PBS explains robo-signing foreclosure mess

"I imagine that all predatory and NINJA loans will be contested. "

"As well as virtually all loans in the problem/bubble spots -- Las Vegas, Arizona, Florida, Queens, The Bronx, parts of Southern CA."

all??? ...

RS: It wont cost money and time if they farm it out to credit chasers just like the credit card companies do. Look, if they can chase someone down for $1000 on a credit card, they will certainly go after mortgage deadbeats even on small properties. It is all on contingency. The credit company gets a % of what they collect.

Yea, I don't see that apt23. What's a debt worth that costs more to collect than what's received. So even if they could sell the IOU, nobody would pay for it. The anology is what banks do currently for 2nd liens on under-water properties. They routinely write them off and ignore the foreclousre. Just an opinion, but I don't see it. Also plenary actions have a bad p.r. aspect to it. I see a hedge fund owning a mortgage doing this way before a bank.

RS: of course there is no deficiency judgement if they can't come up with the paperwork.

SLS>>how much the V in LTV has declined in the meantime, etc.

SLS: Just as we have probably lost an entire generation as investors in our equity markets, I wonder how this will all affect a generation of home buyers. Susie Orman and media outlets are encouraging people to rent and not risk the nest egg. Home value has been trounced and won't return for years. Even I, an eager manhattan buyer, am getting cold feet. I have been waiting for prices to come down and now, even if they do, I am enjoying the great peace of mind-- and freedom-- of being a renter. This mortgage mess could be a big nail in the coffin. Between investors, the near retired, and those who can't come up w/30% down leaving the market -- how could prices not come down, even in Manhattan.

Need to rant a little. Suzie Orman did for FICO scores what Greenspan did for ARMS. A lot of people listened to Suzie Orman and convinced themselves that if they had a good FICO score they were rich and could buy a home.

Riversider:
Suzie-O -- DENIED!!!

http://economix.blogs.nytimes.com/2010/10/20/answers-to-your-questions-on-the-foreclosure-crisis/#more-85869

Q.Why does it make more sense for a bank to foreclose rather than writing down the loan to keep people in their homes? I know many folks who can qualify, based upon current income and credit, for loans based upon the homes’ current market values. (Most homes are down 50% here from 2004-7.) However, the bank would rather foreclose than renegotiate with the current owner. Many of these folks are current on taxes, HOA, etc. Is it an issue of spite to discourage strategic defaults? — True Capitalist, SWFL

and

Q.How does a bank benefit from a foreclosure? I’m assuming it must, or banks would have been much more careful about proceeding with them. Thanks. — Chris, Durham, NC

A.This is a loaded question. While many lenders/servicers have not done a great job in dealing effectively with borrowers who are struggling to make mortgage payments, by the same token many borrowers whose home values have plunged and have made no payment for well over a year want the banks to write down their mortgage balance to today’s distressed-value levels, so that if home prices later go up, they can reap any future appreciation even if their home value remains below their old mortgage balance.

Banks and lenders, not surprisingly, are not crazy about doing that! Instead, most offered modifications that are intended to reduce a borrower’s payment, but not in any meaningful way reduce the borrower’s mortgage balance.

So let me state it differently: Suppose you had lent money for someone to buy a home for, say, $300,000 with a – crazy as it sounds – $300,000 mortgage. Property values then fall, and that person just stopped making any payments, and said that he/she wanted you to write down the mortgage balance to, say, $150,000, because that’s what the home is worth today.

You counter with an offer to temporarily reduce the borrower’s interest rate to, say, 3 percent from 6 percent. But the borrower says, “Fuggedaboutit, I want my mortgage written down to $150,000, so if home prices rise again, I’ll make money!” How would you react?

The question says that a bank “would rather foreclose than renegotiate.” But what is the right renegotiation?

On the “strategic default” issue, this is not an issue of spite to discourage strategic defaults. Rather the concern is that if lenders are forced to write down mortgage principal balances on every property where values fall below mortgage indebtedness, then mortgage losses will soar. And, if that is the new rule, then downpayment requirements on new loans – including those purchased/securitized/guaranteed by Fannie Mae/Freddie Mac/the Federal Housing Administration/the Department of Veterans Affairs/the Rural Housing Service – should be raised a boatload.

On why banks/lenders foreclose: A mortgage is a loan collateralized by the value of the property, and when borrowers stop paying and show no inclination that they will ever pay, then foreclosure is the only option for banks and lenders to recoup some value.

Sorry, but again, suppose you lent money as outlined above, and the borrower stopped paying his/her mortgage and you believed that he/she would never make a payment again. What would you do?

Note also that a sizable number of properties being foreclosed on are vacant, and vacant homes deteriorate in value rapidly. Also, a nontrivial percentage of loans facing foreclosure are investor-owned properties.

Riversider: You could have a career in journalism.

streeteasy is a springboard:
today: streeteasy -- tomorrow: Time, Business Week, Vanity Fair...

Thanks, Story is beginning to get a little old for me...The best part is learning the background info.
Also these stories usually end with the gov't bailing out the banks. I can't really handle another story ending in Corporatocracy.

Riversider:
Corporatocrazy.

In short, the legal disagreement amounts to whether banks can rely on flawed documentation to repossess homes.

While even critics of the big lenders acknowledge that the vast majority of foreclosures involve homeowners who have not paid their mortgages, they argue that the borrowers are entitled to due legal process.

Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. “There are so many questionable aspects to this thing it’s scary.”

-0-0-0-0-0-0-
Others are more sanguine about the dispute.
“You borrowed money,” he said. “You are obligated to repay it.”

--------------------------
STATE ISSUE
--------------------------
“This is ultimately going to have to be resolved by the 50 state supreme courts who have jurisdiction for property law,” Professor Cole predicted.
*********************************************************************
Some analysts are not sure that banks can proceed so freely. Katherine M. Porter, a visiting law professor at Harvard University and an expert on consumer credit law, said that lenders were wrong to minimize problems with the legal documentation.

“The misbehavior is clear: they lied to the courts,” she said. “The fact that they are saying no one was harmed, they are missing the point. They did actual harm to the court system, to the rule of law. We don’t say, ‘You can perjure yourself on the stand because the jury will come to the right verdict anyway.’ That’s what they are saying.“

Robert Willens, a tax expert, said that documentation issues had created potentially severe tax problems for investors in mortgage securities and that “there is enough of a question here that the courts might well have to resolve the issue.”

***************************
TROUBLE!!
***************************
But a decision in October 2007 by Judge Christopher A. Boyko of the Federal District Court in northern Ohio to toss out 14 foreclosure cases put lenders on notice. Judge Boyko ruled that the entities trying to seize properties had not proved that they actually owned the notes, and he blasted the banks for worrying “less about jurisdictional requirements and more about maximizing returns.”

He also said that lenders “seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance,” and that now that their practices were “put to the test, their weak legal arguments compel the court to stop them at the gate.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CODA

Meanwhile, another judge on Wednesday indicated that the courts would not simply sign off on the banks’ documentation. Jonathan Lippman, the chief judge of New York’s courts, ordered lawyers to verify the validity of all foreclosure paperwork.

"We cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process, especially when that process involves basic human needs — such as a family home — during this period of economic crisis," Judge Lippman said in a statement.

http://www.nytimes.com/2010/10/21/business/21standoff.html?_r=1&ref=business

http://www.huffingtonpost.com/rj-eskow/pictures-of-mers-part-1-c_b_769181.html

Judges across the country might not be amused to learn that MERS promises"no recording or re-recording of assignments," since that's exactly the problem at hand. As for "ease of delivery into secondary markets" -- that is, the bundling and re-selling of mortgages -- there's no question that MERS has enabled that. MERS provides the chips for the housing market casino. And as for the claim that there will be "no chain of title issues," that's a hard claim to defend now that Attorneys General for all fifty states are investigating the matter.

**"NO INTEERESTS TRANSFERRED"**

Got that? "No interests are transferred," they're "just tracked." MERS "holds legal title," but "no interests are transferred." In other words, this virtual entity has all of the rights to act against homeowners, with none of the responsibility. The party facing you in a courtroom is not your legal adversary. They're only pretending to be.

are you thrilled by all this?

aboutready
1 day ago
ignore this person
report abuse ...
and no, i'm not a frustrated housewife. actually i've been quite lucky. my exit from SE has led to a wonderful journalism opportunity.
...

Of course, if you kept your trap shut instead of worrying about your ego on streeteasy, then your new journalism opportunity (which seems more like cut and paste and link to streeteasy and other sites) at Brick Underground would have remained off limits. But again, you don't understand that there are a lot of whores in the world, but clients prefer to be with the ones who keep their mouths shut when out of the bedroom or back alley.

columbiacounty
about 3 hours ago
stop ignoring this person
report abuse
are you thrilled by all this?

Columbiacounty, I am seriously thinking of dressing up as you for Halloween. I found the costume online: http://www.allfancydress.com/Fancy-Dress-Costume/20867/Deluxe-Beetlejuice-Costume.aspx

How it works in Florida, where much of this is occuring(according to DJSP)....

Florida Process Overview

The following discussion provides further detail on each of the steps involved in the Florida foreclosure process.

• Referral. A foreclosure action begins when a lender or servicer servicing a mortgage in default determines that there are no viable loss mitigation alternatives, leaving the lender with foreclosure as the only alternative. The law firms receiving these referrals from lenders and servicers are our customers and potential customers. To date, nearly all of work we have performed has been done for DJS. We intend to market its services more broadly, both within Florida and to law firms in other markets, allowing law firms to benefit from our efficient processing operations and economies of scale.

• Instituting the Action. Once a law firm receives a referral of a foreclosure action from a lender, it obtains a title search. The title search identifies the necessary defendants (which can include not just the homeowner/mortgagor, but also second mortgagees, lienors, etc., whose interests may also be affected by the foreclosure action). The title search also reveals any title defects. While a law firm may do this on its own, it is more efficiently performed by a third-party service provider, like us.

The law firm representing the lender uses the title search to draft and file the complaint. A lis pendens is recorded in the public records and it puts all third parties that may have an interest in the property on notice of the pending foreclosure action. We update our title search so that any parties that may have recorded claims in the period after the initial title search was conducted can be included in an amended complaint as defendants.


• Service of the Summons & Complaint. After the filing of the complaint and lis pendens, the law firm delivers a copy of the complaint for service, as it is not permitted to serve process itself. Service of process of Florida residents may be accomplished by personal service or by substituted service. If attempts at service fail, service may be made by publication. Effective service by publication (constructive service) must be supported by an affidavit of due diligence and inquiry regarding the initial attempts to serve. Proceeding based on constructive service of process may require that the plaintiff petition the court to appoint an attorney ad litem to protect the interest of the non-appearing defendants.

