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US Trustee Sides With Borrowers in Foreclosures With Questionable Assignments, MERS

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As we’ve suggested, a not-well-recognized effect of the widespread publicity on robo-siging abuses and more recently, the widespread failure of securitization industry participants to adhere to their own agreements is more pushback in the courts. It takes a while for new information to trickle into courtroom strategies, but as the abuses get more press, it isn’t just attorneys for borrowers that are taking a new stance, but also some judges and other official watchdogs.

An example today comes via the US trustee, which is a Department of Justice overseer of bankruptcy courts, in two cases in Albany, New York (hat tip April Charney). In both, the US trustee has filed responses which are effectively in support of the debtor (the bankrupt borrower) and in opposition to creditors, which in this case are servicers claiming to act on behalf of securitization trusts. The issue? The parties trying to foreclose haven’t presented a document trail that the bankruptcy trustee finds persuasive.

Both cases, one with GMAC, the other with BAC as the servicer, both involve a foreclosure mill, the Baum Law Firm, which had been sanctioned and fined for submitting pleadings with documentation defects. As the first pleading, the one with BAC as plaintiff, noted “The state court judge
called the Baum Firm’s actions ‘reprehensible.’”

The underlying issue is pretty simple, a failure to prove standing. Again from the BAC case:

The Debtor and his wife gave the Mortgage to Home Funding Finders, LLC (“HFF”) on or about September 8, 2004 as collateral security for a Note in the principal amount of $125,000 (“Note”)….

With respect to BAC, there is no document in the record establishing that either the Note or the Mortgage were assigned to BAC. The assignment attached to the proof of claim shows a transfer of the right in the mortgage to Countrywide. There is nothing to indicate that the Note also was assigned. If BAC is not the holder of the Note, then there is no basis for the claim. As such, BAC is not a “creditor” of this Debtor as that term is defined in the Bankruptcy Code and lacks statutory authority to file a proof of claim.

New York has new standards requiring that attorneys certify the accuracy of statements submitted to courts in foreclosure cases. This filing notes the failure to take these steps.

US Trustee Response to Debtor’s Motion Objecting to BAC Home Loans Proof of Claim[1]

The second response on the GMAC case is even more pointed:

Based on the documents in the record, neither GMAC nor Deutsche Bank have demonstrated that they have standing to file the proof of claim or to object to confirmation. Moreover, the assignment of mortgage relied on by GMAC and attached to the proof of claim was signed by Elpiniki M. Bechakas, as “Assistant Secretary and Vice President” of the Mortgage Electronic Registration Systems, Inc. (“MERS”) on behalf of the original mortgagee, Homecoming Financial Network, LLC.

Undisclosed to the Court by GMAC or its attorneys Steven J. Baum, P.C. (the “Baum Firm”) is the fact that Ms. Bechakas is also an attorney with the Baum Firm. It appears that the Baum Firm represents the assignee (GMAC) and that one of the Baum Firm’s attorneys is an officer of the assignor (MERS).

US Trustee Response in Support of Debtor’s Objection to GMAC Proof of Claim[1]

It is important to recognize that these are only two court filings by a single bankruptcy trustee. At the same time, it shows the degree to which parties who have no dog in these foreclosure fights, namely judges and other neutral parties, recognize that the issue of standing is valid. And that in turn has major ramifications for the mortgage securitization industry and the balance sheets of major banks.

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38 comments

  1. readerOfTeaLeaves

    At the same time, it shows the degree to which parties who have no dog in these foreclosure fights, namely judges and other neutral parties, recognize that the issue of standing is valid.

    Standing is essential to due process.
    If that principle goes, the edifice dissolves.

    Indeed, the land use/property rights (and ‘takings’) decisions that I’ve read all contain a very clear statement of who has standing, and their relevant interest(s) to the case(s).

    I find it breathtaking these big banks were submitting such sloppy legal claims. Just mind-boggling. Honestly, I don’t know how some of these people tie their shoes.

    1. scraping_by

      This is modern management, going by the theory of “doing what you do best.” That means outsourcing all functions beyond, something, I guess having meetings. It’s what they were taught in business school, get surrounded with at seminars, read in every page of the business books they’re given. In general, they’re surrounded in this fog and very few have the grit to question it.

