Banks Looking Further Than Robo Signers; “Lost Note” Affidavits a Point of Failure

As readers no doubt know, we’ve indicated from early on in the foreclosure crisis that problems with foreclosures of mortgages held by securitizations went well beyond the now well known “robo signer” issue. The most difficult to resolve and apparently widespread problem is the failure to convey the note (the borrower IOU) properly to the trust (the legal entity that holds the notes on behalf of the investors) as specified in the pooling and servicing agreement.

Kate Berry of American Banker reports that the banks that are reviewing their internal processes are looking beyond the robo signers’ verification (or more accurately, failure to verify) borrowers’ indebtedness. One area of vulnerability being highlighted is the use of “lost note” affidavits. We had flagged this earlier as a possible way the banks could be finessing their failure to convey the notes correctly to the trust. In particular, the Florida Bankers’ Association made a very odd, indeed implausible claim, suggesting that borrower notes were routinely destroyed because they had been scanned electronically. Tom Adams, a securitization expert, and I both found that farfetched; it would be like burning down a warehouse full of cash (although we have learned that one defunct subprime originator did appear to have destroyed some notes, but the lawyers we have spoken to about this are of the view that this is not a common activity).

So why would the Florida Bankers’ Association claim that banks had engaged in a hugely irresponsible activity? Perhaps to provide legal cover for the use of lost note affidavits to cover for the fact that the not had not been conveyed properly; claim it’s lost rather than use the other apparently common route for finessing the problem: fabricating documents that show that the note was signed by all the relevant parties in the proper manner, which includes on a timely basis.

From American Banker (and note the section we boldfaced):

Servicers are looking more broadly at all other documents involved in foreclosures, including “lost-note” affidavits and mortgage assignments, to ensure the chain of title actually lets them foreclose on a borrower in default.

The resulting delays will hamper the filing of new foreclosures — not just those already begun — as judges take a tougher stance on documents being used to verify that loan information is correct, and that the servicer has the right to foreclose in the first place.

“The courts are going to be much more skeptical,” said Mark Ireland, a supervising attorney in the Foreclosure Relief Law Project, a unit of the nonprofit Housing Preservation Project in St. Paul. “It would be silly to show up in court with a lost-note affidavit when there is widespread evidence of an industry practice that calls into question the affidavits.”

Mortgage servicers have filed thousands of lost-note affidavits, which must be signed in the presence of a notary, claiming that the original promissory note on a property has been lost.

Whether such documents will now hold any weight in court is unknown and probably will be decided case-by-case, further delaying foreclosures, lawyers said…..

Some states have a one-year redemption period during which a foreclosed-on borrower “can say the foreclosure was not done properly and the servicer has to start all over again,” Ireland said. “This is a legal grenade.”

Patricia McCoy, a law professor at the University of Connecticut, said judges may ask to see a photocopy of the underlying mortgage note or they may go further and ask for the actual note itself….

Problems with foreclosure documents have led Ally Financial Inc.’s GMAC Mortgage and JPMorgan Chase & Co. to suspend foreclosures in 23 states, and Bank of America Corp. has suspended foreclosures in all 50 states. Goldman Sachs Group Inc.’s Litton Loan Servicing LP has also suspended some foreclosures, and PNC Financial Services Group Inc. is reviewing its processes.

Derrick Gruner, a partner overseeing the banking and lending group at the Pinkert law firm in Miami, said a wide range of documents — affidavits of indebtedness, lost-note affidavits, postdated mortgage assignments — were “being robo-signed,” a term used to describe employees who rubber-stamp documents without verifying the information in them or signing them in the presence of a notary….

(Citigroup Inc. said Tuesday that it had stopped initiating foreclosures through a Florida law firm, the law offices of David J. Stern, which is being investigated by the Florida attorney general.)

A few analysts have tried to quantify the magnitude of the problem. Paul Miller, an analyst at FBR Group Inc., said foreclosure delays will cost at least $6 billion, or roughly $1,000 per loan for every month that a foreclosure is delayed.

Laurie Goodman, a senior managing director at Amherst Securities Group LP, has estimated that $154 billion of nonperforming loans are affected by the current moratoriums….

A crucial problem, she wrote, is the way that servicers chose to cut costs by using Merscorp Inc., the Vienna, Va., company that runs the mortgage industry’s electronic loan registry system. The system let mortgage lenders reassign loans on the registry but not through county recorders.

The paperwork needed to transfer ownership and maintain a legal chain of ownership “was often neglected by sellers-servicers,” she wrote. “Servicers cannot prove to the courts that they have a valid ownership and right to foreclose,” Goodman wrote, “and the appropriate affidavits are being contested in court. To clean up the matter, servicers may need to redocument the transfers and refile the appropriate assignments, presumably at a large cost to the servicers and investors.”

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  1. Pwelder

    Zero Hedge has a link to a five-page CitiBank report that summarizes the comments of a Georgetown law professor on the MERS mess. Here’s the link:

    Yesterday they had up a link to a much longer draft article being prepared by Christopher L. Peterson of the University of Utah for the Real Property, Probate and Trust Law Journal. Here’s a link to a page with an abstract plus a link to a free download of the PDF:

    The Citibank paper is a concise statement of issues already laid out here by Yves and others, Peterson’s discussion adds some color from the county government perspective that I hadn’t seen elsewhere.

    As Yves points out, this is a handy lever with which to force re-fi’s and cramdowns. But there’s another party at the bargaining table as well. The MERS business model involved stiffing the recorders of deeds for all the counties out of filing fees that were in many cases part of the revenue stream of financially-strapped county governments. If they now have to go hat in hand to these bodies in order to remedy the flaws in the “mortgages”, I expect that this unusual work will require a special fee schedule – with a cherry on top. The costs will be considerable.

    Unlike some commenters on these mortgage threads, I would be very surprised if the Administration gives the big banks a sweetheart deal on this. One way to irritate any well-trained lawyer – like Obama, f’r instance – is to set up a situation where financial players are corrupting the chain of real estate title while in effect engaging in the unauthorized practice of law. If this fiasco in fact gives the Administration the whip hand, they’ll be using it.

      1. acat

        “whip hand”

        I am on the floor and I can’t get up!

