Long standing readers of this site will recall the hard-fought battles during the foreclosure crisis and robosigning scandal over the use of dubious and often clearly fabricated documents in foreclosures. There were several reasons behind this new development, all stemming from mortgage securitization. One was a big change in behavior by lenders. In any type of loan of reasonable size (as in where the negotiation costs aren’t disproportionate), lenders will try to cut a deal with a borrower that gets in trouble if the borrower has enough income to look viable and the borrower seems to be operating in good faith. And when banks owned loans, it was standard practice to try to restructure the mortgage; foreclosure was the last option.
But servicing changed those incentives. Servicers are run as factories, with highly standardized operation. Loan modifications are high touch, require a completely different skill set, procedures, and much higher caliber staff. And most important, securtizations paid servicers to foreclose but did not pay them to do modifications, even though a successful modification would be a vastly better outcome for investors.
So the only way to bring servicers to the table was to fight them in court, which was a second major change. foreclosure defense attorneys found a weapon in pervasive defects with how most securitizations had been handled. To make a very long story short, a series of transfers of all the loans in the pool were supposed to have been completed no later than 90 days after the deal closed. This was stipulated in the governing contracts, the pooling and servicing agreements, which provided that notes, which were the borrowers’ IOU, had to be signed (“endorsed”) by each party in the conveyance chain. New York law, which governs the overwhelming majority of securitization trusts, requires that the last endorsement be made in the name of the trust, but many foreclosure defense attorneys don’t make that argument (among other reasons, it requires bringing in New York trust law experts, and a lot of lower court judges don’t have much tolerance for complex legal analyses). So many foreclosure defense attorneys look to see if the note was properly endorsed through all the required parties, and an endorsement from the next to last party in the chain in blank is considered permissible by many courts.
But what often happens is that the servicer starts the foreclosure with documents that are defective. And if the servicer can’t establish that the bank or the securitzation trust is the proper party to be making the foreclosure (in lawyer-speak, “has standing”), they can’t proceed. Standing is a threshold legal requirement.
So when borrower attorneys challenge these dubious documents that were presented as originals (and there is only one original borrower note), way way too often the servicer’s attorney presents different “original” records that miraculously remedy the problem. As we wrote in 2012:
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.
Now it is admittedly late in the game, but more and more courts are taking a dim view of clearly inadequate documents. We’ve embedded a gratifying, short appellate court decision that reverses a lower court ruling in favor of a trustee, US Bank. Here, the amusing but depressingly common issue was not only did US Bank submit new documents (in this case, the usual “ta dah” allonge) but they didn’t do it correctly, as in the doctored documents were undated and thus failed to establish that US Bank had the right to foreclose when it started foreclosure proceedings against the borrowers, the LaFrances. Of course, it might well be that faking the documents correctly would clearly be a fraud on the court, and it would likely be possible to establish that via forensics. In other words, the foreclosure attorneys may have been incompetent, or they may have been willing to go only so far in how much sanctions risk they were willing to take.
Now this ruling does not mean the LaFrances win, since the case has been sent back to lower court. But US Bank has painted itself in a real corner by twice having presented documents that failed to establish its right to foreclose. If they try submitting new “originals” again, that would almost certainly open the case up for appeal, and this appeals court seems to be on to bank tricks.
here’s a link to the case, (the embed isn’t there):
Sorry, fixed. I didn’t notice that my effort to create a PDF had failed.
One has to do the work oneself sometimes.
Yesterday, I was on the telephone with the person responsible for mortgages for an Alabama county. We were looking at a property in foreclosure. In the online documents provided by the auction site was an instrument purporting to show that the deed had been conveyed to MERS, and then from MERS to a securitization trust. Having read this site for the last few years on a regular basis, I called the Clerks Office and asked; “Will I be able to get a clear title owing to the MERS involvement.” The woman on the other end of the line, who the original person had referred to as “The Clerk for Records,” immediately became defensive and hostile. “There are no problems with titles here in Alabama. MERS is a system that transfers titles. We use it all the time.” When I pointed out that MERS was increasingly being ruled as having no standing for transferring title in other states the woman retorted; “We have no such problems with it (MERS) here in Alabama.” When I then asked if her counties land records were available for viewing over the internet for discovering liens and other encumbrances, she practically snapped back, “You’ll have to get someone to come down here in person and go through the books. Is that all?” Indeed, that was all.
Talking it over later, Phyllis and I debated the wisdom of contacting the original owner of the house, described as “a single woman” in the document mentioning them transfer to MERS, and telling her about the standing issue relative to MERS and securitization trusts. We didn’t reach a consensus. The fear of “All Powerful” banks and corrupt institutions has infused everything and nearly everyone. Anyone know of a good book about surviving the old East German Stasi regieme? It could become the modern day “Steal This Book.”
Well, The Lives of Others, admittedly a film not a book, paints a pretty bleak picture of Stasi surveillance, in which the only thing likely to save you is the sympathy and conscience of the one doing the listening, i.e. don’t get your hopes up.
Thank you for that title. This sounds like exactly the kind of film I like. (My wife not so much. Oh well.)
Hey ambrit, always enjoy your comments.
As for The Lives of Others I second Uahsenaa’s recommendation.
Come to think of it, even those of us who saw it before should probably look again. Knowing what we do now, post-Snowden, another look would probably morph from last time’s “Goodness, it’s hard to believe how thoroughly that surveillance bent the whole society” to “I better take notes on how the East Germans lived with this and still managed to have some semblance of a life.”
