H/T Pedro da Costa

As always the same players, never fails.

Reuters-

Europe’s muted commercial property debt securitisation market will not return to a multi-billion pounds business until a row is settled over controversial X-Notes, a bond used by issuing banks to protect their slice of profits.

“X-Notes are one of the biggest issues facing European CMBS, because (when the underlying loans fail) investors see the bank that issued the transaction still making a fortune, they’re actually quite hacked off,” one source told Reuters.

[REUTERS]

SUPREME COURT OF THE STATE OF NEW YORK

[…]

Will the Mortgage Mess Meet Too Big To Fail?

HuffPO-

Ever since the Dodd-Frank Wall Street Reform Act passed last year, there has been a running debate about the Resolution Authority in the bill. Would it actually prevent another taxpayer bailout of a bank or banks to avoid a financial meltdown? I believe there is a real possibility that the present mortgage mess could trigger such a test.

The Congressional Oversight Panel of the TARP, which I chaired until it ceased operations earlier this year, held a number of hearings and issued numerous reports on problems within the federal government’s Home Affordable Modification Program. I came to suspect that the entire system in place to bundle and sell mortgages through securitization might be fatally flawed.

[HUFFINGTONPOST]

Via: NYE LAVALLE author of Report On Fraudulent & Forged Assignments Of Mortgages & Deeds In U.S. Foreclosures

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

MICHAEL L. MORGAN,
Plaintiff,

v.

OCWEN LOAN SERVICING,
LLC, MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC., and
MERSCORP, INC.
Defendants.

ORDER

The action is presently before the Court on Defendants’ motion to dismiss (“motion”) [Doc. 15], filed on November 22, 2010. For the following reasons, the Court GRANTS IN PART and DENIES IN PART the motion.

I. Background1

Plaintiff filed his complaint against Ocwen Loan Servicing, LLC (“Ocwen”), Mortgage Electronic Registration Systems, Inc. (“MERS”), and Merscorp, Inc. (“Merscorp”) on November 1, 2010. In the complaint, Plaintiff raises state law claims against Defendants for declaratory judgment, injunctive relief, cancellation of deed to secure debt, slander of title, quiet title, wrongful foreclosure, intentional infliction of emotional distress, and negligence. (Compl. at 1-20.) He also raises a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. 1961-1968.
(Id. at 20-22.)

Plaintiff’s claims for declaratory judgment, cancellation of security deed, slander of title, and quiet title rest on the fact that he obtained a residential mortgage loan from Guaranteed Rate, Inc., and in connection with the loan he executed a promissory note to Guaranteed Rate and a deed to secure debt in favor of MERS “as nominee” for Guaranteed Rate. (Id. ¶¶ 11-13.) He alleges that because MERS had no pecuniary interest in the transaction, and was acting solely as “nominee” for the lender, the security deed to MERS is void. (Id. ¶¶ 19, 20.) Plaintiff’s claims for injunctive relief, wrongful foreclosure, intentional infliction of emotional distress, and negligence are based on allegations that Ocwen commenced a nonjudicial foreclosure against his property (1) when Ocwen was not the holder of the promissory note, and (2) without sending the statutorily required notice of foreclosure sale to the proper address. (Id. ¶¶ 24-27.) Plaintiff’s RICO claim is based on allegations that Defendants fraudulently used MERS in mortgage transactions, mailed fraudulent notices of foreclosure, and committed other unlawful acts. (Id. ¶¶ 79-80.)

Defendants filed a motion to dismiss the complaint on November 22, 2010, that contended: (1) Plaintiff failed to effect service of process, (2) Plaintiff’s claim for wrongful foreclosure based on Defendant’s failure to properly mail the foreclosure notice was moot, because Defendant canceled the November foreclosure sale, and (3) all counts based on allegations that the security deed is void failed to state a claim. (Defs.’ Mem. Supp. Mot. Dismiss at 6-15.) Plaintiff filed a response in opposition to the motion to dismiss on December 9, 2010,2 and Defendants filed a reply on December 22, 2010.

On December 30, 2011, all Defendants executed the waiver of service of summons, which was filed with the Clerk’s office on January 3, 2011. (Waiver of Service of Summons, Jan. 3, 2011.)

