AHMSI seems to have focused on acquisition of other ex lenders servicer portolios that systematically failed to file these lists-this could enable ahmsi to have more potential latitude to allocate/reallocate or even pocket collected monies -it ties in with the comments later last week re junior senior tranche——if there is no clear certainty as to who gets money from foreclosures due to the record breakdown —-then if the money were to go to tranches that have been written off by their owners —–then the servicer can pocket the proceeds———–the servicers are unregulated–who is looking at their allocations?
the real questions now-are the loans actually in the hands of trusts as a matter of law as a result of failed filings and what happens to proceeds of collection of foreclosure proceeds??
These are highlights…
SUPERIOR COURT OF NEW JERSEY
BANK OF NEW YORK, as Trustee for Home Mortgage Investment Trust CHANCERY DIVISION
2004-4 Mortgage-Backed Notes, ATLANTIC COUNTY Series 2004-4 DOCKET NO: F-7356-09
vs.
MICHAEL J. RAFTOGIANIS,
Decided June 29, 2010
This opinion deals with the plaintiff’s right to proceed with an action to foreclose a mortgage which secures a debt evidenced by a negotiable note. The original lender elected to use the Mortgage Electronic Registration System in recording the mortgage by designating that entity, as its nominee, as the mortgagee. The note and mortgage were subsequently securitized, without notice to the borrower. This action to foreclose the mortgage was filed years later, in the name of an entity created as a part of the securitization process. The defendant/borrower challenged plaintiff’s right to proceed with the foreclosure. That challenge, framed as a dispute over “standing,” has given rise to a variety of factual and legal issues typically raised in this type of litigation.
Ultimately, the questions presented were whether plaintiff could establish its right to enforce the obligation evidenced by the note and whether it must establish that it held that right at the time the complaint was filed. The answers to those questions require an understanding of the provisions of the Uniform Commercial Code, the Mortgage Electronic Registration System, the securitization of mortgages and how foreclosure litigation is handled. This opinion addresses those disputes. Ultimately, the court concluded that it was appropriate to require plaintiff to establish that it had physical possession of the note as of the date the complaint was filed. Plaintiff was unable to establish that, either by motion or at trial. Accordingly, the complaint has now been dismissed on terms permitting plaintiff to institute a new action to foreclose, on the condition that any new complaint must be accompanied by an appropriate certification, confirming that plaintiff is then in possession of the note.
In this case, the defendant borrowed $1,380,000 from American Home Mortgage Acceptance Inc. (hereafter American Home Acceptance) in September 2004. This action to foreclose the mortgage was brought in the name of The Bank of New York, as Trustee for American Mortgage Investment Trust 2004-4 Mortgage Backed Notes, Series 2004-4 in February 2009. In the interim, a variety of transactions took place, involving a number of entities. Those transactions will be discussed in some detail below. Preliminarily, this opinion will discuss the UCC, MERS and the securitization process in more general terms.
How does one become a holder of a negotiable note? In addressing that question it is necessary to distinguish between “transfer” and “negotiation.” It is also necessary to distinguish between the handling of notes payable “to order” and notes payable “to bearer.” In this particular case, it is also necessary to recognize that a note initially made payable “to order” can become a bearer instrument, if it is endorsed in blank. See N.J.S.A. 12A:3-109(c), providing that an instrument payable to an identified person may become payable to bearer if it is endorsed in blank. See also N.J.S.A.12A:3-205(b), describing what qualifies as a blank endorsement, and The Law of Modern Payment 6 Systems and Notes 2.02 at 77-78, Miller and Harrell (2002), noting that an instrument bearing the indorsement “Pay to the order of __________” is a bearer instrument. Such a bearer note can be both transferred and negotiated by delivery alone. See Corporacion Venezolana de Fomento v. Vintero Sales, 452 F. Supp. 1108, 1117 (Dist. Ct. 1978).
Under the UCC, the transfer of an instrument requires that it be delivered for the purpose of giving the person receiving the instrument the right to enforce it. A negotiable note can be transferred without being negotiated. That transfer would be effected by the physical delivery of the note. See N.J.S.A. 12A:3-203(a). In that circumstance, the transferee would not be a holder, as that term is used in the UCC. Such a transferee, however, would still have the right to enforce the note. The UCC deals with that circumstance in the following language: Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument. N.J.S.A. 12A:3-203(b).