• Entry of Judgment/Summary Judgment. The defendants (depending on whether the defendant is an entity or an individual) have a fixed number of days to appear and file an answer or other responsive pleading to the complaint/amended complaint. If any defendant does not do so timely, the plaintiff’s lawyer will file a motion for entry of a default. If all defendants fail to appear and respond, the plaintiff may move for a final default judgment on the basis of affidavits from the plaintiff.

If any defendant files a responsive pleading, the next step is usually a motion for summary judgment, asserting that there are no material factual issues or valid defenses to a foreclosure action. Most mortgage foreclosure actions that reach this stage are resolved with this motion, thereby avoiding a trial and the attendant costs.

• Sale. Most often, the mortgagee/plaintiff in a foreclosure action obtains repayment of the debt, wholly or partially, by selling the foreclosed property. Following entry of final judgment, a notice of sale is prepared and published once a week for two consecutive weeks in a newspaper of general circulation in the city where the property is situated prior to the sale. This is intended to make prospective purchasers aware of the impending sale. Unless otherwise ordered by the court, the sale must be set for a date no sooner than twenty days and no later than thirty-five days after the entry of the final judgment. The clerk of the court conducts the sale.

• Right of Redemption. Until the time that a sale is final, any defendant has the right to redeem its interest in the foreclosed property. That means it can agree to pay the mortgagee the amount owed to it and become the legal owner. This might occur if a second mortgagee believes that the value of the property is greater than the amount of the first mortgage if marketed other than through a foreclosure sale. The right of redemption expires on the later of the filing of the certificate of sale by the clerk of the court or the time specified in the judgment.

• Certificates of Title, Conveyances & Final Title. The clerk of the court will issue a certificate of title upon the expiration of the objection period. A final title search is ordered and policy issued where appropriate, and all final title evidence is forwarded to the client and the homeowner’s insurance carrier.

• Deficiency Judgments. If the proceeds from the sale are insufficient to satisfy the entire amount due the plaintiff, it may seek a deficiency judgment for the shortfall. The ability to pursue a deficiency may be preserved in the foreclosure complaint. A motion for deficiency judgment may be filed after sale, when the deficiency is established, or a suit may be filed based on the obligations arising under the promissory note related to the mortgage.

• Eviction. The final judgment of foreclosure directs the clerk of the court to issue a writ of possession. If, after issuance of the certificate of title, the property remains occupied, the writ is delivered to the sheriff for execution. The timing and manner of execution of the writ of possession varies from county to county. More and more courts are requiring a motion, order and established hearing date before issuing a writ.

Abandon ship the gig's up!

Several top executives of Florida's largest foreclosure processing company resigned and its chairman was replaced Tuesday, amid a national controversy over questionable foreclosure filings and investigations into possible wrongdoing by lenders, loan servicers and law firms.

Plantation, Fla.-based DJSP Enterprises has been impacted by the temporary suspension of foreclosure filings by some of the nation's largest lenders and some industry insiders are questioning the future of the business.

The company announced Tuesday that Chairman David Stern would step down, take the new title of president and remain the CEO. Stephen Bernstein will take over as chairman.

http://www.law.com/jsp/article.jsp?id=1202473607711&Fla_Foreclosure_Firm_Undergoes_ShakeUp_as_Chairman_Vacates_Post

Latest from Bloomberg:

"Oct 21 (Bloomberg) -- Shoddy mortgage lending has led bankers into a two-front war, pitting them against U.S. homeowners challenging the right to foreclose and mortgage-bond investors demanding refunds that could approach $200 billion.

While federal regulators and state attorneys general have focused on flawed foreclosures, a bigger threat may be the cost to buy back faulty loans that banks bundled into securities. JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. have set aside just $10 billion in reserves to cover future buybacks. Bank of America alone said this week that pending claims jumped 71 percent from a year ago to $12.9 billion of loans.

Investors such as Bill Gross’s Pacific Investment Management Co. contend that sellers are obligated to repurchase some mortgages because of misrepresentations such as overstatements of borrowers’ income or inflated appraisals. Their case may be bolstered by probes in 50 states into whether banks used documents that were also flawed to conduct foreclosures. Neither dispute is likely to be resolved quickly.

“It’s going to be trench warfare with years of lawyering,” Christopher Whalen, managing director of Institutional Risk Analytics, said in a telephone interview from White Plains, New York. “The banks can’t afford to lose.”

The biggest risks for banks may be loans packaged into mortgage-backed securities during the housing bubble, of which $1.3 trillion remain. The aggrieved bondholders include government-controlled firms Fannie Mae and Freddie Mac, bond insurers and private investors.

..."
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aWMD4PrtsB_M

The lawyers are entrenched in this crisis. This is not going away and it will take years. The following is an interesting take on the securitization issue -- the most dire aspect of this crisis. According to David Grais,fraud does not need to be proven to gain put back:

"The escalating crisis over flawed foreclosures took a new turn Friday, when the attorney representing the Federal Home Loan Bank, David Grais, told CNBC, “We don’t have to say there was fraud. All we have to say is that the disclosures about these loans and the representations that were made to the securitization trustees were inaccurate.”

Grais is lead counsel for the FHLB, which is in litigation against eleven securities dealers over mortgage loan pools that were created to fuel the boom in mortgage-backed securities market in 2005, 2006 and 2007.

“The way we know that so many of these loans didn’t comply is that in our security cases we actually purchased data on 750,000 loans made by about 30 different originators—in about half of the loans we find there are material inaccuracies in the disclosure,” Grais told CNBC’

http://www.cnbc.com/id/39687992

Good reporting Apt23,
The foreclosure mill, due process issue can be resolved by having the lawyers go over the docs one by one and cure the defects. The risk there is the cost of hiring staff and proceeding. This is not what is hammering the stock of BAC. The exposure to forced buy-backs is far larger(read HUGE!!), but not easily proved. As has been reported, the holders of the mortgage debt will need to gain access to the necesary loan docs/tapes and that requires 25% voting power to so instruct the trustee to fullfill their obligations. You can be sure that last part will take time and will be fought tooth and nail.

"If you're going to take my house away from me, you better own the note," said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.

Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.

"I think it's going to become pretty hairy," said Josh Rosner, managing director at the New York-based investment research firm Graham Fisher & Co. "Regulators appear to have ignored this, given the size and scope of the problem."

http://www2.tbo.com/content/2008/feb/23/222033/bz-mortgage-note-issues-help-debtors-avoid-foreclo/

RS: Here is the head of a clearing house for investors. Forget 25% voting power -- he has thousands with over 66%. You must watch this. And note his expression. He seems like a very sanguine guy that just can't believe that the banks or the reporters are just not understanding the issues. It seems the only plan the banks have is obfuscation -- at least until they can get the govt to bail them out again. If Talcott is even half correct --- omg

http://www.cnbc.com/id/15840232?video=1621138861&play=1

sorry. hundreds not thousands at 66% (out of 6700 claims on trusts). Also if you watch the video, the first 2:40 mins is about BAC stock price. Interview starts at 2:40

Wow. This guy has his mom-and-apple-pie schtick down cold, he's telegenic, articulate, very level and apparently rational. And of course the facts are on his side, which helps too. I predict that he's going to get major airtime as this plays out.

The existence of an aggregation vehicle like this for investors who wouldn't or couldn't do this on their own adds another major player to a list that already includes the likes of the Fed and PIMCO. The next time Jamie Dimon or Brian Moynihan threatens to fight this one loan at a time these guys will just say, "Have it your way. Bring it on."

SLS: Plus, your original numbers are looking a lot more prophetic. This Talcott guy reps half a trillion in face value claims. Apple pie aside, he is a lawyer so lets cut the number. Since he literally wrote the book on mortgage litigation lets rate him at the higher end of the success chart -- say 50%. So that would be 250 billion in claims against the banks--by one single lawyer-- and the highest estimate of risk within the industry is currently 120 billion. Some one's numbers are not adding up.

Does this sound like the kind of guy who takes on frivolous lawsuits?

http://secure.imn.org/web_confe/pop_bio.cfm?personid=6F842B576004

So how long do you think banks can claim that most of these claims are frivolous when so far you have Pimco, the NY FED, and lawyers like Talcott Franklin and David Frais lining up against you.

Glad I sold my bank stocks last week. Don't know when it will happen, but eventually this is going to have a dramatic effect on the equity markets and only then can the govt risk even mentioning Bank Bailout II.

And here is David Grais. Also a formidable opponent for the banks -- and apparently the ratings agencies.

http://www.graisellsworth.com/profile_grais.html

DLJ claimed that its word was as good as paper. But at least in Palm Beach County, paper still rules. If his mortgage holder couldn’t prove it held his mortgage, it couldn’t foreclose.

Eight years after defaulting, Lents still hasn’t made a payment or been forced out of his house. DLJ, whose parent, Credit Suisse Group AG, declined to comment for this story, still hasn’t proved its ownership to the satisfaction of the court. Lents’ debt has grown to about $2.5 million, including unpaid taxes, interest and penalties.

As the stalemate grinds on, Lents has the comfort of knowing he’s no longer alone. When he began demanding to see the IOU, he says, “I was looked upon like I had leprosy. Now, I have probably 20 to 30 people a month come to me” asking for advice. Lents is irked when people accuse him of exploiting a loophole. “It’s not a loophole,” he says. “It’s the law.”

The Lents Defense, as it might be called, doesn’t work everywhere. Thousands of Floridians have lost their homes in lightning-fast “rocket dockets.” In 27 other states, judges don’t even review foreclosures, making it harder for homeowners to fight back. Now, allegations of carelessness and outright fraud in foreclosures have become so widespread that attorneys general in all 50 states are investigating. So are the feds.

http://www.bloomberg.com/news/2010-10-21/how-joseph-lents-dodged-foreclosure-for-eight-years-and-started-a-movement.html

"Does this sound like the kind of guy who takes on frivolous lawsuits?"

Clearly not. And note that he gave up a partnership and leadership of a practice group at a major-ish law firm to start his own firm to pursue this inititative. In other words, he's willing to bet his career that this is not a frivolous matter. That is pretty persuasive from a voting-with-your-feet standpoint.

On the positive side, this could be the full employment act for underworked and out of work securitization attorneys, who reside mainly in New York.

http://www.propublica.org/blog/item/whos-who-in-the-foreclosure-scandal-a-primer-on-the-players

wha wha? bad mortgages? where? You mean the hairstylist that got a $1MM mortgage, dude that was a money good loan, the problem was the dog walker who got rejected for the $1.2MM.......

BRING BACK THE 30% DOWN REQUIREMENT. See the downpayment is your way of saying.... I CAN MANAGE MY FINANCES... the FICO SCORE just means, you pay the min for 2 yrs....

LTV is the single biggest predictor of default. The traders, know it, the borrowers know it, even the lenders know it. Angelo Mozillo himself lamented the 80/20 loan as pure toxic.

don't you feel fulfilled at last?