      Consider; the business knowledge and therefore the business decision was outsourced to the ratings agencies. And we know how that fared. What’s amazing it that it’s still happening–

      http://www.propublica.org/thetrade/item/the-trade-credit-rating-agencies-standard-and-poors/

      and will likely continue happening again.

      The fraudulent paperwork is by the servicing companies, where the outsourced back office functions supposedly saved money by lowering the banks’ head count. And these are fronted by the foreclosure firms chosen by lowest bid.

      Until the current crop of business school managers retires, gets retired, or runs their business into the ground (I leave out wising up. That’s too much a stretch) they will hopelessly continue putting out RFPs and trembling in helpless shock when the result goes sideways.

    2. KnotRP

      That’s the start of a brilliant joke…

      Why do bankers wear tassled loafers?
      Because they can’t tie their own shoelaces.

      1. skippy

        Yeah but, they sure can string together a bunch of electrons with fake value assigned to them, bundle this galactic joke into concentrated evil and when it blows up in everyone else face, save theirs…..call it gods work….keeping America strong….insuring the future then send the unborn the bill!

        Skippy…killing and enslaving the unborn for *their* bonuses…where is the right to lifers on this epic kill/cull…eh.

    1. Wendy

      Wow, so this is a real echo of Kemp v Countrywide finding and appears to be a concerted effort by the US Trustee’s office and, perhaps, the DOJ, who the US Trustee works for. In the two cases cited above by Yves, the note was never transferred to the bank seeking to foreclose. In the cases referred to in the NY Times article – same thing. Seems to bear out DeMartini’s testimony in Kemp v. Countrywide, that the notes were routinely retained, and not transferred.

      But the real bombshell to me is that transfer of the assignment of mortgage, without a simultaneous transfer of the note that the mortgage relates to, is a “nullity” and of no effect, at least in New York. WOW. They will have to do a do-over of the entire assignment, which in a lot of instances will simply not be possible due to some of the prior parties in the chain no longer being in existence. Then what?!

      1. Dave

        Many notes are endorsed in blank, it is worth noting that in these cases they were not.

        I work for a major law firm that does this kind of work and contrary to the dramatic squealing coming from sites such as this, a great amount of time money an effort is going into getting it right, inspite of constantly changing requirements being imposed by the courts.

        The Courts are as much at fault as the Lenders, now screaming about practices which up until recently they allowed. And, everybody is struggling under the strain of the dramatic escalation of foreclosures.

        The cold reality is people borrowed money they can’t pay back, should we give them the homes for free?

        1. Fractal

          You’re an idiot. What requirements have the courts imposed that have supposedly been “constantly changing”? The courts impose the requirements of the law. The law has not been changing, you dork. The banks (the clients of the “major law firm” you allegedly work for) have openly admitted that they have changed their assignment practices, in violation of the pooling & servicing agreements which they used to securitize & sell off their mortgage loans. If you don’t like the ruling of a court, appeal it, don’t come here and whine about it. (We don’t like squealers or whiners here. We just comment on the facts Yves reports, which are drawn from court rulings, sworn testimony in open court, evidence filed in court, sworn depositions, forged affidavits, fraudulent pleadings signed by non-attorneys unlawfully engaged in the practice of law, etc.)

          1. Dave

            My friend, are you an attorney? I am. Contrary to your assertion the law does change and it is applied and interpreted differently by each and every Judge. The requirements for Foreclosures downstate New York are different from upstate. Each county has its own own requirements and each Judge in each county has their own requirements. If you think the law is interpreted and applied evenly across the state, you are mistaken. it is not.

            The same can be said for the bankruptcy districts. The Southern district of New York is a very debtor friendly district. US Trustees in other districts don’t quite see the same issues that Ms Davis does.

            Now to be very clear, I do not condone fraud in any form. But when courts have allowed certain types of practices to go on, such as the fiction of a MERS “employee” I find it a little disingenuous that they are now “shocked to find gambling going on” and try to find a scapegoat. Why not simply say we no longer find these practices sufficient, please change them.

            I love this site and I have followed the foreclosure crises avidly. But now that I work for one of the “bad guys” I see the other side. Can you say you have that perspective?

