Fannie and Freddie Continue to Rely on Foreclosure Mills Despite Evidence of Fraud

A good piece at Mother Jones, “Fannie and Freddie’s Foreclosure Barons” (hat tip Foghorn Leghorn) provides a window on a seamy big business: cut rate foreclosure processing machines that routinely ride roughshod over borrowers and the law.

Unfortunately, space limitations prevent the story from going deeply into some critical issues. The piece does a good job of explaining how these cut rate legal services operations are creations of Fannie and Freddie and illustrating how they are engaging in fabricating documents. The story focuses on a specific bad actor, a law firm founded by David Stern that handles roughly 1/5 of the foreclosures in Florida:

Ariane Ice sat poring over records on the website of Florida’s Palm Beach County…She and her husband, Tom, an attorney, ran a boutique foreclosure defense firm called Ice Legal…. Ice had a strong hunch that Stern’s operation was up to something, and that night she found her smoking gun.

It involved something called an “assignment of mortgage,” the document that certifies who owns the property and is thus entitled to foreclose on it….By law, a firm must execute (complete, sign, and notarize) an assignment before attempting to seize somebody’s home.

A Florida notary’s stamp is valid for four years, and its expiration date is visible on the imprint. But here in front of Ice were dozens of assignments notarized with stamps that hadn’t even existed until months—in some cases nearly a year—after the foreclosures were filed. Which meant Stern’s people were foreclosing first and doing their legal paperwork later. In effect, it also meant they were lying to the court—an act that could get a lawyer disbarred or even prosecuted. “There’s no question that it’s pervasive,” says Tom Ice of the backdated documents—nearly two dozen of which were verified by Mother Jones. “We’ve found tons of them.”

This all might seem like a legal technicality, but it’s not. The faster a foreclosure moves, the more difficult it is for a homeowner to fight it—even if the case was filed in error. In March, upon discovering that Stern’s firm had fudged an assignment of mortgage in another case, a judge in central Florida’s Pasco County dismissed the case with prejudice—an unusually harsh ruling that means it can never again be refiled. “The execution date and notarial date,” she wrote in a blunt ruling, “were fraudulently backdated, in a purposeful, intentional effort to mislead the defendant and this court.”…

But the Ices had uncovered what looked like a pattern, so Tom booked a deposition with Stern’s top deputy, Cheryl Samons, and confronted her with the backdated documents—including two from cases her firm had filed against Ice Legal’s clients. Samons, whose counsel was present, insisted that the filings were just a mistake. She refused to elaborate, so the Ices moved to depose the notaries and other Stern employees whose names were on the evidence. On the eve of those depositions, however, the firm dropped foreclosure proceedings against the Ices’ clients.

It was a bittersweet victory: The Ices had won their cases, but Stern’s practices remained under wraps. “This was done to cover up fraud,” Tom fumes. “It was done precisely so they could try to hit a reset button and keep us from getting the real goods.”

Backdated documents, according to a chorus of foreclosure experts, are typical of the sort of shenanigans practiced by a breed of law firms known as “foreclosure mills.” ….The mills think “they can just change things and make it up to get to the end result they want, because there’s no one holding them accountable,” says Prentiss Cox, a foreclosure expert at the University of Minnesota Law School. “We’ve got these people with incentives to go ahead with foreclosures and flood the real estate market.”

Yves here. This is far from the only form of document forgeries. A widespread abuse is what bankruptcy attorney Max Gardner calls the “alphabet problem.”

Mortgage securitizations were very carefully designed to satisfy a number of concerns. One of them was bankruptcy remoteness, that if an originator failed, as Countrywide, New Century, IndyMac and a host of others did, that the creditors in the bankruptcy would not be able to claw mortgages back out of securitizations (assets sold close to the date of a bankruptcy may be deemed to have been conveyed fraudulently, and thus can be seized by the court on behalf of the creditors).

To prevent this from occurring, the Pooling and Servicing Agreement (the master document that governs the securitization) would provided for a minimum of two independent legal entities to sit between the originator and the trust that would hold the mortgages being securitized (technically, the note, which is the IOU; the mortgage, which is a lien, follows the note in 45 states). So the prescribed minimum number of steps was A (originator) => B => C => D (trust). Some securitizations (for reasons unrelated to establishing bankruptcy remoteness) would provide for even more steps.

Keep in mind that the PSA also required that the notes be conveyed to the trust, with the proper chain of endorsements, by closing; certain exceptions and fixes were permitted up to 90 days after closing, but these would be applicable only to a very small proportion of the pool.

Gardner explains the abuse:

A review of all of the recent “standing” and “real party in interest” cases decided by the bankruptcy courts and the state courts in judicial foreclosure states all arise out of the inability of the mortgage servicer or the Trust to “prove up” an unbroken chain of “assignments and transfers” of the mortgage notes and the mortgages from the originators to the sponsors to the depositors to the trust and to the master document custodian for the trust. As stated in the ….PSA, the parties have represented and warranted that there is “a complete chain of endorsements from the originator to the last endorsee” for the note. And, the Master Document Custodian must file verified reports that it in fact holds such documents with all “intervening” documents that confirm true sales at each link in the chain.

The complete inability of the mortgage servicers and the Trusts to produce such unbroken chains of proof along with the original documents is the genesis for all of the recent court rulings. One would think that a simple request to the Master Document Custodian would solve these problems. However, a review of the cases reveals a massive volume of transfers and assignments executed long after the “closing date” for the Trust from the “originator” directly to the “trust.” I refer to these documents as “A to D” transfers and assignments.

There are some serious problems with the A to D documents. First, at the time these documents are executed the A party has nothing to sell or transfer since the PSA provides such a sale and transfer occurred years ago. Second, the documents completely circumvent the primary objective of securitization by ignoring the “true sales” to the Sponsor (the B party) and the Depositor (the C party). In a true securitization, you would never have any direct transfers (A to D) from the originator to the trust. Third, these A to D transfers are totally inconsistent with the representations and warranties made in the PSA to the Securities and Exchange Commission and to the holders of the bonds (the “Certificateholders”) issued by the Trust. Fourth, in many cases the A to D documents are executed by parties who are not employed by the originator but who claim to have “signing authority” or some type of “agency authority” from the originator. Finally, in many of these A to D document cases the originator is legally defunct at the time the document is in fact signed or the document is signed with a current date but then states that it has an “effective date” that was one or two years earlier.