So frustrating for columbiacounty. All these people ENGAGING Riversider in a DISCUSSION. People including traditional columbiacounty siders. What is columbiacounty to do when he is being so marginalized, ignored, gray, little? ... good news though, no more columbiacounty + no more aboutready = no more brickcomm1.

columbiacounty Ignored comment. Unhide
eh, why bother?

All these people?

Hilarious.

Nefarious.

Oh, Riversider:

Oh, w67thstreet:

Oh, sidelinesitter: You are always the voice of reason.

See how we can get all along?!

sorry i'm out of touch with changes in downpayments since 2008, did they change at all?

what are the minimum downpayments for NYC right now? for ARMs, conforming 30-fixed and jumbos?

Don't blame the lawyers. The crisis over faulty or fraudulent paperwork in mortgage foreclosures -- which is either a big deal or a humongous deal, depending on which experts you believe -- is the fault of arrogant, greedy lenders who played fast and loose with the basic property rights of homeowners.

Banks and other lenders, it seems, made statements in courts of law that turned out not to be true. Because judges have such an underdeveloped sense of humor when it comes to prevarication, this mess may be with us for a while.

The mortgage industry would love to blame the whole thing on predatory, opportunistic lawyers who are seizing on mere technicalities to forestall untold numbers of foreclosures that should legitimately proceed. The bankers are right when they complain that the delays are gumming up the housing market, as potential buyers for soon-to-be-foreclosed properties are forced to bide their time until all the questions about documentation and proper title are answered.

But it's the bankers' fault that there are so many instances of foreclosure documentation with legal loopholes big enough to drive a moving van through. During the years of the real estate boom, lenders cut corners with paperwork to make as many loans -- and sell them to other lenders, which often sliced and diced them into securities that were then sold to investors -- as quickly as possible. This haste and inattention to detail, now coming to light, are partly responsible for the current crisis.

Laws vary from state to state, but all accept the principle that borrowers who fail to meet the contractual obligation to pay their mortgages can be subject to foreclosure and eviction. The process is devastating for families and for neighborhoods. In many cases, I believe, all parties would be better off if some way could be found to avoid foreclosure -- modifying the terms of the loan, say, by lowering the interest rate or even reducing the principal to reflect the fall in housing prices. I recognize, however, that there are many other cases in which foreclosure is the preferable option or perhaps the only option.

But it's also necessary that the mortgage holder have the legal right to foreclose. Anyone who has ever bought a house is familiar with the inches-thick stack of documents that have to be signed, sealed, initialed and notarized. It turns out that financial institutions often didn't dot every "i" or cross every "t" -- meaning that in some cases, it may not be clear that the nominal mortgage holder has the clear and undisputed right to take possession of the property.
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These may be technicalities, but there's nothing mere about them. For one thing, if borrowers are expected to play by the rules, lenders should be expected to do the same. For another, there can't be a functioning real estate market without the ability to establish clear title. Lawyers probing this aspect of the foreclosure crisis are doing the system a favor.

The other big problem is that lenders have been processing foreclosures with assembly-line speed, eliminating delay wherever possible -- sometimes substituting electronic signatures for the ink-on-paper kind, for example. In the information age, some of this qualifies as sensible streamlining. But what doesn't make sense is moving the foreclosure documents along so quickly, and in such overwhelming volume, that the people signing them -- whether by computer or quill pen -- couldn't possibly have time to read them. We now know that some individuals, working as processors, have been signing off on up to 10,000 foreclosure documents a month.

In 23 states, every foreclosure must involve a court hearing. Sharp-eyed attorneys, representing delinquent homeowners, have unearthed cases in which high-volume "robo-signers" submitted affidavits attesting that they reviewed all the loan files personally -- when, in fact, they had not. This is just the sort of thing that puts judges in a really bad mood.

The Obama administration has declined to call for an official moratorium on foreclosures. This is understandable: In most cases a moratorium would just delay the inevitable, while impeding any momentum the housing market might otherwise be able to build.

But maybe the crisis will make the banks realize that they ought to be doing fewer foreclosures and more loan modifications -- sensible adjustments that allow deserving families to stay in their homes. And if this happens, we'll have the lawyers to thank.

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/21/AR2010102104846.html

"Oh, sidelinesitter: You are always the voice of reason."

Truth, thanks, but you must have me confused with someone else. I'm actually an a**hole and I only exist on SE to attack people (or something like that - if you need the exact quote I'm sure apt23 can help you out)

SLS: I believe you just made my point exactly.

The many aspects of the mortgage issue that is the subject of this thread will resonate through our economy for years to come --possibly with devastating results. This thread also stands as an ever morphing tract that is chronicling the changes in attitude by the media and the participants in close to real time. I think we can return to this thread in months and even years to come to see how this crisis unfolded. I think it is a rather pathetic that when there is so much fun and light heartedness on this site, so many fun and pugnacious threads, that posters would choose to high jack this particular thread -- or engage with others who are free spirited and known to high jack threads.

This thread certainly saw my view evolve. I believe securitization as a concept is a wonderful thing, it takes risk and allocates it to those people who want to bear it, but the information was asymetric and the process got distorted.

http://www.propublica.org/article/wells-fargo-case-belies-claim-it-always-verifies-mortgage-paperwork

Wells Fargo says it has generally avoided the foreclosure paperwork scandal plaguing the nation’s banks because its employees personally review and verify every document that they sign. But a previously unpublished deposition details how that didn’t happen in at least one case. In the deposition [2] taken last summer, a bank employee admitted to submitting unverified documents to a federal bankruptcy court in northern Texas twice in the same case, even though she signed off that the documents, swearing that they were “true and correct.”

The employee said she “couldn’t guestimate [3]” how frequently she submitted court documents without personally verifying the information.

Even when signing the updated document that restated who owned the loan, Savery said she still did not personally verify the information [11]. Savery said she did not see the original paperwork until months later [12], on the day before the deposition.

http://www.propublica.org/documents/item/july-2009-deposition-by-tamara-savery-of-wells-fargo

Before the acquisition, Bank of America was already one of the biggest servicers of mortgages. After the acquisition, it was gargantuan. From a standing start in 1968, Countrywide had become — by far — the No. 1 mortgage originator in the country, and the No. 1 servicer as well.

But during the subprime bubble, it had debased itself to maintain that No. 1 position, becoming a hotbed of fraud and predatory lending. Take, for instance, the facts that have been revealed in a lawsuit filed against Countrywide by the Mortgage Guaranty Insurance Corporation, which insured many of Countrywide’s loans. Mortgage Guaranty investigators tracked down some of the people who had gotten subprime mortgages from Countrywide. What they discovered was startling.

A loan for $360,000 went to a Chicago woman who supposedly earned $6,833 a month at an auto body shop. In truth she was a part-time housekeeper who was posing as the buyer to help her sister. The Countrywide loan officer not only knew these facts, she came up with the idea of having the borrower pretend to work at the auto body shop.

The lawsuit uncovered a raft of similar examples — case after case where the loan officers not only knew that fraud was being committed, but were actively engaged in committing it. “By about 2006,” says the lawsuit, “Countrywide’s internal risk assessors knew that in a substantial number of its stated-income loans — fully a third — borrowers overstated income by more than 50 percent.” And that is just one small subset of what went on at Countrywide. The truth is, any rock you turn over in the Countrywide subprime portfolio, something slimy is going to emerge.

That’s why most people, myself included, have no sympathy for Bank of America’s legal predicament — and no patience for its “we’re not the bad guys here” arguments. It is absolutely true that the homeowners that Bank of America wants to foreclose on are in default on loans they should never have gotten in the first place. (Gee, whose fault was that?) But it simply does not follow that the bank therefore has an absolute right to take back the home. Under the law, it has to prove it has that right — by filing documents that show that the owner of the mortgage has conveyed that right to it. That’s why this affidavit scandal isn’t some legal nicety. It’s about the single most important value of American jurisprudence: due process.

“Just because the homeowner hasn’t paid his mortgage doesn’t mean anybody in the world can kick him out,” said Katherine Porter, a visiting law professor at Harvard. “The bank has to have the standing to do that.” She added that the bank’s argument was a little like saying that someone who committed a crime shouldn’t receive a trial because he’s so obviously guilty. America just isn’t supposed to work that way.

That’s also why the bank’s contention that the foreclosure scandal will soon be behind it is unlikely to hold true. Peter Ticktin, a Florida lawyer who represents some 3,000 homeowners, told me that he did not believe it was possible for Bank of America to have properly vetted those 102,000 affidavits in a matter of weeks.

“My hat is off to them for doing the impossible,” he said, his voice dripping with sarcasm. “They figured out how to take a massive amount of perjured affidavits and turn them into real ones without robo-signers.” Mr. Ticktin said he had every intention of continuing to challenge Bank of America foreclosures. Most other lawyers specializing in these cases plan to do likewise. The affidavit scandal isn’t over yet, no matter how much Mr. Moynihan might wish it to be so.

As for the potential lawsuit with BlackRock and the New York Fed, the week before the investors sent the letter to Bank of America, three Countrywide executives, including former C.E.O. Angelo Mozilo, settled charges brought by the S.E.C. that they had engaged in fraudulent conduct. Internal Countrywide e-mail clearly show that they knew how dangerous their lending had become. Once the loans were sold to Wall Street — which, I should note, aggressively pushed the subprime companies to lower their standards — they went through a due diligence process that investors never knew about. Banks took advantage of investors every bit as much as they took advantage of home buyers.

And it would be nice, if just once, they would admit it. Instead, we get Mr. Noski, the chief financial officer, promising that the bank will fight these cases to the death because they’re looking out for shareholders. It’s appalling, really.

http://www.nytimes.com/2010/10/23/business/23nocera.html?pagewanted=2&ref=business

The title insurance industry is maneuvering to protect itself from losses if courts rule that banks have played fast and loose with the foreclosure process. But people who buy foreclosed properties from banks may face some degree of loss despite having a title policy.

Fidelity National Financial, the largest title insurance company, is leading the industry in demanding that lenders warrant that they have followed all legal procedures in the handling of foreclosures and indemnify the title insurers if a court decides otherwise.

"They are putting on record that it is absolutely the bank's responsibility," said Susan Wachter, professor of real estate at the Wharton School of the University of Pennsylvania.

But Wachter said buyers of these properties risk getting caught up in litigation among title companies, banks and possibly other entities if the foreclosure is overturned by a court. "There is still uncertainty," she said. "It's a question of litigation; it's a question of transaction costs."

That uncertainty will continue to place a chill on the foreclosure market, she said. Real estate agents are already seeing would-be foreclosure buyers retreating from the market, said Lucien Salvant, spokesman for the National Association of Realtors. And observers fear that a market chill, if it persists for more than a few weeks, could drive property values down further.