            What I see is that the banks and law firms, for the most part, are trying to get it right and what we see portrayed in the news and to some extent on sites such as this, is either downright incorrect or the worst of the worst, the freak show.

            Now if you can’t handle the fact that there is someone commenting that has a real perspective as to what is going on, who is here to tell you that what you see portrayed on this site, for as good as it is, isn’t the whole truth, so be it.

        2. Wendy

          There are a number of cold realities here, many of which are still coming to light. It appears that lending money to people who could not pay it back was part of the con all along, justifying lending to anyone – those who could pay it back were collectible, those who couldn’t surrendered the property, making them collectible too.

          I am not sure that endorsement of the note in blank will save a transaction where the note has gone one way, the mortgage another. At least in states like NY, where assignment of a mortgage without the note is a “nullity”. The cases saying this date back to the late 1800′s, so this is hardly a case of changing law.

          In response to dramatic squealing about courts changing requirements, we should step back and note that these changes were CAUSED by a nationwide epidemic of fraudulent and falsified documents filed by banks, who were indeed probably once perceived as the “good guys” in foreclosure cases. “Oh noes! We can’t file false robo-signed docs anymore?! We have to check our facts? And get them RIGHT?! Damn activist judges, who do they think they are????” Hilarious.

          1. Dave

            Notes are negotiable paper, like a check. You can endorse them in blank and they are payable to anyone who is a holder in due course. Trust me, the banks are working hard to make sure they are the note holder and properly assigned the mortgage.

            “we should step back and note that these changes were CAUSED by a nationwide epidemic of fraudulent and falsified documents filed by banks, who were indeed probably once perceived as the “good guys” in foreclosure cases. “Oh noes! We can’t file false robo-signed docs anymore?! We have to check our facts? And get them RIGHT?! Damn activist judges, who do they think they are????” Hilarious.”

            Nationwide epidemics are funny things, usually they occur when someone has a political axe to grind or a special interest wants something. For example, the “epidemic” of debtor bankruptcy fraud prior to the passage of the 2005 bankruptcy act. The banks wanted the law changed so to exert pressure on congress the news was suddenly filled with stories of debtors abusing the bankruptcy system. Was it reality? No, it was the freak show, the worst of the worst being thrown up in the news as if it was common place.

            The reality, in my experience at the time as a debtors attorney, was that most people were in bankruptcy because they had gotten divorced,they had been ill, had a failed business or some other misfortune. Nobody was there for a free ride.

            What you saw being portrayed in the papers was a fabrication based on some truth but not the entire truth. Very much like what you are seeing being portrayed today as and “epidemic of foreclosure fraud.” Its the freak show.

            Now the crises has certainly exposed the flaws in the foreclosure process and the courts, rightly so, tightened up their requirements. But lets stop hysteria of claiming an epidemic of fraud.

            My personal opinion is that securitization is a mess and there will have to be some sort of compromise that protects the interest of the homeowners but also protects the interest of the banks and allows them to foreclosure on homeowners who are not paying.

          2. Dave

            One more thing. I previosly did foreclosure work from 1998 to 2000 and that time you barely had to present any documentation. Some of the very things we claim as “robosigning” fraud now were standard practice back then, which the courts knew, saw and accepted. Nobody was screaming fraud back then.

          3. Dave

            Really Scott am I four that you feel the need to condescend and slyly imply that I would participate in fraud, that my moral compass is somehow skewed?

            Do I really need to say, “No Scott, I am not speaking of lying on affidavits, saying that you did something or know something when you do not.” It didn’t happen then and its wrong that it happened now.

            After my entire exposition, that is what you focus on? You can’t conceded even a tiny bit that your world view may not be exactly as you think it is? Or that your anger and indignation are being played by this “Epidemic of Fraud” to direct it towards “evil” and faceless corporations and away from those that are really responsible?

            Capitalism has no moral compass. It is simply a tool. A very powerful tool that if put to the wrong uses will unleashes a financial beast that can create fabulous wealth for some but poverty and despair for most everybody else.

