Foreclosure Fraud 101: A Step-By-Step Look at One of the Most Common Fixes for Securitization Fail

We’ve written from time to time that the train wreck in foreclosure-related procedures is the direct result of widespread, possibly pervasive failure to convey borrower IOUs (notes) to securitization trusts as stipulated in the governing documents (the pooling & servicing agreement). Because key actions had to be taken by dates long past, and the contracts that governed these deals are rigid, there isn’t a permissible way to get notes that weren’t conveyed properly to trusts on time there now. So the fix has been document fabrication and forgeries. We thought we’d provide a specific example for reader edification.

One thing that foreclosure defense attorneys have seen as a huge red flag of servicer chicanery is the use of allonges. An allonge is a separate piece of paper used for endorsements that is required by the Uniform Commercial Code to be “affixed” to the note and used for endorsements when there is no more space left on the note for signatures. Allonges were pretty much never seen until the robosigning scandal, since all the space on a note (meaning the back and the margins) can be used for endorsements. But they have a funny way of showing up out of nowhere and solving all the problems with a particular foreclosure. Of course, if an allonge really was “affixed,” it shouldn’t be possible for it to materialize out of nowhere.

So readers can see how this looks up close, I’m attaching this pleading from Lynn Szymoniak (the foreclosure fraud investigator who appeared on 60 Minutes and later received $18 million in settling a qui tam case as part of the national foreclosure settlement). Lynn in still embroiled in an an ongoing foreclosure fight and a major bone of contention is whether the party trying to foreclose has standing.

I suggest you read this filing in full; it’s pretty comprehensible on its own. For newbies to this sort of thing, one thing that is it important to understand is that all the documents pertaining to a specific mortgage (the note, the mortgage, which is the lien on the property, title insurance, etc) go in a single file called a collateral file. It is supposed to be with the trustee or a custodian hired by the trustee, unless it has been sent out for a specific purpose. The documents in a collateral file are put in in a particular order (generally chronological) and are supposed to remain in that order.

Notice also that Szymoniak’s argument about mishandling or worse of her files rests on extensive photographic evidence. Borrowers fighting banks take note.

Szymoniak Objection to Continued Use of Original Clerk Documents-3-27-12

The efforts to tidy up the files are so amateurish that it seems clear that the law firm never expected to be challenged. Crudely renumbering pages? New holes appearing in the magically appearing allonge (after the note miraculously ceased being lost and materialized) when it was in the custody of the law firm to make it look as if it had been stapled to the note. And Lynn adds this by e-mail:

It is even worse in my case because the allonge served on me in December 2009 is different from the allonge in the court file.

The Allonge served in Dec. 2009 had a book and page number as if it had been filed in the county records – but it turned out that had been cut from the top of my mortgage and pasted on the allonge.

That occurred when the first firm – Marshall Watson – was representing Deutsche Bank.

I think this document altering is much more frequent that homeowners and their lawyers realize.

This is the sort of thing the mortgage settlement is trying to cover up. But nothing in the settlement addressed the underlying failure to convey the notes properly to securitization trusts (and a special servicer last week told me she sees serious title problems in whole loans too). So the servicers are guaranteed to continue to engage in fraud in order to foreclose. There assumption now seems to be that with the authorities having cast their lots with the banks, no one will call these abuses out.

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  1. PL

    Even if the government can no longer prosecute the banks given the mortgage settlement, it can still prosecute the attorneys.

    1. Yves Smith Post author

      No, no, that’s what’s so crazy about this. The release isn’t prospective. The banks don’t get off the hook for actions they take after the effective date of the settlement. So the failure to fix anything leaves servicers on the hook for their continuing bad conduct. They do now have new servicing standards that allow astonishingly high error rates to be tolerated, but it doesn’t permit document forgery.