Yves here. In simple terms, someone (presumably the foreclosure mill) is simply fabricating documents, and doing it in such a ham-handed fashion that it doesn’t even come close to satisfying the requirements of the PSA. In my very limited dealing with these cases, I’ve actually seen it happen. A document that miraculously solved all the problems with a particular case was miraculously found at the eleventh hour in the collateral file for a particular mortgage, late on Thursday before the Memorial Day weekend when the hearing was Tuesday. It was obvious that one of the signatures had been digitally shrunk to fit, when only “wet-ink” signatures are permitted for these documents. The servicer made representations in his original testimony under oath that he later had to recant when presented with evidence that contradicted his assertions.

So understand the implications: the parties to securitization have so screwed up the procedures that they set up that it is pretty much impossible to foreclose (in the 45 of 50 states where the note is the critical element of the transaction) unless they forge documents. That’s fraud, pure and simple. And Freddie and Fannie continue to enable it.

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  1. attempter

    Since the GSEs are tools of the banks and the kleptocratic parties, we can say this is the systematic fraud of Wall Strret, Republicans, and Democrats. Bush and Obama are personally culpable.

    Why is the fraud committed? Proximately, it’s direct theft and isolation from risk and responsibility by the banks. That’s what securitization is all about. Even more proximately, the Bailout must brook no limits in propping up the toxic crap already on the insolvent banks’ balance sheets. So the fraud must continue, massively, even heroically (from the corporatist point of view).

    More generally, “home ownership” as permanent indebtedness to the banks is the basic element of the “American Dream” ideological scam, which is really based on those who produce the wealth of society being prevented from controlling, managing, possessing, or enjoying it. This wealth must all be stolen, with only the absolute minimum doled back (“trickled down”).

    Since the most obvious alternative to the bank-ownership-middle class-debtor-“ownership” model of land distribution would be a return to the actual Lockean labor theory of property, which would open the door to whole new vistas of social and political thought, it follows that the system must at all costs prevent the populace from even thinking about the fact that under this legal and political dispensation the banksters “own” the land and we only squat upon it at their pleasure, so long as we conform and slave according to their diktat.

    It does say a lot about the elemental criminality of this system, and its stupidity according to any rational, practical measure, that in order to prop it up they’re reduced to this picayune level of gutter fraud, forging mortgage papers. And yet they still majestically invoke “capitalism” and “freedom” as they scrunch and squint and scribble over their two-bit forgeries.

    So they’re not only capital criminals, but such meager, snivelling, ugly little criminals.

    1. poopyjim

      The “lucky” indebted at least have an (overvalued) asset backing up their debt. My girlfriend has over $200,000 in non-dischargeable student loan debt and I have $130,000. We’ll never own anything unless we flee the country.

      Livin the dream baby!!!

      1. attempter

        Yeah, those non-dischargeable or strategically defaultable debts are one of the worst scams.

        (Lately I’ve seen a surprising number of pieces even in the MSM admitting that by now college is a rent-seeking scam.)

        I don’t know how to fix that short of a general mass bottom-up jubilation, which is what I advocate.

          1. Mogden

            It’s 100% inevitable that they will do so, unfortunately. Bailouts for me, high prices for thee!

      2. NOTaREALmerican

        Re: unless we flee the country.

        There is still time to get out. Nothing good will happen here.

        But choose wisely. The most important baseline for a society is (IMHO) honest rural cops. If you have that, everything else in the country will work “good enough” to survive.

        1. poopyjim

          We are considering Australia or New Zealand. Going to bide time for a while though… I expect we have another leg down in terms of the economy/employment situation here in the U.S. The effects of this will probably be global, but I also expect the global economy to recover long before the U.S. does (if ever)… would like to be confident this is underway before we skip.

          1. Dick Hertz

            Australia and New Zealand will never accept you as potential immigrants-they tightened their policies up in the 80s and never loosened them. This based on a number of refugees from Australian and Kiwi graduate programs who were booted before they could finish their degrees despite being able to pay exorbitant tuitions.
            Costa Rica, Panama, Mexico, Colombia, Chile, many countries in Asia and the former Eastern Bloc have plenty of opportunities to both elude the bill collectors and find jobs that pay better than subsistence, even if you just teach English in some cases.

    2. liberal

      Since the most obvious alternative to the bank-ownership-middle class-debtor-”ownership” model of land distribution would be a return to the actual Lockean labor theory of property…

      That Lockean theory isn’t useful; it’s too confused, and can too easily be claimed to lead to the current “propertarian” take on real estate.

      Much better is the Georgist theory of property, and the ensuing policy recommendations (extremely high taxes on land).

      1. attempter

        It’s clear as a bell to me: Only personally working the land bestows any property right in it.

        Almost none of the existing distribution meets the standard.

  2. hawaii1

    love this website, but a truly dumb article. the opposite is true

    the minnesota law professor should remain teaching and stay out of the real world. flood the market? the banks want the opposite. the politics behind the statement are not only incorrect, they are stupid and inconsistent with what really is going on.
    and gardner has never been in a bk court or sane. remoteness does not help a bit. if the mortgage were held by gandolph and was unrecorded, gandolph is screwed. epecially if he or she fails to show in court

    the whole deal is just another misguided attempt at efficiency. complicated and dumb. look elsewhere for the evil. plenty of target

    1. Yves Smith Post author

      You don’t know what you are talking about, and your remarks are untrue. Gardner isn’t a prof, he isn’t from Minnesota (one of the few states where the lien can travel separately from the note), and he HAS tried plenty of this type of case before the Federal BK bar. And you utterly missed his argument and these post’s argument. These mortgages ARE recorded, but that is not what governs in 45 states, you need to be the correct party to sue, which means be the owner of the note, the IOU (the mortgage, or as it is called in some states, a deed of trust, is a lien). He teaches a course privately (not through a university) to attorneys. He gets a lot intelligence directly from attorneys who have taken his course.

