Paul Jackson Declares “Mission Accomplished” on Securitization Woes Based on Alabama Foreclosure Decision

Paul Jackson has posted on a decision by an Alabama trial court involving the so-called New York trust theory that we have discussed at some length on this blog. Given how banks have been taking it on the chin ever since the robo-signing scandal broke, I suppose I’d be inclined to gloat a little, as Jackson does, in response to a verdict in favor of a bank; bank PR has been a particularly tough assignment these past few months.

But Jackson tries to treat this particular lower court decision as an important precedent, when this is anything but. In addition, Jackson evidently is not familiar the normal process of getting new legal arguments accepted in court, or of how decisions in one court are viewed in another. Finally, as I will touch on here and discuss at greater length next week, there are good reasons why it is unlikely courts in other states (or even Federal bankruptcy courts in Alabama) will look to this decision as a precedent.

Because Alabama is widely known to have an anti-consumer state court, a decision in favor of the borrower would be seen as far more surprising, hence noteworthy, than a decision in favor of the bank. Alabama used to be a state where juries in class action suits would give mind-numbing awards to plaintiffs. As a consequence, big corporations have labored mightily and successfully in repopulating the judiciary with more pro-business jurists. I’m told it has the most costly Supreme Court elections in the US. If nothing else, they are considerably more expensive to win than the gubernatorial election.

Second, it is not unusual for new arguments, particularly in unsettled areas of the law, to lose on their debut. Think how long tobacco and asbestos litigation took to start getting traction in courtrooms. Plaintiffs’ lawyers go through a learning process as determine what hurdles they need to overcome to persuade a judge or jury. And we’ve seen a similar process in the foreclosure crisis. Even though borrowers’ attorneys had been devising strategies to contend with robo-signing abuses since at least 2009 (it’s hard to find a start date on the specialists blogs), it was a non-issue until it was validated last fall and led most major servicers to halt foreclosures in some or all states (and even now, it appears that the pace of foreclosures may have slowed appreciably as a result of continuing documentation issues).

I will need to look at the trial transcripts and affidavits more closely, as well as confer with independent experts, but as an initial check, I sent the decision to a couple of attorneys who do not have a dog in this fight. One deemed the decision to be “amazing”, which in context is “amazingly bad”. The other thought the decision to be unlikely to be looked at as a precedent, and was critical of some of the key aspects of the legal reasoning.

US Bank v. Congress Order

This is merely a quick pass but let me flag three troubling issues which call the legal analysis into question. The first is on page nine. The Court sets up a straw man argument, that the borrower asked that New York law be used to determine the matter of ejectment. The borrower never took that position, so the matter was never in dispute. I received this comment by e-mail from a former Federal and state prosecutor:

….the PSA’s choice of law provision should control the threshold fact issue whether or not the promissory note is trust property. This basic fact issue is one that the trustee has agreed should be decided by New York trust law. The trust’s beneficiaries have every expectation when they purchase the trust’s certificates that the trustee will promote a uniform interpretation of the trust’s terms no matter where the forum.

In fact, it was discussed in the hearing at some length that the trustee was unable to establish conclusively which trust held the loan. There were multiple trusts created around that time by the same issuer that could potentially have owned the loan, and the same loan number appeared in two SEC filings (I need to reread the transcript on this issue but I do recall considerable time spent on this matter). Instead, the decision finesses this issue:

[w]hen GMAC referred the note to plaintiff’s attorney, GMAC informed her the Trust was the current holder of the Note.

In reality, the referral came from the default subservicer, Fidelity/LPS, and the subservicer’s identification of the trust is hearsay. How Fidelity/LPS came up with the name of the trust remains a mystery.

Second are the questions raised about a “tah dah” document appearing on the eve of trial (literally Thursday evening before Memorial Day weekend, when the hearing was the following Tuesday, which would normally be considered too close to trial to be permissible to introduce new evidence), namely, an allonge. For those new to the foreclosure mess, what laypeople call a mortgage has two legal elements: a promissory note, which the borrowers signs, and a lien on the property, which is in most states confusingly called the mortgage. In many states, and Alabama is one of them, the note is the critical instrument. You need to have legitimate rights to the note to be able to foreclose; the lien is a mere accessory and follows the note.

Notes are negotiable instruments, meaning to be conveyed from one owner to the next, they need to be signed, just like a check. They can be endorsed in blank (no specific party named, so whoever has possession could claim ownership) or to a specific party. The documents governing securitization, the pooling and servicing agreement, typically required that the note had to have the full chain of endorsement through multiple specific parties before it got to the trust, and this one was no exception.

Under the Uniform Commercial Code, an allonge, which is a separate document attached to a note to permit more signatures to be added, must be “affixed”. The language in the old version of the UCC was “firmly affixed”; most states have now adopted an newer version of the UCC which merely required “affixed.” The reason for concern is tampering. A note has clear monetary value; a note endorsed in blank is a bearer instrument. Notes are (or should be) handled as carefully as checks, particularly since they typically have considerable monetary value. If you could just assert “I have this piece of paper, it shows that check you have really was endorsed to me” you can imagine what mischief would result.

This part of the decision is a stunner:

In this case the allonge was attached by means of a rubber band and the instruments were together in a file folder. The court finds that the allonge in this case was adequately “affixed” to the note and the signature on the allonge a valid endorsement of the note.