Title insurers are at the hub of real estate transactions. They guarantee that the chain of title is clear, unblemished by missing documents, outstanding liens or other factors that would impede an owner's right to sell a piece of real estate and deliver a clean title to the new owner. Lenders always require buyers to pay for title insurance coverage that protects the lender against those risks. Buyers have the option of paying extra to have such coverage for themselves.

Fidelity National Financial, which has 38 percent of the market nationwide, underwrites policies under the brands Fidelity National Title, Chicago Title, Commonwealth Land Title and Alamo Title. As of Nov. 1, all lenders seeking a Fidelity National policy for the sale of a foreclosed home must warrant that all documents and procedures involved in the foreclosure process were handled properly. They also must agree to pay the title insurer's costs in the event that a court finds errors or fraud in the foreclosure process.

Those agreements will be required even sooner for Bank of America, which plans to resume foreclosure sales next week. Peter T. Sadowski, Fidelity's chief legal officer, said the indemnity agreement was drafted by Fannie Mae and Freddie Mac, and that he hopes their regulator, the Federal Housing Finance Agency, soon makes it mandatory for loans backed by Fannie and Freddie as well.

Fidelity executives said they do not anticipate having to pay claims anyway, even if a court sets aside a foreclosure due to a defect in documentation or process. In a conference call to Wall Street analysts Thursday, Sadowski said, "If a foreclosure is set aside - which is very unlikely to happen - the purchaser who bought the property is going to get his or her money back from the lender who sold it to him."

In such an instance, the title insurance company would deal with the lender on behalf of an insured buyer, Sadowski said later in an interview.

Although Sadowski said he does not expect the foreclosure crisis to result in significant losses to the company, Fidelity National nevertheless is building up its cash on hand. The company has halved its dividend and announced plans to cut $50 million in expenses within the next six months. Company officials cited continued uncertainty in the real estate market and the desire to repurchase shares of company stock as reasons for the cash buildup.

The plans and concerns of the other major providers of title insurance - First American Financial Corp., Stewart Title and Old Republic International - will be disclosed this week. Each is scheduled to report third-quarter earnings to investors Oct. 28. Along with Fidelity, they account for 90 percent of the title insurance market.

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/22/AR2010102206525.html

SUPREME COURT – STATE OF NEW YORK
TRIAL TERM. PART 17 NASSAU COUNTY
Index No. 23255/09
PRESENT:
Honorable Karen V Murphy
Justice of the Supreme Court
WACHOVIA BANK, NATIONAL ASSOCIATION
3476 Stateview Boulevard
Ft. Mil, SC 29715
-against-
ANGEL VARGAS, MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS INC. AS NOMINEE
FOR CONTINENTAL MORTGAGE BANKERS,
INC. D/B/A FINANCIAL EQUITIES, ET AL.,
EXCERPT:
Plaintiff has not provided a copy of an alleged servicing agreement between Plaintiff and Wells Fargo Bank, N.A. A vice president of Wells Fargo Bank, N.A. has provided what purports to be an affidavit of facts, however it is not clear that they are authorized to do so.
Additionally the subject mortgage was allegedly modified by Defendant Vargas and yet another entity known as Americas Servicing Company (“Wells Fargo Bank, N.A. doing business as America’s Servicing Company).
The Plaintiff herein lacks standing to bring this action. The purported assignment assigned the mortgage but makes no mention of the debt or note. (Kluge v. Fugazy, 145 2d 537, 536 N. 2d 92 (2d Dept., 1988); U.S. Bank, N.A. v. Collymore 68 A.D.3d 752, 890 N. 2d 578 [2d Dept., 2009]).
Under the circumstances Plaintiff has failed to establish that it is entitled to the relief sought and the complaint is dismissed with prejudice

http://sherriequestioningall.blogspot.com/2010/10/ruling-by-law-supreme-court-judge-in.html

sidelinesitter
about 23 hours ago
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"Oh, sidelinesitter: You are always the voice of reason."
Truth, thanks, but you must have me confused with someone else. I'm actually an a**hole and I only exist on SE to attack people (or something like that - if you need the exact quote I'm sure apt23 can help you out)

She called you acluistic, and then went away in a huff for about 10 minutes:

apt23 http://streeteasy.com/nyc/talk/discussion/21960-farewell?page=2
about 11 weeks ago
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sls: I have never used bad language before on SE and I have never said anything, ANYTHING, derisive about anybody......but let me just say-- please go back and read what SE wrote, what I wrote and your response. You are Acluistic and you attack people personally. This is not the first time you have personally --and erroneously -- come after me. You are an arrogant, condescending asshole. But since I am finished with SE, it no longer matters.

Sorry Riversider, keep up the good work on this thread. So many people engaging you in conversation, makes columbiacounty so mad, small, shriveled, gray, ignored, irrelevant. Can't even handle the truth.

" Fidelity executives said they do not anticipate having to pay claims anyway, even if a court sets aside a foreclosure due to a defect in documentation or process. In a conference call to Wall Street analysts Thursday, Sadowski said, "If a foreclosure is set aside - which is very unlikely to happen - the purchaser who bought the property is going to get his or her money back from the lender who sold it to him." In such an instance, the title insurance company would deal with the lender on behalf of an insured buyer, Sadowski said later in an interview."

That quote is from the WPost article Riversider cited above.

Prior to reading this article I thought that the title insurance companies would play a key role in signaling when things were "ok" on a particular property, i.e., once a title insurance policy could be issued then potential buyers , brokers, etc. could relax and not worry about a "cloud" over the sale. If
the stance of the title insurance companies becomes "we will help you solve the problem", then a buyer could, down the road, still end up in a lengthy morass of issues, that cause all kinds of personal financial uncertainty, even if ultimately the title insurer says it will pay if losses ocurr. Obviously, everyone is going to be reading these policies MUCH more carefully than ever before. Ironically, the title insurance industry probably has traditionally had incredibly low payout rates (how often does a title problem arise?), and now, when finally they may prove useful, they are looking for ways to weasel out of it.

acluisticcomm1....what do you think?

It's a nice day

no one wants to come out and play so you're playing with yourself (again).

In the morning, when you want to get up, do you have to add water to get back to normal size?

Buyerbuyer,
As I'm beginning to understand title insurance there are two kinds, one for buyer and one for the banks. The title insurance industry is telling the banks we will not insure against the risk that was borne out of not doing your job, so the bank shareholders effectively must self-insure. The title insurance policy taken out by a borrower is an entirely different matter. Furthermore, the Title insurance guys receive a great deal of business from the lenders and many people take out a title policy from what ever insurance company the lender recommends, which is a major consideration for the Title Insurance companies not wanting to tick off the banks.

Housing starts dropped a startling amount -- over 5%. As housing prices come down and there is more inventory overhang from mortgage crisis, there will be more underwater mortgages. Gary Shilling says that 40% of mortgages will be underwater as prices come down another 20%. He has been early and accurate with his housing forecasts. And he was ridiculed in the media for years -- until he was proven correct.

http://blogs.forbes.com/investor/2010/09/08/gary-shilling-says-housing-will-get-much-worse/

"And he was ridiculed in the media for years -- until he was proven correct. "

Is the banks’ sloppy paperwork a matter of simple technicalities that are relatively easy to cure, as the banks contend? Or are there more far-reaching consequences for banks and the institutions that bought mortgage-backed securities during the mania?

Oddly enough, the answer to both questions may be yes.

According to real estate lawyers, most banks that have gotten into trouble because they didn’t produce proper proof of ownership in foreclosure proceedings can probably cure these deficiencies. But doing so will be costly and time-consuming, requiring banks to comb through every mortgage assignment and secure proper signatures at each step of the way — and it surely will take much longer than a few weeks, as banks have contended.

Once this has been done appropriately (not by robo-signers, mind you) the missing links in the banks’ chain of ownership can be considered complete and individual foreclosures can proceed legally.

None of this will be easy, however. And it will be especially challenging when one or more of the parties in the chain has gone bankrupt or been acquired, as is the case with so many participants in the mortgage business.

Still, addressing all of these lapses is possible, according to Joshua Stein, a real estate lawyer in New York. “If there are missing links in your chain of title, you go back to your transferor and get the documents you need,” he said in an interview last week. “If the transferor doesn’t exist any more, there are ways to deal with it, though it’s not necessarily easy or cheap. Ultimately, you can go to the judge in the foreclosure action and say: ‘I think I bought this loan but there is one thing missing. Look at the evidence — you should overlook this gap because I am the rightful owner.’ ”

and issue #2

For example, the common practice of transferring a promissory note underlying a property to a trust without identifying it, known as an assignment in blank, may run afoul of rules governing the structure of the security.

“The danger here is that the note would not be considered a qualified mortgage,” said Robert Willens, an authority on tax law, “an obligation which is principally secured by an interest in real property and which is transferred to the Remic on the start-up day.” If, within three months, substantially all the assets of the entity do not consist of qualified mortgages and permitted investments, “the entity would not constitute,” he said.

What if a loan originator failed to provide documentation substantiating that what’s known as a “true sale” actually occurred when mortgages were transferred into trusts — documentation that is supposed to be provided no longer than 90 days after a trust is closed? Well, in that situation, a true sale may not have legally happened, and that doesn’t appear to be a problem that can be smoothed over by revisiting and revamping the paperwork.

In other words, were the loans legally transferred into the trust, and, if not, do the trusts lack collateral for investors to claim?

For example, according to a court filing last year by the Florida Bankers Association, it was routine practice among its members to destroy the original note underlying a property when it was converted to an electronic file. This was done “to avoid confusion,” the association said.

But because most securitizations state that a complete loan file must contain the original note, some trust experts wonder whether an electronic image would satisfy that requirement.

All of this suggests that while a paperwork cure may eventually exist for foreclosures, higher hurdles exist when it comes to remedying flaws in mortgage-backed securities. The only way to wrestle with the latter, some analysts say, is in a courtroom.

“The whole essence of this crisis is fraud and unless we restore the rule of law and transparency of disclosure, we are not going to fix this,” said Laurence J. Kotlikoff, an economics professor at Boston University.

http://www.nytimes.com/2010/10/24/business/24gret.html?src=busln

You think this whole put back is about missing paperwork? Dudette get a clue. It's about the trusts themselves saying the original mortgages were fraudulently underwritten. You know a dog walker states his income is $4k/ month and his asset is $400k cash and the banker looks at a photoshopped Etrade bank account and knowingly 'approves' a loan based on 'known' faked income/asset bank stmts. Believe you me, that's where this crapola is headed. How and who got approved with what fraudulent docs and who helped applicants work around the underwriting depts of banks.

Don't talk too much to Riversider, otherwise columbiacounty will no longer defend you.

M'okay queen. Don't jump off that bridge yet. Hahhahhhahaaaaaaaa. It's only words.