  3. lawgrace

    federal judges, FORECLOSURE MILLS, & Freddie Mac

    In Louisiana (and probably in other States), Freddie Mac, Wells Fargo, Federal Court Judges, and Foreclosure Mill lawyers are engaged in various illegal foreclosure activities:

    1) Foreclosure mill lawyers file into court records obfuscated money-making pleadings (summary judgments, etc) even when Freddie Mac is NOT party to the lawsuits. In so doing, those lawyers deceptively rake in billable $$$$ under pretext of representing Freddie Mac. Additionally, those mills facilitate use of Freddie Mac’s identity for purposes of causing litigations to become transferred (removed) from state court to federal court, when those lawsuits otherwise would remain in state due to lack of federal subject jurisdiction. Making this farce even worse is unjust “forum-shopped” federal courtrooms of which the federal judges know (it’s impossible to not know) those cases lack federal subject matter.

    2) In blatant conflict of interest, some foreclosure mill lawyers obtain for themselves ownership of those properties; and these mills welcome litigation which adds billable fees. After their “simulated” property auctions, some mill lawyers actually bid and taken ownership of the properties, and then FLIP the property to Freddie Mac.

    3) Wells Fargo (WF) benefits from real estate foreclosure schemes by filing false IRS (“acquisition”) form 1099-A’s, despite that WF never lawfully “acquired” some of those so-called foreclosed properties, which became foreclosed via either defunct mortgage lenders’ names or lenders’ names no longer own those notes.

    4) See this foreclosure case filed under defunct Lehman Brothers as owner of the mortgage loan, while Wells Fargo also claimed ownership of that exact loan and sought the insurance proceeds for that Hurricane Katrina damaged property. (There are likely hundreds, thousands of such Katrina insurance incidences!)

    Foreclosure mills are being unjustly enriched, and lenders and courtrooms are abetting –and sometimes benefitting from these fraudulent foreclosure schemes.


    Illegal Foreclosures & Evictions, Appalling Lender / Lawyer Abuses…

    Lack of Legal Help: One More Way the Deck Is Stacked Against Homeowners

    OPEN LETTER TO PRESIDENT OBAMA on Foreclosure Crisis

    1. taunger

      at least in Fed ct there are rule 11 sanctions that could stop the foreclosure mills – it seems like now that this activity is well established, it comes down to finding the right federal judge to start the next step in ending the abhorrent foreclosure practices

      1. lawgrace

        Rule 11 sanctions should come into play. But when judges are concerned to accommodate powerful law firms in any way possible, those judges are not interested in such things.

        ALSO, another troubling commentary about foreclosure fraud is this:

        Most foreclosed homeowners are not aware of the matter of mortgage lenders turning in the names and social security numbers of those property owners to the Internal Revenue via (legitimate as well as non-legitimate) IRS form 1099-A, until they receive those (sometimes fraudulent) LARGE TAX BILLS, which becomes huge problems when foreclosures are in the first place fraudulent.

  4. Paul Tioxon

    Yves, in reading your wonderful account of business in Econned, I am only 1/2 complete, there seems to be another small gem of a story of fraud. Not only are we witnessing the uncovering of the fabrication of docs for the end of the line of these mortgages, many of the loans were fabrications to begin with. The blank W-2’s from Staples, the whiting out and re-xeroxing key documents, like divorce decrees, IRS release letters, verification of income, deposits etc. In so many instances, these loans were originated and presented to underwriters as artfully forged fictions. And now, we see at the end of the line, more of the same. Predation at the head of the fish, at the top of food chain on Wall Street and fraud and manufacture 1003 applications for the reading pleasure of underwriters. Corruption of the process from end to end.

  5. Tom Crowl

    The lack of any meaningful due process that’s available for a ‘life fundamental’ (shelter)… is leaving a very bitter taste in the mouths of millions of families.

    Washington D.C. and the political and financial elite are completely out-of-touch and deserve absolutely no respect.

    It doesn’t take deep scientific analysis to realize that this is going to lead to an even deeper distrust of and contempt for law generally…

    “Due Process” is a game for the rich only. This is an extremely dangerous situation… ultimately for the rich as well as the poor.

  6. Lins

    Is this article missig a first point and that is the homeowners aren’t paying their mortgage in the first place? I’m not saying fraud is justifiable, but isn’t it also fraud or fraudlike to take a mortgage that you know you can’t afford? Don’t get me wrong, I think the practices above are wrong, but what is the point of this article? Is the end result of exposing fraudulant practices mean they’ll stop and further, is it a good thing that people stay in their homes without paying for them? Is this a method to finally break the banks and bring change to TBTF?

    1. Vespasian

      In instances where proof exists the “homeowner” has a debt obligation and is not meeting it, but it is not clear to whom the debt is owed, I’m all for the local county receiving the property and having authority to auction it on the market. If the county wishes to hold it and rent it right back to the prior “homeowner”, so be it. If the courts can eventually figure out that a certain bank/agency “ought” to have received it, they can seek 95% reimbursement of auction price from the county.

      Who loses? People who bought more than they could afford, and businesses with extremely poor lending standards and process QC. Who wins? Counties and those irritating bastards (ahem, yours truly) that refused to purchase during the bubble and opted to wait out until the collapse.

      It won’t happen, of course. Too many big $ interests would lose it all, and too many voters would be forced to face their own folly and deal with the consequences. In modern day America, we certainly can’t have that.

    2. reslez

      The point of the article is to draw attention to the widespread fraud, theft and abuse in the foreclosure process. The point is not to rehash whether the bank should have made the loan in the first place or whether the bank should have actually bothered to verify the applicant’s income. Separate issue, I agree.

      You make it sound like people flip a coin one day and decide not to pay their mortgage. Fine, I’m on board with that. Let’s morally castigate that statistically infinitesimal percentage of people for their lack of moral rectitude. But the bank has a remedy when that happens — they get to take the house and kick those terrible people onto the street where they belong. They have the right to do that.