To be clear, the note was in the collateral file at the beginning with other documents in between, and the allonge was at the end with a rubber band around the whole file folder, which was not all that skinny. What makes this a matter of concern is the mysterious appearance of this document at the eleventh hour when it was absent from bank’s evidence submission, after it became clear pre-trial, thanks to affidavits submitted by the borrower’s lawyers, that they were going to argue that there was no evidence that the note had been properly conveyed (as in the note lacked the needed signatures).

Now from what I can tell, there are no Alabama court precedents on allonges since the new UCC was put in place. Courts in other states that have adopted the UCC don’t accept the standard asserted by this judge. For instance, Massachusetts requires physical attachment. The Ohio appeals court recently also required attachment and looked to a Texas Supreme Court decision and an Arizona decision, both of which concluded the allonge needed to have been attached (there was discussion in the Texas decision that it was OK to detach the allonge that was known to be previously attached (presumably for purposes like photocopying) as long as there was good reason to believe tight controls had been maintained over the documents. Consider this section (page 20):

In contrast to Watson, no evidence was presented in the case before us to indicate that the allonges were ever attached or affixed to the promissory note. Instead, the allonges have been presented as separate, loose sheets of paper, withno explanation as to how they may have been attached. Compare In re Weisband,(Bkrtcy. D. Ariz., 2010), 427 B.R. 13, 19 (concluding that GMAC was not a “holder”and did not have ability to enforce a note, where GMAC failed to demonstrate that an allonge endorsement to GMAC was affixed to a note. The bankruptcy court noted that the endorsement in question “is on a separate sheet of paper; there was no evidence that it was stapled or otherwise attached to the rest of the Note.”) {¶ 68}

Third is the judge’s arguing for the use of digital signatures, which he acknowledges were evidently Photoshopped to fit on the allonge. Most states require so-called wet-ink signatures; indeed, I had been under the impression that that was close to a universal standard for real property transactions. Real estate transactions were specifically exempted from the Federal laws related to digital signatures for that very reason.

Jackson misses the fact that these fights over new legal issues are not battles but campaigns. And Jackson’s record at calling their outcome is on a par with the National Association of Realtors’ record on housing price forecasts. For instance, in October, he wrote:

The real fact is that the ‘robo-signing’ scandal is a procedural one, albeit one that offends the very nature of due process. That said, until someone can provide consistent and repeated evidence suggesting that the information contained within ‘robo-signed’ affidavits is factually incorrect — not just some of the time, but most of the time — the end result of this mess is nothing more than a very public, brand-damaging, headline-making procedural blip.

Jackson set the standard that one had to reach before anyone should take robo-signing concerns seriously was that the underlying inaccuracies had to be pervasive:

Thus far? Not a whit of credible evidence has been produced suggesting that foreclosure affidavits are factually incorrect on an endemic level. And this, despite a debtor’s counsel that for years has been actively and aggressively sniffing out every possible way it can to forestall foreclosures. If false debt amounts were being pushed by banks onto the courts en masse, and there was any credible evidence to support such a claim, you can bet all the apple pie in America that every single one of us would have heard about it by now — and well before anyone started to complain about the arcane technicalities of which nameless, faceless bank employee was signing a particular document.

As Barry Ritholtz argued pointedly, that’s the wrong standard. The process should be error free. No one should ever be at risk of losing their house to a documentation “mistake”. Real estate was historically deliberate and procedure intensive for a very good reason: these transactions were very important to the parties involved. And judges also taken issue with the idea that the proper submission of affidavits is merely “procedural”; this sort of casualness strikes at the heart of the processes designed to insure that evidence submitted to the court is accurate and reliable.

For instance, we pointed out that the state attorneys general and the Federal regulators did at most a cursory exam of servicers (knowing how hard it is to reconcile servicer records with borrower payments, the review of 2800 loans cannot have involved checking the integrity of servicer record and payment and their use of impermissible pyramiding fees). Thus the only abuses that they’ve apparently looked into are HAMP abuses (the Treasury was somewhat on the case, no doubt due to the ministrations of the Congressional Oversight Panel). So it appears that the authorities are pressing for principal mods at servicer expense (when as we’ve said, investors would be happy to see them go to viable borrowers) that would involve meaningful hard costs to the banks. If these abuses were the nothingburger that Jackson has maintained they are, why is the bank-friendly Administration pushing for these measures?

The problem with Jackson’s reading is he is so deeply invested in defending the securitization industry that it distorts his interpretations. Consider this statement from a recent post:

Believe it or not, mortgage servicing is a noble industry. Or, at least, it’s supposed to be. Even in managing borrower defaults and repossessing property, there is something noble to the work, underneath it all — and it comes from following the law, enforcing contracts, ensuring that our nation’s system of property rights maintains its integrity for all Americans.

In fairness, in the rest of the post, he did discuss how servicing had gone badly awry due to cost cutting pressures (which he blamed on Fannie and Freddie). But consider his assumption: he sees servicers playing a judicial role. That is in fact what has too often happened, and that’s wrong. Real property transactions are governed by the law, and the courts, not the servicers, are the mechanisms for enforcing contracts and upholding property rights. Richard Smith discussed at some length precisely why these procedures have remained the foundation of property rights for over 300 years.