II. Motion to Dismiss Standard

In determining whether a complaint states a claim upon which relief can be granted, courts accept the factual allegations in the complaint as true and construe them in the light most favorable to the plaintiff. Hill v. White, 321 F.3d 1334, 1335 (11th Cir. 2003). To survive a motion to dismiss, a complaint must allege facts that, if true, “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quotations omitted). A claim is plausible where the plaintiff alleges factual content that “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The plausibility standard requires that a plaintiff allege sufficient facts “to raise a reasonable expectation that discovery will reveal evidence” that supports the plaintiff’s claim. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007).

The Court recognizes that Plaintiff is appearing pro se. Thus, his complaint is to be liberally construed and “held to less stringent standards than formal pleadings drafted by lawyers.” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citations and internal quotation marks omitted).

III. Analysis

A. Service of Process

As Defendants executed the waiver of service on December 30, 2010, their arguments for dismissal based on insufficient process, insufficient service of process, and lack of jurisdiction are moot. (See Waiver of Service of Summons, Jan. 3, 2011.) Defendants’ sole basis for alleging a lack of personal jurisdiction was the (previously true, but no longer so) assertion that service had not been effected under Rule 4. (Defs.’ Mem. Supp. Mot. Dismiss at 6-8.)

B. Alleged Failure to Send Notice of Foreclosure

Defendants argue that Plaintiff’s claims arising out of failure to send the foreclosure notice to the proper address are moot because the foreclosure did not go forward on November 2, 2010. However, a court may refuse to dismiss as moot claims in which the former controversy is one “capable of repetition, yet evading review.” United Steelworkers of America v. Bishop, 598 F.2d 408, 412 (5th Cir. 1979) (internal citations omitted).3 Claims will be preserved for review on this basis when they meet the following criteria: (1) “the challenged action was too brief in duration to be fully litigated prior to its cessation or expiration,” and (2) there is a reasonable likelihood that the plaintiff will face the same challenged conduct again. Id. As Plaintiff is still in default on his mortgage, and the Court’s predecessor judge terminated the injunction barring foreclosure on January 3, 2011, it is very likely that Defendants will again attempt a nonjudicial foreclosure. Since the statutorily required notice of foreclosure sale is only required to be sent 30 days prior to the sale date, there would not likely be time to adjudicate this issue should it arise again by virtue of another foreclosure sale notice mailed to the incorrect address. See O.C.G.A. § 44-14- 162.2. Plaintiff contends that Defendant failed to send proper notice, despite his written provision of an updated address. (Compl. ¶ 16.) Under these circumstances, the Court declines to dismiss as moot Plaintiff’s claims for wrongful foreclosure arising out of failure to give the required foreclosure notice.

C. Validity of the Security Deed and Wrongful Foreclosure

The issues presented here regarding ownership of the note and the effectiveness of an assignment executed by MERS have been the subject of much litigation, in this district and throughout the country. Therefore, the Court takes this opportunity to carefully address the complex issues presented.

The following are the facts relevant to these claims that must be presumed true for purposes of the instant motion. Plaintiff obtained a residential mortgage loan from Guaranteed Rate. (Compl. ¶ 9.) Like most residential mortgages in Georgia, this transaction was memorialized by two documents: a promissory note and a deed to secure debt (or “security deed”). The original grantee of the promissory note was Guaranteed Rate. (Id. ¶ 11.) The original grantee of the security deed was MERS “as nominee” for Guaranteed Rate and its successors and assigns. (Id. ¶¶ 12-13.)
Guaranteed Rate later transferred the note to Taylor, Bean & Whitaker. (Id. ¶ 14.)

Subsequently, MERS executed a purported assignment of the security deed to Ocwen. (Id. ¶ 64.) Ocwen is not now and has never been the holder of the note.4 (Id. ¶ 25.)

1. Validity of the Security Deed

A promissory note and a security deed are two separate, but interrelated, instruments. See Frank S. Alexander, GEORGIA REAL ESTATE FINANCE AND FORECLOSURE LAW, § 3:7 (2010-11 ed.). The security deed arises from the indebtedness memorialized in the promissory note, and “the deed’s power of sale depend[s] on default under the note.” Boaz v. Latson, 580 S.E.2d 572, 578 (Ga. Ct. App. 2003), rev’d on other grounds, 598 S.E.2d 485, 487 (Ga. 2004). Historically, the note and security deed have traveled together. If an originating lender decided to sell a mortgage loan, that lender would endorse and physically transfer the note (a negotiable instrument) to a new holder, and assign the security deed to that holder as well. See Bowen v. Tucker Fed. Sav. & Loan Assoc., 438 S.E.2d 121, 122 (Ga. Ct. App. 1993) (“the holder of a note who is also the grantee of a security deed has the right to exercise the power of sale in the security deed upon default”). The parties would then record the assignment in the county deed room, giving record notice to the homeowner and all the world of who held the mortgage. Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. CIN. L. REV. 1359, 1362 (2009-10).