Are you naked right now?

w67. Ok, so say half the loans were fraudulently written. That would be enough to revoke the trusts, particularly the subprime and ALT A trusts. But even if the prime loan trusts had little or no fraud in the underwriting, the banks still have to come up with the title --and not an electronic piece of paper since many states require "wet ink" on titles to those multi million dollar condos and homes. The fact that a florida firm shred thousands of titles because they made electronic copies has got to jangle a few nerves in those trusts. There must be executives out there hoping against hope that the florida firm shred thousands of the $300K titles and not the $7MM titles. It is a nightmare mess. The fact that the bank stocks are holding up relatively well is huge delusion (or a desperate hope for govt bailout).

w67 worked on Wall Street for a couple years. Apt23, you've never had a career, your husband is just a journalist, and you have no background in finance or anything science oriented. How can you be so confident rather than acluistic?

Paper mess is a sideshow IMHO. One fraudulent no doc loan for $1mm where the asset is only worth $500k minus 6% to cash out for a bank is a clean $530k write off. Just in miami, if any loans were checked 'primary' residence which was the whitest of cracker lies in the boom, you are talking fraud. Complete put back to banks. Even if an applicant wanted to put down 'second' home or investment, how many mortgage brokers do you think convinced them to put down 'primary' in order to get it underwritten? I have personal experience where my mortgage broker told me to put 'primary'. This was in 1997. Guarantee you a whole mess of them can be put back on that technicality alone. It's very easy to prove wih social security numbers how many mortgages one person has. You are only allowed 1 primary residence. It's complete fraud which bankruptcy will not shield you from. Good luckz you fking lemming bk flippers. I hope the DA puts your azz in jail.

Wouldn't an aggressive DA be a problem for you?

describing the shredding of documents as proper and done to avoid confusion later on, strains credibility.

wow, it's almost acluistic

W67: The lawyer prosecuting BAC on behalf of Pimco and NY FED argued the same thing -- she particularly sited the primary residence scam. The video is posted somewhere on this thread. It is so dire that I wonder how they can even attempt to settle. According to the banks own research (also posted on this thread) most pools were tainted over 40%. They will have to settle them all. Probably claim that you can drag it through the courts for years and hope the banks are still solvent or you can settle for 50 cents on the dollar. And, even if they do settle with every single pension fund and investor, securitization is dead to a generation and then what does that do to credit?

A mortgage securitzation lawyer, via e-mail, went through some of the ways this might play out:

It’s clear the parties intended a transfer. But it appears that they did not document the transfer. Based on the agreement, they described how the transfer should take place and then didn’t do it, apparently. Unfortunately, while this might have been the intention of the parties, they can’t produce any real, documented evidence that this mortgage is owned by the trust. I’ve provided affidavits that state that the requirements for a mortgage to be part of the trust are clear in the documents, that mortgages can’t be added to the trust after start up (as servicers have tried to argue), and that I see no evidence that this trust owns this loan.

On one hand, the problem is easily cured – the party who is the documented owner of the loan could foreclose (the original lender). The problem with this is that the proceeds of the foreclosed property, including the recoveries intended to reimburse the servicer for advances, would have no mechanism for getting back into the trust.

If the original lender foreclosed, took title and liquidated the loan, accountants would have an issue with how the proceeds could possibly end up back with the trust. The result would be a total loss for the trust for that loan.

The servicer’s attorneys have no desire to go this route – it terrifies them.

The servicer’s attorney’s could argue for some sort of documentary exception – that a mistake was made and the intention was for the trust to own the mortgage – an appeal to equity or fairness. Unfortunately, in many cases, they already submitted an affidavit stating that they had proper title and full right to foreclose in the name of the trust. So going this route would expose them to perjury.

The appeal to equity or fairness, given the intent of the parties to the trust and the relatively minimal harm to the borrower, seems like a logical route – except that a number of judges would argue that fairness might dictate a fair outcome for the borrower, such as a real modification. And you still have the issue of the possible damages and legal expenses for a wrongful foreclosure action.

The big argument people make against this approach is that the borrower is just a deadbeat who has failed to pay their mortgage, so there’s no reason why the borrower should be entitled to some sort of gain or benefit. While this may be true, real estate law is pretty clear – the party holding title is the one who should foreclose. Otherwise, someone else could come along after the improper foreclosure and be the actual title holder and sue the borrower for foreclosure and loan repayment again. The borrower is entitled to protection against this.

Most people assume that the parties followed the terms of the trust agreement – it’s so basic and fundamental to all MBS. It is hard to grasp that they screwed this up. As a result, it takes some work to pull through everything and see what actually happened. Without the mortgage documents showing the current title, combined with the affidavits from the foreclosure attorney, I wouldn’t have believed it myself.

http://www.nakedcapitalism.com/2010/10/morgenson-sort-of-acknowledges-problems-with-residential-mbs-rights-to-foreclose.html

http://seekingalpha.com/article/221344-homeowners-rebellion-could-62-million-homes-be-foreclosure-proof

California Precedent

The latest of these court decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E–11. The court held that MERS could not foreclose because it was a mere nominee; and that as a result, plaintiff Citibank (C) could not collect on its claim. The judge opined:

Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.

In support, the judge cited In Re Vargas (California Bankruptcy Court); Landmark v. Kesler (Kansas Supreme Court); LaSalle Bank v. Lamy (a New York case); and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court). (For more on these earlier cases, see here, here and here.) The court concluded:

Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.

The broad impact the case could have on California foreclosures is suggested by attorney Jeff Barnes, who writes:

This opinion ... serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.

It's starting too look like people underwater (especially if they have no significant net worth) should not move, not pay, and see how long they can live there. Or, alternatively, move out and lease to another party who lives there for as long as the process takes to unfold.

I know that is already happening a lot...my point is that maybe all these problems will cause fewer abandoned properties as people realize it will be a long time before anyone comes after them

Chris Whalen has an interesting take. He points out that people who don't pay mortgages aren't paying real estate taxes either and then goes off to talk about how Obama is walking in Herbert Hoover's shoes. Could the states ultimately stop foreclosures in order to collect real estate taxes...

http://www.creditwritedowns.com/2010/10/chris-whalen-us-foreclosure-crisis-a-cancer.html

http://www.ritholtz.com/blog/wp-content/uploads/2010/10/c_10212010.gif

http://www.law.com/jsp/article.jsp?id=1202473801558&Bank_of_America_Sued_in_Class_Action_Over_Flouting_of_Foreclosure_Rules

Bank of America has been hit with a class action on behalf of homeowners seeking damages for alleged disregard of foreclosure process rules.

The suit, filed Wednesday in federal court in Newark, N.J., accuses Bank of America and two subsidiaries, LaSalle Bank and BAC Home Loans Servicing, of "an undisciplined rush to seize homes" through "pervasive and willful disregard of knowledge, facts and statutes."

Bank of America has filed foreclosure proceedings on many mortgages in New Jersey without holding the necessary rights as the mortgagee or assignee at the time of foreclosure, the suit says.

http://ecreditdaily.com/2010/10/ny-courts-act-protect-integrity-foreclosure-process/

The New York court system today became the first in the nation to issue a new rule in response to the uproar over shoddy foreclosure paperwork by lender representatives.

The rule requires attorneys for plaintiffs to fill out a new form “certifying that counsel has taken reasonable steps” to review and verify the accuracy of legal documents filed in foreclosure cases.

“We cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process, especially when that process involves basic human needs – such as a family home – during this period of economic crisis,” said New York Chief Judge Jonathan Lippman in a statement.

The new filing requirement was introduced by the Lippman in response to disclosures in recent weeks by major mortgage lenders of shoddy processing, including the widespread notarization and “robo-signing” of supporting documents in residential foreclosure filings in courts nationwide.

It is uncertain how many other state courts will follow suit with new requirements. New York is one of 23 states that have judges issue final disposition of foreclosure case.

“This new filing requirement will play a vital role in ensuring that the documents judges rely on will be thoroughly examined, accurate, and error-free before any judge is asked to take the drastic step of foreclosure,” the judge said.

Attorneys general from all 50 states and federal regulators have launched investigations into “robo-signing” allegations.

The nation’s largest lender, Bank of America, said it will begin resubmitting affidavits Oct. 25 in 102,000 foreclosure actions in the 23 states were judgments are pending. It was the only major lender to issue a foreclosure freeze – on Oct. 8 – on all cases. The lender is holding on a freeze in the other 27 states, which may delay about 30,000 foreclosure sales.

http://www.law.com/jsp/article.jsp?id=1202473832373

Going against state bankers, New York Gov. David A. Paterson has signed into law a measure that will allow prevailing homeowners in many foreclosure actions to claim attorney fees from lenders.

The Access to Justice in Lending Act, A1239/S2614, will put defendants in foreclosure proceedings on the same footing as lenders, who often include in mortgage documents the right to recoup reasonable attorney fees if they bring a successful action.

Supporters of the new requirement say that it will encourage attorneys to volunteer their services to homeowners facing foreclosure, many of them who cannot afford to hire their own lawyers. At the same time, they say the measure will give the homeowners leverage to negotiate concessions from lenders seeking to avoid the potential costs of litigation.

"At a time when not-for-profits and counselors are flooded with these cases, this is an important step in bringing parity for homeowners," the governor's office said in an e-mailed statement.

The new law, Real Property Law §282, provides that all mortgage agreements giving prevailing lenders the right to attorney fees, must be read to grant that right to borrowers as well. Although it goes into effect 60 days after its signing, it applies to all mortgages in effect on or after Oct. 20 and all proceedings begun on or after that date.

Assemblyman Rory Lancman, D-Queens -- who sponsored the bill with Senator Jeffrey Klein, D-Bronx -- said in an interview that it will help "restore integrity and fairness" to a foreclosure process shadowed by revelations that many banks and their attorneys have resorted to procedural shortcuts that deny homeowners their right to due process. The measure was signed on the same day Chief Judge Jonathan Lippman ordered lender attorneys to submit affirmations in all foreclosures attesting that they have made reasonable efforts to verify the facts in the documents they submit.

The law was opposed by the state Bankers Association in a memorandum to the governor drafted by Wilson, Elser, Moskowitz, Edelman & Dicker (NYLJ, July 9). The memo argued the bill was unconstitutional in its application to existing mortgages. It contended that the two most common laws used by homeowners to fight foreclosure, the federal Truth in Lending Act, 15 USC §1640, and the federal Fair Debt Collection Practices Act, 15 USC §1692k, already allowed the recovery of attorney's fees. And it complained that the bill's "broadly drafted" language could open up the possibility of homeowners being awarded attorney's fees to which they had no right.

Roberta Kotkin, general counsel and chief operating officer of the association, said in an interview after the governor signed the law that the organization stood by its criticisms. Moreover, she said the new requirement could increase the cost of mortgages to account for lenders' added risk.

"Now it's signed into law. Obviously we're going to honor it and work with it," she said.