      1. Jim A

        And THAT is why I don’t think that the settlement will unclog the foreclosure process the way some people think that it will. Sure, many will continue these fradulent actions under the assumption that once forgivin => always forgivin => permission. But those on the other side have now seen detailed what sorts of fraud to look for. So the forgers had better up their game. Which makes the “What? We’ve always done this/We thought it was legal/What you talkin’ ’bout Willis? defense less convincing.

  2. Tom Stone

    Yves, it will take criminal prosecutions to stop this and they will only take place at the local level(County). I urge every reader to contact their local assessor/recorder and their local DA about these problems. It’s an election year and they may respond.

  3. YankeeFrank

    Its sad to think that the court, upon seeing the reality that this firm has forged and doctored documents, won’t even consider throwing the lot in jail.

    I wonder if the exhibits are online somewhere?

  4. Carpe D.

    So here I am in rural Oregon fighting the eviction handed down by Fannie Mae after the foreclosure from Countrywide(BAC)Bank. They say I should of started my fight about the wrongful foreclosure back when they were foreclosing.??. Hell I’ve been struggling with these folks for over three years now. With NO Budget for this! I don’t have the 10-35K to buy my way into the fight. Representing myself in an appeal looks like my option (Legal Services has very limited resources and financing and cannot continue into the appeal with me) We have fought the good fight so far.I am no lawyer so I thank my contributing council again! . NOW. I need your help.. Who can provide the advice toward the assistance that I request?

      1. vlade

        I believe it would fall under the First Amendment – but then, so did some of the OWS protest and look how it helped them (not).

      2. Woodrow Wilson

        “Would calls for some bank boycotts in the USA be legal?”-

        Are you kidding?

        As “vlade” stated it would be protected, but seriously, boycott? With a coma induced sheep-like population still banking with TBTF’s? Good luck on that.

        It’s going to take a lot more than harsh language, blogging or boycotting to bring back the Rule of Law, and the sheep aren’t ready for that.

        1. F. Beard

          to bring back the Rule of Law, and the sheep aren’t ready for that. Woodrow Wilson

          Justice is not unpopular for the victims so it appears that current law is not sufficiently just.

          When one considers what banking is, a counterfeiting cartel, then it becomes obvious that the entire population is DUE restitution for THEFT.

          I think the “sheep” would go for that.

    1. Paul Tioxon

      Oregon Attorney General John Kroger today announced the filing of an amicus, or “friend of the court,” brief that seeks to protect struggling homeowners from wrongful foreclosures.

      “Lenders using the MERS system have to follow Oregon law just like everyone else,” said Attorney General Kroger. “The Department of Justice will not tolerate lenders cutting corners in their rush to foreclose on Oregon homeowners.”


      1. nonclassical


        McKenna in Washington has filed fraud against BoA..but it’s an election year partisan play..not serious.

  5. Christine Springer

    Yves, the last line in your post is correct: the authorities, which should include the courts, are in many states are simply ruling in favor of the banks, regardless of the facts and evidence before them. Shockingly, the opinions are all starting to look the same: the courts act as though they don’t really understand the issues. Indeed, in some states, it should be assumed that you’re going to lose, regardless of how bad the documents are cobbled together and passed off as legitimate.

    1. ArkansasAngie

      Nobody wants to rock the boat. I’ve contacted my county and they don’t care. They’d rather go after some poor sap with a no insurance warrant than go after their buddies at the bank who took them golfing.

      1. Guy_Fawkes

        What was your efforts with your county? I have spent over one year and CONTINUE to be a thorn in their side. This isn’t something you can bring up once and expect any govt official to do… have to nag and nag and nag until they decide they want to shake off the pitbull that has grabbed ahold of their pantleg and deal with it. Be the pitbull.