We also have this:

By subverting our nation’s real estate law to favor borrowers who have no intention of fulfilling their debts, we risk undermining everything that establishes private property rights in our country — and perhaps the coup de grâce of it all is that the American public will be cheering when it happens.

Sorry, Paul, the overwhelming majority of borrowers who eventually default struggle to stay current and have every desire to meet their commitments. They don’t want a free house, they want a modification. And while many are hopelessly over their heads, some would be viable on a principal mod that would still put the investors ahead. That’s not my view, that’s the view of Wilbur Ross who has actually tried it.

It’s ironic that Jackson keeps presenting himself as the voice of reason, when in fact his world view is that of a one-sided morality where those with the most money are right. And on top of that he holds himself as a defender of law, yet frequently defends practices that undermine the very foundation of property rights. That stance is, at its core, unreasonable, unfair, and profoundly dangerous.

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  1. readerOfTeaLeaves

    What makes this a matter of concern is the mysterious appearance of this document at the eleventh hour when it was absent from bank’s evidence submission after it became clear pre-trial, thanks to affidavits submitted by the borrower’s lawyers, that they were going to argue that there was no evidence that the note had been properly conveyed (as in the note lacked the needed signatures).

    Cue up the scratchy violins. Or better yet, the theme from “Jaws”…

    It appears Mr. Paul Jackson is overdue for a hearing exam.
    ‘Cause I’m pretty sure that I’m not the only one who reads things like this and suddenly hears a “dum-dumDUM!” just offstage, but relentlessly coming closer.

  2. jake chase

    Your argument seems to be that wholesale violations of state mortgage recording laws ought to be punished by cramming down wholesale principal modifications in favor of borrowers. One could just as easily argue in favor of wholesale invalidity of securitized mortgages as the appropriate remedy.

    1. DownSouth

      I don’t think that’s what Yves is arguing at all.

      I think what she’s arguing is that actions have consequences.

      The way it works now, the servicers (mostly TBTF banks, no?) suffer no consequences for their actions. In fact, the more underhanded, coniving and treacherous their actions are, the more money they make. With borrowers and trusts, however, it’s a completely different standard. For the role they sang in the lender-borrower-investor trio went off key, there are no government bailouts to the tune of trillions of dollars. There are no pleas for regulatory forebearance. And there’s no highly-tuned campaign to capture the judiciary.

      The servicers are to suffer no consequences for their actions. The costs, both for their own mistakes and the mistakes of the trusts and borrowers, are to be borne 100% by the trusts and borrowers, and the taxpayers.

      Of course if the servicers are allowed to be policeman, prosecutor and judge, that goal is achievable.

      1. DownSouth

        Or to put it another way, Jake, it’s a little difficult to get upset about child verbal abuse when the government is lavishing trillions on child rapists.

        Of course that’s what libertarianism, at the end of the day, always ends up being about: creating a gross double standard where a few enjoy total freedom and the rest live in a brutal police state.

    2. ScottS


      Try reading the entire article. Mods favor borrowers and investors, at the expense of servicers doing their job.

      For investors, half a loaf of bread is better than none. Principal mods are to their benefit.

      As for securitization, I’m okay with that biting the dust. Securitization is like slicing up a poop sandwich into small enough pieces until someone decides to take a bite, usually a pension fund. If they were such a great deal, banks would keep them for themselves. The fact that they try to offload them shows what trash the CDOs are.

      If the loans weren’t sliced and diced, it would be easier to find the true quality.

  3. DownSouth

    “Following the law,” “enforcing contracts,” and “ensuring that our nation’s system of property rights maintains its integrity for all Americans” is the end all and be all of servicers, at least according to Jackson.

    And with such noble and benevolent intentions, why shouldn’t servicers be allowed to play the triple role of policeman, prosecutor and judge? It’s a dictatorship of virtue—-tantamount to being cited for a crime and then having to appear before the chief of police to plead your case. And we all know that the police always have only the interests of the general public at heart. It’s guilty as charged; at least when the authoritarian mindset has its way.

    Judges are supposed to be impartial, standing above the fray between plaintiff and defendant. If they have financial or other ties to any of the parties appearing before them, they are supposed to recuse themselves. In other words, they’re not supposed to be one of the adversaries in an adversarial relationship.

    Of course servicers don’t fit this impartial role at all. They have very definite interests in the foreclosures actions they are a part of. Theoretically they represent the interests of the trusts they work for. But in real life they represent only their own interests. There are just too many cases that have come to light where trusts have become the victims of acute agency problems, that is to the servicers who “work for them.”

    1. DownSouth

      Noble and benevolent servicers, operating in a paradise of innocence—-that’s the notion Jackson proselytizes. If anybody buys into that, I’ve got some nice ocean front property in Arizona I’d like to sell you.

    2. skippy

      DS…if the original contract of this county can not be applicably served (defective in antiquity as it maybe)…what pray tell other can be…really.

  4. attempter

    Sorry, Paul, the overwhelming majority of borrowers who eventually default struggle to stay current and have every intention of meeting their commitments. They don’t want a free house, they want a modification. And while many are hopelessly over their heads, some would be viable on a principal mod that would still put the investors ahead.