            Don’t be angry at the beasts bad behavor, this “Epidemic of Fraud”, Be angry with those who let it out of its cage. Our political class. The Democrats are playing the liberal-left just as much Republicans are playing the tea party-right and they are both laughing all the way to the bank while faux distractions keep the middle class terrorized, sedated or squabbling with one another.

  2. Conscience of a conservative

    Good for the courts! I’m holding out a glimmer of hope that basic property law will be honored, but would not rule out some type of end-run around the courts by the banks via what ever tools they have available(Fed, Treasury, Congress, White house). Securitization is a good thing if properly done, it allocates risk to those who want to bear it, but it does not work without proper disclosure, and utterly fails if the parties entrusted do not act in good faith.

  3. Conscience of a conservative

    I don’t see how the market for private label securitizations can come back until this issue is resolved. We will be extremely reliant on Fannie and Freddie for mortgage financing for some time to come.

    1. albrt

      I don’t see how the market for private label residential mortgage securitizations can come back at all. A Jimmy Stewart type local bank manager should be able to beat the securitizers on pricing local residential mortgage risk every time. It simply isn’t possible for somebody in New York to pay for proper due diligence while at the same time taking multiple legal steps to insulate the buyer from lender liability and paying out bonuses at every level, and still make loans at insanely low rates in Phoenix or Cleveland.

      Securitization either needs to be standardized and subsidized, as with Fannie and Freddie, or it can only be applied in rate-insensitive contexts, such as credit cards.

      Or I guess we can go back to institutionalized fraud. That seems to be the administration’s preferred method.

  4. Procopius

    Very nice, but before I start celebrating I want to hear from Florida about their “Rocket Dockets.” I don’t feel very optimistic that the Florida AG is going to do very much, despite having joined the other 49 state AG’s in investigating the mess.

  5. f247

    Question: NC and others have often cited the fact that NY State trust law governs most of the non-agency securitizations. Do the comments/responses by the bankruptcy trustee say anything about the seriousness with which NY State courts want to follow the letter of the law w/r/t the securitization process and foreclosures? Or are these mostly independent issues?

  6. Still Screwed

    Haven’t we covered this already? The part about questionable assignments I mean- if you bought at anytime in the last 10 years there are most likely “questionable assignments”. The burden for the serf seems to be forking over huge sums to attorneys to get to this point.

  7. Zoe

    It seems to me that the crux of the MERS issue is as I read from a title attorney (Greg Clark article posted on Matt Weidner’s blog). Mr. Clark stated that MERS acted as an agent of the original lender, but no evidence exists that the original lender authorized it to do so. MERS enters as nominee for the original lender based on the borrower’s signature. The borrower has no power to create agency between two other non-signing parties.

    Does this not mean that the mortgage is poisoned and unenforceable from the very beginning? Does this not mean that the mortgages were dead before securitization was added to the chain of transactions?

  8. G Man

    I have always believed that the lack of standing is the reason that banks are not dealing fairly with homeowners. The proof is in the way that they have dealt with me. I was able to get a loan through another bank (I will not mention details, case is in litigation) for full value of the home and when I presented the letter of commitment, the servicer was replaced and communication ended on the matter (not that there ever was communication) and they continued with the foreclosure.

    My fight is going on two and a half years, I can’t sell, I can’t fix the home, I can’t even get a roommate. Every time that I thought something was working the servicer was replaced. Now I hear that the note was sold while at the same time the prior bank was taking me to court. The note has allegedly been transferred to a recently created LLC. I suspect that this is some maneuver to shed liability or to have some bottom feeders go after my home.

    But I am not taking this lying down, we have filed for quiet title and I am taking my chances that way. I thank you all for taking this fight on. I pray the court is fair and my lawyer is good.