      2. leapfrog

        I thought my county didn’t care about the MERS issues either, as the clerk that I complained to said MERS was “just fine” and there were “no issues” and it was “not illegal.” I asked to speak with the recorder himself and she refused to forward my messages. That is when I contacted my local board of supervisors rep for my county. He talked to the recorder and the recorder is well aware of the MERS debacle and was part of the qui tam lawsuit against MERS here in CA. Unfortunately, that lawsuit went nowhere. More powerful bankster interests got it swept aside. After all, the judges here play golf with the banksters, wouldn’t want to cause their golfing partners any “inconvenience”. It did make me feel good for all of 5 minutes to know that my recorder was at least aware of this situation and tried to do something about it – even if he was quashed.

        1. C

          Can your recorder act individually against any false documents filed in their county? I am wondering about this myself as my local recorder has made noises about it but so far no county-level action has been taken.

  6. Eclair

    Here in Colorado, it is entirely legal for lenders to foreclose without producing the note. They need only have an attorney attest that they possess the note, somewhere. Said attorney does not need to actually see the note, only have the client tell her that they do, in fact, possess the note.

    This change to long-standing law was conveniently passed in 2006, pushed through the State legislature by the banking/lending lobby, with the concurrence of our county Public Trustees, who oversee the foreclosure process.

    A few weeks ago, the lower house of the Colorado General Assembly killed a bill that would have remedied this situation and required the foreclosing lender to produce the note.

    As I sat in the committee hearing room, listening to the testimony of the banking lobbyists, I wiped tears from my eyes at their long tale of woe. According to them, notes were kept in remote underground vaults for safely, and producing them at a foreclosure hearing would require special security guards and enormous expense, which the banking industry could ill afford.

    Moreover, such burdensome requirements would freeze future lending in the state, as banks preferred to conduct business in states that were not so persnickety.

    I expected the committee members conducting the hearing to be snickering in their seats at such an egregious display of mendacity. Instead, they worked themselves into pretzel shapes in their eagerness to lick certain anatomical crevices.

    Most of the committee members seemed not to be the sharpest knives in the drawer and obviously had no idea of the whole securitization process. One legislator kept asking plaintively if the whole mess wouldn’t be resolved if only borrowers put their loan number on their monthly mortage payment check.

    They finally said that they were just tired of passing laws to try to fix the whole mess.

    Sheesh, Colorado has a legislature that keeps to a 19th century agricultural time table, meeting from January to May, when planting season starts. Most of them, with certain outstanding exceptions, seems to be caught in a 1950’s time warp, when your local banker was your lodge buddy, not some predatory psychopathic multinational corporation.

  7. Susan the other

    If Colorado doesn’t force a bank to produce the note how is the note ever cancelled or satisfied? This must happen in order for the homeowner to be cleared from any future claimants and to protect the next buyer as the true owner. Regardless of Colorado’s attempt to make life easier for banks, it will make life just that much harder because of the confusion it creates. When the note isn’t satisfied the title remains clouded even if every idiot legislator in the state thinks it’s OK.

    1. Eclair

      Yes, Susan, the issue of “clouded title” was raised in the hearing, but was easily solved by ” that is what title insurance is for.”

      1. Susan the other

        That is so mindboggling. Have any of them read the exceptions on title insurance lately?

        1. PL

          Banks offer free title insurance to REO buyers because they know other title companies will find gaps in the chain of title. The “free” policy has enough exceptions and exclusions from coverage to render it practically worthless. Little does the REO buyer know, he didn’t get good title to the house or title insurance worth the paper its written on….yet.

      2. Charles U. Farley

        And as someone who has worked in the title insurance industry for nearly a decade, I can tell you that that sort of thinking is what causes underwriters to refuse to write business in certain markets until the laws are changed. The industry is going through one such debacle with DC’s fairly recently enacted foreclosure law (amendments are pending in the DC Council).

        1. PL

          I would like to hear more about the view from inside the title industry. Has here been an increase in the number of claims?

  8. unprecented Times

    I have put up “in the cloud” one page out of
    Discovery for Request For Documents from
    Onewest Bank/Deutsche, in the on going 32 month litigation to date of:Estate of Isadore Rosenberg (Los Angeles Superior Court Case BP109162) v. Fidelity National Title, et al.