      But they do not get to take the wrong house, or someone else’s house, or a house where the debtor is making the payments. And they certainly can’t take anything unless they can prove to a court they have the right to foreclose. That’s the evil at issue here.

  7. MinnItMan

    I am a foreclosure defense attorney and I am always looking for good faith arguments about lender misconduct. In this case however, the reporting fails to resolve a critical ambiguity before launching into allegations of fraud and forgery.

    There are TWO relevant dates on an assignment of mortgage: 1) the effective date of the document; and 2) the acknowledgemnt or notary date. There is nothing inherently wrong with back-dating the effective date of the document if that date reflects the reality of the assignment (or whatever the nature of the transaction was). This is done frequently, for example, in the case of lost deeds. A new deed in executed with a present notary date, but with a back-dated effective date that reflects when the transaction actually took place. In fact, to do otherwise would be the real potential fraud. More concrete example: I deed property A to Iyves at the end of 2009. Her title company or her county recorder loses the deed. She comes back to me and asks for a replacement deed, but also asks that I date it effectively for August 5, 2010. I say “no, I conveyed out Dec. 2009, and don’t want any indication that I was associated with the property after I delivered the deed” to Iyves. I reported it on my 2009 taxes. I cancelled my insurance policy.

    Without getting into specifics about her motives for asking me to do this, there are plenty of plausible bad motives. And the fact is, the transaction did happen in 2009, not today. Today’s document is the “fix.” I am certainly not commiting fraud by fixing the lost document problem my way, but Iyves may be if we do it her way, and at the very least, she is asking for a new document that does not accurately reflect what “really” happened.

    This article, and most of what I read concerning Neal Garfield, usually fails to disambiguate and distinguish legitimate conduct from questionable conduct, and the make great hay out of the resulting confusion. Mr. Garfield frequently provides highly selective authority for wishful thinking rather than careful analysis, insisting that conclusions of wrongdoing (fraud, forgery, conspiracy) go without saying.

    I’m not sure what Mr. Gardner is charging for his seminars these days, but suffice it to say that he is part of an industry that is routinely making clients significantly poorer and compromised by delay by the time they seek real legal counsel that is accountable for professional answers and representation.

    Finally, depending on the facts and the jurisdiction, there may not be a problem with what is described as the “A-to-D” assignment. Here, the reporting is simply vague (as opposed to ambiguous). In roughly 2/3 of US mortgages, the originating lender and Mortgage Electronic Registration Systems, Inc. (“MERS”) is “Aa.” MERS holds “nominal title” specifically to make recording of the transfer of the asset (the beneficial interest in the loan) unnecessary. The argument that this is denying county governments funds is entirely bogus. Government is not supposed to run necessary government fee-generating services for profit. The intent of the MERS system was to eliminate the necessity of Aa-B, B-C, C-D assignments in favor of the Aa-D one.

    A common attack on MERS right now is the fact that it has officers, who work for law firms, other companies (LDS, FiServ, NDS, Inc. etc). They don’t work for MERS. Sounds terrible. The fact is, many people are officers of companies that they don’t work for – at least get a paycheck from. The problems MERS might have, though, is that these “officers” paid a $25 fee to MERS for the ability to do administrative documents in its name. Usually, a corporate resolution is necessary to validate these appointments. That said, it’s not clear to me why a borrower would have standing to challenge this absent a claim against the borrower herself that authority was in question – that is, someone else was trying to collect on the debt.

    Minnesota is a tough place for me to do what I do – the laws are very pro-lender. That said, we have a very active real property bar that does an excellent job advocating for legislative clarity and common sense in a very ancient, arcane and complicated area of the law. We have an outstanding judiciary that has lucidly analyzed the abstract and concrete issues in ways that inform the national discussion, yet stick to what the law in this state actually is.

    I have decided to start my own blog:

    Ultimately, we need a legislative answer [legislative answers]. My own opinion is that TARP and Fed policy has essentially nationalized lending. A national forclosure moratorium is fair turnabout, provided: (Austrian warning) the unprecedented misallocation of resources into real estate be acknowledged as affecting everybody, and that “pay to stay” at market prices be an operating principle.

    Things need to be worked out at a wholesale level without doing too much damage to 1000 years of law. Monkey-wrench litigation is a poor substitute for policy-making and in fact, lets policy-makers off the hook in confronting reality.

    1. Francois T

      The argument that this is denying county governments funds is entirely bogus. Government is not supposed to run necessary government fee-generating services for profit. The intent of the MERS system was to eliminate the necessity of Aa-B, B-C, C-D assignments in favor of the Aa-D one.

      Fees collected by governement entities in this case is just a way to cover the costs of reliable and very long-term record keeping. This isn’t cheap.

      As for the intent of the MERS system, it brings to mind the proverb about hell being paved with good intentions; I mean, there is a bevy of well-established, precedent-laden property laws. Shouldn’t the creators of the MERS system have, at least, approached lawmakers and Courts with their puppy BEFORE implementing it on a large scale like they did? I mean, they were far from being a disinterested party, weren’t they? Furthermore, did they really believe they could run around property laws like that and expect the Judiciary to go along without a glitch?

    2. KFritz

      Visited your blog. It certainly is tabula rosa! Could you please, at some point, create a diagram/logic tree/whatever that encompasses this legal issue. For minds like mine that function best when viewing such documents!

      I recall reading that mortgage services have a perverse financial incentive to foreclose instead working with borrowers. Does this factoid dovetail with the above article.

      Thanks for any info.

      Change: the strongest force on the plant

    3. Yves Smith Post author

      Your personal experience in Minnesota is not generalizable to other states, and frankly, I’m stunned you try to do so.

      For a supposed foreclosure defense attorney, you seem remarkably unaware of the fact that Minnesota passed state regs that enshrine the use of MERS. That simply is not the case elsewhere; indeed you OUGHT to know there is a large body of precedents in other states and in federal bankruptcy court attacking the use of MERS. To make a very crude generalization. MERS is a document registry, yet often claims in court to be acting in other capacities “as assignee” when there is nothing in the PSA or any other documents to support MERS’ contention that it has the authority to act in other capacities.