  9. aletheia33

    a mass joinder case is being prepared by a law firm in CA against the major banks as a group. a link on this was posted by a commenter on the firedoglake story in the NC links for today: “The Mystery of Tom Miller’s Shifting Comments on Criminal Sanctions for Foreclosure Fraud”

    from the law firm’s main website:

    “On November 10th, 2010, The Kramer Stein Law Group announced the expansion of their services to now include Mass Joinder Litigation Cases The springboard for these cases has been the extensive work and case precedence established via the Ronald et al v. Bank of America case.”

    kramer stein et al. also say they have 1400 clients signed on for this litigation.

    this action seems like potentially a good recourse for borrowers, but it’s hard to evaluate kramer stein’s motives/integrity. the language on their website does show signs they are honestly concerned about the failure of the legal system in the cases they’ve brought over the last few years.

    an action involving so many borrowers would seem to be newsworthy, and perhaps worth spreading the word to people who could benefit from signing on to the action; why has it not been reported on anywhere?
    any information on this would be very welcome.

    http://kramersteinlaw.com/what_we_do.html

    1. Susan LaCava

      Be careful. I have been a class action attorney for 13 years, and I have never heard of anyone trying to file a “mass joinder.” Lawyers file class actions, not “mass joinders.”

  10. strega

    FYI re: Kramer Stein Law Group. Some due diligence is recommended in considering the Mass Joinder. I read of them on another blog and watched their extremely promotional videos at the site link. Then I did some casual googling and located many complaints from people who alledged they were scammed after they paid about $4K. I also noted that the Better Business Bureau has down-rated them.

    This isn’t to say that it’s for certain that they’re predators but….one should view the complaints on balance with the positive mentions. In addition, the contact link appears to be a “lead gathering business” so, careful as you go.

    1. aletheia33

      thanks for taking the time to poke around, and to offer your wisdom.

      calls seem to be mixed on the lawyers involved in the mass joinder, which does appear to really be in progress.

      hope more info will surface, especially as to how much/what kind of an impact it could have on the usual suspects and on the whole troubled borrower/lender/investor situation, in the overall mix of legal actions, which appear to be beginning to snowball.

      it does seem an interesting development that some lawyers seem to see combining “forces” (perhaps “greeds” is more accurate?) in a very big case against the very big banks as potentially very big business.

      looking at a society facing a large, unprecedented (in some ways) ill brought by a few behemoth parties upon a very great many, it is interesting to watch the responses that emerge, and from what unexpected places.

      e.g. the mass sitdowns of borrowers with lenders orchestrated in the big cities by community organizers.

      also i wonder what percentage of the population now knows or will ever come to know or care to know about the massive introduction of toxic fraud into the housing market and the serious damage it has done to our commonweal.

  11. Conscience of a conservative

    Yves,
    Please speak to the opinion of this court that the transfer need not have been recorded just “effectuated”. I think this is an important point that not everyone appreciates. It doesn’t sound like an MERS issue.

    1. Stupendous Man - Defender of Liberty - Foe of Tyranny

      Conscience,

      Here is my layman’s take on your issue.

      - Statute of frauds requires contracts for real estate to be in writing

      - Conveyance of a mortgage is done via an assignment of mortgage from the current owner (assignor) to the new purchaser/holder (assignee)

      - Recording statutes require the assignment of mortgage be recorded

      So we have essentially two steps:

      1) execution of the assignment to memorialize the transaction

      2) recordation of the assignment in the local recorders office to give notice to the world of the transaction

      I believe your question regarding “effectuated” relates to my term of execution. Before an assignment can be recorded it must first have been executed. Executing an assignment of mortgage without recording it does provide something of a chain of title, even if it doesn’t comply with the recording statutes.

  12. strega

    With regard to Aletheia’s last comment: I visit the Clerk’s office in my town every month or so, just to be certain that the forces of evil haven’t recorded any form of document that threatens my security. In doing so, on three occasions I’ve tried to determine what, if anything these people know about the current mortgage debacle. A short answer? Nothing. Absolutely nothing.,

    One answered my query with the reply “I don’t really watch the news”. Today, whilst there I referred to the mortgage fraud situation and the problems with recordation fees being lost….I could have cited chapter and verse and brought visual aids, it wouldn’t have mattered. They aren’t aware of any of it.

    Seems that everyone is so distracted by the hourly strangeness on the networks that it’s not of interest unless it’s personal. Not a hopeful situation for a major grass roots push.

    1. Fractal

      strega means “witch” in Italian, but you don’t seem scary to me. Your personal project has strong potential to expand into a grassroots organizing campaign. It probably only applies to judicial foreclosure states, however. Is your state one of the states which requires foreclosures to be ordered by a judge? If not, the court clerks would be very unlikely to understand the procedures.