With the rise of securitization of mortgage loans, the financial services industry sought to maximize profitability by developing shortcuts to these cumbersome paperwork requirements. Peterson, 78 U. CIN. L. REV. at 1368-69. One such costsaving method was to have the original lender endorse the note in blank, so that it would not have to be specifically endorsed to every holder in the chain of ownership. In the securitization process, ownership of a note might be transferred four or five times, from the original lender to the issuer of the securities, through one or more special purpose entities, and finally to the trustee bank, which holds the legal interest in the note for the benefit of the securities holders. Id. at 1367; Adam Ashcraft and Til Schuermann, Understanding the Securitization of Subprime Mortgage Credit, 318 FEDERAL RESERVE BANK OF NEW YORK STAFF REPORT at 5 (2008).

Along the same lines, the mortgage industry created MERS to facilitate tracking ownership of mortgage loans without the necessity of executing and recording assignments of the security deeds. Peterson, 78 U. CIN. L. REV. at 1369.

The Georgia Supreme Court has described the MERS system as follows:

MERS, which began operating in 1997, is a private company
created by the mortgage banking industry for the purpose of
establishing a centralized, electronic system for registering the
assignments and sales of residential mortgages, with the goal
being the elimination of costly paperwork every time a loan is
sold . . . . Under the MERS system, the borrower and the original
lender name MERS as the grantee5 of any instrument designed
to secure the mortgage loan. The security instrument is then
recorded in the local land records, and the original lender
registers the original loan on MERS’s electronic system.
Thereafter, all sales or assignments of the mortgage loan are
accomplished electronically under the MERS system.

Taylor, Bean & Whitaker v. Brown, 583 S.E.2d 844, 845 n.1 (Ga. 2003) (internal citations omitted).

Whereas the cost-saving benefits to the mortgage banking industry of the MERS system are clear, its harmony with Georgia real estate law is less evident. Indeed, the use of MERS as a record “holder” of the security instrument (and tracking system for actual ownership of same) has created a great deal of confusion for homeowners attempting to communicate with the owner of their loan, as well as for judges and lawyers attempting to parse out ownership of the debt and authority to foreclose. See Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 168 (Kan. 2009).

Several of Plaintiff’s claims rest on the argument that the security deed is void because of the fact that MERS was named as the grantee-as-nominee in the security deed rather than Guarantee Rate, the actual lender and payee on the note. This argument is unsupported by Georgia law. Separation of the note and security deed creates a question of what entity would have the authority to foreclose, but does not render either instrument void. See Boaz, 580 S.E.2d at 578; Alexander at § 3.7. Therefore, the Court dismisses Plaintiff’s claims for declaratory judgment (Count I), cancellation of the security deed (Count III), slander of title (Count IV), and quiet title (Count V), all of which seek either injunctive relief or damages based on the assertion that the security deed is void because of the MERS involvement.

2. Wrongful Foreclosure

Although the separation of the note and the security deed does not render either instrument void, it does create a substantial question of what entity has the right to foreclose when the borrower defaults on the loan. The Georgia Supreme Court has expressly reserved ruling on the question of “whether MERS, as nominee for the original lender and its successors, has the power to foreclose on an existing security deed either with or without the participation of the existing note holder.” Taylor, Bean & Whitaker v. Brown, 583 S.E.2d at 848. Many other courts have questioned MERS’s right to foreclose or effect an assignment of a security instrument, as it admittedly holds no beneficial interest in the note or security instrument. See Landmark v. Kesler, 216 P.3d at 167 (“If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right.”); Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 624 (Mo. Ct. App. 2009) (“MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force.”); In re Agard, No. 810-77338, 2011 WL 499959, at *16 (E.D.N.Y. Feb. 10, 2011) (“[W]ithout more, this Court finds that MERS’s ‘nominee’ status and the rights bestowed upon MERS within the Mortgage itself, are insufficient to empower MERS to effectuate a valid assignment of mortgage.”).