The negotiation of the instrument, on the other hand, requires both a transfer of possession and an endorsement by the holder. An instrument which is payable to bearer may be negotiated by transfer alone. Put otherwise, an instrument payable “to order” can be negotiated by delivery with an endorsement, while an instrument payable “to bearer” can be negotiated by delivery alone. N.J.S.A. 12A:3-201. To enforce the note at issue here as a holder pursuant to N.J.S.A. 12A:3-301, plaintiff would have to establish that it received the note, through negotiation, at the appropriate time. That would require that the note be endorsed prior to or at the time of delivery, either in favor of plaintiff or in blank. N.J.S.A. 12A:3-301 also provides that an instrument may be enforced by “a non holder in possession of the instrument who has the rights of a holder.” How does one obtain that status? That may occur, by example, where a creditor of a holder acquires an instrument through execution. See The Law of Modern Payment Systems and Notes 3.01 Miller and Harrell (2002). More frequently, that status will be created by the “transfer” of the instrument, without negotiation. As already noted, transfer occurs when the instrument is delivered for the purpose of giving the person receiving the instrument the right to enforce it. See N.J.S.A. 12A:3-203(a). The statute also provides that the transfer of the instrument, without negotiation, vests in the transferee the transferor’s right to enforce the instrument. See N.J.S.A. 12A:3-203(b). That circumstance can be illustrated by reference to the dispute presented here. The note at issue, as originally drafted, was payable “to the order of” the original lender. The negotiation of the note, in that form, would require endorsement, either to a designated recipient of the note or in blank. The note, however, could be transferred without an endorsement. Assuming the transfer was for the purpose of giving the recipient the ability to enforce the note, the recipient would become a “nonholder in possession with the rights of a holder.” That would require, however, the physical delivery of the note. A number of cases recognize that there can be constructive delivery or possession, through the delivery of the instrument to an agent of the owner. See Midfirst Bank, SSB v. C.W. Haynes & Company, 893 F. Supp. 1304, 1314-1315 (S.C. 1994); Federal Deposit Insurance Corp. v. Linn, 671 F. Supp. 547, 553 8 (N.D. Ill. 1987); and Corporacion Venezolana de Fomento v. Vintero Sales Corp, 452 F. Supp. 1108, 1117 (S.D.N.Y. 1978). Under either of the provisions of N.J.S.A.12A:3-301 which are at issue here, the person seeking to enforce the note must have possession. That is required to be a holder, and to be a nonholder in possession with the rights of a holder. The application of the provisions of the UCC to the dispute presented here will be discussed below.
MERS The Mortgage Electronic Registration System (hereafter, MERS), is a unique entity. Its involvement in the foreclosure process has been the subject of a substantial amount of litigation throughout the country, resulting in the issuance of a number of reported opinions. Recently, MERS was the focus of a decision of the Supreme Court ofKansas, reported as Landmark National Bank v. Kesler, 289 Kan. 528, 216 P.3d. 158 (Kan. 2009) which is now cited frequently in this court. That opinion reviews the manner in which MERS functions, the potential problems it can create, and some of the competing policy issues presented. The opinion also cites a variety of published opinionsfrom around the country, addressing those same issues.
In essence, MERS is a private corporation which administers a national electronic registry which tracks the transfer of ownership interests and servicing rights in mortgage loans. Lenders participate as members of the MERS system. When mortgage loans are initially placed, the lenders will retain the underlying notes but can arrange for MERS to be designated as the mortgagees on the mortgages which become a part of the public record. In that context, the lenders are able to transfer their interests to others, without having to record those subsequent transactions in the public record. See Mortgage Elec. Reg. Sys. Inc. v. Nebraska Depart. Of Banking, 270 Neb. 529, 530, 704 N.W.2d 784 (2005), cited in Landmark. The process is apparently cost efficient, from the perspective of the lenders. Among other things, the use of MERS permits lenders to avoid the payment of filing fees that might otherwise be required with the filing of multiple assignments. By the same token, it can make it difficult for mortgagors and others to identify the individual or entity which actually controls the debt at any specific time. See Landmark, 216 P.3d. at 168. On occasion, foreclosure actions are also brought in the name of MERS. When MERS is involved, defendant/borrowers often argue there has been a “separation” of the note and mortgage impacting on the plaintiff’s ability to proceed with the foreclosure. That argument has been raised here and will also be addressed below.