      For those in judicial foreclosure states, just a few people in each county asking their local court clerks about improper foreclosures could have a remarkable effect in spreading the word. I think I might do that in my area, once it thaws out.

  13. Mark Jefferson

    Hey Conscience of a Conservative, What’s your take on the position the Justice Department has taken on continuing to prosecute mortgage fraud at the grass roots level, when it now appears that the Wall Street backed lenders’ loans were “flawed” at conception? Does this fact creates the possiblity that at a minimal, the banks are co-conspirators?

  14. jackpot justice

    If the loans were “flawed” at conception, the banks would have NO standing to foreclosure! Oh my God…..It does seems to me that the lenders knew that the products (no-docs, nina, ect.)were risky and they had the possiblity for fraud.

  15. Larry Elasmo

    Dave says: “I work for a major law firm that does this kind of work and contrary to the dramatic squealing coming from sites such as this…….”

    Hi Dave. I got the part that you’re an *attorney* working for a *major law firm*. We’re all suitably impressed. I hope this major law firm is paying you nice fat paychecks for churning out what can only be described as pro-bankster propaganda.

    Most Americans still have too much dignity left to shill that low for the banksters by telling newly impoverished Americans it’s their own fault and has nothing to do with massive systemic fraud on the part of the banks.

    But apparently not everyone. Anyway, good luck working as an attorney at this law firm defending the bankers, please keep up the propaganda and keep those nice fat paychecks rolling in.

    Have a nice day.

  16. Tim Goswell

    Dave said: “The cold reality is people borrowed money they can’t pay back, should we give them the homes for free?”

    Anyone who’s seen “Goodfellas” knows how it works…..In the housing game the scam was the same….At the bottom end of the predator chain were the brokers and mortgage lenders, raking in the homeowners, who to the brokers were just unwitting lists of credit scores attached to a little bit of dumb fat and muscle. To the brokers and lenders, every buyer was like a restaurant to a mobster – just a big pile of cash waiting to be seized and liquidated.

    The homeowner scam was all about fees….At the very lowest level, at the mortgage-broker level, the game was about getting the target homeowner to buy as much house as he could at the highest possible interest rates. The higher the rates, the bigger the fees for the broker. They greased the homeowners by offering nearly unlimited sums of cash.

    The process starts out with a small-time operator like Solomon Edwards, who snares you, the schmuck homeowner, and slaps your name on a loan that gets sent up the line. In league with Edwards is the mortgage lender, the originator of the loan, who like Edwards is just in it for the fees. He lends you the money and immediately looks for a way to sell that little stake in you off to a big national or international investment bank….., etc etc, and so forth

    (by now everyone knows the story by heart)

    excerpts from Matt Taibbi’s “Griftopia” pg 82 – 87

  17. Zoe

    @ Dave

    I am astounded and appalled by attorneys who dare insinuate borrowers are getting “free houses.” That was a very slick and quick PR move from the banks, early on. Few borrowers have gotten a free house, or free rent for that matter. Arrears and late fees accrued against borrowers in foreclosure and most are facing deficiency judgment with inflated fees and junk charges added to the often incorrect mortgage amount due. Garnishment of wages and seizing assets prevail in most states.

    So Dave, are you saying you are happy that BANKS are getting free houses? The same houses that allowed them to use borrowers’ identity, signature, credit score, and other confidential particulars to support a ponzi scheme and give the banks returns of 9 or 10 times (or more) the loan amount? Is it okay with you that “strangers” in the foreclosure sale buy the home for pennies on the dollar when banks refused to reduce principal on homes underwater to keep the borrower in their home? Are you happy to represent the banks who stole equity in some homes after borrowers paid large down payments and because of that large down payment the home is not considered “underwater”–despite the value of the home now at 60% of the original appraisal? Are you happy to represent the “bad guys” knowing that they often are guaranteed the full amount due by government entities such as Fannie Mae and Freddie Mac, regardless of the home’s current value or discounted price at sheriff’s sale? Do you really want us to accept the premise that this is merely an issue of foreclosure fraud, when foreclosure fraud is only one exposed facet (although an important one) of the mortgage and securitization fraud that is destroying our future? Is this really the “other” perspective you want us to applaud?

    No, thanks.

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