    It’s looking more and more like that position isn’t tenable. It relies on the banksters to relent and the government to become responsive. The evidence record on both isn’t looking good.

  5. Truth

    I have been watching and waiting for the truth to finally come out in it’s entirety for quite some time. There are now almost countless websites and blogs which harp on many illegalities within our defacto executive, legislative and judicial branches of government. If you don’t think that they are all involved in these travesties going on in these courts, you are sadly mistaken.
    The fact of the matter is that all mortgages are conceived in fraud and use deception and misdirection in creating the illusion that there is a “borrower” and a “lender” when a home is purchased. The banks never lend a dime. For the truth, go here and read “WHERE DOES THE FRAUD BEGIN”. You can even call the Oakland County, Michigan Clerk of the Court at (248)858-2876, speak to Linda, Jan or Marge and obtain a Cert. copy of the Affidavit of Walker Todd (the 15 page copy with signatures) from case #03-047448-CZ. These are referred to as the FBI Docs. and PROVE the biggest fraud in American history (Other than derivatives).

  6. Daniel Pennell

    How did Paul Jackson manage to launch Housing Wire just in time to the foreclosure crisis? The guy made his living in the foreclosure world before he started the publication.

    Two things strike me.

    One, the guys is hardly an unbiased individual on the topic.

    Two, maybe I am getting paranoid but is it coincidental that a guy who is was a lawyer for the foreclosure industry and had a nice business already would start an online magazine purporting to be all things housing just in time to act as a public mouthpiece for the same industry as it was heading for trouble? Part of me just says the timing was coincidental. Part of me wonders if he was not set up as part of a larger strategy of the banks.

    It would be interesting to investigate where the funding to start Housing wire came from.

  7. scraping_by

    One thing I noted:
    Original mortgage: $104,400
    Appraised Value: $61,500
    Auction Price $49,600

    The years of payments made a nominal reduction in the principal, so just leave as found.

    So, depending on how you look at it, the bank’s had a loss of $43,000, $55,000, or a gain of $11,000. All you have to do is separate the foreclosures from the property accounts in time or in business structure, ignore the negative while keeping the uptalk. The real world numbers show a massive loss, which that few years of loan shark level interest hardly dents.

    I would not be surprised if legal fees come to about 10k, making this a serious fail for this bank.

    This sort of incompetence creates the need for extend and pretend. It also allows extend and pretend, since the banks can play these games with no real consequence. They’re running the government and they can’t even run their own business.

    1. Yves Smith Post author

      Are you kidding? Each side spent over $250K on this case. Trials where you are making real legal arguments, as opposed to presenting papers for a judge to approve, are costly. And Alabama billing rates are a lot lower than in other states. For borrower’s counsel, since the borrower has no money, the “spent” is what their time was worth plus hard dollar expenses (experts witnesses and so on). They are out the real out of pocket real costs.

      The banks’ lawyer gets paid, so yes, this is an epic fail for the bank. I’ve mentioned this in other posts. The more borrowers fight cases, the more loss severities are gonna rise. Investors already are losing 70% on the average foreclosure and housing prices are projected to fall further in most states this year. If on top of that they start having more cases with 300% losses on foreclosure, investors might wake up and finally do something a lot more serious to pressure servicers.

  8. Dan G

    What I wonder after reading this post, and relating it to the new principle write down posts is: Will banks give preference for choosing modifications of morgtgages on applications that, upon due dilligence, show potential problems in the their paper trail? Hence,acceptance of mod. should raise a flag that there would be a higher statistical probability of a problem.

    1. Bill

      Of course the banks would be more willing to modify a loan they would have trouble foreclosing on. That is hapening on a pretty big scale in Utah. Our ag has made it illegal for BOA to foreclose on homes. Guess what, now BOA is ready and willing to modify the loans.

      The part I dont understand is how said bank can modify a loan that doesnt have a clear title. How or why would they pay an investor somewhere if they cant establish which trust owns the note? Will the bank use the mers fail to its own end eventually?

  9. lawgrace

    Yves Smith’s “Mission Accomplished” published today, again shows her incredible talent for bringing quality facts and stories to our attention –this time, it includes the Alabama court and Paul Jackson.

    I continue to be alarmed that people like Paul Jackson would have the need –and take the time to expound upon court rulings to uphold blatant foreclosure fraud! I do not know if Paul Jackson was involved in foreclosure illegalities, but I do know that his intentional campaign to whitewash wrongdoing is an affront to families who are homeless because of foreclosure fraud and greed!

    UNTRUE to what the courts and Paul Jackson communicate, LENDERS are not always the ones who are foreclosing on their security interests!! There are foreclosures that NEVER became returned to lenders or banks, but were FRAUDULENTLY “CREDIT BIT” by “Straw Buyers” and judicial INSIDERS. Thus, BLIGHT is a common telltale sign! [SEE: “What happens when a bank begins to foreclose on a property, then changes its mind?” by Justin Sondel @ (*I can’t make bold, underline, or italics –please forgive all caps.)

    Mission Accomplished:

    The foreclosure lawyer is the CATALYST for the goal of holding a “simulated” auction which gets the property deed recorded out of homeowners names. OR not even have an auction AT ALL, BUT let homeowners THINK they no longer owner their homes and move out!