      As I indicated clearly in the post, in only 5 states can the mortgage have any legal authority separate from the note. The note, in 45 states by VERY old precedent, governs the trasaction, the mortgage (or deed of trust, for lay readers, the lien) is a mere “accessory” and has not force if it is separated from the note.

      The PSA REQUIRES the note go A-B-C-D. Full chain of endorsements, Wet ink signature. By closing in the vast majority of cases. NY Trust law (elected as governing law for the trust for virtually all these deals) is idiosyncratic and does not permit the trust any latitude.

      You need to have the NOTE go A-B-C-D, the assignment of the mortgage A-D simply does not cut it in 45 states.

    4. Yves Smith Post author

      Your attack on Gardner is also petty and very much out of line. He’s a very highly respected member of the bankruptcy bar, and is also held in high esteem by people who frankly are in a much better position to judge his competence than you are (attorneys who were involved in the design of the original mortgage securitizations and have considerable experience at senior levels of the industry, including former general counsels of public companies).

  8. Francois T

    So understand the implications: the parties to securitization have so screwed up the procedures that they set up that it is pretty much impossible to foreclose (in the 45 of 50 states where the note is the critical element of the transaction) unless they forge documents. That’s fraud, pure and simple.

    Hmmm! Yves, forgive my extreme naiveté, but if I or any other individual forge a document in a Court case, wouldn’t it be clear that I could be “invited” to a State-sponsored vacation camp, better known as the slammer, the brig, etc.?

    So, what’s going on here? Is it yet another case of “since you are a corporation we’ll just slap your derrière, give a wag of the finger and be done with it”?

  9. BondOfSteel

    Hmm. The fundamental point of the case is that the borrower(s) are living in a house that they can no longer afford.

    A taxpayer and therefore owner of the house (through Freddie/Fannie), it’s in my interest to see they either continue paying or be foreclosed as soon\cheaply as possiable.

    Seems like the only bad actor here is the lawfirm… and they’re not changing the fundementals of the case. If Freddie/Fannie loses, shouldn’t the firm be liable?

  10. MinnItMan

    I didn’t really address the forgery issue, so I will do that briefly. Where is the forgery? Where is the allegation that one person purported to be another and signed the name of that other purported person?

    If there is an authority to sign problem, it is going to be MERS’s problem, not the person’s who signed. MERS sold off these officer positions, and if they didn’t adequately convey signing authority to the buyers, it’s not the buyers’ problem. They certainly had good reason to believe they had the authority. This is not forgery, and it’s not fraud, assuming they paid the fee and they are signing as themselves as a VP for MERS.

    1. Foghorn Leghorn


      I find it very interesting that you talk about dates on assignments. Typically, in the fraud driven foreclosure market down South, we get NO dates; NO recordings; NO endorsements – all in the name of MERS. Oh, unless course the assignment is recorded after the foreclosure takes place – which makes it VOID in most states.

      Lost deeds? Really? You make it sound like there are just millions of reasons for “creating” documents with dates that are other than reality. It would be one thing if this happened occasionally, you know, the bizarre one offs, instead, it is the norm. Notaries, at least down here, must be physically present when they notarized a document. If they aren’t, it isn’t valid. Doesn’t bother the mills, they testify that they have “notary pools” and it would be impractical for them to be “physically present” – in other words, complying with the law is so yesterday. We are banksters, we don’t do that.

      Who the fuck is Neil Garfield? Did he sing with Paul Simon, and how the fuck did he end up in this diatribe of yours? I didn’t find him in the Mother Earth Piece. Oh yeah, he is the dude that did the piece on MERS, your employer.

      Max Gardner – he gets about $10k to come to school and find out why he never loses in Bankruptcy Court, or Federal Court, if the banks are foolish enough to try their hand. The only cry babies bitching about the price of the Super Bowl, are those that can’t afford the tickets. Max is a G5, you are asking for extra peanuts on Airtran.

      Jurisdiction (you act like there are several) is ALWAYS NY. Of course, you would know that if you ever researched your case. Oooops!

      MERS is as big a fraud as you posing as (1) a foreclosure defense attorney (2) a blogger. Stick to the guitar.

      Funny you defend 1000 years of real property law and MERS in the preceding paragraph – another troubling sign – as to your veracity.

      Finally, the piece d’ resistance – Monkey Wrench Litigation – interesting concept coming from a lawyer (or one who claims to be) that allegedly defends mortgages in “default”, but has never looked past his nose to see if the foreclosing party (usually the plaintiff) has standing – which, way back when I attended my legal training – was what we called a “threshold” question.

      You ought to find yourself a real job boy, like playing a piano in a whore house.

    2. Michel Delving

      Mortgage Electronic Registration System

      Found here are depositions of MERS CEO R.K. Arnold and Senior VP and Corporate Secretary William Hultman. Also, a hearing transcript from Dalton et al v. Citimortgage et al.

      These are documents that every borrower with loans involving MERS should be aware of and pass along to their legal counsel.

  11. Harry Connor Jr

    It’s a pity the forgery and fraud is clouding the landscape. It would seem to me that the banks would want to turn the properties over as fast as they can. If defaults on mortgages are increasing, as is the case in most states, then some great bargains could be found for investors. I wonder how many properties actually ever make it to a tax deed sale? I believe the redemption period length would be a factor.

  12. mg

    The heart of the matter is as more foreclosures are challenged the errors in the original loan process are stacking up and showing the notes as not meeting underwriting standards set forth for the GSEs to purchase these loans. Add in the push for these bad loans to be bought back by the banks and you have the fertile ground for today’s rumors about Fannie/Freddie will start doing principal forgiveness. Chicken meet egg.

  13. mannfm11

    Yves, I had read on another site that the failure to deliver or accept on mortgages last week was $1.35 trillion (My figure might be off a little as I am working on memory, but that number is close). I am assuming we are talking about a repo agreement set up so, the game could go on. But, the point of this is that last year the FTD’s were around $150 billion. That leaves $1.2 trillion or $600 on each side of the transaction.