SECURITIZATION
This case also involves the securitization of mortgage loans, a practice which is facilitated by the MERS system. Trial courts in this state regularly deal with the foreclosure of mortgages which have previously been securitized. Generally, one or more lenders will sell substantial numbers of mortgage loans they have issued to a pool or trust.
Interests in that pool or trust are then sold to individual investors, who receive certificates entitling them to share in the funds received as the underlying loans are repaid. That can occur without any notice to the debtors/mortgagors who remain obligated on the original notes. Other entities, generally called “servicers,” are retained to administer the underlying loans. Those servicers or additional “subservicers” will be responsible for collecting and distributing the funds which are due from the debtors/mortgagors. Many are given the authority to institute and prosecute foreclosure proceedings.
The note executed by defendant Raftogianis is clearly a negotiable instrument as that term is defined by the UCC. In the terms of the statute, the note is payable to bearer or to order, and it is payable on demand or at a definite time. While the note contains detailed provisions as to just how payment is to be made, it does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money. See N.J.S.A. 12A:3-104. The note recites that defendant Raftogianis “promises to pay U.S. $1,380,000.00 … plus interest, to the order of the Lender,” then referring to “the Lender” as American Home Acceptance, beginning with payments due in November 2004. See N.J.S.A. 12A:3-104(a)(1), (2) and (3). This note, as originally drafted, was payable “to order.” At some point, however, the note was indorsed in blank. The original note was produced at oral argument on the motion for summary judgment. It contained the following indorsement:
WITHOUT RECOURSE
BY AMERICAN HOME MORTAGE ACCEPTANCE, INC.
_________________________
RENEE BURY
ASST. SECRETARY
Ms. Bury’s original signature was just above her printed name in that indorsement. Defendant had signed the note on September 30, 2004, payable to the order of American Home Acceptance. In that form the note could be transferred by delivery, but could only be negotiated by indorsement. The indorsement in blank, however, would effectively make the note payable “to bearer,” permitting it to be transferred and negotiated by delivery alone, without any additional indorsement. While it was clear the note had been indorsed prior to the time it was presented to the court, presumably as a part of the securitization process, it was not clear just when that occurred, or when the note had been physically transferred from American Home Acceptance to some other individual or entity.
The assignment from MERS was executed and recorded a short time after the complaint was filed. That document is dated February 18, 2009. It is captioned “Assignment of Mortgage.” It recites that MERS, as nominee for American Home Acceptance, transfers and assigns the mortgage at issue to Bank of New York, as Trustee.
The assignment refers to the mortgage as securing the note at issue. It recites the transfer of the mortgage “together with all rights therein and thereto, all liens created or secured thereby, all obligations therein described, the money due and to become due with interest, and all rights accrued or to accrue under such mortgage.” The assignment was executed by one Linda Green, as Vice President of MERS, as nominee for American Home Acceptance. Ms. Green’s signature was notarized. The assignment was recorded with the Atlantic County Clerk on February 24, 2009. It does appear the assignment was intended to indicate that the debt in question had been transferred to the Bank of New York as Indenture Trustee in February 2009. It is now apparent that is not what occurred.
In any event, the matter proceeded in the vicinage based upon the filing of defendant’s contesting answer. While discovery was permitted, the parties apparently elected to forego any formal discovery. Plaintiff filed its motion for summary judgment in January 2010. The motion was based upon a certification from plaintiff’s counsel providing copies of the note, the mortgage and the February 2009 assignment. While the copy of the note provided with the motion did contain the blank indorsement noted above, there was no information provided as to when the note was indorsed, when the note was physically transferred, or where the note was being held. Defendant filed written opposition, challenging the validity of the MERS assignment. Plaintiff responded with a certification executed by a supervisor for American Home Mortgage Servicing, Inc., the servicer for the loans.