But organizations representing homeowners have been enthusiastic about the bill.

"I do think the biggest benefit is the leverage [the new law] gives the homeowner in getting out of foreclosure with an affordable modification," said Meghan Faux, director of the foreclosure prevention project for South Brooklyn Legal Services, which is a part of Legal Services NYC.

There were 77,815 foreclosures pending in New York courts as of Oct. 12, a 50 percent increase from the beginning of the year. Legal Services NYC, in a memo to the governor supporting the law, said the demand for its services had mounted, and "because of our limited resources, we are able to represent only a fraction of low-income homeowners, even though many of them have meritorious claims and defenses to foreclosure."

The group argued that the proposal would allow a greater number of borrowers to obtain legal representation and create an incentive for lenders to resolve more cases early in the process.

And attorneys are becoming increasingly creative in challenging foreclosures as the process comes under more scrutiny. For example, they are questioning the ownership of mortgage notes that were shuffled from entity to entity during the securitization boom.

"With so many issues of standing being questioned, it seems both the availability and the range of potential defenses is much larger today than even a couple of weeks ago," said Michael Hickey, executive director of the Center for New York City Neighborhoods.

Lancman, an attorney, said the fees to homeowners' lawyers would likely be low in most cases -- ranging from a few thousand dollars to "low five figures" -- because skilled attorneys could determine problems with the lender's case early on. He said attorneys would not make a fortune from foreclosure cases, but the profits would be enough to justify picking up the most meritorious cases.

The new program is modeled after Real Property Law §234, a 1966 law that gave prevailing tenants the right to recoup attorney's fees whenever landlords include a fee provision in the lease. A 1995 Court of Appeals decision upheld the application of the law to leases signed before it became effective. Duell v. Condon, 84 NY 2d 773.

That ruling describes the purpose of the earlier fees provision as "to level the playing field between landlords and residential tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense."

Moreover, it said that the law tended to discourage landlords from engaging in frivolous litigation aimed at harassing tenants.

Matt?

Gnatt?

http://www.nydailynews.com/ny_local/2010/10/24/2010-10-24_dubious_signautures_missing_innacurate_paperwork_halt_4450_city_foreclosures_.html

Thousands of foreclosures across the city are in question because paperwork used to justify the seizure of homes is riddled with flaws, a Daily News probe has found.

Banks have suspended some 4,450 foreclosures in all five boroughs because of paperwork problems like missing and inaccurate documents, dubious signatures and banks trying to foreclose on mortgages they don't even own.

The city's not alone. All 50 states are investigating foreclosure paperwork, evicted homeowners are hiring lawyers and buyers of foreclosed homes are fretting over the legality of their purchases.

Last week, New York's top judge, Jonathan Lippman, began requiring all bank lawyers to sign a form vouching for the accuracy of their foreclosure paperwork.

That could have been a problem for one Long Island foreclosure that was being brought by GMAC Mortgage last year.

A sworn affidavit dated March 30 was signed by someone identified as Sherry Hall, vice president of a GMAC affiliate called Homecomings Financial Network.

Fifteen days later another sworn affidavit surfaced in another Suffolk County foreclosure, this time signed by a GMAC vice president named Sheri D. Hall.

Despite the difference in the names, the signatures were identical - and were vouched for by the same notary.

Suffolk Supreme Court Justice Peter Mayer refused to approve the foreclosure bearing the name Sherry Hall and ordered her, and the notary, to appear in court Nov. 17. GMAC officials did not return calls.

"It's nice to know someone in authority is looking at the fine print," said Derek McCoy, the delinquent homeowner in the case who's trying to keep his Coram home with a loan modification.

Mayer issued his decision Sept. 21, the day after GMAC, which was rescued from failure with a $17 billion taxpayer bailout, suspended foreclosures in the 23 states where court approval is required, including New York.

The moratorium, which ended last week, came after GMAC "robo-signer" Jeffrey Stephan admitted in a Maine case he'd signed 10,000 foreclosure documents a month without reviewing them.

Stephan also robo-signed in New York. The News found six Bronx foreclosures with his signature, including five in one month.

In one case, a judge halted foreclosure on an E. 242nd St. property because Stephan's affidavit did not include supporting documents. The case resumed after GMAC submitted the documents - and a new affidavit.

'Murky' mortgage landscape

Judges are also seeing banks foreclosing on homes they don't yet own - a problem that concerns Brooklyn Supreme Court Justice Arthur Schack.

Schack said it's become increasingly "murky" trying to determine who holds a mortgage at the time of foreclosure because they're often passed from one lender to another.

At a state Senate committee hearing last year, Schack testified that the lender must prove it holds the mortgage on the day the foreclosure is filed.

"Sounds simple, but unfortunately it's not so simple at times," he said.

Last August, Schack dismissed a foreclosure the Bank of New York was bringing on an E. 48th St. home in Brooklyn that was filed 61 days before the mortgage was assigned to the bank.

The judge dubbed as "nonsensical" a computer printout the bank claimed proved it held the mortgage before the foreclosure was brought.

In May, Schack rejected a lawyer's claim that the assignment of the mortgage on a Jefferson St. home in Bushwick to HSBC was valid.

"Counsel appears to be operating in a parallel mortgage universe, unrelated to the real universe," he said.

He shot down yet another foreclosure on a Rockaway Parkway home in Brooklyn because JPMorgan Chase couldn't prove it held the mortgage until 75 days after the proceedings began.

"The banks have a lot of bright people who are smart, so they should know better," said Edward Roberts, lawyer for one of the homeowners in that case.

Last year, Schack tossed a foreclosure that involved a woman who claimed to be many things.

On one foreclosure, she swore she was an assistant vice president for a bank, and also an official for a lenders' clearing house. In another, she was an assistant vice president for yet another institution.

"She is a milliner's delight by virtue of the number of hats she wears," the judge quipped.

Some banks also pursue foreclosures even after delinquent homeowners have sold the houses and paid off the mortgages.

Schack told The News he expects to see more paperwork snafus. "It's like an onion we keep peeling," he said. "It seems to be layers and layers of problems."

They Knew What They Were Selling
It’s hard to know where to start. There is just so much here. So let’s begin with testimony from Mr. Richard Bowen, former senior vice-president and business chief underwriter with CitiMortgage Inc. This was given to the Financial Crisis Inquiry Commission Hearing on Subprime Lending andnd Securitization andnd Government Sponsored Enterprises. I am going to excerpt from his testimony, but you can read the whole thing (if you have a strong stomach) at http://fcic.gov/hearings/pdfs/2010-0407-Bowen.pdf. (Emphasis obviously mine.)

“The delegated flow channel purchased approximately $50 billion of prime mortgages annually. These mortgages were not underwriten by us before they were purchased. My Quality Assurance area was responsible for underwriting a small sample of the files post-purchase to ensure credit quality was maintained.

“These mortgages were sold to Fannie Mae, Freddie Mac [We will come back to this - JM] and other investors. Although we did not underwrite these mortgages, Citi did rep and warrant to the investors that the mortgages were underwritten to Citi credit guidelines.

“In mid-2006 I discovered that over 60% of these mortgages purchased and sold were defective. Because Citi had given reps and warrants to the investors that the mortgages were not defective, the investors could force Citi to repurchase many billions of dollars of these defective assets. This situation represented a large potential risk to the shareholders of Citigroup.

“I started issuing warnings in June of 2006 and attempted to get management to address these critical risk issues. These warnings continued through 2007 and went to all levels of the Consumer Lending Group.

“We continued to purchase and sell to investors even larger volumes of mortgages through 2007. And defective mortgages increased during 2007 to over 80% of production.”

Mr. Bowen was no young kid. He had 35 years of experience. He was the guy they hired to pay attention to the risks, and they ignored him. How could a senior manager not get such an email and not notify his boss, if only to protect his own ass? They had to have known what they were selling all the way up and down the ladder. But the music was playing and Chuck Prince said to dance and rake in the profits (and bonuses!). More from his testimony:

“Beginning in 2006 I issued many warnings to management concerning these practices, and specifically objected to the purchase of many identified pools. I believed that these practices exposed Citi to substantial risk of loss.

http://www.ritholtz.com/blog/category/thinktank/

The market is starting to put a price tag on this mess...

"BANK OF AMERICA'S (ticker: BAC) mortgage woes could continue to depress the banking giant's stock for years to come. At least that's what some high-level investors are telling us through their trading activity.

Just a few weeks ago, Bank of America seemed ready to emerge from that special funk that holds back stocks with complicated investment stories, but now the bank's future prospects are a centerstage concern amid unease about the legality of many home foreclosures as well as the asset quality of its mortgages.

"Bank of America is the market's whipping boy; it is the poster child for the foreclosure mess," said a senior trader at a major trading firm, who requested anonymity.

In the options market, where sophisticated investors reveal their thoughts, a dour picture is being painted.

According to trading patterns, some options traders are betting that Bank of America's $11 stock could fall to $2.50 by 2013.

Indeed, Bank of America's $2.50 puts that expire in January 2013 have been actively traded since Tuesday. Investors buy put contracts if they think the stock will fall in value.

In the current session, the action has extended to $2.50 puts that expire in January 2012.

These puts are likely little more than speculative trades, but they are telltale signs of the depth of concern that many investors have about Bank of America's stock. [...]"
http://online.barrons.com/article/SB50001424053111903878204575564301377552976.html

Market was already discounting BAC'S book value before this crisis hit. As far as BAC is concerned the potential for buying back mortgages at par is the largest concern. The robo-signing issue can be solved with man-power and spending a few ducats. The foreclosure backlog is so great they don't to cure the defects in the entire portfolio tomorrow.

Any fans of Abbot & Costello?

http://livinglies.files.wordpress.com/2010/08/36521121-full-deposition-of-william-hultman-secretary-and-treasurer-of-merscorp1.pdf

and extracted by (it does have a certain who is on first feel)
http://www.ritholtz.com/blog/2010/10/what-is-mers-and-what-role-does-it-have-in-the-foreclosure-mess-hint-it-holds-60-of-all-mortgages-but-has-zero-employees/

Q Does MERS have any salaried employees?
A No.
Q Does MERS have any employees?
A Did they ever have any? I couldn’t hear you.
Q Does MERS have any employees currently?
A No.
Q In the last five years has MERS had any
employees?
A No.
Q To whom do the officers of MERS report?
A The Board of Directors.

***

A That’s correct.
Q And in what capacity would they report to you?
A As a corporate officer. I’m the secretary.
Q As a corporate officer of what?
Of MERS.
Q So you are the secretary of MERS, but are not
an employee of MERS?
A That’s correct.

