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Alabama Appeals Court Reverses Decision on Chain of Title Case, Ruling Hinges on Question of Bogus Allonges

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In a unanimous decision, the Alabama Court of Civil Appeals reversed a lower court decision on a foreclosure case, U.S. Bank v. Congress and remanded the case to trial court.

We’d flagged this case as important because to our knowledge, it was the first to argue what we call the New York trust theory, namely, that the election to use New York law in the overwhelming majority of mortgage securitizations meant that the parties to the securitization could operate only as stipulated in the pooling and servicing agreement that created that particular deal. Over 100 years of precedents in New York have produced well settled case law that deems actions outside what the trustee is specifically authorized to do as “void acts” having no legal force. The rigidity of New York trust has serious implications for mortgage securitizations. The PSAs required that the notes (the borrower IOUs) be transferred to the trust in a very specific fashion (endorsed with wet ink signatures through a particular set of parties) before a cut-off date, which typically was no later than 90 days after the trust closing. The problem is, as we’ve described in numerous posts, that there appears to have been massive disregard in the securitization for complying with the contractual requirements that they established and appear to have complied with, at least in the early years of the securitization industry. It’s difficult to know when the breakdown occurred, but it appears that well before 2004-2005, many subprime originators quit bothering with the nerdy task of endorsing notes and completing assignments as the PSAs required; they seemed to take the position they could do that right before foreclosure. Indeed, that’s kosher if the note has not been securitized, but as indicated above, it is a no-go with a New York trust. There is no legal way to remedy the problem after the fact.

The solution in the Congress case appears to have been a practice that has since become troublingly become common: a fabricated allonge. An allonge is an attachment to a note that is so firmly affixed that it can’t travel separately. The fact that a note was submitted to the court in the Congress case and an allonge that fixed all the problems appeared magically, on the eve of trial, looked highly sus. The allonge also contained signatures that looked less than legitimate: they were digitized (remember, signatures as supposed to be wet ink) and some were shrunk to fit signature lines. These issues were raised at trial by Congress’s attorneys, but the fact that the magic allonge appeared the Thursday evening before Memorial Day weekend 2011 when the trial was set for Tuesday morning meant, among other things, that defense counsel was put on the back foot (for instance, how do you find and engage a signature expert on such short notice? Answer, you can’t).

The case was ruled in favor of the US Bank, in a narrow and strained opinion (which was touted as significant by reliable securitization industry booster Paul Jackson). It argued that the case was an ejectment action (the final step to get the borrower out after the foreclosure was final) so that, per securitization expert, Georgetown law professor Adam Levitin,

..the question of ownership of the note was not an issue of standing, but an affirmative defense for which the homeowner had the burden of proof…Crazy or not, however, this meant that the homeowner wasn’t actually challenging the trust’s standing. From there it was a small step for the court to say that the homeowner couldn’t invoke the terms of the PSA because she wasn’t a party to it…..

The case has been remanded back to trial court, and the judges put the issue of the allonge front and center.

Alabama Appeals Court Ruling U.S. Bank v. Congress June 8, 2011

The court found that the judge put an improperly high burden of proof on Congress, applying a “clear and convincing evidence” standard. The court said that was a misapplication of precedent based on cases dealing with recorded deeds. The document under dispute was an allonge to an unrecorded note. The appeals court found the evidentiary hurdle should instead be that of a preponderance of evidence. In addition, the court also found that the lower court incorrectly focused on the issue of the validity of the signatures. The appeals court found that even though Congress seemed to be contesting the validity of the signatures (the appeals court notes the argument at points seemed to be a bit confused), her real bone of contention was that the allonge was bogus (emphasis original):

Congress appears to be arguing not that signatures on the allonge are forged or otherwise invalid to prevent enforcement of the note, but that the allonge was fabricated or, essentially, created after the first trial in order to remedy the apparent defect in the chain of indorsements.

Keep in mind that Alabama is hardly a consumer friendly jurisdiction; it’s former status as one of the preferred states for launching class action suits, thanks to favorable state statutes and easily riled juries, has led to a concerted effort to elect and place business friendly judges on the bench (Alabama has far and away the most costly Supreme Court elections in the entire nation). The fact that a higher court has finally decided to place the question of the legitimacy of suddenly-appearing allonges at the heart of a ruling is a welcome development.

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33 comments

  1. Samuel Scrantch

    Fabrications i.e. felonies are only troubling to those, with less access or money.