        The picture of Timmay and “whip hand” for some reason is outright hysterical!

        He MAYBE using a hand but it ain’t holding a whip!:)

    1. Chris

      I’m currently trying to convince my wife that it would be in our best interests to have an attorney go over the details of our mortgage, which was sold to WAMU and then transferred to JP Morgan Chase. Hopefully it would be grounds to sue JP Morgan if they can’t prove ownership or have committed fraud.

      1. pdgrey

        I was thinking the same thing, Chris. But this whole mess almost has me afraid to ask. I truly believe the banking system is so full of fraud and I am not an expert what the consequence to me would be. I don’t know who to ask. I know it’s my right to ask who owns my loan and who I should be making payments to but don’t you worry?

      2. Vicki

        Me too, I got served papers on Oct 5th, and the papers say my mortgate belongs to or is being transferred to BOA–which I have never been told up to this point! For 5 years it belonged to Ocwen, but according to the papers on my door, not now. But now BOA is suspending foreclosures–so what is up? Does BOA have my original paperwork? Does Ocwen? They refuse to answer anyone about anything at Ocwen, my HUD counciler has contacted them a dozen times in the past 3 weeks, and not one response! Does anyone have my paperwork, including signature pages? Is this valid as it comes a few days before BOA announced suspension of all foreclosures in all 50 states. Who knows?

      3. Sneakers

        Chris- Our atty has found errors/illegalities in almost every doc from WAMU transferred to Chase. GO FOR IT!!

  2. Lyle

    Lets do some legal history, back in the middle ages, the english courts of law had become hidebound putting proceedure over substance. As a result loosing parties would appeal to the King, to fix a problem. The King asked his Chancellor to look at the issues and if natural law and common sense indicated to overrule the law courts. Thus was developed the concept of Equity. Equity is a distinct branch of law that looks at the basic situation and decides what is just, even if that flies in the face of legal technicalities.
    So if the legislatures do pass a set of laws fixing the problem it is historically what happened in the past in this case the questions will be for foreclosures, 1 was the money borrowed, and 2 are the payments not being made. For the securitization issues the question is what was the intent of the parties, which is likley clear. Then the laws will say given the clear intent of the parties, for a slight fee the situation can be cleared up.
    Many rail against “technicalities” that every so often get an accused person off on a criminal charge, yet here we have people praising “technicalities” to let them avoid paying what they owe.
    So just like the issue back when where there were only a limited set of causes of action and if your issue did not fit any of them it was tough, the sitation will go back to the simple questions stated above, and rectify the situation.

    1. Pwelder

      A thoughtful contribution by Lyle, who clearly knows more history than I do. But consider:

      1) Neither Peterson nor the law professor from Georgetown who was on the Citi conference call seem to see “Equity” as an easily accessible and open door out of this for the banks.

      2) “For a slight fee”?? We are talking here about an administration which took a banker-friendly approach to the crisis at great political (and economic too, most likely) cost, only to have the banks turn around and fight them all the way on FinReg and other matters. There’s going to be a fee, all right. But it won’t be slight.

      1. DownSouth


        You are way too kind to Lyle when you say he “clearly knows more history than I do.”

        Just to set the record straight:

        None of the European parliaments was a legislative body; they had at best the right to say ‘yes’ or ‘no’; the initiative, however, or the right to act did not rest with them. No doubt the initial slogan of the American Revolution, ‘No taxation without representation’, still belonged in this sphere of ‘limited monarchy’ whose fundamental principle was consent of the subjects. We have difficulties today in perceiving the great potency of this principle because the intimate connection of property and freedom is for us no longer a matter of course. To the eighteenth century, as to the seventeenth before it and the nineteenth after it, the function of laws was not primarily to guarantee liberties but to protect property; it was property, and not the law as such, that guaranteed freedom. Not before the twentieth century were people exposed directly and without any personal protection to the pressures of either state or society; and only when people emerged who were free without owning property to protect their liberties were laws necessary to protect persons and personal freedom directly, instead of merely protecting their properties. In the eighteenth century, however, and especially in the English-speaking countries, property and freedom still coincided; who said property, said freedom, and to recover or defend one’s property rights was the same as to fight for freedom.
        –Hannah Arendt, On Revolution

        1. DownSouth

          And by the way, you would never hear me “rail against ‘technicalities’ that every so often get an accused person off on a criminal charge.”

          I have an abiding respect for property, but I must say I love liberty even more than I do property. Law enforcement and prosecutors should not be able to shrug off due process and the rule of law in taking someone’s freedom away any more than the banksters should be able to shrug off due process and the rule of law in taking someone’s property away.

          In the United States both property and freedom are under attack, and it seems the attacks often come from the same quarter. The same person who would take someone’s property away without due process is the same person who would take someone’s liberty away without due process. And the rule of law be damned.

    2. charles 2

      In credit and banking matters, “procedural technicalities” are of the essence. Due diligence is a cornerstone of the “ring of trust” that exists between parties. Had it be known that the bank ( or broker) was not following underwriting/paperwork procedures, it would not have had the financial resources / regulatory licenses to provide the mortgage in the first place !
      Similarly, the mere fact that a mortgage is accepted is an information for the property buyer : it is interpreted as a combined validation of the ability to pay and of the pricing level.

      The basic situation is that a large number of mortgage should not have existed at all. Banks are as guilty as borrowers for this situation.

    3. F. Beard

      You want to talk “equity” with regard to fractional reserve lending wherein the banks create money from nothing and lend it in exchange for a promise to repay it PLUS interest that may not even exist in principle (pun intended)?!

      “Equity” would throw all FR bankers in jail for fraud and theft via money creation. Treason is also a valid charge since they recurrently risk the nation’s stability and peace with their infernal boom-bust cycles.

      “Equity” for the FR bankers, what a laugh.

        1. F. Beard

          Actually, RP MAY be a gold bug and I am most definitely not. Anyway, I am enjoying the mess you so called sane people have caused. With regard to the Ten Commandments, you can’t even avoid nationwide violation of “Thou shalt not steal”, one of the simplest. With regard to usury, you can’t even figure out a way to do money without debt. If I am a nut, then what are you?

          Beware the gold-bugs.

          1. Chris

            I made this mess? Dude, socialists like me have never had power in this country. That may change in the future though, stay tuned.