***

How many assistant secretaries have you
appointed pursuant to the April 9, 1998 resolution; how
many assistant secretaries of MERS have you appointed?
A I don’t know that number.
Q Approximately?
A I wouldn’t even begin to be able to tell you
right now.
Q Is it in the thousands?
A Yes.
Q Have you been doing this all around the
country in every state in the country?
A Yes.
Q And all these officers I understand are unpaid
officers of MERS?
A Yes.
Q And there’s no live person who is an employee
of MERS that they report to, is that correct, who is an
employee?
[Objection]
A There are no employees of MERS.

(page 70, line 1 through page 72, line 8)

In another deposition, a legal assistant at a law firm initiating 4000 to 7000 foreclosures per month in Florida held herself out as “vice president” and “assistant secretary” of MERS. She testified:

Q: The question was you have no job duties as an assistant secretary of MERS, correct?
A: I do not have any job duties other than signing the assignments and mortgage. Does that help?
Q: Yes. Here, I’ll try to rephrase this. Do you attend any board meetings at MERS?
A: No, sir.
Q: Do you attend any meetings at all at MERS?
A: No, sir.
Q: Do you report to the secretary of MERS?
A: No, sir.
Q: Who is the secretary of MERS?
A: I have no idea.

***

Q: Where are the MERS offices located?
A: I can’t remember.
Q: How many offices do they have?
A: I have no idea.
Q: Do you know where their headquarters are?
A: Nope.
Q: Have you ever been there?
A: No.
Q: How many employees do they have?
A: I have no idea.

(pages 11 & 12)

She further testified that her signatures on “these assignments,” which from all indications were and are at least several thousand in number, were in no way attestations that the statements contained therein were accurate or truthful. She further testified that she was the person with the most knowledge about the subject assignment.

For example, she testified:

Q: It says, ‘but effective as of the 19th day of February, 2008.” Do you see that?
A: Yes.
Q: Where did you get that date from?
A: I did not pick that date. That date was put in by the processor that prepared the
assignment.
Q: And who was that?
A: Off the top-of-my-head, I do not know who actually typed this assignment.
Q: Okay. But you are signing on behalf of MERS, and you are stating here that it is effective as of the 19th day of February, 2008, correct?
A: Correct.
Q: At the time you signed this, what reason did you have, as agent for MERS, to make it
effective as of the 19th day of February, 2008?
A: I did not pick that date. And I do not recall this document.
Q: Sitting here today, you have no idea why it is that it says, “effective as of the 19th day of February, 2008.” Is that correct?
A: Looking at this one particular piece of paper, I do not recall or know the answer to that question, no.
Q: Is there some general practice, of which you are aware, that would give us information as to why this particular date was inserted?
A: That information was determined by the people that review the file prior to me.
Q: And what would they base that on, as a general practice?
A: I do not know.
Q: You don’t know? Were, to your knowledge, any physical documents transferred on February 19, 2008?
A: I do not know.
Q: To your knowledge, does the 19th day of February, 2008 have any significance?
A: I do not know.
Q: Ma’am, if you signed this document on behalf of MERS, picking this date, this effective
date – -
A: I did not pick the effective date.
Q: But you ratified it by signing this; didn’t you?
[objection]
Q: Didn’t you attest to the accuracy of that date by signing this document?
[objection]
A: I would say, no.
Q: Did you attest to this document, as a whole, by signing it?
[objection]
A: I do not think that in my capacity of signing these assignments, it was my position to attest. My role was to be given a document that had been reviewed by an attorney, had been reviewed by a title examiner, had instructions from the client, and I was to sign the assignment as secretary on behalf of MERS.
Q: Right. And when you signed it as secretary on behalf of MERS, were you approving and agreeing with the terms contained therein for MERS?
A: I believe I was approving and agreeing to the fact that the mortgage needed to be assigned from MERS to another entity.

(pages 13 and 14)

Alright. That was funny.

But you are gonna loze yourz azz on your coop in nyc.

Oh, MERSy, MERSy, MERSy, white folks are just craaaaazy.

Today on Bloomberg. You have to love the indignation of the guy who is upset that the beneficiaries of his reps and warranties actually expect him to stand behind them. I mean, really, the nerve of some people.

If there is a ray of hope it is US Bancorp, which is actually gives the impression of understanding that they have to honor well-founded repurchase requests and having a process of dealing competently with them. Something tells me that it will be a while before BofA we see the same from BofA...

"Oct. 25 (Bloomberg) -- Home lenders are making it tougher to get loans as investors step up demands for refunds on defective mortgages, damaging the housing market, executives said today at an industry conference.

Already beset by billions of dollars in forced buybacks, originators have imposed standards on new loans that are stricter than those set by mortgage buyers and insurers, according to Todd Chamberlain, an executive vice president who oversees mortgage lending at Birmingham, Alabama-based Regions Financial Corp.

“This industry has to stand up and say, ‘Enough is enough,’ " Ron J. McCord, chairman of Oklahoma City-based First Mortgage Co., said during a panel discussion with lender executives at the Mortgage Bankers Association’s annual conference in Atlanta, drawing applause from the audience. “We’re trying to be out here lending to help this recovery.”

Fannie Mae, Freddie Mac and bond insurers such as MBIA Inc. are pressing lenders including Bank of America Corp. to honor promises to buy back mortgages if they’re later found to be based on inaccurate data. Known as representations and warranties, the promises cover defects such as inflated appraisals or inaccurate data about a borrower’s job or income. Bank of America said last week it will resist paying claims.

Call for Unity

The industry needs to be “more united” in dealing with the demands, said William C. Emerson, Chief Executive Officer of Detroit-based Quicken Loans Inc., ranked as the 10th-largest lender in the first half of this year by newsletter Inside Mortgage Finance. Bankers have attributed mortgage defaults to the poor economy rather than defects in the loans.

“We all know we signed up for reps and warranties, but I don’t know if we thought we signed up to be an insurance company,” he said, speaking on the panel with Chamberlain and McCord.

Bank of America, the biggest U.S. lender, will “defend our shareholders” by disputing unjustified claims, CEO Brian T. Moynihan said in an interview last week. The Charlotte, North Carolina-based bank said it faces about $12.9 billion in pending claims.

Most of the disputed loans “don’t have the defects that people allege,” Moynihan said in the Oct. 19 interview, and Chief Financial Officer Charles H. Noski told analysts any repurchases will be negotiated “on a loan-by-loan basis.” For claimants such as Assured Guaranty Ltd., Bank of America’s one- at-a-time process is “like Chinese water torture,” said Dominic Frederico, the bond insurer’s chief executive officer, during an August conference call.

More Requests

Dan Arrigoni, CEO of Minneapolis-based U.S. Bancorp’s mortgage unit, the sixth-largest U.S. home lender, said his firm is seeing its most repurchase requests ever, though the amount is “still manageable.” Those are often coming from government- supported Fannie Mae or Freddie Mac, typically referred to as “agencies.”

“Our good friends at the agencies have hired a boat-load of people to go through everything with a fine-tooth comb, and they’ve done a good job,” he said. At the same time, “we’ve been successful in having them rethink a few.”

Fannie Mae and Freddie Mac, the largest mortgage-finance companies, may be owed as much as $42 billion just on loans they bought directly from lenders, according to Fitch Ratings. Investors in private mortgage bonds may collect as much as $179.2 billion, Christopher Gamaitoni, vice president of research at Compass Point Research & Trading LLC in Washington, said in an August report.

Joint Action

A group of investors in mortgage securities including BlackRock Inc. and the Federal Reserve Bank of New York signaled in a letter last week to Bank of America and Bank of New York Mellon Corp., a bond trustee, that bondholders may press for more refunds.

Sales of U.S. existing homes rose in September by 10 percent, the most on record, a sign that cheaper borrowing costs may be helping to stabilize the housing industry. The U.S. is glutted with a 10.7-month supply of unsold previously owned homes, the National Association of Realtors said today.

First Mortgage’s McCord said his private company, which makes about $1 billion of mortgages a year, is fending off as much as 70 percent of repurchase requests by proving it lived up to its contracts. Still, the demands themselves add to lenders’ expenses and stress, he said.

“My wife has said on numerous occasions I look like I’m going to have a heart attack over this,” McCord said."
http://noir.bloomberg.com/apps/news?pid=20601087&sid=av0JSoi3bnOw&pos=1

http://www.msnbc.msn.com/id/21134540/vp/39836703#39836703

"when they created these mortgage backed securities they omitted the 'mortgage backed' part" - priceless

sidelinesitter
about 3 hours ago
ignore this person
report abuse
Today on Bloomberg. You have to love the indignation of the guy who is upset that the beneficiaries of his reps and warranties actually expect him to stand behind them. I mean, really, the nerve of some people.

You are acluistic. Farewell

http://firedoglake.com/2010/10/25/foreclosure-fraud-isn%E2%80%99t-mere-paperwork/

The administration and the banks want you to believe that there is nothing more to foreclosure fraud than just mere paperwork. I point out here that the false affidavits and rocket dockets can rob people of their legal rights. But that was just the first grade primer. When home mortgages are securitized, a whole new level of legal rights and duties are set up that go far beyond the minimal requirements of the Uniform Commercial Code. The interaction of these rights and duties make it difficult to determine who is entitled to enforce securitized mortgage notes.

I am grateful to Yves Smith for introducing me to this set of issues.

Introduction

We will be looking at a specific securitization, that of GSAMP Trust 2007-NC1, which we will call the Trust. The letters stand for Goldman Sachs Alternative Mortgage Product, and New Century, the giant mortgage originator that collapsed into bankruptcy with an array of fraud claims. The Trust is governed by a Pooling and Servicing Agreement, the PSA, which is here. There are seven parties to the PSA, and the rights and duties of each are described in excruciating detail.

The basic idea of the PSA is that New Century will transfer a specific group of promissory notes secured by residential mortgages to the Trust. The Trust is a special purpose vehicle created for the limited purpose of holding the mortgage loans. It sells debt securities, bonds, to investors. The bonds will be paid solely from the payments made on the mortgage loans. The PSA describes the bonds and how the Trust is to pay out the money it receives. This is the slicing and dicing part of the creation of real estate backed mortgage securities.

First let’s look at some of the critical legal and practical requirements for the Trust. Then we will look at the ramifications of what the banks say is just problem paperwork that needs a few tweaks.

REMIC

The Trust will receive income from the interest on the promissory notes, and possibly other income. It is crucial to investors that the Trust is not liable for federal or state income taxes. Internal Revenue Code § 860A creates special rules for Real Estate Mortgage Investment Conduit, or REMIC. If the Trust qualifies, it will not be taxed on its income. The PSA contains provisions that, if complied with, should enable the Trust to qualify as a REMIC. That makes compliance with the REMIC requirements essential for the Trust. . . .