    After reading this and having read an article about MERS, Sterns outfit, it dawned on me that quite possibly the real game here was a game of keeping these assets in limbo so they weren’t owned by anyone as far as financial reporting laws go. So, could Stern’s outfit be holding these things, anchored by an agreement between parties and swap agreements between the 2? That would be the best reason to not have a paper trail for when who did what to Whom?

    I noticed in some news I read recently that some of the bank financials reduced allowances for bad debts. Could we be seeing the off book game going on? There is a lot more to this than the lenders trying to screw people that didn’t make their payments, as this matter is a failure of procedure and not a failure in principal. The only way that the debtor in these cases could legitimately plead a case in a normal proceeding would be to bring evidence or proof that they were estopped from making their payments due to the absense of a servicer. The only reason a lender would want a house would be to provide evidence that a nonpayer would lose their home. If they can’t foreclose, I would venture the majority of people would quit paying. They have nothing to gain in foreclosure by hiding ownership and the only defense to foreclosure is the lack of proof MERS and Stern represent an identifiable “holder in due course”. If someone isn’t a holder in due course, they have no capacity to redeem paper. See Clearfield Bank and Trust vs the US, supreme court roughly 1944.

  14. mannfm11

    I see people miss the point. This isn’t a case of fraud at closing or pre-closing, but a case of failing to show legal chain of title to the deed instruments themselves on the lenders part. Each note needs an endorsement as it is passed from one party to the next. It would be like trying to cash a check (banks won’t cash shit today) written to someone else that didn’t have their endorsement. One must be able to show they are a holder in due course in order to foreclose. As I just wrote above, I think this is a much deeper issue, like hiding losses in the banking system.

  15. steelhead23

    Ok, the servicers have messed up the assignments making it impossible to foreclose. Yet, somebody holds the lien so ultimately the mortgagee cannot escape his debt – or can he? Yves, I get that this messes up foreclosures on the IOU, but it surely cannot mean that the mortgagee gets the house free and clear – or does it? I am hopelessly confused. Also, if the trust cannot foreclose due to failures of assignments, it suggests that the note should revert to the originator and the originator is on the hook to the trust as the securitization is null and void. Given the bankrupt status of some of these originators, this suggests a CF of Herculean proportion. Dear God, why didn’t I go to law school?

  16. Cynthia

    From what I understand, Fannie and Freddie served and are still serving as a backdoor bailout for the financial industry. If this is true, then the vampire squids on Wall Street are using their kleptocratic connections in Washington to hollow out Fannie and Freddie, and I imagine they’d love to do the same to Social Security.

  17. Harlan Noel

    I have been told, all Florida realty now being sold by banks after foreclosure is conveyed by “special warranty” deed, rather than “warranty” I know this is basically true in the Orlando area. The activity described in the Ice’s situation would seem to be a reason that title would not be guaranteed

  18. foghorn Leghorn


    You guys advance to the head of the class. YOU GOT IT!

    One other consideration that hasn’t been discussed here, YET, is the fact that all of these trusts claimed REMIC tax status. In short, had they complied with their trust agreements (Pooling and Servicing Agreements) they would be tax free entities. Guess what, they claimed it, but were NOT. That means that both the bond holder, and the trust, owe MinnItMans favorite uncle a boat load of dead presidents, not to mention all the states. Which AG wants to be President?

  19. MinnItMan

    There is a lot of BS floating here, and it is calling into question a lot of the expert opinion I read at this site where I lack the competence to evaluate the claims being made.

    In this case, I do have the expertise to evaluate what are, so far, unsupported allegations of fraud and forgery. Two examples of factual allegations repeated here are: 1) that people are signing documents in their own names, but that their authority to do so is questionable. This is being called “forgery.” It is not. It may be fraud. It may be an ineffective, void, or voidable document, but it is not forgery. It is not even close. More to the point of forgery itself, someone’s [self-serving] opinion that signatures are “different” is not very weighty toward supporting a forgery allegation, and if that person says he/she signed it, and the notary says he/she signed it, it’s game over. No forgery. Never mind that this is going to cost a borrower a few thousand (my time, deposition time, court reporter fees, travel expenses) for this argument to fall apart;


    2) that people are signing documents intended to deceive some party (presumably, a borrower – otherwise the borrower has no standing to alleged fraud to a third party, that is, not affecting them), without the purported authority to do so, that damages the deceived party, and that there was reasonable reliance caused by that deception.

    Here’s the short form of the elements of fraud in my jurisdiction (11 ellided into 5):

    1. a false misrepresentation of a past or present material fact;

    2. knowledge by the person making the false assertion that it is false or ignorance of the truth of the assertion;

    3. an intention to induce the claimant to act or to justify
    the claimant to act;

    4. the claimant must have been induced to act or justified in acting in reliance on the representation; and

    5. the claimant must suffer damage proximately caused by the misrepresentation.

    Finally, the last few posts misstate the “negotiability of instruments” concept regarding notes. Many of the notes that are standard mortgae package forms are not actually “negotiable instruments” as a matter of form (oops!). As such, they are “bearer intruments.” There are significantly different rules for enforcing negotiable instrument debt and bearer debt and the effect of assignments and transfers thereof. Another post (not my area of expertise, but I am becoming knowledgeable).

    It is worth noting that “authority” questions can almost alway be ratified, after the fact. For example, someone who signature as an “Attorney-in-Fact” who hasn’t “in fact” been appointed, may have that signature raitified with an after the fact, back-dated appointment. This is non-controversial.

    1. Skippy

      Laws (rule based) are made_by_and_for_men of wealth in propriety and perpetuity, this process is aggregated by attraction.

      That said, the process which proceeded our unraveling RE/MRE/CRE debacle ie: rule based law (favor to authority {men of wealth}} can be laid a its feet.

      Narrow arguments are the means by which they obfuscate their deeds, fraud writ large. From inception the subprime mortgage affair was a means to create wealth (transferable value based on near certain default) which could be converted/moved away from harm and indignities cast upon the uninformed fools (high school grads,GED, tradesmen, hope-rs) that fell for it.