THE MERS ASSIGNMENT–THE SEPARATION OF THE NOTE AND MORTGAGE
The issue is framed, at least in part, by the description of MERS as “nominee.” The use of that term, as it is used by MERS, was analyzed in some detail in the decision of the Supreme Court of Kansas in Landmark, a case relied upon by defendant and cited above. Landmark involved a property which was encumbered by two mortgages. The loan provided by Landmark National Bank was secured by a first mortgage payable to it. There was a second mortgage on the property securing a loan that had been provided by Millennia Mortgage Corp. Millennia was a participant in MERS. The second mortgage securing the debt due Millennia was in the name of MERS “solely as nominee” for Millennia. The Millennia mortgage was subsequently transferred or assigned to Sovereign Bank. That transfer was not reflected in the public record. Landmark filed an action to foreclose its first mortgage naming Millennia, but neither MERS nor Sovereign as defendants. No one responded on behalf of Millennia and the matter proceeded through judgment and sale. Sovereign subsequently filed a motion to set aside the judgment, arguing that MERS was a “contingently necessary party” under Kansas law. The trial court concluded that MERS was not a real party in interest and denied the
motion to set aside the judgment. Both the Court of Appeals and the Supreme Court of Kansas affirmed, essentially concluding that MERS did not have any real interest in the underlying debt. Notably, the opinion of the Supreme Court of Kansas recognizes the potential for the separation of interests in a note and related mortgage. In that context, the opinion addressed the use of the term “nominee” in some detail, as follows: The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship. (Citation omitted)
. . . The relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgage and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is “[o]ne to whom property is mortgaged: the mortgage creditor, or lender.” Black’s Law Dictionary 1034 (8th ed. 2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 38-2323. Although MERS asserts that, under some situations the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation to collect payments, and to enforce the debt obligation.
The document consistently limits MERS to acting “solely” as the nominee of lender. 289 Kan. 538-540.
While the Landmark court recognized that issues might be raised as to an alleged separation of a note and mortgage, it was not required to address those issues directly. Its analysis of the role MERS plays as nominee, however, supports the conclusion reached by this court with respect to that issue. MERS, as nominee, does not have any real interest in the underlying debt, or the mortgage which secured that debt.It acts simply as an agent or “straw man” for the lender. It is clear to this court that the provisions of the mortgage describing the mortgagee as MERS “as nominee” were not intended to deprive American Home Acceptance of its right to security under the mortgage or to separate the note and mortgage.
It is a fundamental maxim of equity that “[e]quity looks to substance rather than form.” See Applestein v. United Board & Carton Corp., 60 N.J. Super. 333, 348 (Ch.Div. 1960) aff’d o.b., 33 N.J. 72 (1960). The courts have applied that principle in dealing with mortgages in a variety of contexts. So it is that an assignment of a bond or note evidencing a secured obligation will operate as an assignment of the mortgage “in equity.” See 29 New Jersey Practice, Law of Mortgages 11.2, at 748 (Myron C. Weinstein) (2d ed. 2001) (citing Stevenson v. Black, 1 N.J. Eq. 338, 343 (Ch. 1831) and other cases). Conversely, commentators have noted the propriety of treating the assignment of a mortgage, without a specific reference to the underlying obligation, as effectively transferring both interests. But it does not follow that an assignment in terms of the “mortgage” without express reference to the secured obligation is insufficient to transfer the obligation and is therefore a nullity, as some courts have held. As Mr.Tiffany long ago pointed out, The question is properly one of the construction of the language used, and in arriving at the proper construction, evidence of the sense in which that language is ordinarily used is of primary importance. The expression “assignment of mortgage” is almost universally used, not only by the general public, but also by the Legislature, the courts, and the legal profession, to describe the transfer of the totality of the mortgagee’s rights, that is, his right to the debt as well as to the lien securing it, and to hold, as these cases apparently do, that when one in terms assigns a mortgage, he intends, not an effective transfer of his lien alone, which is an absolute nullity, not only ignores this ordinary use of the term “mortgage”, but is also in direct contravention of the well recognized rule that an instrument shall if possible be construed so as to give it a legal operation. See 29 New Jersey Practice, Law of Mortgages 11.2 at 754(Myron C. Weinstein)(2d ed.2001) (citing 5 Tiffany on Real Property 428-29). It is apparent there was no real intention to separate the note and mortgage at the time those documents were created. American Home Acceptance remained the owner of both the note and mortgage through the date the loan was securitized. It did have the right to transfer its interests when the loan was securitized.