  2. Susan the other

    Thank you Yves. Great update. Here comes the big question I hope. Will chain of title law prevail? Or will any old totally bogus allonge prevail? Pandora’s Box. I’m a little impatient over the distinction between forged allonges complete with forged signatures and “fabricated’ allonges, complete with fabricated signatures. Under state code a fabrication is a forgery. But apparently it was not argued by Congress at trial. It is amusing that the trial judge was so goofy he put the burden of proof for a negative on Congress; she without the proper documents. And then concluded if she did not contest the standing of the bank she also could not contest the standing of the Trust and therefore the express provisions of the PSA were not an argument she could make. Circular. I think there was a previous judge in Alabama that ruled that the homeowner was indeed a party to the PSA agreement by simple virtue of owning the underlying collateral. I wonder if this judge was coaxed to rule specifically this way to refute the previous judge? Anyway, the appeals court had a brain. How nice.

  3. American Slave

    Yet another reason we need direct democracy, nowadays they probably could do it on tv where you text your vote is how easy technology has made it. One thing i know is elected dictatorship never works its to easily corrupted.

    1. David

      Well I know it sounds naive, but maybe because it was the obvious and correct ruling.

      The trial court let the signatures slip by without scrutiny. Yet on their face they were suspicious, and very important in shaping the ruling in the case. Obviously, if there’s any justice, questionable signatures can’t suddenly appear and be above scrutiny.

      So there was a little justice. I am shocked too, but hey once in a while things go right!

    2. Bud

      Direct democracy is easily manipulated by the state and thereby assures eventual dictatorship because popular (which is to say ignorant) passion inevitably undermines rule of law.

      The bill recently introduced to permit the USG to overtly propagandize (lie to) the citizenry for its own benefit should be a warning. Bernays was right. Goebbels proved it. We know how that movie ends. The public will yawn in boredom.

      1. enouf

        Actually (and whilst i don’t necessarily promote direct democracy), the issue is within the (sheepishly accepted) idea that Legislative Acts/Statutes/Regs/Code/Executive Orders etc. are accepted as the ‘Rule of Law’ — whereas they are but merely manmade “Legal” documents, (not necessarily “Lawful”, and most times Unlawful, and the CongressCritters, POTUS, and SCOTUS have abdicated their Fudiciary Responsibilities and Honors of Oath to uphold the US Constitution) and should be prosecuted for High Crimes, Misdemeanors, and High Treason.

        These ‘legal documents’ are then given unlawful EnFORCEment power ..such is the Big Lie.

        Law is above and beyond anything humans can ever come up with, but sigh.. i digress

        Love

      2. different clue

        California voted itself Proposition 13, Three Strikes and You’re Out, and other good things through Direct Democracy.

        1. enouf

          but why can’t you see that the ‘DD’ you refer to is operating within a psychotic/sociopathic Framework–if the underlying systemic changes needed do not occur, then nothing else talked about (from propagandatruth) matters now, does it.

          Love

          p.s. no, i humbly admit i don’t have all the answers

    3. American Slave

      Well at the very least leaders should be subject to instant re-call or have a confidence vote every 6 months.

  4. steelhead23

    Hmm, high-cost elections and business friendly suggest an outcome very different from this ruling. Anybody got any inside baseball on why this ruling went this way?

  5. chris m

    After being forced into bankruptcy by the banksters maybe the folks down in Jefferson County are finally getting tired of being screwed by our Wall Street masters.

    1. Pencil Nebula

      Jefferson County Alabama is not part of the State of Alabama regardless of what the map says. It is its own little cultural miniaturized DC type world .

      1. enouf

        Reminds me of the Triborough Bridge and Tunnel Authority (TBTA) Monopoly here in NY state (9 Bridges and Tunnels in the NYC metro area) ..setup via Robert Moses, IIRC … talk about an unaccountable clan, let alone an open purse — I wouldn’t even consider this (absurd, illigitimate, unlawful) entity a part of the “Public” sphere, let alone a unionized one.

        Love

  6. McWatt

    Hey Yves: This was just posted on Crains from Chicago, odd that it comes out on a Friday before a beautiful summer weekend.