Accounting Rules

The FDIC has rules on accounting for banks, and specifically for the calculation of their net capital. It is crucial to a bank that it sell all of its interest in the mortgage loans with no possibility that the Trust could make it buy them back. If it doesn’t, it will have to show a liability for the possibility that it might have to buy back the mortgage loans. General accounting rules also require a complete disposition to count as a sale. The PSA contains provisions which attempt to insure that New Century is selling with no possibility that it will have to buy back the mortgage loans. See, for example, § 12.04.

Bankruptcy Remoteness

All parties want to insure that if one of them or the Trust files bankruptcy, it won’t affect any of the other parties. This is called bankruptcy remoteness. The PSA contains provisions that should insure bankruptcy remoteness.

New York Trust Law

The PSA says that the parties choose to be governed by the laws of the State of New York. § 12.03. New York law governing the operation of trusts and the actions of trustees applies to the PSA. That law is detailed, and well-developed through case law. Speaking very generally, a trustee has only the authority granted by the instruments creating the trust. In our case, the Trustee is LaSalle Bank, which is now owned by Bank of America. LaSalle Bank has no discretion to disregard the provisions of the PSA, and is not allowed to act contrary to the PSA.

The duties of the Trustee are enumerated in § 8.01, along with exculpatory provisions. The main provision is in subsection (a):

(a) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement, the Trustee shall not be liable except for the performance of the duties and obligations specifically set forth in this Agreement, no implied covenants or obligations shall be read into this Agreement against the Trustee, ….

PSA Requirements for Delivery of Mortgage Loans

The PSA is quite specific about the mortgage loans that go into the Trust. § 2.01 goes into great detail about the documents that must be delivered and the form they must take. Here is an example from §2.01(b)(i), which requires delivery of:

(i) the original Mortgage Note (except for up to 1.00% of the Mortgage Notes for which there is a lost note affidavit and a copy of the Mortgage Note) bearing all intervening endorsements, endorsed “Pay to the order of _________, without recourse” and signed in the name of the last endorsee. To the extent that there is no room on the face of the Mortgage Notes for endorsements, the endorsement may be contained on an allonge unless the Trustee (and Custodian) is advised by the Responsible Party that state law does not so allow. If the Mortgage Loan was acquired by the Responsible Party in a merger, the endorsement must be by “[last endorsee], successor by merger to [name of predecessor]“. If the Mortgage Loan was acquired or originated by the last endorsee while doing business under another name, the endorsement must be by “[last endorsee], formerly known as [previous name]“;….

§ 2.01 explains in similar detail the other documents, including the mortgage itself, which must be delivered, and the forms they must have.

These complex provisions are crucial deal points. They are all necessary to achieve REMIC status, bankruptcy remoteness, and outright sale. They are not discretionary with the Trustee.

Who Can Enforce The Note?

If the Trustee has possession (through a custodian) of a promissory note that meets all of the requirements of § 2.01, then the Trustee is the holder and is entitled to enforce the note and to foreclose on the mortgage.

What about a note that is not properly indorsed? The transfer of a promissory note is governed by UCC § 3-203:

(a) An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.

In the case of an improperly indorsed note, there was no transfer, because the PSA does not allow the Trustee to accept delivery of a promissory note that does not meet its requirements. If the note has not been effectively transferred, the Trustee has no rights in it, and cannot enforce it.

Whether or not this comports with the UCC is irrelevant, because the UCC permits parties to contract for more restrictive terms than those in the UCC itself. UCC § 1-302. The PSA contains more restrictive terms regarding indorsement and delivery than those of the UCC, and terms of the PSA are enforceable.

It isn’t clear that this can be fixed by getting the missing indorsements, because the time specified for the closing of the transfers has long since passed. A further problem arises when the originator of the mortgage is out of business.

This is an opportunity for the homeowner, certainly. It also matters to the investor. If the note has not been properly transferred, the Trust might lose its status as a REMIC. It matters to New Century (or it would if New Century was still around) because it might create a liability to take back the mortgage loan. It matters to the IRS, which has to figure out whether the Trust owes taxes. It also matters to the Trustee of the Trust, which may have violated the PSA.

Who can enforce an improperly indorsed note? Good question. This will clog up courts for a long time.

Conclusion

The Administration and the banks and all the other players in the securitization game want us to look ahead, and not back at this disaster. Investors and homeowners should adjust their rear view mirrors and take a careful look at every single document.

NOBODY MESSES WITH TEXAS!
-----------------------------------------
http://www.bloomberg.com/news/2010-10-25/jpmorgan-bank-of-america-subpoenaed-by-texas-attorney-general.html

Bank of America Corp., JPMorgan Chase & Co. and seven other banks or loan servicers were subpoenaed by Texas Attorney General Greg Abbott for information about their foreclosure practices, a spokesman said.

“The state is subpoenaing information and documents,” Jerry Strickland, the spokesman, said yesterday in an interview. He didn’t elaborate. The state also subpoenaed Ally Financial Inc., CitiMortgage Inc. and Wells Fargo & Co.

Abbott began investigating foreclosure practices in Texas following the disclosure of a December deposition in which an employee of Ally’s GMAC Mortgage unit testified that his team signed about 10,000 documents a month without verifying their accuracy. On Oct. 13, all 50 state attorneys general announced a joint investigation of foreclosures.

The Texas subpoenas followed letters sent by Abbott’s office to 30 loan servicers on Oct. 4, asking them to halt foreclosures in the state pending a review of their practices.

Abbott asked banks then to identify employees who filed faulty affidavits or other documents in the state and identify foreclosures that used such documents. He also asked lenders and servicers to halt all sales of properties previously foreclosed upon and stop all evictions.

Bank of America has been hit with a class action on behalf of homeowners seeking damages for alleged disregard of foreclosure process rules.

The suit, filed Wednesday in federal court in Newark, N.J., accuses Bank of America and two subsidiaries, LaSalle Bank and BAC Home Loans Servicing, of "an undisciplined rush to seize homes" through "pervasive and willful disregard of knowledge, facts and statutes."

Bank of America has filed foreclosure proceedings on many mortgages in New Jersey without holding the necessary rights as the mortgagee or assignee at the time of foreclosure, the suit says.

"Many thousands of foreclosures are plainly void under statute and settled New Jersey case law. Many borrowers never obtain statutorily required notices, and many foreclosure suits are filed entirely based in inaccurate recitations concerning ownership of the mortgage, the note, or the assignment," the suit says.

The putative class in the suit, Beals v. Bank of America, N.A., 10-cv-05427, consists of all named defendants in pending New Jersey foreclosure actions initiated by Bank of America or its affiliates. The complaint includes counts of common-law fraud, breach of the covenant of good faith and fair dealing and violations of the New Jersey Fair Foreclosure Act and Consumer Fraud Act.

http://www.law.com/jsp/article.jsp?id=1202473801558&Bank_of_America_Sued_in_Class_Action_Over_Flouting_of_Foreclosure_Rules

Now, amid reports of shoddy and possibly fraudulent paperwork, LPS as well as a handful of other document processors and law firms are coming under scrutiny for the criminal investigations into the foreclosure debacle.

Law enforcement authorities on both state and federal levels are probing whether individuals at these foreclosure companies and at the banks that hired them committed an array of possible crimes - mail and wire fraud, money laundering, conspiracy and racketeering. No charges have been filed.

These officials say they are taking a well-tested approach in their investigations: press low-level employees to implicate higher-up executives. Already, investigators have obtained in sworn testimony detailed descriptions of what took place inside the foreclosure companies.
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Florida's attorney general, Bill McCollum, said in an interview that "we know there are problems of great significance" at LPS. He added that one of the most important questions being asked is, "Does this involve the CEO" of a major bank?

"It's way too early to tell whether the bigger financial institution had officers committing criminal fraud," McCollum said. "It may be something that shows up, but it's too early to say right now."

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/25/AR2010102505731.html

Reason why the foreclosure issue may not be properly addressed.
***FBI DEFINTION OF MORTGAGE FRAUD********
Mortgage Fraud is defined as the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan. Although no central repository collects all mortgage fraud complaints, statistics from multiple sources indicate that mortgage fraud is on the rise. Some industry explanations for this increase point to recent high mortgage loan origination volumes that strained quality control efforts, the persistent desire of mortgage lenders to hasten the mortgage loan process, the escalation of home prices in recent years, and the introduction of non-traditional loans which contain fewer quality control restraints such as low documentation and no documentation loans1.
***RESULT OF HUD INVESTIGATION************
Reporting from Washington — A government review of botched foreclosure paperwork so far has found that the problems do not pose a "systemic" threat to the financial system, a top Obama administration official said Wednesday.
***WHAT WILLIAM BLACK SAYS**********
The Justice Department is leading an investigation of possible crimes involving mortgage fraud.

That language was carefully chosen to sound reassuring. But the fact is that despite our pleas the FBI has continued its "partnership" with the Mortgage Bankers Association (MBA). The MBA is the trade association of the "perps." It created a ridiculous on its face definition of "mortgage fraud." Under that definition the lenders -- who led the mortgage frauds -- are the victims. The FBI still parrots this long discredited "definition." That is one of the primary reasons why -- in complete contrast to prior financial crises -- the Justice Department has not convicted a single senior officer of the large nonprime lenders who directed, committed, and profited enormously from the frauds.

Note that the Justice Department is not investigating foreclosure fraud. HUD Secretary Donovan's statement shows why:

"We will not tolerate business as usual in the mortgage market," he said. "Where there have been mistakes made or errors, we will hold those entities, those institutions, accountable to stop those processes, review them and fix them as quickly as possible."

Note the language: "mistakes", "errors", "processes" (following the initial use of "paperwork"). No mention of "fraud", "felony", "criminal investigations", or "prosecutions" for the tens of thousands of felonies that representatives of the entities foreclosing on homes have admitted that they committed. Note that Donovan does not even demand that the felons remedy the harm caused by their past fraudulent foreclosures. Donovan wants them to "fix" "processes" -- not repair the harm their frauds caused to their victims.
****WASHINGTON POST REPORTS**********
Two economists, William K. Black and L. Randall Wray of the University of Missouri-Kansas City, are proposing a solution to the foreclosure mess: They want the federal government to take control of the banks and oust their top executives.

"We should remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud," Black and Wray wrote in an essay on HuffingtonPost.com on Oct. 22. The posting
has been circulated widely on the Internet and has prompted strong reaction from fans and critics of their radical proposal.

http://blogs.wsj.com/marketbeat/2010/10/26/which-banks-have-mortgage-risk-an-analyst-estimates/

Wells Fargo, the second-biggest mortgage servicer in the US, has become the latest leading lender to acknowledge problems with its foreclosure procedures.

The San Francisco-based bank said on Wednesday it planned to submit additional paperwork on 55,000 foreclosures before the courts in the 23 US states that require a judge’s approval before houses can be reclaimed. Wells said it expected to complete the additional filings by the middle of November.

http://www.ft.com/cms/s/0/99f8c45a-e221-11df-9233-00144feabdc0.html