    Then FALSE forms 1099-A’s become filed in the homeowners name and social security numbers; mortgage default insurance proceeds become paid to the first so-called lender that submit a claim –and the game begins again when the homes become flipped!!

    For years, I have been inexpressibly frustrated about courtrooms being utilized –at the disadvantage of people who can least defend themselves, for purposes of enriching powerful corporations and their lawyers who do their bidding.

    Also telling is the comment from Daniel Pennell, about Paul Jackson being in the foreclosure business. If I had any investigative authority, he and the foreclosure lawyer colleagues that he refers to in his October 11, 2010 housingwire article, would be among the first targets for extensive foreclosure fraud investigation!

    Paul Jackson is egregious for continuing rubbing society’s noses with rulings that condone manifest fraud, and likely real estate racketeering. While he seems to be campaigning on behalf of his colleague foreclosure lawyers, the irrefutable fact that criminal frauds are being committed with foreclosures –and Jackson’s apparent aim to divert attention away from lawyers, seems like ‘he doth protest too much’.

    For reasons such as I have stated above and many others, I continue call attention to the alarming need for an investigation of lawyers who file foreclosure pleadings in bankruptcy and in civil courts. Please see more about foreclosure judicial deceptions and frauds @ Request for Congressional Foreclosure Panel to Examine Foreclosure Lawyers

  10. Paul Repstock

    Admitedly, I’m a legal moron. However, I have a very good nose for smelling rats and schemes.

    Yves; I think you are making a mistake to poo poo this probably weak decision. Facist regimes are notorious for using everything at their disposal, even the most illogical arguments, as justification for their actions. The people they are trying to convince have no legal training and will probably be persuadedjust by the presence of large impresive seals. In the end the forclosure mess will become a political issue.

    The banks and the government are on the same side in this fight; they just want to sweep it under the rug and forget it. Therefore, they will attempt to “win” more of these small cases. The actual legal weight of these cases will be less important than the ‘number’. These cases will likely build upon each other and the early ones will be targeted at captive situations, (where the Bench is a known quantity). When politicians and judges who are supportive of the Bank’s position are able to use this “Huge, Impressive, Legal” precedent as campaign platforms material and moral justification for positions, then the forclosure victims and property rights are finished.

    LawGrace (above) is correct. This is part of a much bigger plan.

    1. Paul Repstock

      It is possible that Paul Jackson is similar to HB Gary; Where a little dog with a shrill bark seeks to ingratiate itself to powerful masters. That might be one explanation for his apparent career change. If the banks had intended to build an external PR machine they could certainly have afforded better credentials??

    2. Yves Smith Post author

      The reality (which I am told is tacky to say in the post) is Alabama is seen as a third tier state, in terms of the caliber of its state courts. There’s a reason My Cousin Vinny was located in Alabama.

      If this cases went to the state Supreme Court, that might be different, simply because any state Supreme Court decision has to be considered (the judges are presumed to be higher caliber and the decision will have been put through the wringer again in appellate court). But even if the borrower lawyers thought they could get win in the appeals court, the bank would not want a win at a court of that level, particularly when the Supreme Court in Alabama is SO business friendly. So the borrower needed to win in lower court, on the assumption the bank would not want to incur the cost of fighting further and running the risk of having an adverse decision affirmed in appellate court.

      And look at MERS. States have gone very different ways on this one. Some states (and I’m not talking Minnesota, which has passed pro MERS legislation) continued to allow foreclosures in the name of MERS. But enough didn’t to raise very serious issues, to the point where banks started settling cases if they thought the judge was going to issue a ruling against the foreclosure questioning the validity of a foreclosure undertaken in the name of MERS. Now MERS recently told all MERS members to quit foreclosing in the name of MERS. Yet as recently as last November, in Congressional testimony, they were insisting they had no problems with the legal standing of their activities!

      That’s what I mean about this being a war. Even divided opinions (some states going one way, some another) is pretty damaging. And the MERS example shows that a lot of judges are independent minded enough to care about looking at the facts and the law and making their own determination.

      This same theory is being argued in other cases in other states. The decision happened to be issued here first.

      In addition, I am told that investors (top MBS investors) have asked their attorneys to look at the legal theory and the underlaying facts. And they are sufficiently concerned that they are hiring new counsel to look at it (meaning not going back to the lawyers who did the securtizations and therefore have opinion letter liability and general reputation at risk). The reports I am getting is they buy this reading.

      1. Paul Repstock

        “..a third tier terms of courts’…Ouch!

        When considering the US rankings on the global justice scale, that is pretty scarry. I just don’t know what is happening in the West. There is evidence of a collective surrender. Perhaps too large a proportion of our people have reached some Peter Principle ‘glass ceiling’, not to suggest women are more affected by this. The opposite may be true. Perhaps the abscence of any viable frontiers deprives us of an emotional saftey valve we always had in the past.

  11. lawgrace

    I need to add that NO ONE other than a LAWYER WHO FILES FORECLOSURES (and who records property deeds after foreclosures even in non-judicial states) has the alarming ability to defraud Bankruptcy Courtrooms and homeowners by filing FALSE “Lift Automatic Stay” Motions and “Proof of Claims.” (Notice TV commercials telling people to come & file bankruptcy?)