        2. liberal

          What’s nutty about shouting the point that banks get an extremely valuable privilege (creating money, then pocketing the interest on it) in exchange for nothing?

      1. Lyle

        Equity as I was referring to is a set of legal rules. In essence we will go back to what was done in the 13 and 14th centuries in England, and ask the Sovereign to fix the mess. (The Sovereign today is the Federal Government and to some extent the state governments). The Sovereign judges what is right in the light of its view of the world. Recall that from a southern point of view a very valuable set of property was confiscated by Lincoln (emancipation proclamation), representing perhaps 1/3 of the value of the region, this confiscation being finalized by the 13th amendment. So there is a precedent for taking without payment, all be it it takes a constitutional amendment to do so.

        1. DownSouth


          There is no moral equivalence between taking people’s slaves away and taking people’s homes away, and quite frankly I find the comparison repugnant. Homeowners are not slaveowners.

          But even with slavery’s great evilness, freeing the slaves didn’t exactly come off without a hitch, did it? People take their property seriously, even when it means depriving other people of their freedom.

          Your romanticizing the middle ages is equally mind boggling. They weren’t called medieval and the dark ages for nothing.

    4. jmm


      I think there are more issues at stake. For me, the larger issue has always been “free and clear” title/deed. Anyone paying on a mortgage note, has not been paying rent….they have been paying for delivery of an uncontested title/deed, free and clear, at any time the note can be paid off.

      A buyer’s title insurance is not supposed to be the primary medium of providing a free and clear title; the legally required actions of banks, servicers, trustees and others in that chain, are.

      Then there is the issue of county fees. How to establish “Equity” for short-changed counties?

      And then taxes….many of these MBS/REMICs had to meet a variety of requirements by a certain date to be tax exempt. If for “Equity” these tax exemptions are suddenly changed here, why not change the rules on early withdrawl from IRAs?

      1. Lyle

        The way to solve this is the way it appears it would work in CA, to overturn a foreclosure you need to post a bond in the amount of the balance of the mortgage.
        Secondly the title will only be clouded until the adverse possession clock tolls. If you have a color of title which you will have in the case of buying a foreclosed house, (there is something that walks like a title…) and live there for 5 years in many states paying the taxes, the prior owner is looses any cause of action. Note that the clock starts with the foreclosure sale.
        So title in the US has never been absolute unless you act to enforce it, ignore a piece of property and it will go away.

    5. Jackrabbit

      For the securitization issues the question is what was the intent of the parties, which is likley clear. Then the laws will say given the clear intent of the parties, for a slight fee the situation can be cleared up.

      Then the laws will say . . .
      AFAIK, the law of equity is set of principals, not written law that are used when contracts are unclear or ambiguous. The way that Yves has explained it, that doesn’t seem to be the case here. I don’t see how “clear intent” is relevant to the reliance, under contract law, of the other parties reps and warrantees? AND the stipulations of NYS Trust Law.

      Everything can be remedied by paying something to the other party. The problem is the other party here has (collectively) lost hundreds of billions of dollars in value because they were sold a ‘AAA’ bill of goods. There has been no remedy for that . . . until now.

      Lastly, the investors are mostly funds that have a fiduciary duty to do what is the best interest of their investors/beneficiaries. Accepting a token payment when they can (collectively) recover hundreds of billions by making the case that the Trust is invalid would appear, on its face, to violate the fiduciary’s duty.

    6. goodrich4bk

      You are correct, Lyle, that equity can correct for a bank’s innocent mistakes. But one rule of equity is that the party who seeks equity must do equity. It’s called the “unclean hands” defense and, here, a court might refuse to give an equitable remedy to a bank that attempted to get a legal remedy through fraud and perjury.

      Also, even if a bank could establish an equitable lien to replace the legal lien it thought it had, a borrower who files bankruptcy prior to the granting of such an equitable lien might keep that lien from giving the bank anything more than an unsecured claim in the borrower’s bankruptcy case.

      Just some additional twists in a continuing story…

    7. Avg John

      So my question is: When do we disregard the fine print? Do we disregard the fine print when it doesn’t serve the interests of a few, or can we all now just disregard the fine print?

      If it’s the latter, seems to me there are some credit card companies that are going to be in big trouble.

    8. bodiddydiddy

      This is false. The rule of law is a paramount liberal concept that protects the small from the powerful. Anyone who cries about ‘technicalities’ usually has a hidden agenda, or is a victim of propaganda.

      Equity is not meant and is never practiced to overrule legal requirements. Equity is a companion or substitute concept where there is no clear legal requirement.

      1. Eric

        Well, the circumstances of a given situation might determine who is “the small” and who is “the powerful”. Not to put too fine a point on it, the underlying facts of many of these cases will end up being that a borrower has a certain amount of the lender’s money and has stopped paying it back per a contract that is not in doubt and also has the property for which the loan was sought. This does not excuse in anyway creating and using documents that are knowingly false, but I wouldn’t hold out an outsized expectation for folks that are not in the foreclosure process that this situation will make them immune to future foreclosure if they default. That’s unlikely to happen, but it probably will take awhile and be costly to the careless lenders – just as it should be.

    9. DownSouth

      Lyle said: “For the securitization issues the question is what was the intent of the parties, which is likley clear.”

      You got that right. The “intent” was to dump these ticking time bombs into the mark’s lap as quickly as possible, and with as little expense as possible.

      We won’t even get into how the “parties” who created these ticking time bombs then set around and speculated as to how long it would take them to go off.

    10. notabanker

      According to the Fall of the Roman Empire by Peter Heather, the same circumstances arose during the latter centuries of the Empire. Landowners would petition the Emperor to rule on disputes of law. The Emperors word was final. Unfortunately, the Emperor would rule on those facts bought before him by the designated representatives of his government. Those facts were often manipulated by those in power who rose through the ranks of the Roman political system. Generations of landowners would rise through the political system. The rulings were far from just, but protected the land owning aristocracy (5% owned 80% of the land) over the general population.