      Skippy…its principles for the dummies and rules for the wealthy. Rules…yeah rules to screw the uninformed…great way to run a country…eh..can’t go wrong.

      PS. Dr. Frankenstein would have thoughts on this matter.

    2. Foghorn Leghorn

      I say boy, again, you still aint hittin on all cylinders. Go find yourself a silly website like Find yourself a pooling and servicing agreement – they are, everywhere, I say, everywhere. Thousands and thousands. And the first thing you can find in ALL OF THEM is that “this trust is governed by NY law.” That being said, a trust, in the state of NY, (NY restatement of Trusts 2nd) can NOT hold bearer paper, but MUST hold assets made payable specifically to the trustee of said trust. In short, a mortgage backed securitized trust CAN NOT HOLD BEARER PAPER.

      This is what lawyers who are more than “adequate” (as you describe yourself on that wonderful blog of yours – by the way, were is the content?) do, they find out all the answers – before they go poppin the gums.

      The forgery I have seen isn’t a person without “corporate authority” signing something they have no authority to sign (although we have seen that too – and it is a little late in the game for Countrywide (R.I.P) to be ratifying any acts after-the-fact, or Indy Mac, or Option One for that matter, but rather a brand new document, appearing out of um……….Wordperfect, that is completely contradictory to what the Trust (plaintiff) claimed at summary judgment, but fills in all the blanks that the defendant made in their defense. Ta da! Look what we just found judge – no dates, no signatures – lots of rubber stamps – nobody to find or put on the stand to ask if they in fact created this document, or when.

      The only bullshit on this blog is you. Go tell R.K. Arnold you were found out in your very first outing.

  20. MinnItMan

    All post-foreclosure REO is conveyed by special warranty deed. Always has been. Why should a lender warrant any title better than they repo-ed. This is the kind of claim against lenders that that I’m talking about.

    This is thinking the sun the sun is the size of a saucer stuff.

    People can think what the want. People can think Uncle Max or Neil Garfield will save their house. Good luck. I’ll go toe-to-toe any day with anybody on this. Show me the results.

  21. foghorn Leghorn

    “All post-foreclosure REO is conveyed by special warranty deed. Always has been. Why should a lender warrant any title better than they repo-ed.”

    How about because the title insurance giants get what you don’t – and are now putting exceptions in policies that include foreclosures that were a party to a securitization. In short, they don’t want the liability for anything that wasn’t recorded at the good ole fashioned court house (read no MERS bs here).

    “People can think Uncle Max or Neil Garfield will save their house. Good luck. I’ll go toe-to-toe any day with anybody on this. Show me the results.”

    I suggest you speak to ANYONE in the Western District of North Carolina – your choice, bankruptcy or district court (those are both federal by the by) and if you can find a janitor that doesn’t know about Max Gardner and his success in hispart of the World, let us know.

  22. MinnItMan

    Hey Foghorn –

    Good name. You certainly are a loud-mouth. I’ll give you a chance to retract your libeling of me. State that you have absolutely no evidence whatsoever that 1) I work for MERS and 2) I represent lenders, and I won’t sue you.

    I say this fully aware that I may be banned from this site (which would not do it a lot of credit, IMO). C’est la vie. Yves should have stuck to GS. Just be aware that with business libel, damages don’t need to be proved. If you persist in being a malicious know-nothing yahoo, I will gladly hound you. Representing defaulting homeowners isn’t that lucrative, believe it of not.

    John Povejsil

    1. Yves Smith Post author

      You’ve attacked me now, when I’ve spoken to multiple experts on securitization, people who have been in the industry from its inception, and have also read the PSAs and MULTIPLE court decisions in eightstates (both state and Federal bankruptcy court, such as Vargas in California), against MERS AS WELL AS the idiosyncratic Minnesota Supreme Court decision (Jackson et al v. MERS), which based on MERS-templated statutes adopted in Minnesota and therefore reads like MERS dictation

      You seem UTTERLY ignorant of the fact that Minnesota is the extreme outlier here and appear to have your manhood at stake when you are told that defense attorneys can and do win foreclosure cases, regularly, in other states, when a securitization is involved. It appears that it is widespread, if not endemic, that the private label securitizations starting roughly in 2004 (and I have confirmation from people involved in the closings of the deals of the procedures that were the norm them) never bothered to convey the note properly to the trust, which enables defending attorneys to challenge standing.

  23. MinnItMan

    “Representing defaulting homeowners isn’t that lucrative, believe it of not.”

    That is, if you do it honestly – as opposed to the internet sites that channel people into extraordinaraly high-cost non-solutions.

    I’m waiting for your retraction Foghorn. I will get you if you don’t.

    John Povejsil

    1. Skippy

      “I will get you if you don’t.”

      Now there’s a legalistic pearl of…threat, coercion, blackmail, etc and you claim the status of….attorney at law.

      Skippy…Libel hair trigger eh…state your case please…based on the inference of boy[?]…oh yeah whom you work for and lenders…right…no parlay, no arb, just straight to the court room…but thats where the money is ha ha ha…so many defaults so little time.

  24. MinnItMan

    Foghorn –

    Show me a marked up title commitment with that language. Or I will ask the GC’s at those companies to let me sue you on their behalf for libel against them.

    Seriously dude, you are talking outta yer a@@. Just stop – and retract your statements against me.

    John Povejsil

  25. John Povejsil

    Hey Skippy (can I call you that?) –

    “threat, coercion, blackmail, etc and you claim the status of….attorney at law”

    Are you saying I’m not? Did you check? Do you care? Do you know WTF you’re talking about? I’ll gladly shut you down, too.

    Lawyer ID 0264660
    Date Admitted 05/10/96
    Last Payment 07/26/10



    Authorized to Practice Law? AUTHORIZED
    CLE Status 3



    Last Name POVEJSIL
    First Name JOHN
    Middle Name CHRISTOPHER
    Address 1387 STANFORD AVE
    ST PAUL, MN 55104

    Foreign Address? No

    1. borkman

      Wow, a loudmouth, angry dumbass who admits he can’t win foreclosure cases very often and gets in a pissing match with people who might be more successful than he is.