Thanks for the feed back. Now I’ll have to find a copy of the film and get it. Will showing an interest in this kind of film or book get one put on an Index? At least the people in the Panopticon knew why they were in there. (Crooks and the like.) The modern day Panopticon Men are dabbling with practically unlimited power. Does that mean that they will be limitlessly corrupt? Or were they corrupt to begin with? This chicken is fried and this egg is scrambled.
Why anyone would buy a foreclosed property now is beyond me. One break in the chain is all it takes to cloud a title and allow the previous homeowner to come back through the courts, and get your sale voided. Just in the last couple of months, Montgomery County PA found that MERS violated state law, the entire state of Maine is on the verge of declaring all MERS foreclosures null, three additional counties in the low country of South Carolina have been added to Beaufort County’s lawsuit against MERS which could threaten 80% of the mortgages in that state. The Supreme Court of Wisconsin has declared that most MERS mortgages in their state are in fact unsecured notes. This is all in just the last month.
This is so cool. Who doesn’t love this trend? Even judges are beginning to understand the seriousness of the issue. And to extend the loss to the banks, if MERS foreclosures (any mortgage foreclosed that has gone thru the MERS system) must be declared null because they cannot be legally proven – ever, then every mortgage that has gone thru MERS is likewise null because it also can never be proven. If that’s not karma, I don’t know what is.
Thanks for this info. Our instincts seem to have been right. We are also avoiding any property that OCWEN has been involved with. This is cutting the available properties down with a vengeance. Squatters rights anyone?
(A group of pissed off neigbhours with AKs and ARs could be considered a form of adverse possession. Banks beware.)
Any douchebag looking to buy foreclosed properties *someone else’s stolen home* deserves absolutely what they get. Hope you choke on your new home.
Foreclosures still continue in a rate higher than in a solid economy. The whole closure travesty shouldn’t be ever forgotten. Namely, a president of a democratic country simply giving the finger to citizens losing their homes.
Awakening of the courts now is rather pathetic. Close the barn doors after the horses have long gone.
If the whole fraud is found to be a nullity, which it should be, then the damage that has been done will have to be reassessed. And real restitution begun. Not the asinine Obamadrama we have suffered, but real action.
There need to be a large number of disbarments…ISTM afiding to the accuracy of documents and filing them in court that you should reasonably know to be forgeries is sufficient cause for disbarment. Any lesser sanction just teaches people how to be better at forgeries and fraud. It’s like spraying for roaches, you want to kill them all off or they just build up resistance.
Right on. The inability of universities, bar associations, courts, and other actors to punish bad lawyers is one of the huge stories of the crime spree.
Catching foreclosure-mill con artists in small errors or forgeries is a bit like “training the raccoons.” The raccoons are raiding the garbage pails, so the pail sellers keep doing improvements in the lid latches to keep the rascals out. Sure enough, the raccoons then figure out how to bust open the improved defenses. That is not a winning strategy.
Remember that outfits like USBank (and their attorneys, particularly Locke, Lord) are thieves, liars, and rogues; training them is not your goal. You want to utterly destroy them. Trap them by letting them commit to some bald statement and then hammer them with lawsuits to the end of time. And go to the government regulators (and your Congressman) with a deluge of complaints, preferably from a group of victims, to get fat fines levied and disbarments started. Look at CitiBank: whacked with $9 Billion in fines. Now you start to see some traction.
And, it seems to me that there should be money to be made by buying bottom tranche bonds and then using these issues to force the issuing bank to remove them from the pool at par. It sounds like a better bet than the “buying distressed property and selling bonds based on projected rental income” game which is already reaching a middle.
Doesn’t fly. The lowest rated (not investment grade at original issue) bonds were decimated, especially on MBS (private label) issued in 2006 – 2007.
AAA (original rating, mind you) have to collectively address the issue and some have made attempts.
Non-agency loan servicing is an absolute shell of what it should be (but 0.50% in annual fee doesn’t go very far). Commercial MBS deals had, or did have, a better servicing structure in place to handle such occurrences (or I want to recall they do, like a special servicer).
Yves, if you can, please try to follow this case to final disposition. Then do all you can to broadcast the outcome loudly. I tend to believe that what will truly reform servicer disincentive to refi/mod delinquent loans is not just a single loss, but hordes of them. Thus, broad awareness of cases like this one in Florida is more important than the outcome itself. Bless you.
I wonder what is the best result for the homeowner; to fight the servicer and try and keep their home or get completely out from under the huge pile of debt and start debt free via debt negotiation or bankruptcy? So many clients I see are underwater, often by such a large degree that I wonder whether they will ever get any equity in their homes. Especially since they normally have tens of thousands of dollars in unsecured credit card debt as well, it could be a better result to walk away and get rid of their debt entirely by doing a short-sale and obtain a release from the note, and then bankruptcy or negotiate for a fraction of the unsecured debt, or else scrape off the second mortgage via chapter 13 and get relief that way.
True, we still badly need bankruptcy reform in this area, but there are still remedies under existing law, even in a state like Colorado where the banks specifically got the legislature to re-write the law to give them (and ONLY them, an individual party foreclosing couldn’t use the exemption) the blanket right not to have to present the original evidence of debt at all, but merely have the attorney for the holder “certifying or stating that the copy of the evidence of debt is true and correct. . . .” C.R.S. 38-38-101.
Hasn’t anyone challenged this law yet? It is about as plain a case of unequal treatment as one can find.
A self-employed lawyer friend spent several months in a temp job for one of the big banks; she serviced problem foreclosures. She was fired for being too conscientious–i.e. pointing out severe problems with the paperwork. Afterward she learned that the bank claimed she was a vice president…. This should tell you all you need to know about the effing banks.