It was entirely appropriate to argue that the February 2009 assignment from MERS, as nominee for American Home Acceptance, to the Bank of New York, as Trustee, was ineffective. From the court’s perspective, that assignment was, at best, a distraction. The actual transfers of interests in the note and mortgage occurred in different ways. There was no reason, however, that plaintiff could not acquire the right to enforce the note and mortgage through those other transactions. In that context, defendant’s attack on plaintiff’s right to proceed based on the alleged separation of the note and mortgage is rejected.
CONCLUSION
Defendant’s attack on plaintiff’s ability to proceed with the foreclosure based on the alleged “separation” of the note an mortgage was rejected. Plaintiff, however, failed to establish that it was entitled to enforce the note as of the time the complaint was filed.
In this case, there are no compelling reasons to permit plaintiff to proceed in this action. Accordingly, the complaint has been dismissed. That dismissal is without prejudice to plaintiff’s right to institute a new action to foreclose at any time, provided that any new complaint must be accompanied by an appropriate certification, executed by one with personal knowledge of the circumstances, confirming that plaintiff is in possession of the original note as of the date any new action is filed. That certification must indicate the physical location of the note and the name of the individual or entity in possession.
SELLERS: Joe and Teresa Giudice
LOCATION: Towaco, NJ
PRICE: $3,999,000
SIZE: 10,000 square feet (approx.), 6 bedrooms, 5.5 bathrooms.
YOUR MAMAS NOTES: It seems the financial fat ladee has done sung for yet another of Bravo’s allegedly wealthy housewives. This time its one of the blinged out guidettes from New Jersey. All week long there’s been a big brouhaha a brewin’ in the tabs and everywhere else about how The Real Housewives of New Jersey’s too tan baby factory Teresa Giudice and her grunting huzband Joe filed for chapter 7 bankruptcy back in late October of 2009. The large livin’ couple claimed an astonishing $11,000,000 in outstanding debt–$10,853,648.04 to be exact–and only $79,000 a year in taxable income, plus another ten grand a month in “assistance” from family members. It doesn’t take a brain surgeon–and Your Mama ain’t no brain surgeon–to figure out that it was only a matter of time before the over spenders heaved their trés tacky mansion in Towaco, NJ on the market.That’s right buckaroos, fasten them seat belts because Mister and Missus Giudice–that’s pronounced gee-oo-dice or jew-dee-chay or something like that–have hoisted their mammoth, marble, granite, and onyx encrusted crib of questionable architectural provenance or integrity on the market with an asking price of $3,999,999, otherwise known as four million clams.
Oh lo-wurhd have mercy, that whackadoodle Danielle Staub is going to have a field day with this one, isn’t she? She’s going to take to the airwaves and clatter up to the rooftops to shout and scream some kind of crazy nonsense about how this is divine justice, the unforgiving retaliatory hand of fate coming down to chop the evil Giudices down to size. Can’t y’all just see her head spinning round like Linda damn Blair in The Exorcist?
Anyhoo, according to previous reports and their fascinating bankruptcy filing–which Your Mama is embarrassed to admit we actually read–the Gee-oo-dice’s (or Jew-dee-chays) have managed to rack up a staggering $104,000 in credit card debt, owe $12,000 for fertility treatments, and another $2,300 in phone bills. And that, puppies, is just the tip of their ice berg of debt. Crimeny sakes, who has $2,300 in phone bills? What kind of person has $104,000 in credit card debt? Have mercy. It drives Your Mama to drink in the morning just to think about that sort of financial hole. And furthermore, if these two have $11,000,000 in debt, where did Tee-tee get that toilet paper roll sized wad of cash last season that she used to buy hundreds of thousands of dollars worth of ass-uglee furniture for their newly built monument to excess? Certainly they didn’t wrack up eleven million bucks in debt in a single year.