    Crain’s) — The billionaire Pritzker family has quietly freed itself from the legacy of one of its biggest embarrassments: the failure of its Superior Bank FSB 11 years ago.
    The Pritzkers last summer paid off the remainder of the $460 million they agreed to pay federal banking regulators under a 2001 settlement that at the time had five more years to run, the Federal Deposit Insurance Corp. confirmed Thursday. The Pritzkers paid something less than the $144 million they still owed as of last summer, an FDIC spokesman said. He declined to say exactly how much the FDIC agreed to accept to satisfy the obligation.
    “On a net present value basis, we considered it to be paid in full,” the spokesman wrote in an email. “For the uninsured depositors, this means that they received their money five years sooner than if last summer’s agreement had not been reached.”
    From our archives:
    • “Superior reopens under FDIC” (July 30, 2001)
    • “Meter running on Superior bailout” (Aug. 6, 2001)
    • “Superior Bank auction coming” (June 14, 2002)
    • “Pritzkers sued in bank collapse” (Nov. 2, 2002)
    A spokeswoman for Penny Pritzker, who chaired Superior until 1994 and then managed the issues surrounding the bank following the 1999 death of family patriarch Jay Pritzker, referred questions to her cousin Tom Pritzker. A representative for Tom Pritzker, executive chairman of Hyatt Hotels Corp., declined to comment.
    The Pritzker family owned a 50 percent share in Hinsdale-based Superior, acquiring it along with another family in 1989 and then embarking on a subprime lending model that was an eerie forebear of the housing crash and resulting financial crisis to come more than a decade later. Superior, which had $2 billion in assets at the time of its failure, made mortgage and auto loans to customers with checkered credit and then packaged those loans into securities to be sold to investors.
    In 1999, regulators discovered that the bank wasn’t properly accounting for exposures from soured loans. Resulting large losses led to a capital deficiency, and the Pritzkers and their partners declined to put more capital into the bank. Regulators seized it in 2001, leaving uninsured depositors exposed to potential losses of more than $40 million.
    Depositors to date have received 81 percent of the uninsured portion of their deposits, according to the FDIC.
    In December 2001, the Pritzkers, without admitting or denying responsibility for the bank’s failure, settled with the FDIC, agreeing to pay $460 million, with $100 million paid upfront and the remainder spread in equal no-interest installments over 15 years. Under an arrangement in their settlement, the Pritzkers recovered tens of millions in a $125 million settlement between the FDIC and Ernst & Young, the bank’s auditors, struck in late 2004.
    ShareThis46 13

    Read more: http://www.chicagobusiness.com/article/20120608/NEWS01/120609854/pritzkers-rid-themselves-of-remaining-superior-bank-debt#ixzz1xEoXgCOt
    Stay on top of Chicago business with our free daily e-newsletters

    1. Ms G

      Fascinating story – thank you for posting here on NC.

      “In 1999, regulators discovered that the bank wasn’t properly accounting for exposures from soured loans. Resulting large losses led to a capital deficiency, and the Pritzkers and their partners declined to put more capital into the bank. Regulators seized it in 2001,…”

      Soured loan exposure leading to capital deficiency leading to seizure by FDIC. That was only 11 years ago, but seems like another Epoch today, when exposures from soured loans in the trillions at BoFA, Citi, Deutsche, Wells Fargo, etc., still sit on the books of these banks and on the debt ledger of taxpayers through the Gov buyouts of toxic assets . . .

      What a difference 11 years makes.

      It is grating to hear about the settlement terms where the Pritzkers were allowed to pay on a long-term installment plan that was then “recalculated” further down the road. Imagine if tenants behind on their rent because of job losses or home-owners facing foreclosure were allowed the same terms (“without admitting or denying liability” of course).

      1. Expat

        I agree. The terms of the final payment should be public — and publicized. How is the public served by secret deals engineered for the benefit of billionaires?

        1. enouf

          All i will say is;
          Read your own State Constitution (some are not as) please; note where it mentions ALL public discourse MUST be held in public; I know that atleast the State of CA has that emblazened (via privileged white men) into its document. There are many others,…

          Love

          p.s. the Articles of Confederation (along with the Declaration of Independence) seem to be the root source we need to return to; at the least.

        2. Ms G

          Public is being s**wed by these hidden deals which is why they must be kept under wraps. In this particular case, if I were one of the depositors who had lost money, I’d be screaming bl**dy murder about the secrecy of the settlement. If there’s a class action involved, the depositors’ attorney would have been the one with standing to intervene . . . who knows what the circumstances are though.

          A lot of private litigation arising out of the 2007-08 Crash is (as we speak) hidden because of banks’ incredible success in getting courts to put everything under confidentiality blankets.

    2. LeonovaBalletRusse

      Nothing succeeds like “cannibalizing your own” a la mode de Pritzker and Obama. Divide-and-conquer Economics + Politics manifests the destiny of the Chicago Hegelian Dialectic Perfected by the “Magic Negro” more than willing to eat the faces of American descendants of slaves who didn’t make the cut.

      “THE OPIUM WARS” continue Stateside. Clinton and Obama are abject slaves, groveling at the feet of their oppressors the .01% and their .99% Agency, the enthroned Pritzkers among them. “The Warmth of Other Suns” in deed.

      We the People drown in tsunamis of shame, ever since the “Middle Passage.” The Foreign Agent in Chief of the 1% sinks us deeper into the ocean of shame and ignominy that engulfs us more deeply by the day.