      The Roman system relied on this, as the main source of taxes were from landowners and their harvests. Here is where I’ll let Mr. Heather make my point:

      “We might understand the participation of the landowners in the Roman system as a cost-benefit equation. What it cost them was the money they paid annually in the state coffers. What they got in return was the protection for the wealth on which their status was based. In the fourth century benefit hugely outweighed cost. But, as we shall see, should the taxman become too demanding, or the state incapable of providing protection, then the loyalty of the landowning class could be up for negotiation.”

      Great book.

      1. DownSouth

        Interesting theory.

        So according to Peter Heather, from whom did the landowners need protection? From the slaves that worked their land? From the 95% of the Romans that were for the most part landless? Or from the Barbarians?

    11. Justicia

      No go, Lyle. This can’t be fixed by Congress, as Yves explained in her BNN interview and as Prof. Peterson discusses in the article she sites in the first post.

      Real property is governed by state law so you’d have to get every state that requires mortgage documents to be recorded in the county register (along with payment of a filing fee) to change their laws. Do you really think that the states are going to forgo this revenue at a time when their budgets are awash in red ink?

      The banksters may control Washington, but they don’t have a lock on the states — as the 50 attorneys general investigation will show.

  3. ex-PFC Chuck

    . . I would be very surprised if the Administration gives the big banks a sweetheart deal on this.

    I hope you’re right, but I’m not holding my breath after nearly 21 months of caving to the financial industry.

  4. Mike M.

    Pwelder says:

    ” If this fiasco in fact gives the Administration the whip hand, they’ll be using it.”

    Please. What world are you living in? After all this time of giving the banks a free ride, and hardly any response at all in the past week, do you actually expect some sort of “whipping”? They’re just hiding in the West Wing and preparing for a Republican run Congress in a few months.

    1. Vicki

      I agree, this administration gave the banks billions of dollars to do loan mods, and only a small percentage have been done, the banks processed, made money on continuing the foreclosures and pocketed the Obama administration billions as “found money” without doing what they were supposed to do to earn it.

  5. Maju

    For what I just read at another of my favorite US blogs, Washington Blog, the legal assessment seems to be that all those mortgages managed by the ghostly and fraudulent MERS Inc. do not legally exist. These mortgages are like 60% of all in the USA, what means a new financial hecatomb, which is leaving the Lehman Brothers’ episode in good light by comparison.

    Whatever the bankers, the government, the courts, Congress or the many lawyers that are already looking in this matter do, it cannot be possibly solved without huge legal fraud or a coup that changes all the legal system overnight. And I doubt they will get away with any of such “solutions”, so a new financial crisis episode is served, it seems to me.


      “they cant get away….” So far, they have “gotten away” with everything: our granchildren’s future, our money, our savings, our future, our 401Ks, our investments, our self respect, our legality…. do you see anyone in jail except Bernie Madoff?

  6. Ron

    Checked with our two local title ins companies this morning and both are writing policies for foreclosure properties.

  7. Jim Haygood


    Is Foreclosuregate the real reason for QE II?

    In other words, did the Fed see this coming — and merely cook up a smokescreen of ‘inflation target’ and ‘slow growth’ chatter to conceal a showstopping crisis for their bankster clients?

    I’m watching gold, Treasury yields, the dollar, and commodities for clues. And all of them suggest that we’ve got trouble (‘yeah, we’ve got trouble’) right here in River City (‘right here in River City’).

    And it’s called em ee arr ess MERS!!!!

    JPMorgan pulled out of MERS this fine morning — looks like the sucker’s goin’ down.

    Over to you, Banzai Ben! Are there enough Treasuries on the planet to paper over this glitch? If not, just phone Timmy G. to whip you up another batch. I’ll be watching from the peanut gallery, as the MMT contingent screams in delirious bliss.

    Might to order a coffin for the dollar, though …

    1. Jeff65

      You have MMT derangement syndrome. At least get to know the subject matter! I don’t think you’ll find a single MMTer anywhere in the world that endorses Ben Bernanke or his actions to date.

  8. Nelcisco

    What a mess. Who had thought it would ever get to this? I know, the “right wing haters” on talk radio that rant about socialist liberal policies by the administration. The Tea Party movement who are called racists and biggots because they know they’re losing their country.

    People are being evicted from their homes because of their inability to pay. THEY CAN’T AFFORD IT. They’re not getting foreclosed because of some administative error or that some putz did’nt dot his “i” or crossed his “t”.This should be of no suprise with whats happening,when banks were bailed out,they became ward of the state as Charles Gasparino pointed out today.Basically they were bought by Washington for a price and now Washington is coming to get what it wants from them, it isn’t about profit because what the hell does government know about profit?Its about politcal control, and Obama has the cojones to go on the campaign trail to sell his stupidity once again to our young suckers at the universities and on MTV.

    First health care and now this,what else? Strap on to your belts America, this saga is just the beginning and its gonna get bumpier than ever

    1. bodiddydiddy

      This is false. The financial crisis caused the ‘can’t afford it’ situation. Millions are unemployed and tens or hundreds of thousands pinned to an ‘unafordable’ loan by crashing real estate values and therefore inability to refinance or sell.

      In the end bad loans, the fault of both parties diligence or foresight, should written down to market value. The lender had an equal stake in the market values holding. But they are being bailout. Only the homeowners are suffering from the crash.

      No one would be foreclosed if it were possible to sell the property for the amount owed.

    2. acat

      “when banks were bailed out”?????

      How easy , you know the banks wouldn’t have needed bailing if they had been ran as banks and not “profit centers” for what do bankers know about profits, well it seemed they knew very little. They seemed to know a lot about fantasy profits as most of them killed off way more in losses than they EVER EARNED.

      What pap.

      The dots and the crosses are all that allows a capitalist profit society to exist. Better that a few get a free house than the many ignore the dots and the crosses as it suits them. Especially when the many are the ones that should be setting an example to rest.

  9. Fractal

    FL state AG has been “investigating” law firms which used robo-signers to defraud homeowners and courts in foreclosure proceedings. How much more proof does he need? Strikes me he has been dawdling to drag out his “investigation” until the midterm elections are over.

    His latest revelation:

    “Also under investigation by McCollum is Lender Processing Services Inc. The Jacksonville-based company has produced documents known as mortgage assignments with signatures of the same person that vary “wildly” from document to document, according to the attorney general. The documents are necessary for banks and mortgage servicers to show they have the legal right, or “standing,” to pursue foreclosure lawsuits. McCollum is investigating whether the documents have been forged.”