      And Skippy’s in Australia. What kind of attorney are you? Threatening to sue someone in another COUNTRY? Hah, you don’t know the relevant statues, the threshold and basis for damages, and I bet you’ve never managed local counsel in a foreign country. And do you have the foggiest idea how to collect in the unlikely event you were to go through the cost and hassle and actually win?

      This confirms my view of who probably knows their shit in your little pissing match.

    2. Skippy

      A question is not an accusation, nor is it libel, leading maybe. Again it is not relavant to my main point, did you breach law by harrasing to a threating degree.

      Skippy…pick your posion.

  26. Foghorn Leghorn


    It’s late and I will keep it short. I don’t have any evidence you work for ANYBODY, MERS, LENDERS, DEFAULTERS, or anybody else for that matter. Business must be booming if you surf financial blogs looking for law suits, on business libel, for yourself! I looked at the Martindale Hubbell Site and can’t find a lawyer named MinnItMan.

    As for hounding me, brother, you are all over it. When someone attacks the successful people, in the field they claim to work, that hounds me. You are the tree that fell in the woods when nobody was there, nobody heard it. Max Gardner has a VERY lucrative practice, because he WINS. Lawyers from all over this country pay big money to attend his seminars and learn to win too. Maybe it would work for your less than lucrative practice (your words, not mine). The thing I don’t get is why are you on here throwing stink bombs (non-lethal nuisance, nothing dangerous, just annoying) at the people who are really getting traction in this field, and training soldiers too?

    I say Sour Grapes! Yves doesn’t have to ban you, the people on this site are smart, they can ban you intellectually on their own. Don’t waste my time. I’ve got my hands full right now, doing what you apparently can’t.

  27. John Povejsil

    Yves –

    I have to say I have opened myself up to transparency that most on this site will not match. I have been libeled and I intend to hold all who are parties to the libel accountable, unless there is a clear and unambiguous retraction – or factual assertions that the allegations are true.

    I get that this is a greatly contested matter. Nonetheless, I think the credibility of your site is at stake when it is open to unsubstantiated charges of wrongdoing and serious charges go unquestioned.

    The irony here is that I actually defend defaulting homeowners, almost all of which have been previously swindled into large payments for promise-the-sky results (Loan audits, QWRs, etc,).

    And Yves – you can afford a lawyer to vet these arguments. The posters here need to be brought to heel. And I will do that, with or without you.

    John Povejsil

    1. Yves Smith Post author

      The real irony is the things mentioned above have all been vetted in trial recently, and are awaiting a verdict. It was a bench trial – I was there.

      So before you go completely bananas, and sue the whole world, doesn’t it make sense that if the banks, trustees, originators and servicers (all of whom were at trial) haven’t thought they could find success suing over these issues, does it really make sense that you would be? I’m not being silly anymore, they have far more resources than you and I, but they haven’t sued anyone yet for libel. Doesn’t it make sense that if these facts were wrong, they would beat you to the punch?

      Max Gardner has a security detail the protects not only him, but his family and his grand kids. He has had death threats from unknown callers. The FBI and Secret Service monitor his phones on his behalf. Do you suppose it is the people he represents – those he recovers for – that hate him?

      Same is true for the folks you are threatening to sue. People who are pursuing cases in the face of death threats, and teams of a half-dozen men who show up in black SUVs at their homes when they are away are not very likely to be very worried about your saber rattling. These attorneys are getting traction. The banks don’t like it.

  28. John Povejsil

    Foghorn –

    Once again, you’re going off half-cocked (haha).

    Unless Max is in a renegade circuit, he is getting a mandatory stay that is lifted in 60-90 days, or if it is a chapter 13, a payment plan that has to be paid.

    There is no magic elixer that takes care of defaulted secured detb for homeowners. That’s the whole point of secured debt.

    You can accuse me me of whatever you want, but that’s the fact (and the law) Jack.

    1. borkman

      What about standing don’t you understand? No standing, no tickie, no laundry. Or no case, in this case.

    2. Skippy

      Do you remember this?

      “I barely pay attention to cases in other states (except to see how narrow the facts usually are), and trial court judges here never pay attention to them. Courts everywhere are swamped with these cases, and my anecdotal experience is that I better have at least one issue that has a flicker of flame, and not just a lot of smoke.

      “The worst call I make in this practice is when people have lost their home and are facing imminent eviction. I try to make sure clients understand that this call is probable outcome. Oddly, plenty of people will charge you more to tell you the rosey scenario, until the Sheriff is standing outside.

      “This gets to my biggest issue: I think all distressed homeowners should be represented by a lawyer, even though it’s rarely going to change the outcome in huge ways (big punitive damage awards, free-and-clear property). The lenders and their agents need to be kept accountable, and represented homeowners help make the entire system more fair and efficient. This type of representation is affordable and helps all of the parties recognize their losses in the least disruptive manner to society at large.”


      “Could you explain what a predatory loan exam looks for? And do you try to identify common personnel to patterns of practices? (Not just some MERS flunky “officer” executing assignments, but actual management and third-party vendor structures around large-volume originators with high default rates).

      “Or, if a predatory loan exam is not that useful, what is? This was the only thing that was not very clear here – “even worse results than a Predatory Lending Exam.”

      Skippy…nuff said.

  29. Siggy

    Yves has done her homework. If you live in one of the 45 states that determines standing based on acknowleged and notarized possession of the note; and, if the foreclosure notice comes; and, if your note was securitized, there is a very high probability that the foreclosing party neither has possesion of the note nor can they demonstrate standing.

    Fannie and Freddie are using foreclosure mills because they have a huge level of loan balances to reclaim, even if they don’t have the notes.

    The posting of this meme is moderately informative and the negative implications point to Fannie and Freddie whose management appears to have been absent.

    Quibbling about whose daddy is tougher won’t solve anything here and is humorous to the point of sadness for its lack of relevance. A discussion as to why the number of loans facing foreclosure is so large would be more interesting and productive.

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