Most mystifying, mortifying, and psychically destabilizing to Your Mama are the 8 mortgages that total $2,600,000 that the Jew-dee-chays (or Gee-oo-dices or whatever) carry on three homes. Whaaaaat? Somebody please grab Your Mama a damn nerve pill and slowly explain to our booze addled brain how these people managed to secure 8 mortgages on 3 properties totaling $2,600,000 with an income of $79,000 per year? It’s no wonder the gubbamint had to step in to save the damn banks last year or whenever that was.
Previous reports indicate the deeply indebted duo have already handed two of the three properties back to the bank and one imagines that iffin they don’t get their vulgar manse in Towaco sold quick–or big, bad, and rich Caroline Manzo doesn’t step in to save their impoverished butts–then Tee-tee and Joe-Joe are in jeopardy of losing the family’s faux chateau to foreclosure.
As best as Your Mama can tell, Mister and Missus Gee-oo-dice (or whatever) paid $530,000 for the 3.77 acre property in December of 2001 and subsequently took out a second mortgage of $1,720,000. Listing information shows the Giudice’s residential beast measures around 10,000 square feet and includes 6 bedrooms and 5.5 poopers including a master suite with fireplace, separate sitting room, dressing room, walk-in closet, and steam shower. Please, do not, we beg of the children, think about or discuss anything related to Joe-Joe and Tee-tee taking a steam together.
Other amenities of the 16-room residence, according to listing information, include a train station sized entrance hall with double height ceiling and twin curving staircases with intricate wrought iron balustrades, a gigantic great room, formal living and dining rooms, game room, wine room, media room, den, office, gourmet eat-in kitchen with center island, and a separate staff or guest suite with private pooper.
Thank heavens listing information does not include photographs of the interiors because Your Mama would rather slowly saw off our left leg than look at the decorative train wreck that is the Jew-dee-chay (or Gee-oo-dice or whatever) mansion. We know of what we speak, poodles, because like millions of others, we’ve had the misfortune of repeating peering inside the wing-ed doors of that pile o’ architectural doo-doo on The Real Housewives of New Jersey program.
The barely landscaped grounds include a long, red driveway composed of crushed granite or brick or something, a prairie sized motor court, large expanse of lawn–or weeds cut down to look like lawn–and two ponds including one with an man-made waterfall of stacked stone. Listing information states that “privacy and tranquility reigns” at the Gee-oo-dice (or Jew-dee-chay) digs but Your Mama has to wonder how much tranquility there really can be at a property that backs up to I-287, an extremely bizzy, 4-lane highway.
Listen celery sticks, we kind of like this Teresa gal and her amazingly explosive temper that causes her to occasionally upend tables in public places and holler brilliant barbs like “PROSTITUTION WHORE!” She makes for good (reality) tee-vee. We just think–and it is only Your Mama’s meaningless opinion–that poor Tee-tee and Joe-Joe don’t have a cotton pickin’ clue about making good architectural choices or creating tasteful interiors…or, apparently, managing money. All the children know that Your Mama really doesn’t care to dance on any one’s real estate grave. However, we have a very difficult time feeling bad for someone–that would be Tee-tee–who’s drowning in $11,000,000 of debt and then hauls her big balls onto national tee-vee and brags about how much cheddar she spent on her 9-year old daughter’s birthday party. It’s unseemly, not to mention bordering on immoral.
Where or where will Tee-tee, Joe-Joe and their band of bedazzled gurls go next? Maybe that touchy-feely Dina ladee will take them in. Or possibly the kind and well meaning but mealy mouthed Jacqueline can put them up in her basement next to that scary gun cabinet of hers. Somehow, even though they are tick as teeves, we sort of doubt Momma Manzo, a sensible if somewhat frightening woman, would take in a charity case with four children and $11,000,000 in debt. For what it’s worth–and it’s worth nothing–Your Mama thinks Joe-Joe and Tee-tee ought to get rid of the $1,280 a month Escalade they clearly can’t afford, buy a used Kia car, and rent a crappy three-bedroom apartment in Secaucus, NJ with an affordable rent that’s in line with their income. Just a thought.
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CONTINUE READING…..YAHOO
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