    This internal log page shows they Fabricated the Allonge.
    Look at Blue Arrow in this hyperlink document/ Not cool.
    I speculate this is from Lender Processing Systems in cahoots with Onewest Bank/Deutsche.

  9. controlled demolition

    Naylor comes in for a lot of character assassination because he’s culturally a Southerner and insufficiently deferential to the Zionazis, but he’s absolutely right about one thing: hardly anyone is ready to accept the severity of the collapse that has rotted out this state.

    Basic legal integrity has disintegrated and the state is trying to replace its lost legitimacy with coercion. Even when you’ve seen it before – and he has, in the Soviet Union, (and me too, there and in Africa) – it’s makes you sick trying to accept it here because this time, you’ve got no ticket out. This state can’t continue to exist. Naylor wants to dissolve it (Why the hell am I stuck in a country with Texas and Arizona and Florida and Kansas, anyway?) Occupy wants painstaking reconstruction of civil society. The outside world wants human rights and humanitarian law to curb state overreach. They’re all feeling a piece of the elephant.

    Lets get this over with.

    1. eclair

      I read Naylor’s piece quickly and suggest that he spend some time with a local Occupy because he does have some pretty big misconceptions about OWS.

      First, the “congress” to take place in Philadelphia, with 2 representatives from each congressional district, is being pushed by an organization that has no backing from OWS. In fact, the whole idea of a “representative” meeting is antithetical to the whole notion of Occupy.

      Second, his description of Occupiers communicating in “sign language” is untrue and, really, a bit nasty. Yes, the GA’s are run on a set of rules – as are most meetings in our society. Usually these are Roberts’ Rules. The hand signals are used because, in good weather, GA’s are outside and it can be difficult to hear. There are hand signals to keep speakers on topic and a signal if someone is perceived to be rambling on. Also, raising one’s hand to be recognized and having a person “take stack”, that is give a number as you raise your hand so everyone speaks in turn, works to give those shy people a change to have their say.

      I have talked to many people, especially women and minorities, who agree that meetings conducted on OWS GA principles are civil, productive and, have given them a change to have their voices heard and appreciated.

      And, his statement that OWS wants to “reform” our current social and governmental structures is, in my experience, incorrect. Occupiers seem more aware than most people that the Empire is rotten at the core.

      Maybe Naylor is miffed because he attended one GA and and had to line up behind a bunch of women, poor people, and brown people to speak. And nobody bowed to him when his words of wisdom fell from his mouth like pearls. Poffff!

    2. controlled dem

      Naylor is a crabby old curmudgeon. I got a soft spot in my heart for him though, as he’s the only guy talking secession from the left (well, him and George Kennan(!) but he dead.) I would like to have him come talk to the Occupy here. It would be awesome to see the face he makes when he has to twinkle.

    1. Susan the other

      Only read the abstract, but it was confusing. MERS doesn’t own anything and it says so itself. It claims to be just a database with some peculiar agent capacity for its members. It has no income and can’t go bankrupt at all. It can only transfer, fraudulently, haphazardly and outside the law, the mortgages it “holds” for its members. Resolving the MERS “problem” is not about restructuring another “recording” system, it is about fixing the godawful mess MERS has created at registers across the country causing harm to 65 million homeowners by trashing their titles.

  10. Fraud Guy- Also

    The alleged behavior of Deutsche Bank’s law firm, in altering evidence, seems breathtakingly irrational. At the time that the alleged evidence tampering occurred, Lynn Szymoniak had already appeared on 60 Minutes. DB’s lawyers therefore knew that she had access to the national press at the highest level, and they also knew that she was represented by a big-time plaintiff’s firm (Grant & Eisenhofer). Wouldn’t a rational lawyer advise their bank client to walk away from the foreclosure, given these facts, if the only other available alternative was fraud on the court?