    Without a lengthy legal discussion, I would just say that a even google search of those 2 terms will show how they affect homeowners’ rights concerning foreclosures. WHEN LAWYERS FILE FABRICATED FORECLOSURES, HOMEOWNERS ARE GROSSLY AND UNFAIRLY DEPRIVED OF THEIR RIGHTS UNDER BANKRUPTCY LAW! One particular aspect that thousands of bankruptcy filers become UNLAWFULLY cheated out of BECAUSE OF LAWYERS, is the possibility of “avoidance” due to the debt being “unsecured.”

    It is an awfully unfair game that lawyers play when they fabricate who the lenders are to illegally defeat provisions under Bankruptcy Law. If anything, “debtors” could sometimes file “adversary” proceedings and uncover facts about their lenders and servicers if it were not for lawyers –on behalf of lenders that DO NOT HAVE STANDING– quickly and fraudulently filing particular judicial pleadings that defeat and dismiss people’s bankruptcy cases. The bottom line is that courts have nothing over which to preside when there is no real party interest / no “standing,” and lawyers should NOT have been granted those “Lift Stay” Motions for their so-called clients!

    The other appalling thing about foreclosure frauds is that –although some people NEVER lawfully lost ownership of their homes –because of foreclosure lawyers’ ability to work the judicial systems, scores of homeowners unfairly, unlawfully become saddled with additional debt to become to paid to people with NO LEGAL RIGHT to be paid.

    Fraudulent foreclosure auction “credit bit” create an opportunity for lawyers to return to court and obtain an order of “Deficiency Judgment” –UNLAWFULLY against homeowners whose properties PURPORTEDLY sold (not returned to lenders) to INSIDERS who UNLAWFULLY were allowed to PAY NO MONEY AT THE AUCTION. Then they can sell the deficiency judgment to a “debt buyer.” However, only the lender is permitted to “credit bid” at foreclosures. Therefore, when sham bidders pay little or no money within the allotted time, the auction should be reset.

    Also City revenues ARE CHEATED out of monies that should be gained from auctioned homes if auctions were conducted lawfully. But when insiders are allowed to get homes at “a steal,” LAWYERS CAN LIE TO LENDER-CLIENTS and say there was a “deficiency” bid, while at the same time they are able to hide the fact that a crony or insider obtained the property. AFTERWARD, what is to stop some ‘lender’ from allowing lawyers to keep properties (take it off their hands –illegally) in lieu of fees, which is really a back door 3rd party purchase, or when THE LENDER’S NAME ON THE FORECLOSURE OR BANKRUPTCY “LIFT STAY” Motion is DEFUNCT, such barter deals are outright theft!

    How awful when SO MUCH fraud has for decades been the means for dishonest participants in the foreclosure racket to get slices of the “foreclosure pie” at the devastating costs and effects upon people who –for some reason or another fell behind on their mortgage payments.

    IT IS NOT AGAINST THE LAW TO OWE A DEBT, BUT IT IS AGAINST THE LAW TO COLLECT THE DEBT VIA FRAUD AND EXTORTION. Yet, people like Paul Jackson seem to be proud of deception and unlawful behavior –and too many courtrooms willingly oblige outright white collar crime.

    Even worse, for the few of us who realize that our homes were being fraudulently taken (mine via a lender’s identity which was defunct and acquired by the foreclosure lawyer), and we attempt to prevent it, the court systems disregard basic, as well as Constitutional law. And supposedly to teach a lesson for refusing to cooperate with extortion, some of us have been permanently maiming for a lasting reminder.

    The reason why I have full knowledge about false IRS 1099-A’s because Wells Fargo was a sham “loan server” for a DEFUNCT lender whom WF created a modification in the name of that fictitious lender; the foreclosure lawyer held a “simulated” auction of my home, and then that lawyer “flipped” my home to Freddie Mac via use of the defunct mortgage company’s identity. SEE: Foreclosure Fraud Assault -A Cry For Help by Alan Gray *I am a certified paralegal; well-versed in bankruptcy and consumer law.

  12. financial matters

    greengiant February 5th, 2011 at 5:29 pm 24

    Two reasons, one it is a RICO conspiracy, and two, they put some transactions to related or corrupt counterparties at 0 dollars transacted, perhaps to avoid the very statute reporting requirements.

    “On December 15, 2008, Appellant U.S. Bank sold the property to Blue Spruce Entities LLC for $0.00; in a simultaneous transaction, Blue Spruce Entities LLC sold the property to HomeSolutions Properties LLC for $5,500.00.

    These facts raise serious questions about why Appellant U.S. Bank would pay $94,350.00 at auction for the Ibanez property and sell it for $0.00.”

    One comment …
    “Out of curiosity I searched ‘HomeSolutions’ and ‘Blue Spruce’ and found that these entities have been buying foreclosures all over the country, typically for under $10,000 each, and many of them from Fannie & Freddie. Sometimes they sell the homes onward without even registering the title in their own names. Is this a fencing operation? It would be interesting to learn what connections these entities may have to major banks.”

    1. Ina Deaver

      Interestingly, the PATRIOT Act, which was just re-upped (oops – perhaps somebody wasn’t paying attention?) makes this criminal money laundering if what you are saying is true. It expands the list of ways that money is laundered, and the kinds of businesses and transactions that have to report suspicious activity, to literally include anything. Real estate transactions, of course, are explicitly included.