    1. acat

      Not surprised at this, I smelled a deal along the lines of dropping MERS and keeping the foreclosures coming at whatever rate can be achieved while working back the “paper” that Mers was the standin for.

      1. acat

        Well it wasn’t really a tough call and all that, eh…

        Breaking News Alert: U.S. urges lenders to vet foreclosures but keep process moving
        October 13, 2010 3:57:08 PM

        Federal regulators on Wednesday urged the nation’s lenders to verify that all paperwork filed as part of the foreclosure process is properly reviewed and to file new documents if problems are found. Regulators said that lenders should continue with foreclosures as quickly as possible if no problems are found.

        Get those ROBO-signers back at it, full speed ahead!

    2. Justicia

      Isn’t this interesting — they report, you decide:


      JPMorgan Slashes Investment Bank Bonus Pool as Revenue Drops
      By Christine Harper
      Oct. 13 (Bloomberg) — JPMorgan Chase & Co. slashed third- quarter compensation for its investment-bank employees by 31 percent from the prior quarter as the company’s revenue declined.
      The firm set aside $2.03 billion for the period to pay workers of its most profitable unit, 38 percent of the group’s revenue, according to an earnings statement released today by the New York-based bank. For the first nine months of the year, the expense fell 10 percent to $7.88 billion from $8.79 billion a year ago […]

      JPMorgan, the second-biggest U.S. bank by assets, and other Wall Street firms that hired workers in the last year had a drop in fixed-income trading and investment-banking revenue. Expenses at JPMorgan’s investment bank have risen 20 percent this year, adding pressure to lower compensation.

      NY Times

      October 13, 2010
      JPMorgan Chase Profit Rises as Loan Provisions Fall
      By ERIC DASH
      JPMorgan Chase kicked off what was expected to be a mixed quarterly earnings season for big banks on Wednesday with a 23 percent increase in third-quarter income.

      After powering ahead for the last year on the strength of its trading operations, JPMorgan topped investor expectations with the help of improvement in its credit card business and a gain from money it had previously set aside to cover possible losses from bad loans.

  10. Wild Bill

    The Florida foreclosure mills had established a system whereby the information contained in the foreclosure documents was produced offshore. Testimony has been that David Stern set up the offshore operations for his firm in Guam and the Phillipines. Another of the four firms under investigation in Florida had its papers set up in India.

    So one of the key questions the investigation should answer is: Where did these offshore companies get the information they placed in the foreclosure documents?

    This process formed the crux of the cure for the bad paper that the law firms were offering the banks. You gotta hope that when they finally get around to looking for these offshore firms that the folks haven’t disappeared, along with all their business records.


      The info was gotten from: Fidelity Financial Information Systems, which as one of it’s lines of business provides fraud detection software for the banking institutions. They spun off Lender Processing Services in 2008.

      Trust me, they have all your info. Keep up!

  11. Sufferin' Succotash

    Oh well, private property was always just one of those bourgeois liberal technicalities anyway…

    1. F. Beard

      “Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with a flick of a pen they will create enough to buy it back.”
      -Sir Josiah Stamp, former President, Bank of England

  12. Nelcisco

    acat, I see your point. But do you think government and not the free market is the solution for all this craziness?

  13. i on the ball patriot

    Haven’t parsed this crap in a while, but …

    What about past bankruptcy filings — BEFORE the FREEZE, where people lost homes and they have already been resold?

    If you have gone through bankruptcy and the bank did not have proper title to the property at the time, it was then, at that time, an unsecured debt which should have been discharged in the bankruptcy and you got screwed. According to the scam ‘rule of law’ it would appear that the bank is guilty of “fraudulent receipt of property from a debtor; …

    Excerpt …

    “840 Overview of 18 U.S.C. § 152 Violations
    18 U.S.C. § 152 “attempts to cover all the possible methods by which a bankrupt or any other person may attempt to defeat the Bankruptcy Act through an effort to keep assets from being equitably distributed among creditors.” Stegeman v. United States, 425 F.2d 984, 986 (9th Cir.), cert. denied, 400 U.S. 837 (1970)(citation omitted; emphasis in original). Moreover, “18 U.S.C. § 152 was enacted to serve the important interests of government, not merely to protect individuals who might be harmed by the prohibited conduct.” Id.

    The nine paragraphs of the section prohibit the following activities:

    1. the concealment of property belonging to the estate of a debtor;

    2. the making of false oaths or accounts in relation to any case under Title 11;

    3. the making of a false declaration, certificate, verification or statement under penalty of perjury as permitted under Section 1746 of Title 28 or in relation to any case under Title 11;

    4. the making of false claims against the estate of a debtor;

    5. the fraudulent receipt of property from a debtor;

    6. Bribery and extortion in connection with a case under Title 11;

    7. transfer or concealment of property in contemplation of a case under Title 11;

    8. the concealment or destruction of documents relating to the property or affairs of a debtor; and

    9. the withholding of documents from the administrators of a case under Title 11.”

    Deception is the strongest political force on the planet.

  14. Dan Duncan

    Putting aside the forged affidavits for a moment, the Josh Rosner post yesterday seemed to call into question a large number of securitizations.

    If it turns out to be a valid concern, then I would ask:

    If the title insurers are questioning the legitimacy of the foreclosed deals, then why are transactions involving non-foreclosed homes any more legit?

    By this I mean: On a “non-foreclosed” transaction (ie, your typical real estate deal with your typical buyer and seller), the Seller’s mortgage is paid off. Part and parcel of that payoff is obtaining and recording a Release from the Lender that was paid off.

    If many of these foreclosures are in fact not legitimate (because of securitization), then why are the Releases on all the other transactions legit? It stands to reason, if the entity had no standing to foreclose, it also had no standing to issue a Release.

    It would mean that not only are purchasers of a past foreclosures in a thicket of thorns, so too are the purchasers of any property connected to a securitized mortgage that was “paid off”.

    Still, if the technicalities must adhered to fully and completely, then those Releases, signed by an entity that had no right to foreclose to begin with, seem to be quite shaky.

    If we have true title compliance, it would also mean a moratorium on ALL transactions with a securitized mortgage, so that a proper and valid Release would be obtained.

