A story at the New York Daily News on a foreclosure case dismissed by Judge Arthur Schack illustrates that the problems that banks are having with foreclosures, which they are characterizing as “technical” or “paperwork” run deeper than that. And that is before you get to the issue that we have discussed at length on this blog, namely, the failure to convey promissory notes and related liens as stipulated by the contract governing mortgage securitizations, the pooling and servicing agreement.
It is important to acknowledge that Judge Schack is an outlier. He was early to take issue with the bank practices in foreclosure filings and details some of the problems he sees on a routine basis:
However, it is also important to bear in mind that Schack’s concerns result strictly from looking at the ability of servicers and trustees to establish that they are really the proper party to be foreclosing. The reason that this is of concern is that there are documented cases of multiple parties showing up to foreclose on a single home, and a party that per the Office of the Comptroller of the Currency was not the noteholder winding up with the home. That means the borrower, having already lost her home, is exposed to the risk of the real noteholder trying to obtain the balance of the mortgage from her.
It seems likely that given all the bad press banks have gotten with improper affidavits, which are a fraud on the court, that some, perhaps many, judges will start scrutinizing foreclosure cases. It’s already happening in Florida. The state had set up special foreclosure courts, called the “rocket docket” because many judges processed cases at a breakneck pace, running roughshod over borrower objections and evidence. Some judges there are now doing what one would expect in a proper proceeding, spending the time needed to hear the homeowner side of the case.
The latest Judge Schack case illustrates the sort of mess that judges are likely to find when they start looking at the plaintiff’s documents and asking basic questions. The overview, from the Daily News:
Shack’s opinion, released by the courts Tuesday, is the most detailed picture yet of the shoddy or fraudulent mortgage paperwork too many of those lenders used.
This is not just a matter of minor technicalities, as the banks and their spin masters want us the believe – the same ones who told us the subprime crisis would blow over.
At the heart of the Drayton case is an Austin, Tex., robo-signer named Erica Johnson-Seck. In July, Johnson-Seck admitted in a Florida deposition in another case that she “executes 750 foreclosure documents a week; without a notary present; does not spend more than 30 seconds signing each document; [and] does not read the documents before signing them,” Schack noted.
Johnson-Seck’s signature appears repeatedly in documents connected to Drayton’s mortgage, and in several other foreclosure cases Schack dismissed in the past three years.
At different times, she signed notarized documents assigning the loan, claiming to be a vice president of MERS (a private financial recording service for major banks), a vice president of INDYMAC, a vice president of Deutsche Bank and a vice president of OneWest.
Yves here. Did you get that? It isn’t merely that Johnson-Seck was robo signing, but as we will see soon, she was playing multiple roles that were, from a legal and business perspective, in conflict with each other.
Here, a single party has, obviously falsely, played whatever role was necessary to execute documents to convey the mortgage to the trust so the servicer and trustee could foreclose. In the decision (hat tip 4ClosureFraud) Schack goes at some length about how implausible this appears to be:
The Court grants the request of plaintiff’s counsel to withdraw the instant motion for an order of reference. However, to prevent the waste of judicial resources, the instant foreclosure action is dismissed without prejudice, with leave to renew the instant motion for an order of [*2]reference within sixty (60) days of this decision and order, by providing the Court with necessary and additional documentation.
First, the Court requires proof of the grant of authority from the original mortgagee, CAMBRIDGE HOME CAPITAL, LLC (CAMBRIDGE), to its nominee, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (MERS), to assign the subject mortgage and note on March 16, 2009 to INDYMAC FEDERAL BANK, FSB (INDYMAC). INDYMAC subsequently assigned the subject mortgage and note to its successor, ONEWEST, on May 14, 2009.
Second, the Court requires an affidavit from Erica A. Johnson-Seck, a conflicted “robosigner,” explaining her employment status. A “robo-signer” is a person who quickly signs hundreds or thousands of foreclosure documents in a month, despite swearing that he or she has personally reviewed the mortgage documents and has not done so. Ms. Johnson-Seck, in a July 9, 2010 deposition taken in a Palm Beach County, Florida foreclosure case, admitted that she: is a “robo-signer” who executes about 750 mortgage documents a week, without a notary public present; does not spend more than 30 seconds signing each document; does not read the documents before signing them; and, did not provide me with affidavits about her employment in two prior cases. (See Stephanie Armour, “Mistakes Widespread on Foreclosures, Lawyers Say,” USA Today, Sept. 27, 2010; Ariana Eunjung Cha, “OneWest Bank Employee: Not More Than 30 Seconds’ to Sign Each Foreclosure Document,” Washington Post, Sept. 30, 2010).
In the instant action, Ms. Johnson-Seck claims to be: a Vice President of MERS in the March 16, 2009 MERS to INDYMAC assignment; a Vice President of INDYMAC in the May 14, 2009 INDYMAC to ONEWEST assignment; and, a Vice President of ONEWEST in her June 30, 2009-affidavit of merit. Ms. Johnson-Seck must explain to the Court, in her affidavit: her employment history for the past three years; and, why a conflict of interest does not exist in the instant action with her acting as a Vice President of assignor MERS, a Vice President of assignee/assignor INDYMAC, and a Vice President of assignee/plaintiff ONEWEST. Further, Ms. Johnson-Seck must explain: why she was a Vice President of both assignor MERS and assignee DEUTSCHE BANK in a second case before me, Deutsche Bank v Maraj, 18 Misc 3d 1123 (A) (Sup Ct, Kings County 2008); why she was a Vice President of both assignor MERS and assignee INDYMAC in a third case before me, Indymac Bank, FSB, v Bethley, 22 Misc 3d 1119 (A) (Sup Ct, Kings County 2009); and, why she executed an affidavit of merit as a Vice President of DEUTSCHE BANK in a fourth case before me, Deutsche Bank v Harris (Sup Ct, Kings County, Feb. 5, 2008, Index No. 35549/07).
There are even more reasons that this is sus than Judge Schack bothers to mention. Johnson-Seck miraculously becomes a vice president of IndyMac, a bank which failed in early August 2008, in August 2009. IndyMac no longer has corporate officers making routine business decisions; it is in the hands of a bankruptcy trustee. Even if the multiple roles played by Johnson-Seck were not already implausible, her being authorized to act on behalf on IndyMac in May 2009 is an impossibility (indeed, in the ruling, Schack cites testimony of Johnson-Seck in which she claims she worked for IndyMac, but joined OneWest on March 19, 2009). Furthermore, for any assets to be conveyed from IndyMac, which is what this paper trail indicates was done, would require the consent of the bankruptcy trustee. Given the informality of the Johnson-Seck operation, it’s certain this did not happen. In addition, bankruptcy trustees for dead subprime originators have reportedly not take kindly to the idea that borrower promissory notes are being conveyed away without their approval.
If you read the full decision, it sheds an unflattering light on MERS and on the activities of Lender Processing Services.
Judge Schack has been particularly diligent; in this case, since the borrower did not have an attorney. But rulings like this one give homeowners and their attorneys a road map as to how to challenge foreclosure actions. Admittedly, many judges will not be sympathetic, but if only a significant minority are perturbed, it will make life miserable for servicers and trustees.