      If this is accurate, and Yves has access to a couple of creative attorneys, she should ask about it. A money laundering operation on that scale is indeed RICO: but RICO can be brought by private individuals, and defrauding government accounts can be prosecuted by qui tam under the False Claims Act. In other words, this would be a handle to private entities opening a second front on the banks. Considering the way all Government enforcement is going, this is not a bad call if we ever want to see the documents and practices come to light. But it will be an epic brawl to end all brawls, and they had better choose their venue carefully.

  13. MinnItMan

    I agree. It is a little bit tacky.

    Judge Vowell has been a circuit judge since January, 1995 and is currently the presiding judge in Jefferson County. Prior to his service on the Court, Judge Vowell practiced law with Beddow, Embry, & Beddow (1961 – 1987) and Vowell & Meelheim (1987 – 1994). Judge Vowell, a graduate of Auburn University (B.A. – 1959) and the University of Virginia (J.D. – 1961), is active in the American Bar Association, the American Bar Institute, the Alabama Law Institute, the American Judicature Society, and the Birmingham Inn of Court.

    It is worth noting that Beddow, Embry, & Beddow represented the NYT in THE NYT free speech case which created the New York Times” standard for libel of public officials – Sullivan, who sued the NYT, was the Mongomery police chief.

    “Several major Alabama law firms declined to represent The Times, but T. Eric Embry, then a partner in the Birmingham firm of Beddow, Embry & Beddow, accepted the case.”

    Not a bad third tier association. I’m not seeing obvious badges of stoogery on him, nor am I seeing a judge who wouldn’t be among the better-credentialed on any state court bench.

    I’m on my third read on the opinion. I’m saving my comments for later.

    1. Paul Repstock

      Minn; Yves’ critisism as of the state of justice in Alabama, not of the judge himself. One might wonder at the placement of a man with the pedigree you describe on the bench of a minor court.

      I look forward to your analysis and Yves’ of, not why he made this ruling, but how it was justified.

    2. Yves Smith Post author

      He is the presiding judge, which does mean something in Alabama (they are elected by other judges, not appointed). But I attended one very long day of the trial (about half of the time in court) and read the transcript (I lost it in a hard disk crash so I have to get it again). Both the lawyer for the other side who was put on the stand and the servicer perjured themselves. The argument for the rubber banded allonge was bogus. Vowell had to have found the precedents in other states I found, there aren’t a lot of decisions on allonges under the new UCC. He also misrepresented the borrower’s argument re NY law. This decision has the marks of straining to find against the borrower.

      People I know in other states say it was nuts to try this case in Alabama. The odds of it flying given how anti-consumer the judiciary now is were low. Look at the US Supreme Court decisions where the legal reasoning is tortured and a lot of serious scholars say pretty indefensible. But no matter how dubious some of them seem, US Supreme Court decisions are inescapable precedents. A lower court decision in Alabama is another kettle of fish.

      The borrower was black. Hadn’t paid in a long time. Had moved out due to fear of loss of property in the event of eviction (she had been wrongfully evicted from a rental before and had lost everything. Her stuff was put on the curb during the day, she would have lost her job if she had left work, and when she got home everything was picked over and what little was left was trashed). Not living in the home is seen as a lack of commitment. The judge probably also knew that a wrongful foreclosure decision is treble damages in Alabama (and the house had already been foreclosed upon). That’s statutory, no way around it (but the window for filing these cases is pretty small, so it’s not as if a ton of foreclosures would suddenly be at risk).

      The judge was was fairly consistently giving procedural breaks to the bank’s attorney (like letting them submit the allonge so close to the hearing that it was impossible for the borrower’s attorney to get a proper document expert to question it; all they could find was a guy at Staples with some graphic arts and Photoshop training). In the hearing itself he seemed to be evenhanded about objections by each side. Nevertheless, most judges would have been disturbed by the misrepresentation made under oath by the witnesses on the other side, but that didn’t seem to bother him.

      Standing is a threshold issue, and I need to get an independent reading on the paragraph the judge cites in the lawsuit, but that’s Alabama specific. That might be enough for him to hang this decision on, but I find that language almost impossible to parse. Courts all over the US have accepted arguments based on standing and chain of title. That paragraph he cites on p. 8 is the heart of the decision, and looks to not generalizable to other jurisdictions. So again my point on applicability to other jurisdictions would hold.

      Now I’m no expert, but this does not look like an even-handed posture to me.

      Contrast this with the recent NY decision on a MERS case:

      This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.

      The bigger ramifications were never discussed as in the MERS case. They could have been a elephant in the courtroom, or maybe the judge simply could not get his mind around letting a “deadbeat” prevail. He sat on the case for months, well beyond his normal timetable for issuing rulings . One judge in the state ruled against the borrower on case that also made chain of title arguments (not NY law, this one didn’t have a “tah dah” allonge magically appear to fix that problem). He simply issued a decision, and told the lawyer privately “I think you are right but I’m not going to be the first one to rule in your favor on this one.” Apparently Vowell wasn’t willing either.