    1. Cedric Regula

      Personally, I’m relieved banks or someone is looking for issues beyond robo signers. As Ives has pointed out, it may be as fundamental as proof of property rights, and whether your MBS investment can pay any interest at all.

      The question seems to be whether MERS does it legal, are electronic scanned docs and signatures legal docs, same as the pen and quill originals, are the trust funds for MBS doing it legal, and is it OK if your county registrar doesn’t record title transfer, and can/will title insurers believe they can insure valid and clear title to a potential home buyer.

      Here is MERS response to JPM.

      MERS Response to J.P. Morgan Chase Statement
      JP Morgan Chase is a valued member of MERS. They currently have their correspondent loans registered on the MERS® System. They do not, nor have they ever, registered their retail loans on the MERS System. As members of MERS and for loans registered on the MERS System, banks have the option of foreclosing in their own name, or MERS foreclosing for them. JPMC has chosen to foreclose in their own name, which is a common decision that is allowed under the structure of MERS.

      As far as banks scanning docs, I do know for sure they do that. Filenet and IBM have workflow software systems that allow banks to work electronically this way, and the idea was to do away with SneakerNet and very large carrier pigeons. Whether these electronic docs are consider legal evidence, I don’t know.

      MERS has been around close to 15 years, so this is an odd time to question legitimacy.

    2. DownSouth

      Well Dan, as ususal you’ve got the corporate party line down pat, referring to all this as merely “technicalities.”

      1. Dan Duncan

        DownSouth, you’re wasting your time. Technically speaking, I don’t give a shit if you don’t like the word “technicality”.

        I’m asking a legitimate question regarding the Releases obtained in every real estate transaction with a mortgage.

        If Lender has no standing to foreclose on the basis of the securitization mess (as opposed to the forged Affidavits), then it has no standing to sign a Release.

        If prospective purchasers and title insurance companies cannot trust the validity of Releases—which are necessary to properly complete all these transactions—then these “regular transactions” should also be suspended until there is there is some determination as to whether a Lender involved in a securitization actually has the legal standing to foreclose and/or sign the necessary Release, no?

        1. DownSouth

          Hey Dan, who said anything about what I like?

          I’m making a statement of fact, not opinion.

          Caracterizing the title problems as mere “technicalities” was the first talking point the banksters trotted out.

        2. Skippy

          Dan…are sterilized medical tools prior to an operation, just a mere technicality[?]….ummmm….you could forgo this technicality to reduce cost and increase turnaround, there by increasing profit. Till such time an infection rears its ugly head (spreading post op to include the hole hospital, plus general population at large {disease vector}), thus wiping out all previous illusionary profit to include deep cuts to pre event capital positions, and TRUST in the Profession/Hospital.

          Skippy…a new take on the Neocon/Liberal Trickle Down Theory…the time it takes for the information to Trickle Down in the marks/suckers gray matter and relies their getting screwed…lamo.

          1. Dan Duncan

            C’mon Skippy. I expect this kind of stupidity from DownSouth, but you too?

            The term “legal technicality” does not necessarily need to be as a pejorative. Take a deep breath and actually read the post. You’ll see there’s nothing “pro-bank” in what I wrote and I used the term “technicality” in a neutral manner.

            Seriously, I’m calling into question all real estate transactions on the basis that the banks lack standing to sign the Release of mortgage. If banks lack standing to foreclose, they lack standing to sign a Release of mortgage. If they lack standing to sign a Release of mortgage, then the Seller cannot convey clear title.

            It’s an extreme position, so I’m interested to see how it’s incorrect.

          2. Skippy

            Dan we all have histories here, that said, the only beef was in the_usage_of_the *term* “technicalities”.

            It is a banker friendly (obfuscation/putrefaction) talking point is it not? Other than that I observe your questions as valid, looking for granularity.

            Skippy…hope we cleared up that technicality…HA…

        3. Sid

          Axually, it sounds liek an honest question.

          I suppose the answer would hinge on whether the entity purporting to issue the release had the note at that time.

  15. gmath

    Does anyone know what the securitization agreements looked like? Did they depend upon a proper chain of ownership?

    If not, does this give rise to claims of securities fraud by those holding MBS?

    1. svsm

      i) The original Mortgage Note, endorsed “Pay to the order of xxx, as Trustee under the Pooling and Servicing Agreement, dated xxx, WMC Series 1998-B without recourse” and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Mortgage Loan as to which the original Mortgage Note has been lost, misplaced or destroyed, a lost note affidavit in the form attached hereto as Exhibit L;
      (ii) the original Mortgage with evidence of recording thereon, or, if the original Mortgage has not yet been returned from the public recording office, a copy of the original Mortgage certified by the Seller, Seller’s agent or the public recording office in which such original Mortgage has been submitted for recording;
      (iii) an Assignment of the Mortgage from the Seller to xxx, as Trustee under the Pooling and Servicing Agreement, dated xxx, WMC Series 1998-B, without recourse” which shall be in form and substance acceptable for recording other than recording information not yet returned from the recorder’s office, which shall be provided promptly upon receipt thereof by the Seller;

  16. Eagle

    At an estimated impact in the neighborhood of $6 billion, can we at least stop worrying about systemic risk?

  17. Debra

    I know ahead of time that what I am going to say will make me hugely unpopular, but since I am good at that, here goes.
    I understand very little about the highly technical things you’re bringing up in this article.
    HOWEVER… the bank note situation reminds me of…
    what happened when my long deceased MOTHER set up a trust in order to ENSURE that HER CHILDREN would not have to pay inheritance tax in the usual way. She set up the trust, and then… DID NOT TRANSFER THE FUNDS INTO IT.