The question presented by this case is not whether MERS has authority to foreclose under Georgia law, but whether an assignment of a security deed from MERS to Ocwen empowers Ocwen to foreclose when Ocwen does not hold the note.6

Georgia law authorizes the secured creditor, the holder of the obligation, to exercise a power of sale. See O.C.G.A. §§ 44-14-162 et seq.7 The Georgia Supreme Court has clearly indicated that the right to foreclose lies with the party that holds the indebtedness:

Could there be a more conclusive defense to the foreclosure
than that the party prosecuting it was not the holder of the debt
or demand secured by the mortgage, which he failed to produce
when called on, and offered nothing to show that he controlled
it, or to explain why it was not forthcoming at the trial?

Weems v. Coker, 70 Ga. 746, 749 (1883), cited by Truitt v. Moister, 11 B.R. 15 (Bankr. N.D. Ga. 1981); see also Bowen, 438 S.E.2d at 122; Boaz, 580 S.E.2d at 578; Cummings v. Anderson, 173 B.R. 959, 963 (Bankr. N.D. Ga. 1994) (foreclosure was null and void where the entity foreclosing did not have an actual assignment of the note and security deed), aff’d, 112 F.3d 1172 (11th Cir. 1997); Weston v. Towson, No. 5:04- CV-416, 2006 WL 2246206, at *6 (M.D. Ga. Aug. 4, 2006) (“[T]he holder of the note continues to retain remedies under the security deed so long as the debt evidenced by the note has not been satisfied.”).

Plaintiff has alleged that Ocwen is attempting to foreclose when it is not the holder of the note. (Compl. ¶ 25.) Moreover, in publishing the foreclosure notice, Ocwen did not purport to be acting as agent for the actual holder of the note, but rather asserted that it was acting on its own behalf. (Id. ¶ 61.) These allegations clearly support a claim for wrongful foreclosure.8 The Court need not reach the question of whether an agent for the holder of the debt can carry out a power of sale foreclosure under Georgia law, as Ocwen did not advertise the foreclosure as agent for any disclosed principal. Defendants further argue that there can be no cause of action for wrongful foreclosure here because the foreclosure has not taken place. However, courts have recognized a cause of action for wrongful attempted foreclosure when a foreclosure action was commenced, but not completed, where plaintiffs have shown that a defendant “knowingly published an untrue and derogatory statement concerning the plaintiffs’ financial conditions and that damages were sustained as a direct result.” Sale City Peanut & Milling Co. v. Planters & Citizens Bank, 130 S.E.2d 518, 520 (Ga. Ct. App. 1963).9 Furthermore, Plaintiff is clearly seeking injunctive relief barring Ocwen from foreclosing wrongfully because it allegedly is not the holder of the note. (Compl. ¶¶ 40-43, 63.) A court may enjoin a nonjudicial foreclosure sale in a wrongful foreclosure action where the authority to foreclose is in question. See Atlanta Dwellings, Inc. v. Wright, 527 S.E.2d 854, 856 (Ga. 2000); West v. Koufman, 384 S.E.2d 664, 666 (Ga. 1989); Cotton v. First Nat’l Bank of Gwinnett Co., 220 S.E.2d 132 (Ga. 1975).

Thus, Plaintiff’s claims for injunctive relief (Count II), wrongful foreclosure (Count VI), and negligence (Count VIII) are not subject to dismissal at this time.

D. Remaining Claims

Defendants have not made any argument for dismissal of the claims for intentional infliction of emotional distress (Count VII) or RICO (Count IX) other than their general argument that Ocwen had the right to foreclose, which cannot prevail at this stage for the reasons cited above. Therefore, because Defendants have not challenged these claims, Court does not address them in this Order.

IV. Conclusion

For the foregoing reasons, Defendants’ motion to dismiss [15] is GRANTED IN PART and DENIED IN PART. Plaintiff’s claims for declaratory judgment (Count I), cancellation of the security deed (Count III), slander of title (Count IV), and quiet title (Count V) are DISMISSED. Defendants’ motion to dismiss Plaintiff’s claims for injunctive relief (Count II), wrongful foreclosure (Count VI), negligence (Count VIII), intentional infliction of emotional distress (Count VII), and RICO (Count IX) is DENIED.

IT IS SO ORDERED, this 7th day of July, 2011.

__________________________________
AMY TOTENBERG
UNITED STATES DISTRICT JUDGE

Footnotes:

1 The facts described here are taken from Plaintiff’s complaint [Doc. 1] and presumed true for purposes of resolving Defendants’ motion to dismiss. See infra Part II.