    3. Ray Phenicie

      Don’t forget to mention the Pritzker family ties to the Barack Obama family.
      http://wherechangeobama.blogspot.com/2011/05/time-to-revisit-2012-presidential.html
      “President Barack Obama began his re-election fundraising drive yesterday in Chicago among some of his earliest political investors and near his 2012 campaign headquarters…Among longtime donors at the events were Penny Pritzker, who led the fundraising effort for his 2008 campaign and John Rogers, chairman of Chicago-based Ariel Investments LLC…”

      1. 3CPO

        Penny Pritzkers brother supported McCain in a similar but not exact postion. They covered their bases.

  7. McWatt

    This sounds exactly like that Rockefeller banking fiasco from the same time period. Any one know how these relate to each other?

  8. Rehabber

    The Alabama Civil Court of Appeals has been pretty good on the issues surrounding bad forclosures thus far. They’ve been active overturning actions for ejectment (the AL version of eviction for foreclosed homeowners) based on bad foreclosure actions.

    BAC foreclosed but failed to acquire an assignment from MERS
    http://www.leagle.com/xmlResult.aspx?xmldoc=In%20ALCO%2020111216006.xml&docbase=CSLWAR3-2007-CURR

    GMAC foreclosed but did not have a valid assignment
    http://www.maynardcooper.com/system/review/Patterson.pdf

    Fannie Mae improperly negotiated a note to a servicer, while the servicer foreclosed
    http://alabamaappellatewatch.com/wp-content/uploads/2012/01/2100235.pdf

    A couple filed a wrongful foreclosure suit against Wells for double tracking (negotiating a mod while proceeding with a foreclosure sale). Facts as stated in the complaint are devastating.

    http://www.alabamaconsumerprotection.com/wp-content/uploads/2012/01/McCarty-v.-Wells-Fargo-Stamped-Filed-Federal-Complaint-1-9-12.pdf

    1. Ms G

      Great references for real developments on the ground (in the court trenches). Thank you.

  9. Glen

    This would go a whole lot better if State AGs had already thrown people in jail for fraud and forgery.

    One can dream, I suppose…

  10. stripes

    Allonges are worthless slips of paper that transfer nothing if they are attached to an unindorsed note. The intended purpose of the Allonge was that an Allonge was only supposed to be used when there was no more room left on the note for endorsements. Alabama is smart and I am sure they will set the record straight about this fraudulent transfer known as the Allonge.

    Alabama is the first state to adopt a state ban on Agenda 21 with a sovereignty preserving measure known as Alabama Senate bill 477, (SB 477). AKA the “due process for property rights act.” It passed both the House and Senate unanimously. After hesitating for a few days, Republican Governor Robert Bentley signed into law the widely popular measure—-but only after heavy pressure from activists forced his hand.

    Great job and hats off to the people of Alabama on passing this anti fascist measure SB 477……!

    1. Ms G

      Democracy 1 – Kleptocrats 0. Even if only in one little corner. But Rome was not built in a day either, so . . . :)

  11. chunga

    This is going to get real ugly. They haven’t even gotten to the part where if they did not comply with the terms of the trust within the very strict time period specified; taxes are owed per IRS Rules 806 A-G.

    Look at what the Illinios Bankers Association has to say about this. It is chilling.

    Re: Discussion Points Submitted for Public Comment and Hearing on April 27, 2012

    We’d better be ready to fight back folks because they are coming. I’ve got an open letter going today to the Presiding Justice of the RI Superior Court calling for the recusal of two Judges who are out line. RI is our smallest state but there is some very heavy action going on in RI Fed Court. The Stay Order has awoken some giants.

    Open Letter to The Rhode Island Superior Court Regarding Foreclosure Fraud June 9, 2102

    And on online petition to sign if you are so inclined

    The Honorable Presiding Justice Alice P. Gibney: Recuse Justice’s Allen P. Rubine and Michael A. Silverstein.

  12. Lynne

    Oh, so homeowner is not a party to the PSA — except for the forescloseur provisions. Really?

    1. chunga

      It is kind of a moot issue Lynne. They broke the terms of their own contract. That (REMIC) contract is governed by NY Security Laws and they are very strict.

      Give me a chance and sign the petition below. If I get the opportunity I will fly up there and speak before the RI General Assembly. RI will be a major battleground because of the Federal Stay Order. It is a line in the sand.

      https://www.change.org/en-GB/petitions/the-honorable-presiding-justice-alice-p-gibney-recuse-justice-s-allen-p-rubine-and-michael-a-silverstein

      I am not afraid to fight for everyone.

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