    Now… do you SERIOUSLY THINK that my mother was out to “scam” me ??
    Personally, I prefer to think that she wasn’t. In fact, I’m SURE she wasn’t out to scam me.
    So.. WHY didn’t she transfer the assets into the trust ??
    Was she incompetent ?
    Maybe she didn’t understand how these things work ?
    Maybe… she was ambivalent about losing control over her money ?
    Maybe… ALL OF THE ABOVE, at the same time ??
    If you tell me that my mother was an individual, and that the banks are ?? (what ARE the banks, anyway, if they’re not PEOPLE ?), then I will say that you are right. But I will also say that… in some situations gurus manage to get whole crowds of people to commit suicide, and Adolf sure got large numbers of people to participate in HIS big mistake.
    It is perhaps CONVENIENT to believe these days that we are ALL out to scam each other. Believing that is… social suicide.
    As far as the electronic/computer aspect of the notes, I say to other people that there are more frightening EXPLANATIONS to this phenomenon than you might imagine.
    Like… our DESIRE to believe that the machines, unlike human beings NEVER MAKE MISTAKES. Our desire to have TOTAL FAITH in them, and their capacities.
    I submit that we desperately want to believe this at this time. And that this desire to believe that the machines never make mistakes is responsible for some VERY IRRATIONAL BEHAVIOR on our parts.
    But.. whoever said we were SUPPOSED to be rational (everywhere) ?
    The.. economists, maybe ??
    Gotta get rid of that belief. It’s suicidal.

    1. F. Beard

      So your point is that banks are “mothers”? I agree. ;)

      The machines CANNOT be blamed. They do exactly what they are told to do; I know, I used to program them.

      Remember HAL in 2010 who went insane because he was instructed to lie? Now consider that our banking and money system is based on this lie: “Your deposit is available on demand even though we lent it out”. Is it any wonder we have problems?

      We do not demand that humans be rational but we do demand that they be honest. That is virtually impossible with our current banking and money system.

    2. i on the ball patriot

      You dishonor your mother — who I would guess acted ‘legally’ to facilitate a smooth, probate free, and timely transfer of her assets to her children through a trust — by comparing her to scum bag, rogue gangster government empowered corporate banks that had employees knowingly and willing sign off on falsified documents.

      With no disrespect to your mother (who did the best she could for you within a corrupt societal framework created by those same rogue gangster government forces), some pigs are more equal than others and therefore more responsible for the corruption than others.

      You liken a grain of sand to the waves that shape the entire beach.

      You are not “hugely unpopular” Debra, you are hugely ignorant.

      Deception is the strongest political force on the planet.

    3. Skippy

      OT Debra….Per your earlier comment directed to me. I have no soul, there by I have no need to save it. I do not embrace the vapor of any ilk, they have a bad tendency to blind ones self…too the facts.

      See current financial implosion…wisdom derived from those that stick their heads over gaseous cracks in the ground or parts of another’s anatomy. Then build temples around it (LOL) with magical devices within (in antiquity steam powered doors etc/today weeping idols, images in toast) to beguile the uninformed, and take over their minds and wallets, all in the name of cleansing the soul before departure.

      Skippy…Disclamer…I do respect some orders such as Quakers, Amish et al…not for their beliefs but…for their actions.

      PS. when inhaling the vapors remember this…the high you feel is chemical…not unlike glue sniffers/chromers…in reality its a sign your brain is dieing…cell by cell…once a tipping point is past, it cannot be recovered…dead cells unable to regenerate…facts indiscernible.

    4. Justicia


      I assume your mother didn’t have an army of high-priced lawyers advising her, as the banks do. If she had, then she would have known that a trust must be funded by the grantor (your mom) in order to exist.

      This is the very problem that the mortgage securitization trusts now face. The mortgage documents (note and mortgage, they’re inseparable) were never properly conveyed to the trust custodian — so the trust never had any legal interest in either the debt (note) or the property that was put up as security.

  18. Ector de Maris

    What happens when a house has been foreclosed upon based on one of these lost note affidavits and a third party later shows up with the original note and tries to enforce it against the debtor?

    1. Justicia

      If that happens, the 3rd party holder of the note can sue the party that foreclosed for damages.

      There is no right of action against the debtor/mortgagor/homeowner because the foreclosure extinguished the debt. The creditor got the house which was security for the debt, as per the contract.

  19. Cedric Regula

    I checked out the MERS website. Not surprisingly, they do seem to present themselves as the solution to complexities of managing loan life cycle.

    As a non-expert, I don’t see any problem when I read the “Why MERS and FAQ” pages on their site.

    I was wondering if our legal experts here could re-iterate their opinion on what they thought the problem was with MERS.

    P.S. Note to Debra: Banking has gone downhill ever since they killed off the Templars back in the 1300s. If your mom would have given warrior-monks all the family jewels, gold and silver for safekeeping in a Templar monastery, you never would have had this problem. Since then moral hazard has become much more of a problem. And selling to a greater fool is what really drives a market based system.

    1. Justicia

      Suggest you read Prof. Peterson’s article to fully understand why MERS is a disaster. (Yves provides link in the first post.) But, here’s the condensed version:

      Mortgage — from old French meaning dead (mort) pledge (gage).

      It is a debt secured by an interest in real property and consists of two parts: the note (borrower’s IOU) and the mortgage (pledge), which gives the lender the right to take the property if the debt is not paid.

      A long line of cases states that the note and the mortgage are inseparable. An assignment (transfer) of the mortgage (pledge) without the note is “a nullity” and has no legal effect.

      An even more ancient law (the Statute of Frauds) requires that all transactions affecting an interest in real property be in writing and signed by the person who has title to the property. This applies to assignments of a mortgage from one party to another.

      To ensure that the borrower doesn’t sell the property and stiff the original lender, states set up public mortgage registries where lenders can record their security interest for a modest fee.

      Title insurance companies search these records to determine whether there’s any break in the chain transferring the property from one owner to the next. If there’s a break in the chain it “clouds” title to the property — meaning there might be someone out there who can claim ownership.

      MERS is a private mortgage registration system set up by the TBTF banks to facilitate the creation of mortgage backed securities or MBS (Yves explains this very well in the interview) AND to avoid paying the mortgage registration fees. When you’re dealing with millions of mortgages those fees add up. MERS was supposed to track transfers of the mortgage debts as they were sliced and diced and traded in the market without having to pay the public registry fees.

      To do this, the mortgage lenders didn’t simply register the mortgages with MERS. They assigned the mortgages to MERS and identified MERS as both the owner of the mortgage and as the agent of the lender. (As a matter of law, you can’t be both principal and agent.) However, the debt was never owed to MERS but to lenders and the MBS securitization trusts on behalf of investors who bought the MBS.