2 Plaintiff exceeded the twenty-five-page limit imposed by the local rules in his response brief. See Local Rule 7.1(D). Because Plaintiff is appearing pro se, he is entitled to some lenience from this Court regarding the formalities of litigation. However, Plaintiff is advised in the future to keep any original briefs to no more than twenty-five pages, and reply briefs to no more than fifteen pages.

3 In Bonner v. Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh Circuit adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to October 1, 1981.

4 The facts in the complaint must be presumed true at this stage. Hill v. White, 321 F.3d at 1335. Defendants assert that the Court may consider documents referenced in the complaint, including the promissory note and the purported assignment of the security deed to Ocwen, without converting this motion to a motion for summary judgment. However, Defendants are attempting to use these documents to dispute a central factual allegation of Plaintiff’s complaint, compared to the securities cases wherein courts have considered on a motion to dismiss documents  required to be filed with the SEC of which the contents, and not the truth, were at issue. See Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1278 (11th Cir. 1989) (“When SEC documents are relevant only to determine what statements or disclosures are actually contained therein, there can be little question as to authenticity, nor can the fact that such statements or disclosures were thus publicly filed be reasonably questioned.”); Oxford Asset Mgmt. Ltd. v. Jahar, 297 F.3d 1182, 1188 (11th Cir. 2002) (documents outside the complaint may only be considered at the motion to dismiss stage to show their contents, not for the truth of matters asserted therein). The Court must therefore assume at this motion to dismiss stage of the proceedings that Ocwen is not the holder of the note, based on the allegations of  Plaintiff’s complaint. (Compl. ¶ 25.) Furthermore, the documents attached to the motion to dismiss do not support anyfactual finding to the contrary, as an assignment of the security deed is not indicative of who holds the note, and the promissory note shows no endorsement to Ocwen.

5 MERS is listed on the original security deed as the grantee of the instrument “as nominee” for the lender and lender’s successor and assigns.

6 Defendants cite O.C.G.A. § 44-14-64 and Redwine v. Frizzell, 190 S.E. 789 (Ga. 1937) to support their argument that the purported assignment of the security deed also transferred the promissory note. However, this statute and Redwine were authored at a time when the promissory note and the security deed where not commonly separated. Neither support the proposition that a party who has never held the promissory note (MERS) could transfer it by an assignment of the security deed.

7 “The security instrument or assignment thereof vesting the secured creditor with title to the security instrument shall be filed prior to the time of sale in the office of the clerk of the superior court of the county in which the real property is located.” O.C.G.A. § 44-14-162(b) (emphasis added). “Notice of the initiation of proceedings to exercise a power of sale in a mortgage, security deed, or other lien contract shall be given to the debtor by the secured creditor no later than 30 days before the date of the proposed foreclosure.” O.C.G.A. § 44-14-162.2(a) (emphasis added).

8 Defendants cite Nicholson v. OneWest Bank, No. 1:10-CV-0795, 2010 WL 2732325 (N.D.Ga. Apr. 20, 2010) for the proposition that MERS has the ability to foreclose even if it does not hold the promissory note. However, in Nicholson the court denied a motion for TRO because the plaintiff in that case failed to carry his burden on a TRO motion to show the likelihood of success on the merits when he failed to overcome the defendant OneWest’s showing that it held both the note and security deed. Id. at *4. Nicholson is therefore inapposite to the facts that must be assumed true herein.

Defendants also cite Trent v. Mortgage Electronic Registration Systems, Inc., 288 Fed. Appx. 571 (11th Cir. 2008) (unpublished) and Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So.2d 33 (Fla. Dist. Ct. App.2007). These cases interpret Florida law and therefore are not relevant to the instant case.

9 It is not clear whether Plaintiff can prevail on a claim for wrongful attempted foreclosure, which requires a showing of intentional publication of derogatory and untrue financial information about the complainant. See Sale City Peanut, 130 S.E.2d at 520. Plaintiff does not specify in the complaint whether he was actually in default on the mortgage at the time Ocwen commenced foreclosure proceedings against him or whether a default had been cured through a loan modification. However, to the extent Plaintiff fails to establish the required elements for the tort of attempted wrongful foreclosure, his claim for wrongful foreclosure may proceed as a claim for injunctive relief.