  14. MinnItMan

    An Alabama mortgage case has to be heard in Alabama, even if it goes to federal court, or BK court where it would be Alabama substantive law, anyway. To the extent there is a federal claim involved like RESPA or TILA, the matter will still be venued in Alabama.

    I lost a fairly brief summation of what I thought the opinion means. I agree that novel legal theories usually don’t get open arms in district court, and generally, I think that’s a good thing. Truly activist courts are like Elvis sitings, frequently noted but hard to find.

    One thing about this case – I haven’t read any background on it – is that the order shows it’s an eviction case, and these are not ordinary civil cases, and they’re pretty stacked against Defendants. I can’t speak for Alabama but the states I am familiar with (MN and WI) have extremely limited defenses available to defendants. Eviction process is usually very short – continuances are heavily restricted.

    For the most part, post-foreclosure holdover Defendants here and in WI are not allowed to raise title defenses if the Plaintiff has a sheriff’s certificate of sale in its favor. Generally, the holdover has to sue the sheriff’s cert holder in a separate lawsuit seeking to invalidate the foreclosure on whatever grounds, and win an injunction to stay the eviction, pending the outcome of the validity challenge. Here, in some districts, if the lawsuit is served and filed before the eviction is served and filed, you can get by without the injunction (that’s supposed to be the rule everywhere in the state, but it isn’t universally followed).

    That Ms. Congress was allowed to do so in the eviction proceeding is interesting. It’s also interesting that a chief judge would be handling an eviction trial. Eviction court is a low rung, but they also cause a lot of problems. Appeals period can be extremely short – here it’s 10 days from an adverse ruling instead of the normal civil appeal of 60 days. Appeals are burdensome on district court administration, and eviction appeals even more so because they have to be done so quickly.

    Chief judges have administrative responsibilities and helping their judges figure out how to deal with cases like these is a big part of what they do.

    An eviction trial/hearing is not a great place to bring up this kind of complicated argument.

    1. Yves Smith Post author


      I’m quite aware that Alabama law would guide a Federal court decision in Alabama. The reason I think there are good odds a BK judge would react differently to a standing argument based on purported violations of the provision of the trust, which is governed by NY law, is that BK court is all about what are the assets and payment ability of the debtor and what is the validity of the creditor claims. They deal day in, day out with secured interests and question of the perfection of that interest. This is something, by contrast, that I’d imagine is not a bread and butter issue in state court. In addition, Federal BK judges seem to be a lot more bloody minded than state court judges. One of my colleagues who is a bankruptcy expert (from the finance side, very big messy bankruptcies, has also done expert witness in 35 cases) stresses that a bankrutpcy court is a court of equity, as opposed to law:

      a court having jurisdiction in cases where a plain, adequate and complete remedy cannot be had at law.” 3 N.Y. 498, 499. Courts of equity were common law courts but had their own principles (e.g., clean hands doctrine) and their own unique remedies (e.g., injunction, specific performance). Actions were brought either equitably “in chancery” or legally “at law.” Courts which are guided primarily by equitable doctrine are said to be courts of equity. Thus, a bankruptcy court is a court of equity. “A court of equity is a court of conscience, and whatever, therefore, is unconscionable is odious in its sight.” 47 A. 693, 695. Courts of equity, which arose independently of courts of law in England, have merged with the latter in most jurisdictions of the United States.

      Re the court. I think you are right, state court is not a great venue for this sort of thing but where else are you going to be if the matter involves foreclosures?

      Alabama is a non-judicial state, so all it takes is notice of the foreclosure sale. There is no eviction trial.

      This case was a wrongful foreclosure case after the foreclosure sale. There is a very brief window in Alabama (two weeks?) after a foreclosure sale (I think it may be based on the date of ejectment) in which you can file for wrongful foreclosure.

      Presumably Vowell assigns cases, but he could have decided on a random mechanism to make sure the process was neutral.

      The presiding judge in Alabama is administrative, it does not appear accurate to think of them as a “chief judge” in the way you do. And the smart ones delegate a lot of the administrative duties. See details:

  15. MC






  16. wc4d

    Front page article in Sunday Oregonian, Hundreds of Oregon foreclosure sales stopped after judges’ rulings:
    Sales of hundreds of foreclosed homes in Oregon have been halted or withdrawn in recent weeks after federal judges repeatedly questioned their legality, according to a number of real estate attorneys in the state.

    Lenders have withdrawn more than 300 foreclosure sales since February in Deschutes County alone, one of the Oregon area’s hardest hit by the housing collapse. About 130 of those notices were filed in the past week, attorneys say.
    It appears that the banksters are beginning to see that light at the end of the tunnel and are hearing their attorneys scream “TRAIN!!!!”. One can only hope…

  17. Fred


    Considering this case was a post-nonjudicial foreclosure ejectment action, I was surprized to read about the two expert witnesses who testified on behalf of the Defendant. The probability of the judge deciding the case in the exact manner he did was very high. Why incur the expert witness expense in a problematic case?

    I understand that some times weak, even very weak, cases are tried where there are other reasons that justify the time and expense.

    The only reason I can infer is that there was a complete failure of the securitization process. The judge did not speak to this in his opinion. I assume the defendant’s lawyer completely vouched the record on this issue. So was there a complete failure? And if not, were there any other reasons why was this case was defended so vigorously?

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