      These MBS were traded back and forth globally during the boom-boom years and many, if not most, of the transactions weren’t recorded in MERS. MERS is a shell corporation with a few employees; nowhere near enough to keep up with all the paperwork required to properly track millions of mortgage transactions. (For a fee, MERS allows employees of the banks and their law firms to claim they are MERS employees. These were the people signing the robo-affidavits.)

      It was left up to the lenders (and later trustees for the MBS investors) to enter the data when ownership of the mortgages changed hands — which they failed to do. Moreover, every transfer of the note was supposed to be endorsed from one party to the next (remember, Statute of Frauds) but this legal requirement was also ignored.

      Consequently, when foreclosure cases went to court there were some major problems. To bring a foreclosure action you have to prove that you’re owed the debt — i.e., produce the note. (Remember, transfer of the mortgage without the note is a nullity.) Hence the need for “the dog ate the note” affidavits or, worse yet, fabricated notes.

      MERS has created havoc with the real property records in this country since 60% of residential mortgages are recorded in MERS’ name. To quote Prof. Peterson: “For the first time in the nation’s history, there is no longer an authoritative, public record of who owns land in each county.”

  20. F. Beard

    Wasn’t the ability to assign mortgage notes in real-time to performing and non-performing tranches of MBS’s the chief purpose of MERS?

  21. libarbarian


    Did they do this same stuff with commercial real estate? Are we going to have the same ownership questions with regards to those loans?

  22. Michel Delving

    Yves & Tom,

    Re: Lost Notes

    Recently read this in Larence G. McDonald’s book on Lehman Bros., A Colossal Failure of Common Sense.

    “By now on the trading floor we were hearing of U.S. banks flipping loans to banks in Europe and Asia – not just selling them CDOs and RMBS but handing over the original loans.” – Page 242

    Pls correct me if need be. If US banks were selling the original loans, wouldn’t the actual notes be part of the transaction?, creating a situation where original notes are scattered in many places, anywhere from Dusseldorf to Beijing? leaving mortgage trusts’ black boxes empty?

    This is the only place I’ve read of selling actual original loans overseas and Lawrence’s yahoo tale does not provide any more info. Maybe you have seen more evidence of it.

    1. Cedric Regula

      My take on that would be banks and S&Ls always sold original loans they made whenever the needed to make asset and liability adjustments to the balance sheet. The other party in the deal would be a bank that needed some maturity mismatch and make some money, but didn’t have enough good loan prospects generated internally.

      Not all loans are securitized nowadays, so my guess is it still happens.

      Now if someone sold off the loans that were in someone else’s MBS, that would be scandalous news.

      My bet is it happens more so in the CRE market, because a single loan has a much higher dollar value, and wouldn’t need to be pooled to be a transaction worthy of moving the needle in a bankers books.

      Of course the offshore banks wanted the stuff…US real estate is worth a lot(these assets back the loan!), the market is liquid and transparent,the consumer has a better credit rating than most countries, and we have the best property rights, mortgage system, and financial system in the whole world!

      1. Michel Delving

        Thanks Cedric. What got my attention is that Lawrence McDonald specifically notes RMBS which by name indicates securitization. If banks sold securitized notes, then what’s in the trust? Did MERS’ function by design to cover up empty trusts?

        1. Cedric Regula

          Hmm. If the notes that got securitized into MBS didn’t make it to the trusts set up to back MBS, and the reason is the banks sold them to someone else, or MERS is really a lottery game, then that would be big news.

          Not saying it didn’t happen….

  23. Geoff-UK

    Please stop harping on the deadbeats who aren’t paying their mortgage–just because I have no sympathy for them doesn’t mean I’m on the side of a bank cutting corners or committing fraud outright.

    The law is the law is the law. Foreclosing OUGHT to be more involved than a 2 hour in-and-out procedure at the court. You’re taking $100K to $500k of property–do your frickin homework.
    To Banks who don’t have the note–go screw yourselves.

  24. jim




  25. H Man

    In my opinion, it doesn’t matter if the mortgagor was current on the loan or not; fraud is fraud and a judgment of foreclosure involving perjured testimony (either oral or in the form of a notarized affidavit) is VOID or, at a minimum, voidable; end of story, ipso fatso.

    BTW – I must have been cheated in law school – I don’t recall a single course being offered in such (apparently) popular areas of study like “fairness”, “justice” or “technicalities”.

  26. takeresponsibility

    Funny people think the banks are responsible for foreclosures by not having paperwork!

    No one would be dealing with the banks if they paid the $$ they KNOW darn well they owe for the priviledge (not a right) to own a home.

    And record #s of people would not be unable to pay their mortgages if we didn’t have 10% unemployment.

    We wouldn’t be in this mess if not for the current economic policies of this administration.

    Hats off to this administration for getting the people to focus on – and blame- bank paperwork, instead of the govt policies, for the foreclosure rate.

    This elitist administration just proved they can fool many people, many times! Lots of high fives and laughter at the White House.

    1. Skippy

      HA…back link to AOL…the HOLE Political class as a subsidiary of the Bankster class which is again owned by the Bondholders that matter most class…OWNS THIS DEFECTIVE BABY…polemic assertions aside.

      Skippy…Its getting worse than a bar brawl…everyone fighting not knowing whom or how it all started, yet its on! Lots of scores being settled under the guise of free_for_all_…eh. Mean while the *individuals* that started this hole fracas are heading for the exit…having called the cops them selves….shezzzz

    2. Justicia

      Really, takeresponsibility

      Don’t you think the banks should take responsibility for making bad loans and for being careless with the loan documents. Don’t you think they should take responsibility for complying with long-established state laws governing real property transactions?

      This isn’t about borrowers not paying their debts. It’s about whether the banks have the right to take the borrower’s real estate to satisfy the debt. If the bank (or party trying to foreclose) can prove to the court that it has the right to take the property, it gets the house. If the bank can’t prove it has the right to foreclose, then its just another unsecured creditor.

      This has lots of other, more serous ramifications that have nothing to do with the deadbeat homeowner and everything to do with whether the banks, which didn’t have a proper security interest in the homeowner’s property, sold fraudulent “mortgage backed” securities to investors. Investors are already starting to demand that the banks take responsibility and take back these garbage backed bonds.

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