[ipaper docId=62298288 access_key=key-j1lgzc9novxn2v7p77 height=600 width=600 /]

By: David Dayen

I could barely suppress a laugh when reading about Bank of America CEO Brian Moynihan begging Tim Geithner to settle the foreclosure fraud issue so they can get out from under their liability. As Yves Smith points out, if Tim Geithner had the power to get Bank of America out of their mess, he surely would have done it by now, before their stock dipped 36% in the last three weeks. Geithner simply doesn’t have jurisdiction over state courts, where many judges are simply not going to allow foreclosures when standing to foreclose cannot be proven (Moynihan apparently distinguished on a conference call between “states where foreclosure can take place” and “states where foreclosure is going through very slowly,” and he might as well have been distinguishing between states that respect the rule of law and states that don’t). Geithner may try, but he cannot compel Attorneys General in both parties to settle for pennies on the dollar and relinquish all of their liability for consumer protection violations and fraud upon state courts. He cannot influence investors who see a giant meal ticket in the form of forcing big banks to repurchase faulty mortgage backed securities. If there was a magic bullet in this debacle, it would already have been fired.

[FDL]

image: promotionalpromo

All-in-One [Copier, Scanner, Printer, Fabricator]

Abigail C. Field-

By now I imagine that everyone recognizes a pandemic of legally flawed foreclosures has infected America’s land records. But not everyone realizes how deep the greed and “corner cutting” goes. For example, a significant percentage of the flawed proceedings tainting our hundreds-year-healthy system of tracking land ownership may reflect nothing more than mortgage servicers’ unwillingness to get the original promissory note, mortgage and assignments from the vault. That is, using the real, accurate documents (and complying with the rules and law) is too expensive.

(Sorry officer, I recognize I was going 80 in a 35 mile an hour zone. It was costing me too much money to drive the speed limit. Time is money.)

[REALITY CHECK]

We are extremely fortunate to have Abigail continue to focus on these issues!

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
———————————-
FEDERAL HOUSING FINANCE AGENCY
AS CONSERVATOR FOR THE FEDERAL
NATIONAL MORTGAGE ASSOCIATION
AND THE FEDERAL HOME LOAN
MORTGAGE CORPORATION,

-AGAINST-

UBS AMERICAS INC., UBS REAL ESTATE
SECURITIES INC., UBS SECURITIES,
LLC, MORTGAGE ASSET
SECURITIZATION TRANSACTION, INC.,
DAVID MARTIN, PER DYRVIK, HUGH
CORCORAN, and PERTER SLAGOWITZ

[ipaper docId=61071280 access_key=key-2fomkzd72dimz4spdbu4 height=600 width=600 /]

Will NOT sign any agreement with other State AG’s and Banks to let MERS off the Hook!

In a letter dated Monday, Coakley said, “We have focused particularly on creditors’ reliance on MERS and whether MERS conforms to the requirements of Massachusetts Law, in the context of foreclosures and otherwise.”

Stay tuned for more info as it develops.

BLOOMBERG–

A push by U.S. banks to win broad liability releases has become one of the main obstacles in talks to resolve a nationwide probe of mortgage-servicing and foreclosure practices, two people briefed on the matter said.

The mortgage servicers want protection from additional state and federal claims over their mortgage practices as part of reaching a settlement that may exceed $20 billion, according to the people, who declined to be named because the talks are private. The banks are seeking releases that go beyond servicing of mortgages to include lending and securitization of loans, one of the people said.

Continue reading [BLOOMBERG]

“Leaders do what needs to be done, when it needs to be done, whether they want to or not, without being asked”

Bloomberg–

Bank of America Corp. (BAC)’s proposed $8.5 billion settlement over mortgage-securitization trusts is being probed by New York Attorney General Eric Schneiderman, who is seeking client information from more than 20 companies.

Schneiderman’s office sent letters dated July 7 to the companies, including Goldman Sachs Group Inc. (GS), BlackRock Inc. (BLK) and TCW Group Inc., regarding their participation in Bank of America’s proposed deal. He is asking for the information by tomorrow.

The information was requested in connection with an investigation by the office “into certain matters related to securitization of residential mortgages,” according to the letters.

[BLOOMBERG]

All of this goes to a simple point: safety-and-soundness regulation is fundamentally incompatible with law enforcement. Prudential regulators aren’t interested in law enforcement.  They’re interested in preserving quiet and stability and that sometimes means papering over problems and looking the other way.

Prof. Adam Levitin–

Over the past couple of years, the Massachusetts Attorney General’s office has reached settlements with a number of major banks regarding mortgage securitization. These settlements has received very little notice in the press, but I think they provide a real template for future AG settlements and are worth examining.