    I understand how hubris and a sense of invulnerability could have clouded the judgment of the bank and its lawyers, but it seems like there must be more to this somehow. Perhaps it is incompetence, in that maybe the law firm simply dropped the ball internally and inadvertently failed at hand-carrying this case through its processes, thus generating a routine fraudulent filing, which the people at the top were upset about once they found out it had been filed with the court. That would be, they were upset because they realized that this filing had vastly higher than average probability of being proven fraudulent, not because they suffered some moral qualms.

    1. PL

      It is completely irrational, unless they are betting in the court being indifferent to fraud. I think that’s the reason they are so brazen. These attorneys should be disciplined and lose their license to practice law.

      1. C

        I admit I first saw your suggestion and thought “yeah sure” but as I think about it more this makes sense. Complaints can be filed with bar associations for attorney misconduct. And while states like Colorado are screwed because they basically make it legal to make crap up other states may not be. Certainly this case where the documents seem to be clear forgeries may not be immune.

        If you can file complaints with the bar then you can make it costly. Even if the attorney in question is not booted from the bar, and the relevant leaders of the local bar may not want to mess up their golf games either, it can tar them indefinitely.

        Having said that the thing I learned when working with a friend who had problems with a sleazy attorney is that it is often hard to navagate the complainbts process and punishment may not be handed down, even if multiple separate complaints are received, and this guy had several.

        The other problem of course is that complaints cost an attorney if they cannot get clients. However “is willing to forge documents for foreclosure” may be free advertising these days.

  11. Westcoastliberal

    The Foreclosure fraud has blossomed because attorneys are not geared for foreclosure defense. In my area (soucal) I spent a month calling around to different firms and the only guys willing to even take on my case wanted $10K up front with no promises. Many of them knew less about foreclosure defense than I did, and I’m certainly not a lawyer.
    The lack of any ammo on the side of the homeowners has allowed the banks to run wild with all sorts of chicanery. And my case was pretty easy because the originating “lender” (Quicken Loans) couldn’t even get the escrow amount correct, so I was given an incorrect monthly payment amount at closing, which resulted in a demand from Chase (who assumed servicing) of an additional $941 a month for a year, then an additional $300 a month for the balance of the 30 year loan. Their response when I brought this grievous error to their attention? “Sorry but you have to pay your taxes”. No joke!

  12. Some Jerk

    That’s amazing! All this fraud just to fool a court into believing that an upstanding mortgage holder had stopped paying their mortgage payments! They should absolutely sue the bank for defaming them as deadbeat trash, squatting in a home they were refusing to pay for and wasting taxpayer money on drawing out a foreclosure lawsuit to try to get a free house!

    Oh, wait, seems I’m a bit confused…

  13. Bill

    I am a former practicing lawyer and economist. Three months ago a friend of mine who owns a multi-million dollar home informed me that he was endanger of losing his home and asked me to help. I started researching foreclosure issues. I looked at over 12,000 pages of foreclosure related treatises, reports and legal pleadings. The result? I have found a fatal flaw in the process by which major banks and other financial institutions securitize the debt that is created when a financial institution makes a mortgage loan to a borrower. This flaw destroys the ability of the bank to foreclose on the property or sue on the mortgage note. Which means most of the people who are currently in foreclosure do not have to pay the bank and actually own their property free and clear right now.

    I charge $1000 and a mortgage equal to 10% of the current assessed value of your home to provide you with this information. The mortgage I obtain from you is not effective unless I am able to get the bank’s mortgage removed from your house so that you own the house free and clear. The mortgage also does not require a monthly payment, has no interest attached to it, and does not have to be paid to me until you either sell or refinance your house.

    If your home loan has been “securitized,” and you think you are going to have to short sell, for bankrupt or move, you are sooooooo wrong! You can own your home free and clear.

    If interested, email me at

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