Continue reading [CREDIT SLIPS]

SUPREME COURT, APPELLATE DIVISION

WSJ-

Ally Financial Inc. said it expects to incur a $100 million second-quarter charge to cover mortgage losses posted by securitization trusts, and that it received subpoenas from regulators related to “certain mortgage activities,” according to a regulatory filing early Wednesday.

In an updated prospectus filed with the Securities and Exchange Commission, Ally said it made payments to such trusts of $152 million in the second quarter to cover losses related to …

Continue reading [THE WALL STREET JOURNAL]

One cannot step into the same river twice, Heraclitus famously declared.

Abstract:
This article takes as its point of departure the financing technique referred to as “securitization,” a close cousin of secured lending that has grown to enormous size since its origin more than two decades ago. The article pursues two themes. One is a critique of the legal foundations of securitization, which includes a perspective on aspects of fraudulent transfer law that are well established historically but have been neglected in recent decades. The other is exploration of the implications of this product growing so vast despite its dubious legal foundations. In that regard, the article explores two points of legal sociology that apply to new financial products generally. The first is that a product can become so widely used that it cannot be permitted to fail, notwithstanding its dubious legal foundations. The second is that the debt rating agencies have become de facto lawmakers, because it is their decision to give a favorable rating to a financial product the credit quality of which depends on a debatable legal judgment that allows the product to grow too big to fail. Two nascent products are identified as candidates for the operation of a similar dynamic. The article ends with a normative assessment of securitization from a pragmatic perspective, concluding that legislative action is appropriate to ratify the product’s object, with constraints.

Heraclitus

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1012937&

[ipaper docId=58442461 access_key=key-2g894zjhcsy0d0q4375y height=600 width=600 /]

Via: Prof. Adam Levitin

You have to read Do We Have a Fraud Problem? The Case of the Mysteriously Appearing Allonge, to understand where this is coming from but here is a sample of what the professor says about the case below:

Which brings us to BONY v. Faulk. In this case, the foreclosure filing included a 3 page note. The note lacked endorsements connecting the originator to BONY as trustee for the foreclosing securitziation trust. This set up a motion to dismiss on the grounds that BONY didn’t have any right to do anything–it had no connection with the note.

But wait!  Suddenly BONY’s attorney tells the court that she is in possession of the fourth page of the note, which includes a blank endorsement. Puhlease…  What a ridiculous deus ex machina ending. Are we do believe that this attorney filed 3 pages of the note, but not the 4th? If so, I sure hope she’s not billing for that screw up.

But here’s what perplexes me. Suppose that an allonge is produced. How are we going to know when that allonge was created or that it even relates to the note in question? (Just so everyone’s clear–if the endorsement were created later, then BONY as trustee for CWABS 2006-13 trust had no standing at the time the action was filed because the trust didn’t own the note at that time.) How do we know that this attorney isn’t engaged in fraud on the court (and a host of other violations of state and federal law)?

And this isn’t even getting into the question of whether the PSA at issue requires specific endorsements, not endorsements in blank. As it turns out that’s a problem in this particular case. Here’s the PSA for CWABS 2006-13 trust.  Section 2.01(g)(1) provides that the Depositor deliver to the trustee:

the original Mortgage Note, endorsed by manual of facsimile signature in blank in the following form: “Pay to the order of _______ without recourse”, with all intervening endorsements that show a complete chain of endorsement from the originator to the Person endorsing the Mortgage Note…

[ipaper docId=58072124 access_key=key-5pqgrklvsxpy24zpled height=600 width=600 /]

“Now allonges. An allonge isn’t a delicious throat-soothing lozenge from Switzerland. It’s a piece of paper that goes a-long with the note. The allonge is basically an overflow sheet for extra endorsements”

Prof. Adam Levitin:

I have generally been willing to give mortgage servicers, servicer support shops (like LPS), and foreclosure attorneys the benefit of the doubt when it comes to documentation irregularities (to put it mildly) in foreclosures. My working assumption up to this point has been that the documentation problems have been a function of corner cutting with securitization based on the assumptions that (1) the loans would perform better than they did and (2) those that defaulted would result in default judgments in foreclosure, so no one would ever notice the problems. I’ve also assumed that lack of capacity has played a critical role in problems in the default management chain–the system is held together by Scotch tape at this point. In other words, the problems in the system weren’t caused by malice.

Continue reading [CREDITSLIPS]

2011

Mortgage Servicing

Adam J. Levitin
Georgetown University Law Center

Tara Twomey
National Consumer Law Center

This Article argues that a principal-agent problem plays a critical role in the current foreclosure crisis.

A traditional mortgage lender decides whether to foreclose or restructure a defaulted loan based on its evaluation of the comparative net present value of those options. Most residential mortgage loans, however, are securitized.

Securitized mortgage loans are managed by third-party mortgage servicers as agents for mortgage-backed securities (“MBS”) investors.

Servicers‘ compensation structures create a principal-agent conflict between them and MBS investors. Servicers have no stake in the performance of mortgage loans, so they do not share investors‘ interest in maximizing the net present value of the loan. Instead, servicers‘ decision of whether to foreclose or modify a loan is based on their own cost and income structure, which is skewed toward foreclosure. The costs of this principal-agent conflict are thus externalized directly on homeowners and indirectly on communities and the housing market as a whole.

This Article reviews the economics and regulation of servicing and lays out the principal-agent problem. It explains why the Home Affordable Modification Program (“HAMP”) has been unable to adequately address servicer incentive problems and suggests possible solutions, drawing on devices used in other securitization servicing markets. Correcting the principal-agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.

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CONTROL FRAUD | ‘If you don’t look; you don’t find, Wherever you look; you will find’ -William Black

NYTimes Gretchen Morgenson–

Opening a new line of inquiry into the problems that have beset the mortgage loan process, two state attorneys general are investigating Wall Street’s bundling of these loans into securities to determine whether they were properly documented and valid.

The investigation is being led by Eric T. Schneiderman, the attorney general of New York, who has teamed with Joseph R. Biden III, his counterpart from Delaware. Their effort centers on the back end of the mortgage assembly lines — where big banks serve as trustees overseeing the securities for investors — according to two people briefed on the inquiry but who were not authorized to speak publicly about it.

continue reading [NYTimes]

By Lynn Szymoniak, ESQ.

False Statements

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

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

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

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

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

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

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

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

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

To summarize:

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

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

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

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

UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT

In re:
HOWARD RICHARD VEAL, JR., and
SHELLI AYESHA VEAL,
Debtors.

HOWARD RICHARD VEAL, JR.;
SHELLI AYESHA VEAL,
Appellants,

v.

AMERICAN HOME MORTGAGE SERVICING,
INC.; WELLS FARGO BANK, N.A., as
Trustee for Option One Mortgage
Loan Trust 2006-3 Asset-Backed
Certificates, Series 2006-3, and
its successor and/or assignees,
Appellees.

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

Honorable Randolph J. Haines, Bankruptcy Judge, Presiding

Before: MARKELL, KIRSCHER and JURY, Bankruptcy Judges.

EXCERPTS:

The Substantive Law Related to Notes Secured by Real Property

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

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

[…]

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

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

[…]

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

[…]

IV. CONCLUSION

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

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You’re either pregnant or you ain’t. Can’t be both!

Credit Slips-

Since last October, shortly after the robosigning scandal broke, I’ve been talking until I turned blue in the face about robosigning being the tip of the iceberg with mortgage problems and that the real issue was chain of title. Robosigning appeared to be an almost unexpected deposition by-product; the real goal in the depositions that uncovered the robosigning was exposing the backdating of mortgage endorsement. And that they did–the notaries’ whose seals were on the documents didn’t have their commissions when the assignments supposedly took place.

But why would anyone bother backdating mortgage assignments? …

Naked Capitalism-

Do you remember the brouhaha over testimony by a senior executive in Countrywide’s mortgage servicing unit last year? It called into question whether mortgages had been conveyed properly to securitizations, which in turn would impair Bank of America’s ability to foreclose.

Let me refresh your memory. As we wrote last year:

Testimony in a New Jersey bankruptcy court case provides proof of the scenario we’ve depicted on this blog since September, namely, that subprime originators, starting sometime in the 2004-2005 timeframe, if not earlier, stopped conveying note (the borrower IOU) to mortgage securitization trust as stipulated in the pooling and servicing agreement….

As we indicated back in September, it appeared that Countrywide, and likely many other subprime orignators quit conveying the notes to the securitization trusts sometime in the 2004-2005 time frame. Yet bizarrely, they did not change the pooling and servicing agreements to reflect what appears to be a change in industry practice. Our evidence of this change was strictly anecdotal; this bankruptcy court filing, posted at StopForeclosureFraud provides the first bit of concrete proof. The key section:

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.